Becton Dickinson and Co (BDX) CEO Thomas Polen on Q3 2022 Results - Earnings Call Transcript

Aug. 04, 2022 11:40 AM ETBecton, Dickinson and Company (BDX), BDXB
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Becton Dickinson and Co (NYSE:BDX) Q3 2022 Earnings Conference Call August 4, 2022 8:00 AM ET

Company Participants

Francesca DeMartino - SVP & Head, IR

Thomas Polen - President, CEO & Chairman

Christopher DelOrefice - EVP & CFO

Simon Campion - EVP, President, Medical Segment & Interim President, Interventional Segment

David Hickey - Executive VP & President, Life Sciences Segment

Conference Call Participants

Lawrence Biegelsen - Wells Fargo Securities

Vijay Kumar - Evercore ISI

Robert Marcus - JPMorgan Chase & Co.

Frederick Wise - Stifel, Nicolaus & Company

Travis Steed - Bank of America Merrill Lynch

Operator

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

Francesca DeMartino

Good morning, and welcome to BD's earnings call. I'm Francesca DeMartino, Senior Vice President and Head of Investor Relations. On behalf of the BD team, thank you for joining us. This call is being made available via audio webcast at bd.com.

Earlier this morning, BD released its results for the 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.

Thomas Polen

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 the 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 to 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 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 platforms continue 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. And 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. And 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 and hospital and retail settings. And of course, we're seeing increased wage inflation, labor attrition and a large percentage of pharmacists reporting burnout. And 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. And 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. And 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 by 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.

Christopher DelOrefice

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 reflect 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 base business gross margin of 52.9%, up 180 basis points and 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 and thus is 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 on 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 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 that, at 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 onetime 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.

Thomas Polen

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?

Question-and-Answer Session

Operator

[Operator Instructions]. And our first question comes from Larry Biegelsen with Wells Fargo.

Lawrence Biegelsen

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.

Christopher DelOrefice

Let me -- maybe why don't we first start just with a quick comment on the Alaris, which we'll do one upfront and then I can walk you through the 2023.

Thomas Polen

Larry, this is Tom. Thanks for the good questions. So first off, just overall on '23, as you heard from Chris, we feel really good about our overall position for '23. And obviously, Chris gave some very specific color on that today. It is still early though, and we're not going to get into any specific product assumptions today. We'll click down into that level on our regular Q4 guidance call.

But specific to Alaris, really no change to what we've shared before. Alaris remains our #1 priority. We're confident in the resources that we've invested in our submission and the team and the leadership that we have working on this. And we're focused on making sure that we get all the information to the FDA that's required to get clearance on that product. And so no change from that as -- again, as we think about the Q4 and guide for '23, we'll share more, but we're not going to get any product line details at this time.

Christopher DelOrefice

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 more 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 onetime 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. That will impact every company. We're not different in that regard. 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 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.

Lawrence Biegelsen

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

Operator

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

Vijay Kumar

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?

Christopher DelOrefice

Yes. Thanks for the question. Yes, just to confirm, the 5.5% plus does not include Parata. Our commitment that we outlined in Investor Day, again, you always run the business on an operational basis and think of operational commitments. So both a double-digit commitment on base revenues and then what we just shared here despite the COVID only grow over, given the drop in COVID-only revenue, we're confident in right about a double-digit growth profile on an all-in basis as well, which is a great signal on the strength of our total business and the continued momentum we have as it relates to margin improvement that we've committed to as well. If you remember, we committed to about 25% through the 2025 period. We shared that last quarter.

As it relates to FX, again, this is going to apply to any company. Actually, we've been absorbing currency this year, but those commitments we make are always on an FX-neutral basis. You will have to adjust for revenue, and there will be some translational drop-through on that, that would have to be contemplated as you think of the final growth rate. But we need to wait and see where FX lands.

But again, that's not different from anyone, and it doesn't impact your -- it's certainly not reflective of your underlying business. And it doesn't impact the underlying cash that you've earned locally. And we have a capital deployment model that we'll continue to put that to work to continue to drive our strategy as it relates to tuck-in M&A and other things. So we're feeling really good about that growth profile.

