Hello, and welcome to BD's Earnings Call for the Third Quarter of Fiscal 2022. At BD's request, today's call is being recorded and will be available for replay until August 11, 2022, on BD's Investor Relations website at bd.com or by phone at 866-342-8591 for domestic calls and +1-203-518-9713 for international calls. The replay bridges are now dedicated, so a conference ID is no longer required to access the replay. I will now turn the call over to BD.

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 third quarter of fiscal 2022. 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 BD2025 strategy. Chris will then provide a financial review and our increased revenue and EPS guidance for fiscal 2022. Following the prepared remarks, Tom and Chris will be joined for Q&A by our segment presidents, Simon Campion, President of the Medical segment; and Dave Hickey, President of the Life Sciences 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. In addition, the results and guidance we are presenting today are on a continuing operations basis, which excludes the historical results of embecta, which are now accounted for as discontinued operations. When we refer to any given period, we're referring to the fiscal period, unless we specifically note it as a calendar period. I would also call your attention to the basis of presentation slide, which defines terms you will hear today, such as base revenues and base margins, which refer to our results, excluding estimated COVID-only testing. With that, I'm very pleased to turn it over to Tom.

Thanks, Francesca. Good morning, everyone, and thank you for joining us. We are very pleased with our strong Q3 results. We exceeded our revenue, operating margin, and earnings goals and delivered another quarter of consistent strong performance in our base business, with revenue growth of 9.3%. Our results continue to demonstrate the durability of BD's performance even during an uncertain market environment, with year-to-date base business growth of 9.6%. I want to thank our team of over 75,000 talented associates, who continue to deliver on the Growth, Simplify, and Empower pillars of our BD2025 strategy. Our performance reflects the team's agility and strong execution, which puts us ahead of the curve in our ability to manage inflationary pressure, mitigate supply chain challenges, and optimize supply for our customers. BD 2025 continues to serve as our true north and is proving to be the right strategy to reinvent and transform health care now and positions us to continue to deliver strong performance in the years to come. This is evident in our year-to-date results and the proof points of our performance, which include: one, a reliable and strengthened growth profile; two, our reshaped innovation and M&A strategy; three, an improving margin profile; four, disciplined capital deployment; and five, our continued execution during uncertain times. First, we've strengthened our growth profile as evidenced by our accelerating performance over the past 2 years. In part, this reflects the durability of our COR products as BD is often referred to as the backbone of health care. Our durable COR remains in high demand and creates a stable business, particularly in times of uncertainty. Second, we've been enhancing our growth by reshaping our portfolio through our innovation pipeline, tuck-in M&A, and the embecta spin, all increasing BD's waiting in higher growth spaces. Our investments in innovation are targeted across 3 irreversible forces that we believe will continue to transform health care over the next 10-plus years in the areas of smart connected care, the shift in new care settings, and improving outcomes for patients with chronic disease. In fact, over 60% of our R&D is now invested in these high-growth areas. Third, we've taken actions to improve our margin profile. This includes simplifying our business by reducing complexities and increasing efficiencies through initiatives like Project RECODE. Through RECODE, we're simplifying our portfolio to optimize our mix, enabling plant efficiency and producing more of the products most critical to our customers. We started this work in mid-FY '20 as part of our BD2025 strategy and it's been a critical contributor to navigating and performing in this challenging environment. Fourth, we've built significant balance sheet flexibility that has enabled our disciplined capital deployment strategy to support our investments in growth while also returning capital to shareholders. For example, with the close of the Parata acquisition, 90% of our M&A spend over the past 2 years has been in transformative solutions. Fifth, we continue to execute during uncertain times. By successfully navigating the challenging macro environment, we're distinguishing BD and supporting our ability to deliver strong performance in today's environment. Let me share some examples of these macro factors that are impacting health care and what BD has been focused on to stay ahead of the curve. While our industry continues to face supply chain constraints and increased inflationary pressure, we determined early on that we would be best-in-class in navigating the environment and not take a wait-and-see approach. Over the past 2-plus years, we made investments to institutionalize improvements in supply chain resilience, which are having a positive impact on our overall cost-effectiveness, responsiveness, and sustainability. For example, we've continued our long-standing investments to systematically validate secondary suppliers for our most critical products. We've made additional investments to increase inventory to secure availability of critical raw materials and componentry. This includes chips that have allowed us to deliver strong growth in areas such as BDB instruments. And we're contracting directly with shippers to ensure continuity of supply for our customers. These capabilities are now embedded in our operating principles, and our teams are doing an extremely good job navigating the environment and largely offsetting these pressures. Regarding China, while the impact from restrictions lasted longer into Q3, our recovery has been faster than anticipated with a strong rebound in June. Beyond the recovery of hospital patient flow, we initiated several actions to continue manufacturing and keep warehousing largely operational by working closely with our stakeholders in China to help secure key logistics capacity for ourselves and our suppliers. I'd like to thank a number of BD China associates who made exceptional sacrifices to ensure product supply for our customers. As a result of the team's efforts, we expect continued strength in China in Q4 and for the full fiscal year, we're on track to deliver double-digit revenue growth, assuming no additional waves occur. Finally, there’s talk of constrained capital spending amidst recessionary concerns. And as a reminder, BD's revenue base is 85% recurring. As it relates to revenue generated by capital spending, BD is well positioned with only a small percentage of our revenues attributed to capital placements or instruments. In addition, in terms of hospital CapEx, we have seen many of our solutions prioritized due to their role in delivering patient outcomes while addressing acute challenges, such as optimizing nursing workflow and reducing labor costs. These proof points are a reflection of how our BD2025 strategy and the actions we have taken uniquely position us to lead and deliver strong results. I'll now provide more detail on the progress we are making on organic innovation, which is a key enabler of our growth strategy. We continue to drive very strong R&D execution and deliver on the exciting opportunities in our pipeline, achieving over 90% year-to-date on both our critical milestones and launches, which is well into the top quartile performance within our industry. Our increased investments in strong execution and organic innovation continue to contribute to our performance. Recent examples of how we're progressing our pipeline to drive future growth