Hello, and welcome to the BD's Fourth Quarter and Full-Year Fiscal 2021 Earnings Call. At the request of BD, today's call is being recorded. It will be available for replay through November 11, 2021, on the Investors' page of the bd.com website, or by phone at 800-839-1246 for domestic calls and area code +1(402)220-0464 for international calls.

The replay switches are now dedicated; you no longer need a conference ID to hear the replay. I would like to inform all parties that your lines have been placed in a listen-only mode until the question-and-answer segment. Beginning today's call is Ms. Nadia Goncalves, Senior Director of Investor Relations. Ms. Goncalves, please you may begin..

Alberto Mas, President of the Medical Segment, Simon Campion, President of the Interventional Segment; and Dave Hickey, President of the Life Sciences Segment. During the call, we will be making forward-looking statements, and it is possible actual results could differ from our expectations.

Risks, uncertainties, and other factors that could cause such differences can be found in our earnings release and in our latest SEC filings, including our Form 10-K and 10-Q. We will also be discussing non-GAAP financial measures regarding our performance.

Reconciliations to GAAP measures including the details of purchase accounting, and other adjustments can be found in our earnings release and financial schedules and the Appendix for investor presentation. Unless otherwise specified, all comparisons will be on a year-over-year basis versus the relevant period.

Revenue present changes are on an FX-neutral basis, unless otherwise noted. 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, base margins, NewCo and RemainCo. With that, I'm very pleased to turn it over to Tom..

Thank you, Nadia, and good morning everyone and thank you for joining us. Before I get started, I would like to officially welcome Chris DelOrefice, BD's recently appointed Chief Financial Officer. Chris brings deep healthcare and MedTech experience to BD across both operations and corporate finance.

Many of you already know Chris from his most recent role as Head of Investor Relations at J&J. We were thrilled to have Chris join the team and while he's only been with us for two months, he's already immersing himself and making a very positive impact.

I look forward to Chris sharing his perspective with you both today and at our Investor Day next week. I would also like to welcome Dr. Carrie Byington, who is recently appointed to the BD Board of Directors. Dr. Byington is Executive Vice President and Head of University of California Health, where she leads the nation's largest academic health system.

Dr. Byington brings deep and highly relevant experience to BD, as we work to advance our BD 2025 strategy and accelerate innovation in smart connected care, enabling the transition to new care settings, and improving chronic disease outcomes.

On today's call, I will provide highlights of our performance and the continued progress we've made on our BD 2025 strategy. I'll then turn it over to Chris for the financial review and outlook for fiscal 2022. After our prepared remarks, Chris and I will open the call up for Q&A.

Now let's jump into our results and key highlights for the year on Slide 7. We were very pleased with the strong close to fiscal 2021, which drove full-year revenues, EPS and cash flows ahead of our expectations despite a volatile environment.

This reflects our continued laser-focus on execution and the strength and expansiveness of our diversified business and geographic model. Revenues grew over 15% to more than $20 billion in fiscal 2021, with $2 billion in COVID testing revenues and strong 8.1% growth in our base business. Our adjusted EPS increased 28% to $13.08.

And through continued execution of cash flow initiatives we instituted in fiscal 2020, we further improved our operating cash flow by over $1.1 billion compared to the prior-year. Overall performance reflects strong momentum in our base business with a return to more normalized growth rates across all three segments versus pre-pandemic revenue level.

As hospitals have been able to return to serving both COVID and non-COVID patients, and the overall healthcare utilization levels increased, we saw a strong demand for our broad portfolio of products that were essential to patient care, including new products delivered across our innovation pipeline.

At the same time, we were proud to have supported our customers and the patients they serve, by bringing to market and scaling a broad range of innovations to help the world diagnose, treat, and prevent COVID. Turning to Slide 8, at the highest level, our strategy has been deeply rooted in helping healthcare systems balance four key priorities.

And those are improving outcomes, driving efficiencies, expanding access to care, and more important than ever, improving the clinician experience. BD is uniquely positioned to help our customers deliver against these three key priorities across discovery and diagnosis, medication delivery, and interventional treatment.

And through our innovation-driven growth strategy, we're investing in our broad, foundational durable core portfolio, while also shifting a larger portion of our business into higher growth, higher impact areas.

And those three higher growth higher impact areas that we're focused on, you've heard me talk about before are smart connected care, enabling the transition of treatments in new care settings, and improving chronic disease outcomes.

In addition, by simplifying our product portfolio, we're driving growth through increased efficiency and margin expansion. Turning to Slide 9. Importantly, we significantly advanced our strategy this past fiscal year, taking bold steps to position BD for the long-term.

Beginning with the actions we took to strengthen our balance sheet and enhance our working capital and cash flows. These actions have positioned our cash and net leverage well.

