Becton Dickinson and Co (BDX) 2014 Q2 法說會逐字稿

Hello and welcome to BD's second fiscal quarter 2014 earnings call. At the request of BD, today's call is being recorded. It will be available for replay through May 8, 2014 on the investors page of the BD.com website, or by phone at 800-585-8367 for domestic calls, and area code 404-537-3406 for international calls, using confirmation number 24652897. 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 Miss Monique Dolecki, Vice President of Investor Relations. Miss Dolecki, you may begin.

Thank you, Christy. Good morning, everyone and thank you for joining us to review our second fiscal quarter results. As we referenced in our press release we are presenting a set of slides to accompany our remarks on this call. The presentation is posted on the Investor Relations page of our website at BD.com.

During today's call we will make forward-looking statements, and it is possible that actual results could differ from our expectations. Factors that could cause such differences appear in our second fiscal quarter press release and in the MD&A sections of our recent SEC filings. We will also discuss some non-GAAP financial measures with respect to our performance. A reconciliation to GAAP measures can be found in our press release and its related financial schedules and in the slides. A copy of the release including the financial schedules is posted on the BD.com website.

Leading to call this morning is Bill Kozy, Executive Vice President and Chief Operating Officer. Vince is not able to join us today. He is recovering nicely from an orthopedic procedure and will be back to work next week. Also joining us today are Chris Reidy, Chief Financial Officer and Executive Vice President of Administration; Tom Polen, Group President; Linda Tharby, Group President; and Alberto Mas, President of Diagnostic Systems. It is now my pleasure to turn the call over to Bill.

Thank you, Monique and good morning, everyone. As we stated in our press release we're pleased with our performance in the second quarter. Our results this quarter highlight our consistent performance and the benefit of our diverse geographic and product portfolio. We delivered solid revenue and EPS growth, which were in line with our expectations.

Revenue growth in the second quarter was driven by our Medical and Biosciences segments. Diagnostics international growth was partially offset by continued challenges in the US, which we will provide some color on later in the call. We saw continued strong international safety and emerging markets sales and they remain as key growth drivers for the Company. Based on our solid results for the second quarter and the first half of the year, we are reaffirming our previously communicated currency-neutral revenue guidance and we're raising our adjusted EPS guidance for the full fiscal year 2014.

On Slide 5, we have outlined our second quarter revenue and EPS results, which I will speak to on a currency neutral basis. Total Company revenues were solid, increasing by 5.1%. Fully diluted EPS came in at $1.45, growing at 10.1% over the prior year. On an adjusted basis, EPS of $1.53 grew 15.8%.

Now I'd like to turn things over to Chris to give you a more detailed discussion of our second-quarter financial performance.

Thank you, Bill and good morning, everyone. I'd like to begin by discussing the key financial highlights for the second quarter. As Bill just mentioned we delivered solid performance. Revenue growth in the second quarter was in line with our expectations. We experienced strong growth in our Medical and Biosciences segments, which were aided in part by a timing of orders. As Bill just mentioned there were some challenges in the Diagnostics segment, particularly in the US. I will speak to that in just a moment.

In the second quarter performance improvements in our gross profit margin were more than offset by the unfavorable impact of foreign currency. On a currency-neutral basis we improved gross profit by 60 basis points.

Our tax rate improved substantially due to geographic mix and some discrete onetime items. This benefited earnings by about $0.03. Adjusted earnings per share were $1.53 and grew 15.8% in the second quarter. Also during the second quarter we completed an additional $24 million of our approximate $450 million share repurchase plan for 2014. This brings our total share repurchases year to date to $213 million.

As Bill just mentioned we are reaffirming our currency-neutral revenue growth guidance and raising adjusted EPS guidance for the total year. On Slide 8, I'll review our revenue growth by segment on a currency-neutral basis. Organic revenue growth was 5.1% for the total Company. The impact of price erosion was about flat in the quarter, and as a reminder, the SSI acquisition is now included in our base.

BD Medical second-quarter revenues increased 6.3%. Growth in this segment was driven by a range of new products, emerging markets strength, and some timing benefits. Growth in Diabetes Care was 10.4%; this reflects continued strong sales of pen needles, which includes our Nano and AutoShield Duo products.