include the commercialization of the IntelliVault Controlled Substance Management System, which is part of the BD Pyxis RapidRx Solutions family that extends our connected medication management offering across new care settings. That's a $700 million space growing about 10%. IntelliVault is an RFID-enabled pharmacy automation solution that provides storage and prescription filling of controlled substance medications while reducing outpatient pharmacy labor costs. Additionally, in Q3, we received FDA approval for the BD COR MX module and a CT/GC/TV2 molecular assay on BD COR, meeting the milestones we disclosed on the Q2 call. Clearance of this assay in the U.S. gives BD access to the STI testing category, which is expected to grow at a 7% CAGR to $600 million by 2025. Overall, BD COR enables entry into the high-volume molecular diagnostics segment, which is expected to grow at a 9% CAGR to a $2.9 billion served market space by 2025. Our team has already received our first U.S. orders for the new BD COR and is getting very positive customer feedback. With COVID being a more endemic condition, we continue to expand our offering and have received CE Mark and launched combination respiratory panels on both BD COR and BD MAX for the detection of multiple respiratory pathogens from one sample. In BD Interventional, we received 510(k) clearance and launched the Aspirex mechanical aspiration thrombectomy system in the U.S., also meeting the milestone we disclosed on the Q2 call. Customer feedback has been very positive, and there have already been several successful cases to date since launch. During Q3, we completed the relaunch of the Venovo venous stent in the U.S. and Europe, and last month, we launched for the first time in China. We're seeing strong demand and gaining share with Venovo driven by best-in-class clinical performance data. Beyond these achievements, we also hit several key milestones across our pipeline this quarter. We received 510(k) clearance for BD PosiFlush SafeScrub. This is a prefilled flush syringe with an integrated disinfection unit, which is designed to simplify nursing workflow and enhance compliance with infection prevention guidelines. This is the first innovation in flush syringes in nearly a decade, and it's a really good example of how we're driving innovation to extend leadership in our durable COR in a $900 million addressable space. We expect to launch PosiFlush SafeScrub in the first half of fiscal '23. In our flow cytometry business, our research reagents platform continues to be a key driver with double-digit growth in this category. Innovation and new product development are helping to fuel research reagents growth as customers continually seek to better understand human biology in the very complex immune system through new and novel experiments. We continue to advance our innovation programs and are on track to launch more than 1,500 new flow cytometry reagent SKUs this year. The majority of these new products will expand our menu of fast-growing Sirigen reagents as well as our recently launched BD Horizon real yellow dies, allowing our customers to run higher parameter experiments with more reagent choice and flexibility. Finally, PureWick Male is the next new product in our planned portfolio expansion for managing incontinence. It's now authorized for release, and we're on track to launch this quarter. PureWick Male will provide nurses with a noninvasive option for urine management in men, enabling earlier Foley catheter removal and resulting in reduced risk of infection. Now as you're well aware, our strategy is driven by strong execution of both organic innovation and disciplined tuck-in M&A. Over this fiscal year, we continued to execute our tuck-in M&A strategy and have committed over $2 billion to the completion of 6 acquisitions. A great example of our M&A playbook is our acquisition of Parata Systems completed just last month. Parata allows us to enter the new area of high-growth pharmacy automation in the U.S. and marks an important step towards advancing our BD2025 growth strategy around smart connected care and enabling new care settings. Parata's portfolio of innovative pharmacy automation solutions powers a growing network of pharmacies to reduce costs, enhance patient safety, and improve the patient experience. By automating the more routine work within a pharmacy and implementing intelligent workflow solutions, pharmacists can focus more of their time on higher-value clinical work to improve medication adherence, patient safety, and outcomes. And we're seeing macro trends across the industry accelerating and growing demand for pharmacy automation solutions, such as Parata's. These trends include the centralization of pharmacy services in large fulfillment centers and increased clinical demands on pharmacists in hospital and retail settings. And of course, we're seeing increased wage inflation, labor attrition, and a large percentage of pharmacists reporting burnout. Taken all together, these trends are driving a $600 million pharmacy automation market opportunity today that's expected to grow approximately 10% annually to a $1.5 billion opportunity in 10 years, and that's just in the U.S. alone. Parata's offering is complementary to our solutions in medication management. Together with BD, we expect Parata Solutions to outpace market growth as we leverage our commercial footprint, global scale, and innovation capabilities. Not only is Parata a strong strategic fit, but the company has an attractive financial profile that meets all of our rigorous investment criteria on growth, profitability, and returns. The transaction is expected to be immediately accretive to revenue growth, adjusted operating margins, and adjusted EPS. It exceeds BD's 2025 sales growth and margin targets, thus enhancing the company's ability to achieve its long-range outlook. Given our current financial profile, we'll continue to deploy capital in a disciplined way to create value through tuck-in M&A. Now beyond our investments in R&D and M&A, our capital allocation framework gives us the flexibility to also return capital to shareholders through a competitive dividend and share repurchases when appropriate. I'm excited about the significant progress we continue to make advancing our BD2025 innovation-driven growth strategy to deliver even more significant impact towards improving outcomes for patients and providers. Now before I turn it over to Chris, let me share a few updates on the strong progress our team is making to advance our ESG strategy and goals. We recently issued our 2021 ESG report, which highlights our first performance measurements and progress on our 2030 ESG commitments. This includes launching a sustainable medical technology institute, joining the race to 0, and increasing our investments in on-site renewable energy and much more. We believe that the work we're doing today can make a lasting positive impact. We're also proud to receive continued recognition for our ESG efforts. Most recently, we're recognized as a Best Place to Work for Disability Inclusion for the fourth consecutive year. We achieved a perfect score on the 2022 Disability Equality Index, demonstrating our progress in removing barriers and creating employment opportunities for people with disabilities. In addition, we are also named as a Noteworthy Company for the third straight year in DiversityInc.'s annual ranking of the top U.S. companies for diversity. In summary, our BD2025 strategy continues to serve as our true north, allowing us to demonstrate: one, a reliable and strengthened growth profile; two, our reshaped innovation and M&A strategy; three, an improving margin profile; four, disciplined capital deployment; and five, our continued execution during uncertain times. With another strong quarter, our year-to-date performance gives us confidence to increase guidance, and we remain well positioned in the future to deliver sustainable, profitable growth. With that, let me turn it over to Chris to review our financials, guidance, and outlook.