Giving us the capacity to increase investments in R&D and tuck-in M&A, accelerating our innovation pipeline, and advancing our strategy to drive growth in fiscal 2022 and beyond. In FY 2021, we invested over $1.2 billion in R&D, 21% more than last year, with increased funding for key projects through our new growth and innovation fund.

We also continued our increased pace of tuck-in acquisitions, completing seven acquisitions in fiscal 2021, as well as a number of additional early phase investments as we also began to build our long-term inorganic funnel. In addition, we reinvested over $200 million in profits from COVID testing to drive our growth strategy.

Through investments in our commercial organizations indeed and accelerate our simplification strategy by investing to speed up our recode portfolio and architecture program.

And today, these investments are meaningfully advancing our strategy to expand in higher-growth spaces, across smart connected care, new care settings, and chronic disease outcomes. And just a few recent accomplishments that I can share here underscore our growing momentum.

We're looking forward to sharing a lot more of those accomplishments next week at Analyst Day. These include new manufacturing lines that are now operational and will support demand for vaccination devices globally.

And this investment is in addition to our $1.2 billion commitment to expand capacity for our pre-fillable syringe, and advanced drug delivery systems, which represent high-growth opportunities in our durable core.

Emergency used authorization for BD Veritor At-Home, which is the first at-home COVID antigen test to use a smartphone to interpret and report results. This platform is a great example of how we're applying digital capabilities to bring new first to world innovations to market and expanding care to new settings.

We also received 510(k) clearance of expanded indications for Rotarex Atherectomy System to include treatment of in-stent restenosis, which is a first of its kind label expansion and it's a great example of how we expand optionality for physicians and customers in the treatment of chronic disease. We also received U.S.

FDA approval of our new high throughput molecular system BD COR.

In today's challenging labor environment, BD COR's advanced robotics and software algorithms provide customers a way to do more testing with less available staff while providing important new clinical insights for cervical cancer screening and management through our BD Onclarity, HPV Assay.

Now beyond BD COR, as you know, we have a portfolio and pipeline of unique automated solutions that help our customers perform in a tight labor market from helping nursing staff and pharmacists be more efficient with medication management, to increasing efficiency in diagnostic testing for labs experiencing staffing shortages.

We're engaging with customers in these markets and are seeing great interest in our solutions.

At our Investor Day, we'll share more about how we are well-positioned, not only capitalize on this opportunity, but how we've been very actively optimizing our investment mix to both expand our durable core platforms and simultaneously add technology and platform innovation in higher-impact and higher-growth spaces that we expect to enhance our long-term growth profile.

Through our disciplined capital allocation framework, we're balancing these investments and future growth with a return of capital to shareholders through our competitive dividend, while also resuming our share repurchasing program, having repurchased $1.75 billion in fiscal 2021.

We also just announced our 50th consecutive year of dividend increases, and we're very proud to be one of only 16 companies across all industries to achieve that milestone. Turing to Slide 10. We'll remain disciplined in our approach to portfolio management as we systematically advance and deliver against our strategy.

And earlier this year, we announced the decision to spin-off our diabetes care business. The proposed spin represents a value creation opportunity for all stakeholders and is intended to enable growth acceleration for both BD RemainCo and NewCo with more efficient business processes and allocation of resources and capital.

NewCo will be able to invest its capital in growth opportunities, including high-growth geographies markets and next-generation products. We continue to make good progress and the spin-off remains on track for the first half of calendar 2022.

Regarding our BD Alaris pump, we recently received CE mark and Health Canada approval for the updated BD Alaris system. We also achieved a significant milestone earlier this year with the filing of our BD Alaris 510(k) submission. We have dedicated resources supporting this and continue to make progress.

Alaris is an important tool for clinicians and there continues to be strong demand for our platform during the pandemic. Turning to Slide 11. I'd like to share some details about our enhanced ESG strategy Together We Advance. BD has been a longstanding leader as a case study for sustainable business models and innovating for shared value.

Our strategy serves as a framework through which BD addresses the most relevant ESG issues for the company and its stakeholders and aims to further our leadership role and build on our commitment to improve and advance individual and public health at a global scale.

The health of our company, our planet, our communities, and the people we serve are directly connected. And when we successfully address the health of one, we often solve for challenges of another.

And under our strategy, we announced the suite of goals for 2030 and beyond with commitments in five areas that are most important to BD and our stakeholders, and where we have opportunities to create meaningful measured change over the next decade.

And those specifically are climate change, product impacts, responsible supply chains, healthy workforce, and communities and transparency. And we're acting on these commitments. And for example, we recently signed on to the United Nations Race To Zero campaign.

We look forward to sharing more about the advances and impact we having in each of these areas. Before I turn it over to Chris, as we look ahead, we expect the greater resiliency exhibited by healthcare systems during Delta will continue along with continued recovery and patient demand post-Delta.