Regarding free cash flow, there's been a -- there's really 3 big dynamics. We remain extremely focused on cash. Remember, there's a few ways to look at us. One, we committed to a net leverage ratio of around 2.5x. We're right at 2.7x now. We've been executing on our M&A strategy. So you can see we're putting that at work. We paid down debt as well, consistent with what we shared as part of the embecta spin. So we continue to execute against our capital allocation strategy.

In addition to that, on the strength of the business and a disciplined approach we've applied to the balance sheet and how we're navigating that, we did get 2 debt rating upgrades this past quarter. So that was great to see. There are some differences in cash flow. The biggest difference is really just the year-over-year nuances as it relates to COVID-only testing and losing the higher base on COVID-only testing. There was also we also funded the pension. You can see that in the Q.

And then the third thing that we talked about as well is the one trade-off we've made intentionally is investing in inventory. And there's about a $400 million investment we're making there that I would call outsized inventory levels, driven by 3 factors. One of the most critical ones, of course, is procuring strategic components, raw materials, et cetera, to enable the strong growth profile. As you can imagine, there's still long lead times. We have a very efficient supply chain. And a lot of our product is spending time not in the plants, but rather on the water, so to speak, getting to customers. So we've made that investment.

And you do have -- everyone will have inflation kind of flow-through inventory as well. So we're not different in that regard as well. That explains the free cash flow. We remain very focused on that. We're going to continue to look at inventory. But in the short term, I think it's a prudent trade-off and is an enabler to these strong results.

Thomas Polen

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.

Vijay Kumar

That's helpful, Tom. Congrats on the [indiscernible].

Thomas Polen

Thanks, Vijay.

Operator

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

Robert Marcus

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?

Christopher DelOrefice

Yes. Thanks, Robbie. So first, as it relates to this year, the margin has played out exactly as planned. As a matter of fact, year-to-date, we're sitting at basically 80% of our full year goal, that 250 basis points where we actually increased our margin improvement more to account for, call it, an accounting dynamic and reclass of line related to employee benefits. But we remain well on track.

We did explain at this quarter as it relates to GP specifically, would be the low watermark as you think of timing dynamics, in particular, the outsized inflation that started at the beginning of the year, how that rolls through inventory. And then from the time we started the year, things have only gotten a lot more complex. Inflation increased and supply chain complexity increased, which also increased things such as transportation, et cetera.

So as we've come into the year, just to maybe give you a little bit of context on margin, there's probably been about 100 basis points of -- to our P&L as it relates to outsized inflation above what we contemplated coming into the year given the additional complexity. It's about a 50% increase from what we originally planned. Despite all that, we're still holding our margin commitment for the year, which is really strong.

As you think of the components this year, and I share that because it will play into next year as well, our volume leverage we talked about coming into the year was supposed to be about 100 basis points. Given the strong revenue growth profile, we've done stronger there. That's been part of navigating the outsized inflation on the other end that I just articulated.

And then really beyond that, it's been cost improvement programs that we've dug into and enhanced. We've also been delivering our portfolio actions. There's multiple components to that one. Given the strong growth profile, right, we've been able to be more aggressive with navigating portfolio mix and simplifying our portfolio. We have price management as part of that, that we're fully executing against, which is a very strong.

And then the third component to navigate this year has really been, again, on the strong growth profile, the leverage we're experiencing in operating margin and selling and G&A.

So as you think of '23, it's going to be all those same levers. You don't navigate this complexity doing just one thing. We certainly -- with another strong growth profile, we'd expect leverage in terms of volume flowing through our plants. We'll continue to drive a strong CIP agenda. We'll start to get more benefit from the SKU rationalization program as part of Project RECODE we talked about. You'll start getting early benefit from some of the architecture simplification work we also talked about. And you'll certainly continue to get more leverage on the operating margin with the strong growth profile on sales and G&A.

In addition to that, we've always talked about kind of the simplification principle beyond just supply chain. And we're looking to also drive simplification through all of our functions. So that will also help. So we continue to build an inventory of things that we're doing that give us confidence as we move into '23. And then, again, maybe just a reminder for everyone, our goal is to get to about 25% by 2025. It implies roughly 100 basis points per year after 2022.