Thanks, Tom. Echoing Tom's comments, our Q3 results demonstrate the strength of our business and the momentum of our strategy. Additionally, the investments we are making in inventory, transportation, portfolio simplification, and innovation are also enabling our growth and our ability to deliver our critical health care offerings to our customers and their patients. We continue to deliver strong performance while simultaneously managing the persistent macroeconomic pressures through our simplification and mitigation programs. Through this balanced approach and the effectiveness of our BD2025 strategy, we're making strong progress against both our short- and long-term commitments. So turning to our revenue performance. We delivered $4.6 billion in revenue in the third quarter, with strong base business growth of 9.3% or 8.8% organic, which excludes the impact of acquisitions. Importantly, however, we are benefiting from the organic contribution from tuck-in acquisitions we anniversaried, which was about 30 basis points this quarter. Our revenue performance continues to be supported by our durable COR portfolio and an increasing contribution from the transformative solutions we're bringing to the market through our innovation pipeline and tuck-in acquisitions. Price contributed 190 basis points to growth year-to-date. While this continues to be well below inflationary levels, it's one of many factors that is ensuring we can deliver our health care offerings to our customers. COVID-only testing revenues were $76 million, which is expected to decline from $300 million last year. Year-to-date, COVID-only testing revenues were $475 million. BD's unique ability to continue to deliver strong performance during this uncertain environment is reflected in the performance across our segments with both Medical and Interventional growing 7.9% and Life Sciences base revenues growing 13.2%. Total company base business growth was also strong regionally with double-digit growth in the U.S., Greater Asia, excluding China, and Latin America, along with high single-digit growth in Europe. Despite the COVID-driven restrictions, we grew low single digits in China. Let me now provide some further insight into each segment's performance. Our Medical segment delivered $2.2 billion in revenues in the third quarter, growing 7.9%, driven by strong performance in our Pharmaceutical Systems and Medication Delivery Solutions businesses. MDS revenues increased 6.4%, reflecting continued strong demand for our durable COR products. Performance in MDS reflects continued competitive gains in catheters and momentum in our comprehensive Vascular Access Management strategy despite the challenging environment in China during the quarter. Performance in MDS also reflects higher hospital utilization levels year-over-year in the U.S. and Europe. MMS revenues grew 3.6%. In our dispensing business, strong growth was driven by continued customer adoption of our connected medication management and pharmacy automation solutions. Worldwide performance in our infusion business was about flat with a similar level of demand in the U.S. for pumps under medical necessity compared to the prior year. Pharm Systems revenues grew 16.3%, driven by the continued acceleration of demand for prefilled devices for biologic drugs and our strong leadership position that is being supported by our ongoing capacity expansion and supply availability. BD Life Sciences revenue totaled $1.3 billion in the third quarter. The decline of 5.1% year-over-year is due to the lower COVID-only testing revenues previously discussed. Excluding COVID-only testing, Life Sciences base revenues grew 13.2% with strong growth across both IDS and Biosciences despite supply constraints and the impact from restrictions in China. IDS revenues declined 10.5%, which reflects the decline in COVID-only testing, partially offset by strong base business revenue growth of 12.8%. Performance in our IDS base business was driven by continued adoption of our broader respiratory panel as well as strong growth in IVD assays, leveraging our increased BD MAX install base. IDS base revenues were also driven by continued demand for specimen management products with strong growth in our durable COR products aided by price management. Biosciences revenues increased 14.2%, reflecting continued strong demand for reagents, driven by our antibody and dye strategy and continued adoption of our e-commerce platform. Performance in Biosciences also reflects strong instrument growth driven by recently launched products and strategic procurement of critical components that enabled us to fill orders to relieve some of the backlog from the end of Q2. BD Interventional revenues totaled $1.1 billion in the third quarter growing 7.9% with strong performance across the segment. Revenue growth of 6.4% in Surgery reflects strong worldwide performance in advanced repair and reconstruction, driven by continued strong market adoption of Phasix hernia resorbable scaffold, and the revenue contribution from the Tepha acquisition. Performance also reflects double-digit growth in biosurgery. Revenues in Peripheral Intervention grew 9.1%. Strong performance reflects competitive gains driven by Venovo's return to the market and continued global penetration of Rotarex and the acquisition of Venclose expanding our focus across chronic disease settings. Partial backorder recovery also contributed to performance in the quarter, offsetting the impact on deferrable procedures from macroeconomic factors, such as labor constraints. Urology and Critical Care revenues grew 7.7%, driven by continued strong demand for our PureWick chronic female incontinence platform in the acute care and alternative care settings. Strength in acute care was also aided by some backorder recovery. Now moving to our P&L. In Q3, we delivered adjusted net income and EPS above our expectations, with adjusted net income of $786 million or 14.2% reported growth and adjusted diluted EPS of $2.66 or 16.7% reported growth. As we anticipated on a year-over-year basis, margins improved significantly. We delivered a base business gross margin of 52.9%, up 180 basis points and a base operating margin of 22.2%, up 450 basis points year-over-year. Base operating margin includes a favorable impact of approximately 75 basis points from an employee benefit-related item that has a related negative offset in our other income and expense line, which is thus neutral to our adjusted EPS. Q3 base gross margin increased in line with our expectations. Key drivers of gross margin include our simplification and inflation mitigation initiatives, such as mix optimization and price management, along with increased volume utilization given our strong base revenue growth. These actions enabled us to offset the impact of inflation and deliver margin improvement. In addition, as expected, we had favorable FX that was recorded in inventory that benefited our GP this quarter as it flowed through sales. Q3 base operating margin reflects very strong operating expense leverage with base SG&A as a percent of sales, leveraging by about 200 basis points, excluding the employee benefit-related item, partially offset by inflationary impacts primarily in shipping. R&D of 6.2% of sales reflects our innovation investments aligned to our strategy in support of our long-term growth outlook. Our tax rate in Q3 was lower than anticipated due to the timing of certain discrete items that occurred in the quarter. Regarding our cash and capital allocation, cash flows from operations totaled approximately $1.5 billion year-to-date. Q3 cash flow from operations reflects a higher-than-normal inventory balance by about $400 million as we continued our strategic investments in raw materials, such as electronic components as part of our actions to optimize product delivery to meet customer demand in this uncertain environment. During Q3, we paid down approximately $500 million in debt and ended the quarter with a strong cash