Medical Surgical Systems growth was 4.4% led by emerging markets and international safety sales. Pharmaceutical Systems growth was 6.6%. As we expected and as we typically see in this business, this reflects a favorable impact from a timing of orders. Timing of orders in the quarter positively impacted growth by about 350 basis points within the Pharmaceutical Systems unit.

BD Diagnostics second-quarter revenues increased 1%. Solid sales in the Preanalytical Systems unit and the BD MAX genome platform were partially offset by a decline in our women's health and cancer business. This was due to extended cervical cancer screening intervals and US share losses.

BD Biosciences revenue growth was 10.2% versus the prior-year period, due to solid clinical and research instrument placements and reagents, along with strong emerging market growth. Growth in this segment also benefited from the timing of a government order in Latin America, a large tender order in Africa, and more normalized stimulus spending in Japan. These items benefited growth by about 350 basis points. Growth in the second half of this year will decelerate due to these timing items.

Moving to Slide 9, I'll walk you through our geographic revenues for the second quarter. As we expected, softer growth in the US was supplemented by continued strong international growth. BD's reported US revenues increased 0.2% versus the prior year. We view the environment in the US as constrained but stable.

Revenue in our US Medical segment increased by 5.2%, which was largely driven by timing of orders in our Pharmaceutical Systems business and strong growth in Diabetes Care. US growth in Diagnostics segment declined by 6.4%. This was due to the challenges I just mentioned a moment ago coupled with a mild flu season. Growth in the US this quarter was largely impacted by challenges in this segment. We are seeing some stabilization in our US Biosciences business, which experienced growth of 1.4%.

Moving on to international, we continue to see strong growth. Revenues grew 8.5% currency neutral, with growth coming from all three segments. Medical segment grew 7.0% and Diagnostics grew 8.1%. This reflects strong growth in emerging markets and international safety sales. Biosciences grew 14.3% and benefited from the timing items I just mentioned. Our Biosciences segment also experienced strong growth in emerging markets.

On Slide 10 we continue to see strong growth in emerging markets, which accounted for approximately 24.5% of our total revenues. Emerging market revenues grew 13.9% currency neutral over the prior year. This was driven by strong performance across all segments and most geographic regions. Slightly slower growth in China of 17% reflects a tough comparison to the prior-year period. We continue to expect low-double digit growth in emerging markets, and growth in China is expected to be in the 20% range for the balance of this fiscal year.

Moving to Global Safety on Slide 11, currency-neutral sales increased 4.9% and grew to $531 million in the quarter. Safety revenues in the US were about flat, while international sales grew 11.2% currency neutral, with emerging markets growing about 20%. Medical Safety sales grew 4.4%, driven by a range of safety engineered products. Diagnostic Safety growth was 5.5% in the quarter.

As I mentioned earlier the benefits of our SSI acquisition have annualized and are now included in the base. This impacted our US Safety and Medical Safety growth rates in the quarter.

Moving on to gross profit on Slide 12, positive performance in the quarter reflects benefits from ReLoCo and other continuous improvement initiatives and pension savings. These items were more than offset by an unfavorable currency and higher raw material and start up costs. Our gross profit guidance remains on track for the year.

Slide 13 recaps the second-quarter income statement and highlights our foreign currency-neutral results on an adjusted basis. As we discussed, revenue and gross profit were in line with our expectations. SSG&A increased about 1.4% which reflects the benefit of a one-time item in Europe. R&D increased 3.8%; this remains in line with our expectations at 6.1% of revenue, as we continue to invest in new product development and innovation.

Operating income grew 13.5% in the quarter, reflecting our ongoing focus on earnings quality at the corporate and business unit level. Our tax rate declined by 170 basis points, which benefited from geographic mix and some discrete one-time items. In the quarter adjusted earnings per share were $1.53, which is a 15.8% increase versus the prior year.

On Slide 14 we'll review our revised outlook for the total year. As we mentioned earlier we are reaffirming guidance for currency-neutral revenue growth and raising guidance for adjusted earnings per share. On a reported basis our guidance assumes a euro exchange rate of $1.37.