While there are inflationary pressures occurring across most every industry, we have been very active in addressing these challenges.

We have put specific defined actionable plans in place to help mitigate these pressures, which are coordinated through an inflation taskforce that we've established with work streams across procurement, shipping, cost structure, and continuous improvements in our plans.

And in this environment, it's also required to initiate pricing actions, which we have begun. Looking ahead, while we believe there will be longer term macro solutions like expanded shipping and resin capacity. We're not waiting for those to occur. Our aim is to be best-in-class in navigating the current environment.

We believe we have a clear path to accelerating margin recovery. We're proud of the progress we're making advancing our BD 2025 and ESG strategies.

We have excellent momentum in our base business heading into fiscal 2022, a stronger balance sheet, and steadily increasing cash flows, despite inflationary pressures, all positioning us well for the future. With that, let me turn it over to Chris to review our financials and outlook. And again, Chris, welcome..

the Alaris ship hold, negative COVID-19 related volume utilization, above normal inflation in COGS and shipping, along with currency headwinds. Each of these items negatively impacted margin by under 100 basis points, and averaged about 80 basis points each. They collectively accounted for about 90% of the erosion from pre-pandemic levels.

The remaining impact was small and driven by a few items including a decision to strategically increase R&D investments to more competitive levels at about 6% of sales to support long-term growth. As I shared, we anticipate improving base operating margins by around 200 basis points in fiscal 2022 driven by the following.

First, like all companies we experienced short-term impacts from COVID-19 such as underutilization in our plans.

These impacts carried into fiscal 2021 but will be more than fully restored in fiscal 2022 given our strong base sales momentum, and associated increased volumes and will drive about 100 basis points improvement in operating margin versus 2021.

Second, given our global manufacturing and distribution footprint, we face the impact of currency fluctuations in our P&L along with normal FX translation; the timing of inventory movements throughout our network can also impact our margins.

Based on current spot rates and our inventory outlook, we expect to recapture about 50 basis points of the currency headwind to operating margin we reported in 2021. Lastly, we realized unprecedented inflationary pressures in fiscal 2021 driven by increased resin, inbound and outbound transportation and labor costs.

These inflationary pressures will carry into fiscal 2022, and we intend to be best-in-class in how we navigate this environment. We are expanding our existing simplification efforts; such as project Recode and intend to drive additional margin improvements through new spend optimization initiatives.

These include actions across procurement and shipping such as reduced air freight and supplier cost control. In addition, we have actions in place to invest behind continuous improvement in our plants. And inevitably, in this environment, we know, we need to offset these pressures through pricing actions, which are already being implemented.

We also are focused on leveraging our SSG&A investments, while maintaining competitive investments in R&D. In 2022, we are forecasting additional impact to operating margin from inflation above normal levels from 2021.

However, with a significant progress we've made to-date on margin initiatives that are already underway, we anticipate being able to more than mitigate the incremental inflationary pressures this year to drive an additional 50 basis points of operating margin improvement.

Increased utilization, reversing FX pressure and initiatives to offset inflationary pressure will also play a key part in restoring our base gross margin to pre-pandemic levels. Combined we expect these to drive around a 100 basis points improvement.

We are committed to delivering against these goals and thus margin improvement will be a key measurement for performance in this year's compensation plan across the company. Our fiscal 2022 operating margin improvement will be a significant step towards recovery of pre-pandemic margin levels.

We look forward to sharing more about our longer term margin recovery initiatives next week at our Investor Day, which includes exceeding pre-pandemic levels in fiscal 2024. Turning to Slide 23. Our fiscal 2022 adjusted EPS guidance reflects the year-over-year decline in COVID only testing profit net of reinvestment.

In our base business, as we just discussed, we expect strong operational growth driven by revenue growth and margin improvement, with EPS well above the $12 we provided on our August call. Now turning Slide 24. Our fiscal 2022 guidance also includes our diabetes business.

We continue to believe the spin-off is a significant value creating opportunity for our shareholders and both RemainCo and NewCo are well-positioned for success. Let me take a moment to reinforce some key items to make this compelling to all stakeholders.

NewCo will be one of the largest pure-play diabetes companies in existence today, with an ability to focus on its strategic goals, drive strong cash flow and allocate its capital more efficiently and effectively to drive higher growth.

The proposed spin enhances RemainCo's revenue and EPS growth profile, as diabetes cares revenue growth is slower than the corporate average and its margins are declining. Carve-out financials will be available with the Form 10. RemainCo is expected to receive a cash distribution equivalent to multiple years of cash generated by the Diabetes Care unit.

We plan to provide more details related to the proceeds and intended use at a later date. The spin is intended to be tax free for us federal income tax purposes. And as is normal course for spins, we plan to restate our financials after the spin's effective date to classify the diabetes business as a discontinued operation.