balance of $2.6 billion and a net leverage ratio of 2.7x. In addition, we are pleased by our recent debt upgrades from both Moody's and Fitch, which reflect the strength of our business and disciplined approach to balance sheet management and capital deployment. Our current cash and leverage position and continued focus on cash flow provide us the flexibility to advance our balanced capital allocation framework in support of our BD2025 growth strategy. Turning to our fiscal '22 guidance assumptions. First, some macro considerations that support our guidance. Our guidance assumes the continued easing of COVID-19 restrictions and no significant or lasting disruptions to deferrable procedure volumes. Our guidance also assumes there are no prolonged and larger-scale restrictions and countries continue to be more efficient in managing safety protocols and the containment of any new COVID variants to allow continuity of care for patients. Regarding China, specifically, we expect continued recovery from the recent restrictions over the balance of the fiscal year. Additionally, while we anticipate continued inflationary and supply chain pressure in Q4, we are not planning for significant escalation of macro headwinds. Moving to our updated guidance for fiscal '22. We have increased and narrowed both our revenue and EPS ranges. We now expect base revenues to grow 8.75% to 9.25% on an FX-neutral basis. This is an increase of 125 basis points at the midpoint from our previous guidance of 7.25% to 8.25% growth. 100 basis points of the increase is driven by strong growth and continued momentum in our base business. Additionally, with the closure of Parata, we're increasing our forecast by 25 basis points. For COVID-only testing, we now assume up to $500 million in revenue. This reflects year-to-date revenues of $475 million and minimal additional revenue in Q4 as testing demand has slowed as expected. Based on current spot rates, for illustrative purposes, currency is now estimated to be a headwind of approximately 225 basis points or about $425 million to total company revenues on a full-year basis. This is an incremental impact of about 25 basis points or approximately $50 million compared to our prior guidance and is primarily driven by the strengthening of the U.S. dollar versus the euro. All in, we are increasing our total reported revenue guidance by $190 million at the midpoint to a range of $18.75 billion to $18.83 billion. We now expect base operating margins to improve by approximately 275 basis points, over 19.6% in fiscal '21. This is an increase of 25 basis points compared to our prior guidance and solely reflects the Q3 employee benefit-related item that has a corresponding negative adjustment to other income and expense and is neutral to adjusted EPS. Despite this 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 offset inflationary pressures. A few additional items for your models. We now expect approximately $30 million in year-over-year improvement in interest/other compared to our prior guidance of $60 million to $75 million. This reduction reflects the offsetting impact to the Q3 employee benefit-related item that was recorded in G&A. Again, these items are neutral to adjusted EPS. We have narrowed our expected effective tax rate to a range of 13.5% to 14% from 13.5% to 14.5% previously. Our updated guidance still assumes share repurchases at a minimum offset any dilution from share-based compensation and thus does not assume a material change in shares outstanding. Altogether, we are raising our adjusted EPS guidance to a range of $11.28 to $11.35 compared to $11.15 to $11.30 previously, which reflects an increase of $0.09 at the midpoint. This reflects our strong Q3 base business revenue performance and increased outlook in Q4 and a margin profile that maintains our full-year margin improvement commitments. We expect minimal impact from incremental COVID-only testing revenues as we intend to reinvest that to support our momentum into 2023. We still expect margin on COVID-only testing to be modestly above our base business margins for the full fiscal year. Additionally, while the Parata acquisition has an accretive margin profile, the income is expected to be offset by one-time deal-related costs. Regarding FX, based on current spot rates and our inventory outlook, we expect minimal incremental impact as incremental translational FX headwinds are expected to be offset by favorable FX on inventory flow through. As you think about Q4, the following are a few key considerations. Starting with base growth in Q4, we increased our organic growth and expect strong mid-single-digit growth, excluding the impact of acquisitions, above the 5.5% plus targeted growth profile we outlined at our Investor Day. This includes absorbing the impact of a difficult prior year comparison in Q4 of fiscal year '21 where the delta variant's surge drove high acuity and demand for infusion sets and products used in the care of COVID. Additionally, we delivered initial shipments of our combination flu COVID assays and benefited from the normalization of lab utilization and research activity. We also have a tough comparison to $316 million of COVID-only testing revenue in Q4 of last year as we expect minimal additional revenues this year with the decline in testing. Regarding margins, we expect sequential improvement in base gross margins and at a level near year-to-date gross margin of 53.8%. While the impact of increased inflation on our business is expected to continue, we see a larger benefit from our offsetting initiatives. Regarding base operating margins, we continue to expect significant year-over-year margin expansion in Q4. Sequentially, the improvement is driven by gross margin as well as continued strong leverage in selling and G&A and slightly lower R&D expense. For the full year, we continue to expect to invest in R&D at about 6% of sales. While it is premature to provide guidance for fiscal year '23, especially in a macro environment that remains uncertain, we recognize that offering a more proactive perspective during this time is helpful. To begin, while we expect macro challenges to persist, we are not assuming they worsen and would anticipate that as we move towards the back end of the year, there may be some modest relief from some of the current supply chain complexity. We will reassess the environment ahead of providing guidance in November. So with that caveat, on an operational basis, excluding the impact of currency, which, based on current spot rates, would be a headwind to consider for next year, we remain confident in the strong value-creating framework we outlined at our Investor Day and expect to deliver 5.5% plus base revenue growth and double-digit adjusted EPS growth. This framework continues to be supported by a strong growth profile and continued margin improvement. We expect the COVID-only testing revenues and related earnings would be at a level significantly below FY '22 and more likely at a run rate similar to the implied Q4 FY '22 or approximately $100 million for the full year. We will have a positive contribution from the full-year benefit of revenue and income from Parata that will partially offset the reduced COVID testing. So importantly, despite the anticipated reduction in COVID-only testing, on an all-in basis, we would expect adjusted EPS to be right around double-digit growth, which implies very strong double-digit base adjusted EPS growth. Based on what we see, it appears current external thinking largely reflects this. We will share more details regarding FY '23 on our year-end earnings call in November. In closing, we are very pleased with our strong performance to date and the consistency of execution against our strategy that is enabling these results. This gives us confidence in our ability to continue this momentum into FY '23 and create long-term value for all of our key stakeholders. With that, let me turn it back to Tom for a few additional comments.