Reported revenue growth is being negatively impacted by other currencies. As such we are lowering our reported revenue guidance by 50 basis points. In our Medical and Biosciences segments we have increased our revenue growth expectations. Our revised guidance in Medical of 5.5% to 6% reflects solid core growth and the benefit from new product launches.

The Biosciences segment is now expected to grow 4% to 5%, reflecting continued international growth. We now expect the Diagnostics segment to grow about 3% to 3.5% due to some of the US challenges we mentioned earlier, in addition to a lighter flu season than anticipated. Adjusted earnings per share of $6.22 to $6.25 reflects the benefit of an improved tax rate for the total year, partially offset by unfavorable foreign currency. Our expected tax rate of 23% to 23.5% contemplates a more favorable geographic mix.

Moving onto Slide 15. I'd like to review the revenue guidance in further detail along with the phasing for the second half of the year, as it is compared with the particularly strong back half of 2013. I'll speak to this slide on a currency-neutral basis.

As you can see we delivered strong growth in the first half of the year; for the total Company revenues grew 5.9%. Strong growth in the Medical segment of 7.4% benefited from timing in our Medical Surgical Systems and Pharmaceutical Systems business and the acquisition contribution from SSI. You'll see that the growth rate is expected to return to about 4% to 4.5% in the back half of the year after normalizing for those items.

We're also contemplating less favorable pricing. For the total year we expect the Medical segment to grow between 5.5% to 6%. Diagnostics growth in the first half of the year was 2.6%, a benefit from share gains and point of care flu sales were offset by the US challenges we mentioned earlier in women's health and cancer. For the second half of the year we expect revenue growth to rebound a bit. Our revised guidance of 3.5% to 4.5% for the second half contemplates strong KIESTRA placements. For the total year we expect the Diagnostics segment to grow 3% to 3.5%.

Despite the challenges we're facing in the US Diagnostic Systems business, we're still seeing success in our international businesses, and are making good progress with various new product launches. We're confident we can continue to deliver solid growth in this segment.

Our Biosciences segment grew 8% in the first half of the year. This strong growth was driven by the timing of orders I mentioned earlier. We expect growth in this segment to be between flat to 2% the back half, but it will be weighted more heavily in the third quarter.

As you may recall the fourth quarter of last year was particularly strong as a result of the stimulus spending in Japan, which presents a difficult comparison. For the total year we expect the Biosciences segment to grow about 4% to 5%. Now I'd like to turn the call back over to Bill who will provide a more detailed update on our progress around our key initiatives.

Thank you, Chris. Moving onto Slide 17, I'd like to review the program and product launches in our Medical and Biosciences segment. In the Medical segment we continue to roll out our new BD Simplist line of prefilled generic injectables. We currently have four drugs approved by the FDA, and have applied for four additional drug approvals.

As expected we recently launched the morphine product. As we have been sharing with you, this is still a very new initiative. It will take some time for these products to gain their traction in the marketplace.

In our Biosciences segment we recently launched our BD FACSPresto CD4 and hemoglobin analyzer. The BD FACSPresto expands the ability to stage and monitor HIV-AIDS patients close to their homes. It is an easy-to-use system that meets the needs of resource-limited settings.

The BD FACSPresto can be easily transported and operates off a rechargeable battery, enabling patients even in remote settings to receive critical CD4 testing. Early customer feedback has been very positive. Also this year we've launched three dyes and plan to add several additional dyes to the Sirigen portfolio.

Turning to Slide 18, you'll see the various product launches in Diagnostics. On our BD Veritor platform we launched our Strep A Test in the US this past quarter. We also received clear waivers on both our Strep A and RSV tests, making these tests more accessible to clinicians in the US. To date, we've made over 12,000 Veritor placements.

On our BD MAX molecular platform we look forward to the US launch of our enteric bacteria panel and CE marking of our enteric parasite panel later this year. These tests, which traditionally take three to five days to achieve results, can be completed in minutes, which also reduces the need for unnecessary antibiotics in the meantime. We're excited about the unique assays in our pipeline, which combine our deep microbiology know how with our molecular capabilities.

Our BD Onclarity HPV assay was launched recently in Europe. This assay runs on our new Viper LT automated platform, which is capable of both SDA and realtime PCR molecular amplification formats. During the second quarter there were numerous installations across Europe and Asia.