Given the higher margin profile of the Diabetes Care business, one should expect RemainCo's margins to be lower as a percent of sales after they're restated but with a higher rate of growth. We are establishing transition services agreement that will offset stranded costs.

We remaining cited for what's ahead for NewCo and making this a successful and value creating opportunity for all. Now turning to Slide 25. Finally, I wanted to take a moment to share some phasing considerations for your models.

First, we expect revenue growth to be normalized across the quarters with the exception of Q2, where we expect higher growth due to easier comp resulting from the COVID resurgence in Q2 FY 2021, primarily in Interventional. In addition, we expect COVID testing revenue to be weighted towards the first half of the year.

Second, we expect gross margin to be lower in the first half given that increased inflation began earlier in fiscal 2021 and the benefit of cost improvement initiatives we have initiated will be on a lag as they flow through inventory.

We expect the inflation flow through to inventory to be most prominent in Q2 and improve across the balance of the year. Third, as we move past COVID variability, we expect SSG&A and R&D expense dollars to be fairly rateable by quarter. Fourth, for full-year, for FY 2022, we anticipate our effective tax rate to be in the range of 12.5% to 13.5%.

This rate includes assumptions around our jurisdictional mix of income and certain potential discrete items. Of course, the timing of realization of discrete items could result in variability in our rate quarter-to-quarter, including a potentially lower Q1 range.

In summary, fiscal 2021 was a year marked by significant strategic progress and execution against our key priorities.

As we look forward, and as reflected in our 2022 guidance, we are well-positioned for growth, with excellent momentum in our base business, increased investments in our innovation pipeline, tuck-in M&A momentum, strong progress executing our balance sheet and cash flow initiatives and clear visibility to meaningful margin improvement.

We are excited to share our long-term outlook with you at our Investor Day. Let me now turn it back to Nadia to lead the Q&A portion of the call..

Thanks, Chris. Ashley, we're now ready to open up for Q&A..

Certainly, the floor is now open for your questions. [Operator Instructions]. We'll take our first question from Vijay Kumar with Evercore ISI. Please go ahead..

Hey guys, congrats on a good print this morning, and thanks for taking my question. And Chris, welcome to BD. I guess to start with on the fiscal 2022 guidance here. Maybe a little bit more clarity on what is being assumed for vaccine contribution. And I think you mentioned Alaris pump sales in line with fiscal 2021. Maybe clarify what those numbers are.

And on the combo test, is that -- what sort of assumption should we have on ASP for the combo test because I was curious on your pricing comment for COVID in fiscal Q4?.

Yes. Hey, Vijay, good morning. This is Tom. Thanks for the good questions here and make sure I address all of them. So Alaris, as we said, we expect that to be essentially flat to 2020. One thing about that as about $100 million contribution in 2022 and 2021. Put in perspective, that's, as Chris mentioned, that's about 2020 was closer to $300 million.

So even in our -- as we think about the 8.1% growth this past year that absorbs about a point of Alaris coming down from the -- when we were getting very large numbers of additional medical necessity orders as people were adding to their fleets. So that's the assumption on Alaris.

On vaccines, it's -- we still are towards the high-end of that $100 million to $150 million range that we'd expected for vaccination campaigns. And so we expect that's just kind of part of the MDS business.

Now, I don't know if we were going to call that out as a guide in that growth, but we don't see it as a notable headwind in the growth rate of that business in 2022. We still have solid demand for those products.

And as we said, we now have visibility to 2 billion units of syringes specifically for COVID vaccines, which we're obviously proud of being able to help deliver 2 billion COVID vaccines around the world. And I think we've shipped about 1.2 billion or 1.3 billion of those so far.

So that gives a little bit of color, in terms of how much we left to ship in 2022. On the combo assay, great question. We've got Dave Hickey here, obviously, the President of our Life Sciences businesses. And so let me turn that question over to him..

Thank you, Tom. Vijay, thanks for the question. So yes, just to reiterate on the combo. Just to reiterate what Chris has said, right.

So if you think about what's come back into the base business for FY 2022, we do expect that as we get into the flu season, the respiratory season for both BD Veritor, and for BD MAX, that these combination tests will be the sort of the go-to test, particularly for people who might be symptomatic.

And people who are sort of saying, do I have flu, or do I have COVID. So we do expect that to be the combo test. The installed bases are there to support that testing. And we've put into the range for next year, an estimate of around $75 million to $100 million back into the base business.

From a pricing perspective, we do expect it to be a premium price, over the traditional tests as we've indicated; we're just not sharing specific pricing at this time..

Understood.