Thanks, Chris. Our BD2025 strategy is proving to be an effective winning strategy as reflected in the proof points of our execution and our continued strong performance. We expect continued momentum and remain well positioned to drive long-term growth and value for all stakeholders. I'd like to thank our associates worldwide once again for their tireless commitment to our purpose of advancing the world of health. Before we turn to Q&A, I want to officially congratulate and welcome Simon in his new role as the Head of the Medical segment and thank Alberto Mas for an exemplary nearly 30-year career at BD. We expect to announce Simon's successor in BD Interventional soon. I'd also like to welcome Rishi Grover, our new EVP and Chief Integrated Supply Chain Officer. Rishi brings more than 20 years of experience in manufacturing and supply chain roles, and we're thrilled to have him join our executive leadership team. Rishi succeeds Alex Conroy, who will be retiring after more than 30 years at BD. I'd like to thank Alex for his contributions to BD throughout his career that include a vast array of roles and responsibilities. Most notably and recently, Alex led the organization through unprecedented challenges, including the COVID-19 pandemic and global supply chain crisis. For the purpose of today's Q&A session, Chris will take financials, Dave will answer life science questions, Simon will address BDI, and I will take BD Medical. With that, let's start the Q&A session. Operator, can you assemble our queue?

Our first question comes from Larry Biegelsen with Wells Fargo.

Congratulations on another strong quarter here. So Tom and Chris, I wanted to just ask about 2023, a couple of follow-up questions and one on pricing. So Chris, on 2023, could you just talk about, is that base sales growth of 5.5% plus, is that organic? How much do you think at this current rates FX would impact sales and EPS? And what's assumed for Alaris returning to the market? And I just had one follow-up on pricing.

Let me start with a quick comment on Alaris, which we'll address first, and then I can guide you through the 2023 details.

Thanks for the questions, Larry. Overall, we're optimistic about our position for 2023. Chris provided specific insights today, but it's still early, and we won't discuss specific product assumptions right now. As for Alaris, there's no change from what we've previously shared. It remains our top priority, and we are confident in the resources we've committed to our submission and the leadership overseeing it. Our focus is on providing all necessary information to the FDA to achieve clearance for that product. We'll provide more details in our Q4 guidance call, but we won't disclose specifics about product lines at this moment.

Yes. And so I'll build on some of the comments that we made in the opening comments. So first, as we think of 2023, we certainly know there's still a lot of uncertainty that remains in the marketplace. We actually wanted to try and get some context because we know there's questions out there. One, obviously, we have significantly strong growth profile in '22, right? Our guide would apply on an organic basis about 8.25% growth when you strip out Parata. So folks, we knew there was questions about how you're going to cycle over that growth? Can you still deliver at your 5.5% plus? In addition to that, we knew there was sort of the open question as it related to COVID testing? And how do you think of that dynamic? And what it may do in terms of your earnings profile? So I think with that as a backdrop, we wanted to just reaffirm. We're extremely confident in our 5.5% plus growth profile that we outlined. Actually, I think an interesting way to think of that is if you do kind of 2-year math, it would imply a growth rate of about 7% '22 to '23. So any way you look at that, it's a really strong base growth profile. We do see the impact of COVID-only testing dropping significantly as we said. We're planning for roughly $25 million kind of this quarter based on what we said and kind of see that as a more normalized run rate. Obviously, if there's upside to that, it provides that embedded hedge to our portfolio that we've always talked about. So that will be a headwind that gets contemplated. With that said, you see the power of our capital allocation strategy going to work. We're pleased to announce the closing of the Parata acquisition. So that will be an offsetting element against the COVID-only revenue. That is not part of the 5.5% plus. So you think that the 5.5% plus as pure organic. We always said we're not reliant on the one-time lift from tuck-in M&A. And when we do benefit as part of that strategy is the organic lift we get as we cycle and anniversary those acquisitions. And then from an earnings profile, we're committed to the double-digit base adjusted EPS earnings growth. I think importantly though, the most important thing that we share, despite that, kind of COVID-only headwind, we think we can get right about a double-digit adjusted EPS growth profile as well on an all-in basis given the strength of the business, and we'll continue to drive margin improvement into next year. All of that, obviously, we always think and talk about guidance on an FX-neutral basis. So it doesn't contemplate the currency that we've been talking about. I can try and help give you a little bit of context, obviously, as we set the year. But one simple way to think about it is euro is the predominant currency that has changed and impacted BD certainly. If you look at the change from '21 to '22 where currently we've talked about a $425 million headwind, the percentage change in the euro from '21 to '22 is exactly the same as the current average rate we're planning in '22 to the current spot rate at 1 02, which would imply basically a similar kind of year-over-year headwind on currency. I think you're going to do some sort of margin drop-through on that. For BD, the margin tends to drop through at a lower rate given the mix of business and other dynamics. With that said, I do think it's important to think of underlying as the most important metric on an FX-neutral basis, right? We're still generating that local cash. We have a very efficient cash allocation model, and we'll be able to put that cash to work. So all in all, I think with where we are with '22, it's a great year. We're on track to finish out a very strong year. And I think you can see based on what we share, we feel confident having momentum going into 2023.