We will add our CT/GC assay to the Viper LT as soon as we receive CE marking, which is expected in the next quarter. We're also expecting US FDA 510-K clearance of CT/GC on the Viper LT in the third quarter. Of course we will continue to update you as we do make progress on these pipeline initiatives.

On Slide 19 before we open the call to questions, I'd like to reiterate the key messages from the presentation today. First, we're pleased with our consistent solid performance in the second quarter and our results year to date. Second, we continue to execute on our strategy and deliver top and bottom line growth and margin expansion.

Third, we saw solid growth in our Medical and Biosciences segments and continue to be pleased with the progress we've made on the key growth drivers across our various businesses and regions. Despite challenges we're facing in the US Diagnostic Systems business, we are confident we can continue to deliver solid growth in the Diagnostics segment.

Finally, we are positive about our outlook for fiscal year 2014. We're committed to delivering currency-neutral revenue growth of 4.5% to 5% and 11% to 11.5% adjusted EPS growth. Our diverse product and geographic portfolio and the operational effectiveness programs we have in place provide BD with a strong foundation. We believe we're well-positioned for continued success in fiscal year 2014 and beyond. Thank you. We will now open the call for questions.

Thank you.

(Operator Instructions)

Brandon Couillard, Jefferies.

I didn't catch if Alberto is there or not, but if so could you elaborate on the US Diagnostic Systems business in the second quarter? Slowed materially even though Quest has already been in the run rate. And then the guidance implies an acceleration in the back half. Could you quantify the effect of the KIESTRA placements in that acceleration?

Sure. This is Bill. I'll take a first shot. Alberto is here and I'll ask him to comment also.

One thing I'll do, let me just give you our view on Diagnostics, including the US piece. Our international growth is up about 6% in the second quarter, and year to date it's at about 7%. We're continuing to see good solid growth in the core part of our microbiology business, and particularly our BACTEC business and our ID-AST business are solid at around 4%, 5%.

Also in the second quarter we had a very strong degree of placements with the BACTEC FX. It's one of the best quarters we've had in quite some time. That's a big part of some of our second-half projection here that we'll talk about. Additionally, the emerging markets continued to be pretty strong, both China and Latin America growing at strong double digits, contributing to an overall emerging market growth rate around 10%.

Now, to your question of KIESTRA, we do have very strong demand. And as Chris indicated in his comments we've got expectations for strong placements in the second half of the year. I'll give that part to Alberto here in a second.

Additionally, our POC, our Point of Care category share gain, which was somewhat dampened by a weak flu season, still gives us some encouragement on the second half of the year, as does the MAX genome growth that we experienced in the quarter.

Now, to get at the challenged part, it's women's health and cancer and it's in the United States. You might recall last year we described to you a major account loss. That of course is still playing out in fiscal year '14. Chris already mentioned the interval testing and the impact on cervical cancer, which is ongoing particularly on our SurePath reagent business, and we have had some sales erosion on our ProbeTec platform, again concentrated in the US.

We're hoping that we get Viper LT launched in the third quarter with CT/GC, which I mentioned in my remarks. That's key to defending that business and slowing down some of that sales erosion. Now, let me just flip -- Alberto, any color you'd like to add, particularly around the KIESTRA placements in the second half?

If I focus on why we think the second half is going to be stronger it's some of the underlying positive trends that we're seeing in the business are highlighted in the second half. And again, the KIESTRA orders are going to be beginning to be placed in the market, more strongly in the second half and into next year. We actually feel very positive about the demand patterns that we're seeing going forward.

One of the things that is driving that is our expected launch of ReadA Compact, which was one of the components of the Lab Automation KIESTRA that we'd expect the next in the next month, month and a half. We have it in four sites right now, and with very positive feedback we're expecting a global launch of that platform in the next couple of months. So that should be certainly an accelerator of growth for the second half and in the future.

MAX, again we're expecting we had a good quarter, we expect even stronger quarters in the next couple quarters and going forward, so this is an accelerating product line for us. And we're pretty much where we expected to be in overall revenues.