And Tom I think I heard Chris mention the goal is exciting fiscal 2024 operating margins to be above pre-pandemic levels, fiscal 2019 operating margins were 25.3%, so when you say above pre-pandemic, is that the target in -- is exiting fiscal 2024 are you expecting to be above 25.3% or is that the annual goal fiscal 2024 overall margins to be above 25.3%.

Maybe just give us some broad strokes on what's the exit there is that Alaris coming back and then base business execution or something else that's being done?.

I'll turn that to Chris, good question. And I think that the exact term you use was above..

Yes, that's right. Yes and thanks for the welcome as well, Vijay. Yes, just to clarify. So you're right, the pre-pandemic level was just over 25% fiscal year 2024 is our target to get above that level. We'll certainly share more next week in terms of specific initiatives.

I think the way to think of it is we already had a lot of simplification efforts underway with Project Recode. Those can contribute about $300 million. That's one bucket.

In addition to that, I articulated on the call even as it relates to actions we're taking and demonstrated at the end of 2021 and heading into 2022, we're increasing our initiatives, pricing, mix, portfolio optimization, and new initiatives on spend optimization as well.

And then certainly, lastly, the Alaris ship hold that was an 80 basis point drag on the business going back to them. So while we're not being committed as it relates to timing, as you think through kind of the longer term timeframe, and that we will share next week, you would expect that to have a benefit over time. Thanks for the questions..

We'll take our next question from Bob Hopkins with Bank of America. Please go ahead. Your line is open..

Well thank you and good morning, and thanks for taking the questions. And, Chris, welcome. My one -- really only have one question or one topic I wanted to cover. And, Chris, this is probably for you because it seems like a key part of this call is your assumptions on the improvement in base business operating margins from 2021 to 2022.

So, a couple of things, I'd love you to comment on Chris if okay. One is I'm struggling a little bit with how to think about the starting point because Q4 base business operating margins are obviously a lot lower than full-year 2021. So maybe help me understand what's the right starting point.

And then, secondly, I'd love you to talk a little bit about, how much of that 200 basis point improvement in base business you're assuming for the full-year is gross margin and just what are your assumptions on pricing embedded in that? So there's a lot in there. That's my one question.

But I would love you address those things and thank you very much..

Yes, thanks, Bob. I appreciate the question. Great question. So look I think going forward, we're going to continue to provide transparency as it relates to kind of the base performance of the business.

I understand your question as it relates to kind of jump off points as it relates to quarter keep in mind, there were a lot of quarterly fluctuations as we navigated 2020 through COVID and 2021 with inflationary dynamics. I think it's simplest to kind of normalize and just look at things on a full-year basis.

So as you think of our operating margins from 2021 of 21.7%, on the base business, there's really a few key drivers.

One is we've talked about through this about having our utilization levels impacted due to pandemic, our strong growth profile through 2021 and 2022, we now anticipate being well above in driving almost 100 basis points of utilization upside 2021 to 2022 full-year to full-year. In addition to that last year, we had the impact of currency.

There was a headwind on earnings, they got trapped in inventory, and as that bleeds through, we actually have about a 50 basis point improvement heading from 2021 to 2022, that goes through to operating margin. Lastly, where we're investing a lot of our time, of course is navigating the inflationary dynamics.

And we talked about the net 50 basis point improvement in terms of outsized inflation, which we would anticipate being north of 200 basis points in full-year 2022 offsetting that will be a series of initiatives. There's not one thing it's actually a very well balanced plan.

We have talked about on the call; we're continuing to drive cost improvement in our plans. We're taking enact actions on the procurement side of the business as well in terms of spend. We're looking at things from an SSG&A standpoint as well and leveraging that.

And then, yes, there is going to be a strong focus on pricing portfolio mix, driving growth through higher GP areas. And the net of all of those we actually expect a 50 basis point improvement. Maybe lastly, just to give you some color on kind of where we are, because I think this is important.

We've entered the year with specific action plans against those goals. So we have risk adjusted plans, very detailed targeted actions to deliver the improvement we need to mitigate against deflation.

If you go a step further and look where we are from kind of an execution standpoint, 80% to 90% of those have been fully identified and the plans are moving, and some of them are just more timing dynamics in terms of when we may take price or when we'll evolve our portfolio.

And of that number, almost half of that is actually already banked coming into year flowing through our inventory and P&L. Now that's quite a testament to the work that we did in the back half of 2021 and already have strong progress.

So we look forward to sharing more as the year progresses, but we feel good about the plan and the progress that we'll achieve through the year..

Well take our next question from Robbie Marcus with J.P. Morgan. Please go ahead. Your line is open..

Great. Nice quarter and thanks for taking the questions. Appreciate it. Maybe just on the diabetes spin you talked about higher than company margins.

Is there any color you could add to how much, and will we have the Form-10 by the Analyst Day next week?.

Go ahead, if you can..