Right. That's super helpful. Given the time here, I'll drop there. I appreciate the comprehensive answer, guys.

We'll take our next question from Vijay Kumar with Evercore ISI.

I'll limit myself to just one question, maybe a two-parter. One, on fiscal '23, the 5.5% organic, that does not include Parata, correct? And Chris, when you said double-digit EPS, that's on a reported basis? I just want to confirm. When you look at free cash flows year-to-date, it's been trending in below. I know there's some inventory buildup. Anything else that's going on in the free cash line item?

Yes, thank you for the question. To clarify, the 5.5% figure does not include Parata. As we mentioned on Investor Day, we focus on our operational commitments. We are committed to double-digit growth in base revenues, and despite the decline in COVID-only revenue, we are optimistic about achieving a double-digit growth rate overall. This reflects the strength of our entire business and the ongoing momentum in margin improvement, which we aim to reach about 25% by 2025, as discussed last quarter. Regarding foreign exchange, this affects all companies. We have been managing currency impacts this year, but our commitments are always based on an FX-neutral outlook. You'll need to account for revenue adjustments and potential translational losses when considering the overall growth rate, but we’ll wait to see how FX unfolds. This situation is not unique to us and doesn’t alter your underlying business performance or the cash that you’ve earned locally. We also have a capital deployment strategy in place to support our approach to acquisitions and other initiatives. We feel confident about our growth trajectory. Concerning free cash flow, there are three main factors. We are very focused on cash management. We’ve committed to a net leverage ratio of around 2.5x, and we’re currently at 2.7x. We have been active in our M&A efforts and have reduced debt as planned since the embecta spin, adhering to our capital allocation strategy. Additionally, we received two upgrades in our debt ratings this past quarter, which is encouraging. The differences in cash flow can largely be attributed to changes year-over-year related to COVID-only testing, as well as pension funding, which you can see in the quarterly report. We have also deliberately chosen to invest in inventory, with about a $400 million investment aimed at maintaining higher inventory levels due to several factors, the key being the need for strategic components and raw materials to support robust growth. Given the long lead times, we have an efficient supply chain, although much of our product is currently in transit rather than at our facilities. This investment accounts for inflationary effects on inventory as well. We remain focused on free cash flow and will keep monitoring inventory levels. However, in the short term, this decision is a sensible trade-off that supports our strong performance.

And Vijay, this is Tom. Just to add to Chris' comment on that. We view that increase in the inventory levels impact on cash flow. We call it transitory in nature. That's a strategic investment. But as we see supply chain stabilize, we can back off on that additional inventory. As shipping times, transit times, get back to a more normalized level, right, it's going to be more than a month additional nowadays. To get product, let's say, from Asia to the U.S., right, as that normalizes, that will naturally pull back inventory levels as well. And so we see that just as a temporary investment to help navigate the very dynamic circumstance that exists today. But we already have the plans on starting to pull that down as we look ahead.

That's helpful, Tom. Congrats on the success.

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

Great. Congrats on a good quarter. Maybe to start, Chris, just maybe walk us through some of the drivers of operating margin expansion next year. I realize you're not giving exact numbers. But the base business has been sequentially down just a little bit each quarter in fiscal '22. With next year, how do we think about the drivers of that margin expansion?

Yes, thanks, Robbie. First, regarding this year, the margin has developed exactly as we expected. Year-to-date, we are at approximately 80% of our full-year goal, which includes a 250 basis point increase in our margin improvement, adjusted for an accounting aspect related to employee benefits. We are still on track. We mentioned this quarter that the gross profit would be the lowest point considering the timing dynamics, particularly regarding the significant inflation that began at the year's start and its impact on inventory. Additionally, since the year started, conditions have become increasingly complex. Inflation and supply chain issues have risen, which has also raised transportation costs, among others. In terms of context on margin, we've experienced around a 100 basis point impact on our profit and loss due to unforeseen inflation beyond what we anticipated coming into the year, representing about a 50% increase from our original plans. Despite these challenges, we remain committed to our margin goal for the year, which is quite strong. As you consider the components for this year, which will also impact next year, we initially expected our volume leverage to be around 100 basis points. However, due to robust revenue growth, we have exceeded those expectations. This has helped us manage the significant inflation challenges we are facing. Furthermore, we have implemented and improved cost efficiency programs. Our portfolio actions have also been a factor, allowing us to be more proactive in managing our portfolio mix and simplifying our offerings due to our strong growth. We are actively executing our price management strategy, which is proving to be effective. Additionally, our impressive growth has led to an increase in operating margin leverage as well as in selling and general administrative expenses. As we look ahead to 2023, we will continue leveraging all these strategies. We anticipate strong volume flowing through our plants. Our commitment to a solid cost improvement plan remains, and we expect to see benefits from our SKU rationalization program linked to Project RECODE, as well as from our architecture simplification efforts. We also aim to simplify processes across all our functions, further contributing to our efforts. All of these initiatives give us confidence as we approach 2023. As a reminder, our goal is to reach about 25% by 2025, which translates to roughly 100 basis points per year after 2022. However, you should anticipate that 2023 may fall short of that 100 basis points as we deal with the lingering effects of high inflation. Nonetheless, by 2025, we expect to realize more of the full benefits from Project RECODE.