As Bill said, BACTEC placements should be begin to generate reagent revenue in the second half and going forward. And again, the launch of the Viper LT will enable us to begin to -- it's a good tool for us to begin to defend our CT/GC business going forward as well.

Kristen Stewart, Deutsche Bank.

Thanks for taking the question. I was wondering if you could-- I know you mentioned a couple times the different timing orders and the impact within the individual businesses. What's the impact in aggregate I guess for the quarter? The 5.1% currency neutral, what would that have been in your estimate excluding some of these one-time factors? Or timing factors?

This is Chris. The way to think about that is really on a first half, second half, because there's some timing even between the first and the second quarter. So if you look at the first half, that 5.9% that we had year to date, about 40 basis points of that was the lift from the SSI acquisition. And then there was about 50 basis points of timing of orders. And so that's Pharma Systems, the BDB orders that we talked about and some Med Surg timing of orders.

On top of that you had a little bit of favorable pricing in there. And you had the Japan stimulus, which is accelerated this year, year over year as we said, it all came in the fourth quarter.

So if you normalize all of that, we get in the 4.5% to 5% range for the first half of the year. And then if you look at the second half, the 3.5% to 4% that we showed the timing of orders brings you back to 4% to 4.5%. The Japan stimulus and the unfavorable pricing flip gets you in that 4.5% to 5% range. That's the way to think about first half, second half.

David Lewis, Morgan Stanley.

Good Morning. Bill, just thinking about your commentary on China, specifically the Biosciences slowdown in the back half of the year, can you give us a sense of how you expect China to trend in the back half of the year relative to Biosciences? Some of your peers have talked about delays at the Ministry of Health, specifically affecting capital. I'm wondering what impact if any that can have on your flow business? Thank you.

Sure, David. Linda Tharby is here with us and she's closest to that. Let me just pass that question over to her and ask for her comments. You're specifically interested in China, David and second half impact on government influence?

Good morning, David. It's Linda here. So we continue to see in our Biosciences business very strong growth in China, and we're seeing that come not only from the clinical market and expansion in lab presence and flow cytometry there, but also really strong presence from Accuri, which is our personal flow.

So we continue to see growth in the very high-double digits in China in the back half. And at this point aren't projecting anything with respect to a slowdown in that market due to a good balanced portfolio between both our research and clinical setting.

I'd like to take the opportunity to emphasize as I mentioned in the prepared remarks, the 17% that we had in this quarter was driven more by the difficult compare to the second quarter of last year. And so we see the rest of this year being in the 20%-plus range.

David Roman, Goldman Sachs.

This is actually Matt McDonough in for David. Continuing with emerging markets, I was hoping you could provide a little bit more detail just on some of the moving parts, the different dynamics; you've now talked extensively about the China slowdown being driven more by the comp than actual slowing, but could you perhaps talk about trends you're seeing in other markets?

Sure. Let me make a couple of comments here. First of all as we look at the scale of our emerging markets, China and Latin America are very, very critical drivers both in terms of scale and growth. Chris has already commented that we really see sustainability in China around that 20% number for the remainder of the year. We're seeing similar types of numbers coming out of Latin America.

And it's across -- I hate to generalize to your question, but it's pretty much strength across all of our businesses, Medical Diagnostics and Biosciences, all reflecting very, very strong double-digit growth in each of those markets. That's supplemented a little bit at a lesser scale by Middle East and Africa, but think about China, Latin America as real drivers of our emerging market growth, particularly at this window in time in fiscal year '14.

Mike Weinstein, JPMorgan.

Just a couple questions. Number one, just one income statement question; in the SG&A lines you called out some benefit from Europe. I hope you could just clarify what that was?

Michael, we're not hearing you. Operator can you help us repeat that question, we didn't catch it. I think we've got a bad connection. I'm sorry I can't hear you, I apologize but we can't catch it.

No worries. We'll try again.

Richard Newitter, Leerink.

Thanks for taking the question. I noticed that price I think you said was flat this quarter, it was up about 40 bips last quarter. Can you comment on what you're seeing there in the environment and expeditions for the rest of the year?