Hey, Robbie. How are you doing? It's Chris. Yes, as we said, the Form-10 will be later this year. That will -- we don't anticipate that being out by next week. Look, it's a good question. It's premature to share. We have to wait until the Form 10 is out, there will be much more detail there.

But I really think the more important dynamic here is, right, this is actually just a portfolio transaction, and there is going to be sort of a reset of margin.

And by definition, we had shared that, it is accretive, there will be a reset of margin, but more importantly, it's been diluted to both growth and margin growth, top-line growth and margin growth. So it could be an acceleration from that.

And as we get into Investor Day, we can certainly share more as it relates to kind of the longer term impact as it relates to margin. And what I just shared in terms of our longer term margin improvement goals. We still feel really good about where we're going to position margin over time, and all these efforts going against that.

And lastly, I think just the value creation opportunity this creates, I talked about the cash infusion of multiple years we get that gives us additional flexibility to think through how to reinvest and utilize those -- that cash infusion we can talk more about that as well over time..

Great. Appreciate it. And then maybe just one other, you talked about doing seven acquisitions this year, $500 million total.

How do we think about the contribution of those to revenues in 2021 and 2022? And where do you put M&A in terms of capital allocation priority? How do you view the market right now in terms of asset availability and valuations? It'd be great to get your take on that? Thanks..

Yes. Robbie. This is Tom and good morning. So we'll try not to share too much of the thunder from next week, but it's good question. And we'll get more into this, but we've spent about $500 million this year.

If you look at the acquisitions that we made last year, think about over the last 20 months or so we've invested about $900 million, that drives about $100 million this year and $200 million next year roughly from those tuck-in M&As.

So if you do the math, that's about a little under a five times what we're paying in terms of revenue that we're getting from those acquisitions next year. And as you know, that's good value that we're getting, and we're obviously performing above our cost of capital on those acquisitions.

We're clearly at those levels of multiples that were being able to get those assets for, we're not buying growth, we're absolutely growing what we buy leveraging our channels, our global position, our manufacturing capabilities, et cetera to scale these assets in ways that we're uniquely positioned to do so.

We'll also share with you next week, the mix of how those breakout into the amount of spend and acquisitions that are going towards kind of that durable core base portfolio that we have versus those more transformative solution areas that I've talked about. Those three categories that we discussed and you'll see the weighting of those.

They're highly weighted in high growth markets. That revenue that I described is growing north of double-digits as we go-forward. We continue to see opportunities. As we look ahead, we have a robust funnel. You can expect us to continue to drive that strategy forward. Obviously, it's been important part of why we focus so heavily on cash flow.

Actually, if you look at our cash flow over the last two years since 2019, it's grown at 18% CAGR. That's not by accident, we've had very focused programs driving that that's something we're very proud of.

And it positions us, as Chris mentioned, to drive a balanced strategy between tuck-in M&A strategy to drive our growth, as well as continue to return value to shareholders, as you've seen us doing so. Thanks for the question, Robbie and looking forward to more discussion next week..

Great.

Maybe just to clarify is there any revenues associated with the deals we should be thinking about in the model for next year?.

It's obviously built into our guidance.

Chris, any other comments in there?.

No, I think Tom shared the directional right. These were about $100 million in the current year 2021. And we've talked about essentially doubling that. So on an incremental basis, you can think of about another $100 million.

So it's a contributor to growth of 30 to 40 bps gives us a lot of confidence in our growth profile, and then the capacity to do more of that over time. We'll certainly talk more about next year..

And we'll take our next question from Matthew Mishan with KeyBanc. Please go ahead. Your line is open..

Hey, good morning guys and thank you for taking the questions. First, how should we be thinking about the return on the $200 million of investments you guys made from the bolus of COVID testing? And when you'd expect to see some of those happening.

And then just were those really one-time costs or successful programs, maybe just folding into more traditional M&A at this point?.

In the context, it's more traditional R&D at this point, sorry..

Yes, Matthew, this is Tom, good morning. The -- good question. We are not that that spend is done, right. So we're not that's not recurring spend, as we've always communicated that got cutoff last year in Q4. So that is out of our P&L going forward. And we'll share more details actually about exactly where that money was spent.

And you'll see throughout the discussions next week at our Investor Day, each of the different businesses highlighting the programs that they've invested in and you'll see how that help to accelerate our growth outlook as we go-forward over the long-term.

It is mixed across both innovation as well as accelerating our simplification strategy as well, and we'll share more details on that next week. But there it is balanced across both of those categories.

And when we say the growth agenda, how it's balanced on that side, it is majority of the growth money that we're spending is in R&D, but there is money that we spend on expanding channels, so specifically telesales in Europe, non-acute sales channels in the U.S., and you'll hear more about those specific investments from our leaders in the U.S.

region and from our European leaders next week as well. And we're excited to be able to share that. I know there's been a -- we've been busy over this last year. We're really proud of the progress that we've made on our strategy. And we're really looking forward to having our leaders share with you those details of that progress next week.