That's really helpful. And maybe just a quick follow-up. Your pricing, I think you said 190 bps positive is one of the best, if not the best, in large-cap med tech. How sustainable is that? Do we think of that as you're able to take that as a one-time? Or is this the new normal on pricing as we move forward into subsequent years?

I'll take that, Robbie. When we consider inflation, Chris mentioned many strategies we're employing to offset the impact of rising prices, with pricing adjustments being one of the last measures we consider. Over a year ago, we established an inflation task force in anticipation of the inflationary trends we've experienced this year, and we expect this to continue into 2023. To clarify, we've made significant efforts to enhance our internal processes in our plants, restructure our organization to reduce costs, examine our supply chain for potential savings, and take necessary actions, all of which are beginning to yield positive results for our margins. Additionally, when we can manage costs internally, we do implement price increases. Moving forward, we plan to carry out substantial initiatives within BD to counteract inflation. However, in cases where we cannot fully mitigate the effects, we will continue to pass on those costs through pricing adjustments in all global markets and across all business sectors.

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

Great quarter. I wanted to clarify the margin for 2023.

Travis, you're breaking up. We can't hear you very well.

All right. Can you hear me now? Is that better?

Yes, keep speaking.

Okay. Sure. Sorry about that. So just put a finer point on some of the FY '23 comments. I was getting around $12 in earnings for FY '23, just to make sure that's the right ballpark. And on the 100 basis points inflation versus prior expectations, talk a little bit about what's changed there. And to think through like the total inflation impact you're absorbing this year, is that closer to 150 to 200 basis points, $400 million to $500 million? Just trying to think about if there is some relief what the opportunity could be on that front.

Yes, we won't share any specific numbers. However, we have provided a clear framework. We acknowledge external perspectives leading up to this print, considering that it was reasonable for people not to have anticipated the currency carryover. I don't believe there's much more to add. I want to reiterate our commitment to a growth profile of 5.5% or more, alongside double-digit adjusted EPS growth on the base and confidence in achieving around double-digit growth, even after accounting for the decline in COVID-only testing.

And Travis, on your comment around what changed as we went through the year. I think very similar to what probably every business around the world and particularly in the U.S. would have seen we recognized and we took the position very early on well over a year ago, again, that there was going to be no company that escapes inflation and no company that escapes supply chain challenges, and we've been taking action to that extent. Those challenges, labor became more expensive as you went through the year, right, particularly in areas like manufacturing, where there were shortages and you had to pay more to get talent to run plants. Think about as you saw low watermarks for unemployment, trying to staff, for example, overnight shifts. When now there are tons of jobs for people to work day shifts, having to change that in all of our plants, which we pretty much run most of our plants 24/7. Shipping continued to increase as we went through the year, and you saw that as well. Things like power significantly, as you can imagine, we use tons of power in our manufacturing plants running large presses, et cetera. Those costs went up as well. And so those were general inflationary pressures that you saw across the country, very much in line with inflation continued to go up as we went through the year just versus everyone's expectations, and that certainly we didn't escape any business. And so what was maybe starting the year towards that 150, 200 basis point headwind ended up being more of a 250 or so as Chris mentioned. And again, we are really pleased with the team's work to overcome all of that and still deliver on our expectations that we set at the beginning of the year. I think that really speaks to the power of the strategic planning that the team has done, the strong execution and the foresight to make investments in areas like the strategic inventory builds that we did and navigate a very challenging environment.

Just one other frame for everyone because I know you're all navigating. Things have changed a lot from the start of the year to where we are. And when you think of that through the lens of BD, there's really been 2 key things that have changed, one kind of a macro factor, right? When we started our initial guide and talked about what the year would be like we were contemplating pretty significant outsized inflation. As the year progressed, whether it be the conflict in Ukraine and Russia, the COVID China shutdown, the complexity only grew. Inflation grew, as I noted earlier on the call. And the supply chain complexity increased. So again, about a 50% increase on what we originally contemplated about a 100 basis point headwind. Then when you think of what's happened from BD. Our initial guide, when you kind of restate everything for embecta, we were at 6%. We're sitting here at 9% at the midpoint, right? That's 300 basis points or about $0.5 billion. So with more complexity, we've actually strengthened our growth profile and overcome all of those headwinds. And then I know there's a lot of puts and takes quarter-to-quarter. Obviously, there was also on the revenue side. Outsized COVID testing, we benefited from. That took our number up $300 million. But when you look at the EPS drop-through, it was north of $0.60 from the beginning of the year, inclusive of absorbing FX headwinds. And when you look at that then and think of what we've done from a margin standpoint, we've delivered exactly what we can actually slightly above our commitment. So we absorbed $100 million, 100 basis points of headwind on the cost side, delivered outside performance as we've headed through the year on top line and fully held our margin commitment both on the base and EPS. So I know there are lots of puts and takes as you go through the quarter. Even tax as an example, when you restate our guide for the initial tax, it would have been 13% to 14% ex embecta. We're now 13.5% to 14%. So we know we had some one-time timing items in this quarter, but we're not even benefiting there as you think of kind of updating. So it's been a very strong year. We're really proud of what everyone has done, our 75,000 employees navigating the complexity during this time and feel good about the momentum we have going into next year.