Yes. This is Chris. I'll take a shot at that. The second-quarter pricing was just about where we expected it to be. It was flat to slightly down 2 basis points. Right where we expected. As we said, pricing in the first quarter was a little bit better than we expected, so we had adjusted the pricing guidance for the year to about 20 basis points down.

As we've been saying, it's all about the second half of the year and particularly the fourth quarter. So we're still looking at it being down about 20 basis points for the year based on fourth-quarter tenders that we're looking at and the pressures we see there. But really no change since last quarter on that. Kind of in line with where we were.

Okay. Thanks a lot.

Doug Schenkel, Cowen & Company.

Thanks for taking my questions. My first question is it appears you terminated a European Diagnostic distribution agreement in the quarter. Was there any revenue impact in the quarter? And do you expect any hangover associated with that?

And I guess the second question, somewhat related is SG&A was quite a bit lower than we expected in the quarter and dropped a bit, quite a bit sequentially. It's unclear if your guidance implies that this is going to continue. Could you talk us through how we should think about SG&A over the balance of the year? Thank you.

Sure. The SG&A was 1.4% as we mentioned. There was a one-time item in Europe that benefited us. It was a collection of a receivable that had been written off that we collected. That does flow through to the year.

We increased the earnings per share by $0.03, but offsetting that was the impact of foreign exchange. So as you saw that we adjusted our reported revenue guidance for foreign exchange, that actually flows down through the EPS as well, so that was $0.02.

So that foreign exchange pressure offset the benefit of the one-time item. And then the $0.03 rise that we had in EPS was essentially attributable to the tax rate decline. So SSG&A for the rest of the year absent that one item will be still in the range basically that we had guided to.

This is Bill. We did discontinue a distribution arrangement in Spain related to a couple of our businesses, primarily it was a Preanalytical Systems relationship. That does not carry any revenue impact for us on a go-forward basis. It's just a realignment of how we are going to go to market in that particular country.

Mike Weinstein, JPMorgan.

Just to follow up on that, the SG&A, the receivable benefit this quarter was about $0.03. Is that what you said?

It was actually more like $0.02. It was just slightly more than $0.02. And it was exactly offset by the FX pressure, which was slightly more than $0.02.

I just want focus on the Biosciences business. It's hard to separate out the one-time positives in the first half in terms of orders versus the second half. So can you just talk a little bit more about the underlying business, and maybe try and give us a better picture of how that second-half would look ex the orders that pulled into the first half?

Let me start by just saying the best way to think about that is for the guidance for the full year. So there's a lot of putting puts and takes quarter to quarter. And as you remember, the big impact in the fourth quarter -- I think, at the end of the third quarter last year I think our Biosciences growth rate was 0.9%. And then I think we were close to 12% in the fourth quarter.

So lots of puts and takes, but when you boil it down, we're running about what we are for the year what our guidance is for the year in Biosciences. That's probably the way to think about the underlying business.

This is Bill. The big factor to remember in that fourth quarter was the movement in FY13 of the Japan stimulus spend into the fourth quarter of '13. So our fourth quarter of '14 is up against a very unusual comp, a very strong Japan stimulus driven comp from FY13. And that's really the single biggest factor on that second-half Bioscience growth.

Okay. And then just a comment about less favorable pricing in the second half. What is that tied to?

I didn't quite catch that whole thing. I heard part -- less favorable pricing in the second half of the year, Chris.

That's consistent with what we've been saying, as we look out at tenders particularly in Europe, they come primarily in the fourth quarter. So I don't think you're going to see any much in the third quarter evidence either. We'll be sitting here next quarter still guessing what it's going to be for the year, but our best guess is it's going to be down 20 basis points at this point.

Got you. Thank you.

Jeff Frelick, Canaccord.

Just wanted to follow-up on the strong Veritor placements where you are year to date. Could you share the mix US versus OUS on the 12,000 placements? Thanks.

Let me -- this is Bill I'm going to give it to Alberto, he's here. Would you comment please?

Yes. The big majority is in the US. There's also a component in Japan. And the rest is a lot less.

So those are the biggest components driving it. US, the season was milder as you probably already know. In Japan it was slightly stronger than usual. But it's mainly US driven.

Matt Taylor, Barclays.