Thanks for the question..

And --.

Yes, go ahead..

And just on the Pharma Systems business. I think you've announced some, I know that's been a very successful business for you. I think you've announced some capacity additions. I'm wondering when do those capacity additions actually benefit that that area..

Yes, obviously, it's a great business already. I think we're three or four years of consecutive acceleration in that business. We have Alberto Mas on the line. Maybe Alberto, if you could just comment on when do we start seeing some of that that capacity benefit to business and where that stands..

Yes, hello. Good morning. We're going to see it along the way. So it's not lumpy. It's we're just -- we're just -- what we're going to see in capacity in 2022. In this business, you need about two to three years of advanced planning on these things. So we're going to see it along the way it's not going to be lumpy.

So you're going to see that in the next three to four years..

Great start. Is it fair to say, Alberto, there is a little bit of a benefit of summing that -- some of that business continues to come online.

The early phase does come online in the back half of next year?.

Or throughout next year that's what I'm trying to say it's think of this as a smooth over the next three or four years. It's going to be coming online quarter-by-quarter..

Not -- not one?.

Yes. And Matt --.

Yes..

We see that helping to continue to fuel what is that high single-digit, double-digit growth profile of that business..

Perfect. That is the reference I was looking for. Thank you..

We will take our next questions from Larry Biegelsen with Wells Fargo. Please go ahead..

Good morning. Thanks for taking the question. Welcome, Chris. So one question for Chris, one question for Tom, I'll ask them both now. Chris, maybe I'll ask Bob's question a different way.

Can you talk a little bit about the margin in EPS cadence in fiscal 2022, how much below the operating -- the base operating margin of about 23.7%, you expect Q1 to be is 100 basis points, the right way to think about it. And consensus is I think 2.84 for EPS right now.

I'd love to get your reaction to that, just to calibrate it correctly to start the year. And, Tom you guys are doing really well in China. There are a lot of investor concerns about multinational companies' ability to continue to grow there, given the value-based purchasing and the recent document 551.

How are you feeling about your ability to continue to grow strongly in China and any reaction to some of those initiatives? Thanks for taking the questions guys..

Start with Chris..

Yes, thanks, Larry. Appreciate the question. Yes, I'll try to amplify some of the color that I provided earlier. So as we think of the year as the year progresses, first from the top-line, just to reiterate, we do actually expect relatively normalized growth with the exception of Q2 like I had shared because of the comparables.

And then there's the dynamic of COVID only testing, which you'd expect to be more first half. So I would consider that that dynamic. From a margin standpoint, certainly first half, we anticipate to be lower. This is simply a matter of the inflationary dynamics that started in 2021, rolling through inventory.

And the peak of when that rolls through and those costs actually hit is more like Q2. So kind of first half definitely less favorable margins versus the second half and Q2 in particular being kind of the high mark of that low, so to speak.

And then obviously as the initiatives that we've already taken again, there's a lot of that banks, right, if you recall had shared about 50% of its already happening. But again, you get the dynamic of it flowing through inventory, so you end up with kind of the second half dynamic in the margin improvement throughout the back half.

So the last item was just more of a discretionary tax item, I alluded to that could actually end up with some favorability in Q1, but those are very difficult to predict. So hopefully, that helps some..

And Larry, this is Tom, thanks for the question and good morning. Great to connect. For China, you're going to hear from James Deng, our President of China actually next week. And so I know he's looking forward to sharing the progress there. As you said, we had a very good year in China this year.

And we think we're kind of back to a strong growth rate looking forward, 551 for us, we don't see specific impact in our categories. It's something that we've spent a lot of time talking about.

Obviously, we have four plants in China; they're focused almost exclusively in China, for China, and particularly focused in some of the categories that there is more local competition in like catheters, vacutainer tubes, pen needles, et cetera.

But we make those businesses, those products, mostly in China, for China as well, so we can compete as a local organization in those. The other thing is we have a record number of new product launches coming out in China over the next three years.

You'll hear from Simon and team in China, we're really pleased that we ended 2021 having doubled the size of the bar business in China since acquisition, that was a big focus of ours on revenue synergies. And there continues to be the impact of those registrations that we've been making over the last several years.

The impact of those will be continuing to rollout with new launches as we look forward. I know again, Simon will talk next week, maybe share a couple of comments now on some of the launches that you're having in China that are occurring. So we feel good about the outlook for China.

We're -- as all we're watching the situation very cautiously being prudent in our investments there. But we've got a great team, we saw strong performance this year and we do have a strong outlook in China for the next year as well..