And if you think of that, kind of normally, you would probably just do that on a ratable basis. I think you can anticipate 2023 under-indexing that 100 basis points given you're going to have the rollover of this outsized inflation. And then on the back end, towards '25, you'll get more of the full benefits from Project RECODE. And we also talked about the leverage you get from Alaris coming back.

So those things will give you a slight lift in, call it, '24, '25. And '23 will probably slightly under-indexed versus kind of that 100 basis points equally, but it will still improve year-over-year.

Robert Marcus

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 onetime? Or is this the new normal on pricing as we move forward into subsequent years?

Thomas Polen

I'll take that, Robbie. So just as we think about inflation, and Chris hit a lot of the things that we do to offset that pricing just being one and the last thing that we look at. We put an inflation task force in well over a year ago, recognizing what we saw was going to be inflation this year, and we expect to continue to be inflation in '23. And so just to make that clear, we've done a ton looking at and taking action around improving our own internal continuous improvement within our plants, restructuring our organization, getting costs out within that, looking at our supply chain and how we get costs out there and taking action, and we're seeing those things come through. It's helping our margin.

And we are -- as part of that, where we can offset those internally, we do pass on pricing. We do expect to continue to drive very large significant actions within BD to offset inflation as we look ahead. But we'll continue also where we can't fully offset that to continue to pass that through in price. And we do that in all markets around the world and across all business areas.

Operator

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

Travis Steed

Great quarter. I did want to put a finer point on '23 [indiscernible] margin around [indiscernible]...

Thomas Polen

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

Travis Steed

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

Thomas Polen

Yes, keep speaking.

Travis Steed

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.

Thomas Polen

Maybe we want to start with the $12 commentary. Chris, I'll turn that to you.

Christopher DelOrefice

Yes. I think as it relates to kind of sharing any specifics on a number, we wouldn't do that for sure. I think we laid out the framework that's pretty clear. We did say that we, of course, look and are aware of kind of external thinking and the time coming into this print, it seemed reasonable knowing that folks would not have contemplated the carryover on currency. Anyway, that's -- I don't think there's much more to add there. I would just go back to, again, the commitment on the 5.5% plus growth profile, double-digit adjusted EPS growth on the base and even having confidence of right around double-digit growth, adjusting for the drop-down of the COVID-only testing.

Thomas Polen

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 shift. When now there's tons of jobs for people to work day shift, 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.

Christopher DelOrefice

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's 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 onetime timing items in this quarter, but we're actually absorbing tax pressure as well in those numbers. So you'll have a Q4 true-up, of course, given the timing here. 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.

Travis Steed

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.

Thomas Polen

And just to clarify, great question. We're expecting China, and I think this is really impressive and reflects on the strength of our China team, to still deliver right around double-digit growth this year despite the Shanghai shutdown. And even despite the Shanghai shutdown, we delivered -- we still delivered growth this quarter in China, which I think is an exceptional achievement of our team there. And to reflect on how dynamic of a year there's been for them to still be on track to deliver right around double-digit growth for this full year, again, really reflects a lot of great planning and execution on behalf of our China team.

Why don't I turn it to Simon and Dave to make some colors on utilization kind of on the procedure side and then what we're seeing in the lab side. So we'll start with Simon.

Simon Campion

So 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 is -- which we've done cases already, and it's gone tremendously well. And 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. And as we've noted before, it's doubled since Bard is acquired by BD, and we look forward to continued robust growth there.

Thomas Polen

Great, Simon.

David Hickey

Yes. Thanks, Tom. And for Life Sciences, similar theme. I mean again, another great quarter for us in terms of double-digit growth. The team continues to execute extremely well both in IDS and BDB. If I think about IDS, one of the best bellwethers or measures we have for utilization is the specimen management business. That was a big growth driver for us in the quarter. So that's a really good indication.

On the BDB side, which I think, as you know, is split into both clinical and research businesses on the -- as Tom mentioned, the Life Science research reagents and instruments and the clinical reagents growth above expectation for us. So just solid returns overall in terms of utilization and growth levers.

On labor, it's interesting. As you sensor some of the labor shortages and challenges within our health care customers might be going, that's where I think we're very well positioned with some of our automation platforms when you think about the slide we had in the back on innovation relative to BD COR that just got approved or the molecular module got approved here in the U.S.