This is Elliot filling in for Matt. Just want to touch on Diabetes for a second. Had a nice another nice quarter there. Can you touch on any of the underlying fundamentals in that market, and maybe any other areas within that segment that may be of interest to you guys going forward whether it be sensors or pumps or any sort of product lines within that segment, that's been growing nicely for you guys maybe of interest?

This is Bill. We did have a solid quarter in Diabetes. Interestingly enough we had double-digit growth both US and international, both right around 10% give or take a few basis points.

The US favorability is a continuing story. It's really around pen needle growth. And it's particularly been driven by our ongoing penetration with the Nano product. We had growth in the quarter in the US on Nano that was well north of 50%. So we're really driving our penetration rates with Nano. Worldwide now we're actually north of 25% on Nano penetration. So that continues to be very, very key to the Diabetes care business.

International was also strong and you had emerging market growth is the driving contributor there. Think about that being right around 17%, 18% for the quarter. Similar comments to what I made before about emerging market, Latin America and greater China being the real critical drivers there.

In terms of what's next for us in Diabetes, we have referenced the fact that we continue to do product development in the area of insulin infusion. At this point in time, that is the high priority product development activity in the Company in the Diabetes Care business.

Vijay Kumar, ISI Group.

Thanks for taking my question. I have a couple of special questions on the Diagnostics piece. One was women's health. In the past you've given this market conversion on related to interval testing, I think you said core 60% number. Where do you think we are? And second on BD MAX, your comments were pretty positive. How many systems did you place in the Q and what kind of acceleration can we expect going forward? Thanks.

This is Bill. Your question Vijay, really on the interval testing, we've got it somewhere right now, somewhere in we think that about 60% to 65% of the physicians have adapted. It's a hard number to grab onto, but the takeaway is that we still think there's some room to go before you can see that there's been a significant, a 90% or higher adoption of the new interval testing.

On BD MAX, in terms of our placements to date, we're right around 340 placements worldwide at this point in time. Alberto, doublecheck my numbers. Is that --

That's correct. 340, around that number but we're seeing encouragingly a lot of reagent throughput that's coming through our machines. So from a reagent perspective we're really encouraged by what we're seeing, and hopefully with the new launches of enterics and other assays, we should see that increasing a lot.

Jon Groberg, Macquarie.

Thanks for taking the question. Vince, if you're listening I hope you feel better soon. Bill, you guys obviously had another very strong quarter, 5% growth which is great. I think you guys deserve some congratulations obviously. Can you break it down, the one blemish is Diagnostics, and yet if I look at your second-half guidance for the year, that's the one that you expect to improve in the second half.

So I know you've been answering some questions on it, but maybe I can just if I think about the US specifically, I think women's health at this point on your Diagnostics Systems is only something like 10% to 13% somewhere in there in terms of the revenue, so it seems like it's fairly small. Can you maybe talk about all the different pieces of the business within the US? And then whether or not you expect the US business specifically to improve in the second half to drive that increase to 3.5% to 4.5% for the second half of the year? Thanks.

Sure. This is Bill. I'll take a shot here. There's actually four key factors on that second-half guidance that we provided. Number one, for sure, we've got this KIESTRA demand, and we are expecting positive impacts from the placements of KIESTRA, and particularly in the fourth quarter, more the fourth quarter than the third.

Second, I mentioned the ongoing revenue performance of international, we expect that to continue. And again sustainably in that 6% or 7% range.

Number 3, we're counting on BD MAX. We just commented on placements. Alberto mentioned our reagent pullthrough running a little bit ahead of our expectations. That's a factor.

And then there's a minor one, it's less important, but we don't have any Point of Care drag in the second half and we took a little bit of a parachute drag on Point of Care in the first half. That goes away in the second half. So I would say those four things are our key factors in upscaling that second-half guidance.

Brian Weinstein, William Blair.

Thanks for taking the question. You guys have talked a lot about some of the discreet benefits in the second half of the year, but what about any discreet headwinds? Can you quantify anything on seasonality, the impact from flu, any calendar impacts that your peers have been consistently highlighting as calendar first-quarter headwinds, that should abate in the remaining quarters of the year? Thanks.