Yes. Thanks, Tom. So just some color, over the next three years, the Interventional segment expect to commercialize further 22 to 25 new products in China.

And just an example of how we've been successful there in addition to what Tom said about doubling our business, but we recently just got approval or clearance for our Targeted Temperature Management technology in China.

And we've actually just got our first two purchase orders this month from that, at margins that are creative to BDI, to BDX, and the sustained, and I would say prolific growth of our business in China. We expect to continue over the next period of time..

Thanks, Chris..

And we'll take our next question from Josh Jennings with Cowen. Please go ahead. Your line is open..

Hi, good morning. Thanks for taking the questions. Just have one, sorry to keep focusing on the margin progression here, but wanted to better understand the impact in fiscal 2021. And then how to think about the impact in fiscal 2022 of China value-based pricing.

I felt like that was a bucket that was called out on the third quarter call as a big headwind for margin and this year. I just wanted to understand better the impact this year and whether that with all the positive momentum you're experiencing, whether that turns into a margin tailwind in fiscal 2022. Thanks for taking the question..

Hey, Josh, maybe you just let me comment on value-based procurement. I'll turn it over to Chris for other items. We saw the bigger impact of VBP kind of is behind us. There is still some impact going forward, but like the business and the market is China is challenged with restructuring their cost base to manage through any of that.

And so and that's exactly what they've been doing is restructuring cost base, as we think about that going forward to offset those headwind.

So maybe Chris any other comments?.

Yes, no, Josh, I would just add that yes, it was an impact that was previously discussed. It was smaller relative to the main drivers that I framed as it relates to the progression from 2019 to 2021. And we always are doing continuous cost improvement initiatives that offset some of these things that happen.

As Tom noted, China is well-positioned and we're thinking of that market more holistically. There is strong double-digit growth in 2021, actually at over 20%.

And so when you think of it from a total portfolio standpoint, we feel real -- nicely positioned as it relates to both a growth profile, and then have nice actually margin enhancement as a result of that as we go-forward. So thanks Josh..

Your final question will come from Matthew Taylor with UBS. Please go ahead. Your line is open..

Hi, Matt. Good morning..

Hey, good morning, Tom.

How you doing?.

Good..

Good, good. And Chris, welcome. Congrats on your new role at BD. So just wanted to ask two questions that are kind of related.

Just conceptually when you gave us the update in the $12 floor a few months ago, could you just talk about, what's changed to give you the confidence to now put out the guidance in the mid-$12 range, and how things have developed here over the last couple of months?.

Okay, sure. I'll turn that to Chris..

Yes, thanks -- thanks Matt. Appreciate the question. Look, I think, it really starts with our focus on growth. I think a strong base growth profile that we guided on, coupled with if you look at the cash flow that we shared through 2021, that gives us a lot of flexibility on tuck-in M&A, right.

So we have strong organic growth profile, the enhancement we're making to our R&D portfolio. And then that coupled with the tuck-in M&A capability that we will now be able to have on an ongoing basis. Tom earlier talked about the acceleration of deals that we've done recently, those alone can contribute about 40 basis points to growth.

So one, I think, there is just a very strong growth profile there. Two, is just the disciplined focus on margin improvement. We knew that was something to focus on in addition to the cash management approach we've taken over time, that's enhanced growth. And so those are the two main drivers.

As a matter of fact, we're actually cycling over a headwind on tax. That's been offset by some of the capital deployment we've been able to put at work with share repurchases. So you'll see us be more disciplined there with other value creating levers too due to the strong cash flow that we have..

Maybe also we're finishing the year full stronger, right than what we thought at the time. So we're -- we had a really strong Q4. We're seeing that that strong demand in our base business. So we're going in.

The beat that we're seeing here is a combination of not only stronger COVID diagnostics, but stronger performance in our base business as we wrap up the year. So I think that's an important point to -- a contributor to that as well..

Okay. Thanks, Matt..

Okay. Thanks for that confidence answer..

Okay. Well, operator, if there's no more --.

Well at this time --.

I'm sorry, go ahead..

Sir, I apologize. I just was going to turn the floor back over to Tom Polen for any closing remarks..

I just thanks everyone for the good discussion today. We obviously are really looking forward to discussing all the great work that the team has been doing here over the last 20 plus months as we've been advancing our BD 2025 strategy. I personally I'm really excited to -- for next week's event.

We're going to be able to share with you where we've been investing, how we've been refining, and making significant changes in our portfolio to optimize growth and margins. And you'll hear from a wide range of leaders on how they're executing and bringing to life our 2025 strategy to create value for our customers and shareholders next week.

So everyone stay well, and we'll look forward to continue great dialogue next week. Thank you..

Thank you. And that does conclude today's teleconference. Please disconnect your lines at this time. And have a wonderful day..