I think if our customers do see headwind with labor shortages, we have fully automated, connected, integrated automated solutions, both for clinical microbiology, the molecular testing that we're just ready and continue to deploy to help our customers address those headwinds.

Thomas Polen

Great. And maybe just to give just a couple of other statistics that we look at, at a macro level and utilization. As we think about Q3 and what we saw versus last year in the U.S. acute care sector, the average trend we saw over -- was about 100% of pre-COVID levels in Q3. That was up just a little bit versus Q2, where we were at -- we saw 98% to 99% of pre-COVID level, so it went up a tick in Q3.

In the non-acute sector, we saw Q3 rates in the non-acute sector, we're slightly over 100% versus pre-COVID, which was also similar to what we saw in the prior quarter of Q2. And then as mentioned, we do see sequential improvements continue to occur as we look ahead.

We do see in certain areas impacts of labor shortages certainly impacting certain procedures. I think the procedures that tend to be in BDI business are less impacted by them. It can be more acute in nature, let's say, putting in a fistula for someone to get dialysis that really becomes a prioritized procedure or getting your vasculature open to prevent an amputation of your leg as another example where that's a priority procedure.

And at the same time as well, David mentioned a lot of fantastic automation solutions in the Life Science sector, but we have the same in BD Medical. And I think a great example of that is the Parata Solution. And if anything, that's become more attractive since we've acquired that. That is the answer to pharmacy labor shortages, and, it is the answer to higher labor costs. It automates routine tasks that can be done by robots and software. And we're seeing really strong demand on that herein as its early days in our hands. So we're really excited to have that as part of BD.

Operator

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

Frederick Wise

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. And 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?

Thomas Polen

Thanks for the good question, Rick. So I just -- I'm going to step back a little bit as we think about our portfolio strategy. And as you mentioned, we've been very active in executing our portfolio strategy, shifting BD into those higher-growth spaces, those 3 transformative solution spaces that you've heard us talk so much about, a smart connected care enabling new care settings and improving outcomes in patients with chronic disease, all high-growth markets that are reshaping the future of health care and where BD will be at the forefront of.

And so some of those portfolio actions that we've been doing over the last couple of years include the spin-off embecta. It also includes 19 tuck-in acquisitions over the last few years. And these are all going very well. I think that's important to also hover up and look at. You heard Chris discuss that those that have already anniversary-ed are adding 30 basis points to our underlying growth today because they're doing well. They're in high-growth markets and they're driving BD's growth rate up. Of course, the spin-off embecta also adds to that growth further.

90% of the M&A that we've done to date, of those 19 deals, 90% of it of the spend has been in transformative solutions spaces, those higher-growth spaces that are reshaping our pipeline. And so as we look ahead, we're certainly going to continue to be very disciplined and focused on executing tuck-in M&A in line with our strategy. And that's doing M&A that's strategically aligned in advancing our leadership and expanding our position in those prioritized high-growth transformative solution spaces that I talked about. Those are deals that are accretive and meet rigorous financial metrics that we have. We've walked away from a lot of deals that don't meet those metrics. We're going to stay disciplined to that. And we're proud of we walk away from that perspective.

And then finally, where we see significant leverage and synergies, and I think that's been a hallmark of all the deals that we've done. They've been able to leverage whether or not it's BD global presence, strong BD commercial channels, strong BD manufacturing or procurement capabilities, to add more value as part of BD than they could stand alone. And that's a core principle that we're going to continue to execute against.

So we certainly have a robust funnel. As we look ahead, we're obviously, in the very near term, very focused on the Parata acquisition execution and making sure that, that's a success. I know, again, we really very much welcome the Parata team to BD. And I know they're excited to be here, and we're seeing really strong early momentum with us having come together.

If anything, I would just say expect to probably see a focus on more Parata-cized deals in the future, still very much tuck-in, but along that size versus smaller ones. So and again, we're very active in our funnel management from that perspective. We do see -- we certainly see whether or not in the environment before we've been very active in M&A., we still see many opportunities as we look ahead. Thanks for the question, Rick.

Operator

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

Thomas Polen

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.

Operator

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

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