This is Bill. We stared down a couple of the things that we're paying attention to. We have to stay that we didn't quantify any headwind related to weather. It was nominal if we had anything. We did not quantify any headwinds related to US utilization. I think Chris commented, it's constrained but stable. And so we couldn't quantify anything there.

Our commentary around our challenges if you would was all in that Diagnostics Systems area and it was all concentrated in the US. So we could not if you would, assign any of our shortfalls to any other external factors. And I think that our ongoing international presence in emerging market growth is a foundation which shields us a little bit.

Some of my comments about the diversity of the regional and product portfolio, that really helps us to get through these sporadic regional or country-based activities that you can experience during the course of the year.

The thing I would add is we did talk a little bit talk about the flu season being less severe. The good news for us is we actually took share with the Veritor product and that helped make it essentially flat year over year. So much less severe but upside on the market share.

But having said that, flat year over year is not what we're shooting for, so that's a little bit of a drag. But that would be the only one that I would add.

Derik de Bruin, Bank of America.

A little bit on the Bioscience, on the flow cytometry market, particularly on the high-end, I know we're starting to see some interest from researchers using some technologies like mass cytometry. Sort of like with the deal that Fluidigm did with the DVS business. I'm just wondering how you see that high-end flow cytometry market? Can you quantify how much of your business is that versus some of the more clinical aspects, just a little bit more color on your business there?

This is Bill. I'm going to turn this over to Linda. I'm not sure -- comments you have that kind of a detail here today?

What I can comment on is we certainly see very nice growth in our high-end research market. We've had several launches in that market in the last several years. And with respect to the Fluidigm acquisition of DVS we feel very comfortable relative to our ability to compete in that area in terms of our ease-of-use that we have with our instruments versus their CyTOF placements.

Larry Keusch, Raymond James.

Two questions. On Simplist and the morphine launch specifically, obviously I know that's an important one for you guys. And you made some brief comments, but I'm wondering if there's anything that you can add to that just relative to how that seems to be playing out.

And then secondly, just on the capital allocation side, you're targeting $450 million of share repurchase for the year. But again if you could remind us how you're thinking about deployment of cash and also how much of your cash currently is sitting overseas?

This is Bill. I'm going to turn the Simplist question over to Tom, and then he'll pass it on to Chris for the second question if that's okay. Tom?

Good morning, this is Tom. On Simplist, just as a reminder, is Bill mentioned we've got four drugs now launched in the Simplist format. Morphine is as we've always said is actually our most significant launch to date. It is the first drug that's both in the prefilled device that is also a high risk drug. The strongest value proposition of all the products to date and what we view as a lead within our portfolio.

We're getting very positive customer response on that while early on, and as we've said before this is a very new initiative. And we still do expect that it's going to take some time for us to start seeing that ramp come through in our numbers, but positive overall feedback on morphine.

Good and part two, really no change what we've said in terms of capital deployment. We're still on track to do the $450 million of share buybacks. As you see the dividend has grown over time. We like where the payout ratio is right now. So really, no change from that standpoint.

And from the outside US cash, the way to think about that is is we look at it, between the cash on hand, which right now in the US at the end of this quarter was probably about $400 million, of the $2.6 billion global, so a lot of it is outside the US. But between the US cash on hand, the cash flow, and our legal entity and dividend structure, we see no issues over the planning horizon and having the cash to support the dividend and share repurchase.

Kristen Stewart, Deutsche Bank.

Thanks for taking my follow-up. Just wanted to gauge your thoughts on M&A, if we should expect any additional activity here in the coming quarters?

Really no change from what we've said in the past. We've done more M&A over the last three years. I guess we've done seven deals now in the last three years or so. We're always looking for tuck-in acquisitions.

As usual, M&A is kind of lumpy, so you don't do it just to do it, you do it when you've got the right prospect at the right price. So no real difference in our M&A strategy from where we've been over the last two years.

Thank you. There are no further questions. I will now turn the back the floor back over to Vince Forlenza for closing remarks.

Not quite. This is Bill sitting in for Vince. Thank you all for your attendance today and participation. We appreciate your engagement and questions. And we remain committed to finishing out fiscal year '14 per the discussion we had earlier. Thanks very much.

Thanks, everyone.

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