No, that's great. And maybe just one follow-up on the overall hospital environment. You just talk about utilization trends, hospital staffing, capital spending, and also the China recovery. Does China return to double-digit growth in FY '23.

To clarify, that's a great question. We expect China to achieve around double-digit growth this year, which is impressive and a testament to the strength of our team there, especially considering the Shanghai shutdown. Despite that challenge, we still managed to deliver growth in China this quarter, highlighting the exceptional efforts of our team. It’s noteworthy how dynamic this year has been for them, yet they are on track for approximately double-digit growth for the entire year, reflecting excellent planning and execution from our China team. Now, I’ll turn it over to Simon and Dave to provide insights on utilization in the procedure side and what we are observing in the lab side. Let’s start with Simon.

For sure, you mentioned labor. We definitely saw some pressure on labor in Q3. I think it was particularly relevant in the Peripheral Intervention space. But despite that, we still posted really, really robust growth in BDI and PI, in particular, both domestically and internationally. And then just to follow up on Tom's comment on China, we posted in BDI another quarter of double-digit growth. We continue to invest there in Surgery with the Tissuemed acquisition in PI with the recently approved Venovo venous stent in China, which we've done cases already, and it's gone tremendously well. We just also recently got approval on the Covera covered stent graft. So anytime we put anything into China, we get a really robust return. As we've noted before, it's doubled since Bard is acquired by BD, and we look forward to continued robust growth there.

Yes, thank you, Tom. For Life Sciences, we're experiencing another strong quarter with double-digit growth. The team is executing exceptionally well in both IDS and BDB. In IDS, a key indicator of utilization is our specimen management business, which was a significant growth driver this quarter. On the BDB side, as Tom pointed out, both the Life Science research reagents and instruments and the clinical reagents have exceeded our expectations in terms of growth. Overall, we see solid returns related to utilization and growth opportunities. Regarding labor, as labor shortages and challenges among our healthcare customers seem to be easing, we believe we are well-positioned with our automation platforms. With the recent approval of BD COR and the molecular module in the U.S., we have fully automated and integrated solutions ready to assist our customers in navigating any labor shortages they may still face.

Great. To share some additional statistics that we monitor at a macro level and for utilization, in Q3, we observed that the U.S. acute care sector reached about 100% of pre-COVID levels, which was a slight increase from Q2, where we recorded 98% to 99%. In the non-acute sector, Q3 rates were slightly over 100% compared to pre-COVID levels, consistent with what we observed in Q2. We continue to see sequential improvements as we look ahead, although labor shortages are affecting certain procedures. However, the procedures related to our BDI business are generally less affected. Critical procedures, like creating a fistula for dialysis or ensuring vasculature is open to prevent leg amputation, are prioritized. Additionally, as David pointed out, we have excellent automation solutions within the Life Science sector, and BD Medical has similar offerings. A prime example is the Parata Solution, which has gained attractiveness following its acquisition. This solution addresses pharmacy labor shortages and rising labor costs by automating routine tasks through robots and software. We are witnessing strong demand for it early in our ownership, and we are very excited to have it as part of BD.

And we'll take our final question from Rick Wise with Stifel.

It's hard to not ask a question about your capital priority thinking updated thoughts from two perspectives, both on the M&A side and the portfolio side. I mean Chris and his team are clearly doing a brilliant job in, I think, driving even more financial flexibility for you to make decisions. I'm sort of curious, do you feel bolder about thinking about portfolio addition and subtraction generally now given that financial flexibility? And maybe talk about your thoughts, do you feel like, given the current environment and the market and valuations, are there more opportunities? Could we see your tuck-in strategy accelerate here?

Thank you for the question, Rick. I want to take a moment to discuss our portfolio strategy. As you've noted, we have been actively executing this strategy by shifting BD into higher-growth areas, specifically the three transformative solution spaces we've mentioned, including smart connected care that enables new care settings and improves outcomes for chronic disease patients. These are all high-growth markets that are defining the future of health care, and BD aims to lead in them. Over the past few years, we've undertaken several portfolio actions, including the spin-off of embecta and 19 tuck-in acquisitions. These actions have been successful, contributing positively to our growth. Chris pointed out that the deals that have reached their anniversary are currently adding 30 basis points to our underlying growth, as they are thriving in high-growth markets and enhancing BD's overall growth rate. Additionally, the spin-off of embecta further boosts this growth. Notably, 90% of our spending on those 19 acquisitions has been directed towards transformative solutions in higher-growth spaces that are advancing our pipeline. As we look ahead, we will remain disciplined and focused on executing tuck-in M&A that aligns with our strategy. This involves pursuing deals that strategically enhance our leadership and broaden our position in prioritized high-growth transformative solution areas. Such deals must be accretive and meet our strict financial criteria, and we have walked away from many that do not meet those standards. We are committed to maintaining this discipline, and we take pride in our selective approach. Additionally, we seek significant leverage and synergies, which have characterized all our transactions. These deals benefit from BD's global presence, strong commercial channels, and robust manufacturing and procurement capabilities, adding more value as part of BD than independently. This principle will continue to guide our efforts. We have a strong pipeline, and in the near term, we are focused on successfully executing the Parata acquisition. We are pleased to welcome the Parata team to BD and are experiencing strong early momentum since our collaboration began. Looking ahead, we anticipate more Parata-related deals in the future, continuing our strategy with a focus on larger tuck-in opportunities rather than smaller ones. Our funnel management remains active, and despite the changing environment, we see numerous opportunities ahead. Thank you for the question, Rick.

There are no further questions. We'll now turn the floor back over to Tom Polen for closing remarks.

Okay. Well, I'm going to keep this very brief. It was a great discussion. Thank all of you for the very good questions. We wish you a great rest of the day and a wonderful summer. Thank you.

Thank you. And this does conclude today's audio webcast. Please disconnect your line at this time, and have a wonderful day.