Q3 2023 Baxter International Inc Earnings Call

Good morning, ladies and gentlemen, and welcome to Baxter International third quarter of 2023 earnings Conference call. Your lines will remain in a listen only mode until the question and answer segment of today's call.

At that time, if you have a question you will need to press Star then the number one on your Touchtone phone.

If anyone should require assistance during the conference. Please press Star then zero on your Touchtone phone as a reminder, this call is being recorded by Baxter and is copyrighted material it cannot be recorded or rebroadcast without baxter's permission.

If you have any objections. Please disconnect at this time.

I would now like to turn the call over to Miss Claire Trackman Senior Vice President Chief Investor Relations Officer at Baxter International MS. Trackman you may begin good.

Good morning, and welcome to our third quarter of 2023 earnings Conference call. Joining me today are you all made up facts as chairman and Chief Executive Officer dull Graddy factors newly appointed Executive Vice President and Chief Financial Officer, and Brian Stephen Baxter, Senior Vice President Chief Accounting Officer controller and former.

And from CFO.

On the call. This morning, we will be discussing back the third quarter of 2023 financial results.

Along with our financial outlook for the fourth quarter and full year 2023. Please.

Please note that we close the sale of our Biopharmacy since our bps business at the end of the third quarter and results in the current and prior periods have been adjusted to reflect Vps is discontinued operation.

Brief David scheduled reflecting that discontinued operations presentation are included in the appendix to our earnings presentation and.

Available in the I R section of our website.

With that let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook for the fourth quarter and full year 2023.

New product development, including the impact and status of pending regulatory approval.

The status and potential impact of our ongoing strategic in recent pricing accents.

Business development.

Regulatory matters, and the macroeconomic environment, including commentary on continuing supply chain challenges and evolving customer capital spending trends contains forward looking statements that involve risks and uncertainties and of course, our actual results could differ materially from our current expectations.

Please refer to today's press release, and our SEC filings for more detail concerning factors that could cause actual results to differ materially.

In addition on today's call non-GAAP financial measures will be used to help investors understand Baptist ongoing business performance.

Reconciliation of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in the accompanying investor presentation ended our earnings release issued this morning, which are both available on our website now I'd like to turn the call over to Jo Jo.

Thank you Claire and good morning, everyone. We appreciate you taking the time to join US today I am pleased to be joined this morning by cheaper County Officer and controller, Brian Stevens.

Welcome, our new Chief Financial Officer drove grabbed the to the call.

How will begin to call today with an overview of our third quarter performance and the continuing momentum of our ongoing transformation of initiatives.

I will also share perspective on the progress and potential of our proposed kidney kicked spinoff, including some context around the recent developments in depth therapeutic area.

Brian will provide a more detailed account backs this third quarter after natural outlook and as always we will close with your questions.

To get started Baxter reported a solid third quarter results that came in ahead of our projections both on the top and bottom line sales from continuing operations rose, 3% on a reporter basis and 2% on a constant currency basis.

<unk> noted earlier sales from continuing operations exclude baxter's biopharma solutions or bps business, which Bachelor divested at the close of the quarter.

Sales in the aggregate, including discontinued operations also increased 3% on a reporter basis and 2% on a constant currency basis.

Are better than expected topline performance was driven by positive demand for many of Baxter products combined with continued abatement of supply chain challenges on the bottom line third quarter aggregate adjusted earnings per share totaled 82 cents comprising EPS.

Of 68 cents for continuing operations and 14 cents for discontinued operations.

<unk> EPS from continuing operations exceeded the top end of our outlook Ranch R. 65 to 67 cents driven by and market stabilization and good sequential margin improvement across our business, which reflects strong execution.

The gas to always strategic priorities.

Overall, and especially when compared to what we've seen in recent quarters. We view the current market environment as relatively stable, though we continued to monitor a hospital capital spending, particularly in light of one elevated interest rate environment, while we have seen sequential improvement in orders.

<unk> and connectivity solutions Division, we continue to expect customers to exercise some degree of caution with their capital budgets. The momentum we are building and financial performance is also reflected in the progress we're experiencing across the strategic priorities, we laid out for you earlier the <unk>.

<unk>. These initiatives in combination are focused on enhancing strategic clarity, increasing operational efficiency and accelerating innovation to deliver greater value for all of our stakeholders. During the third quarter, we achieved some people don't.

Milestones towards driving this improved performance first we've been hard at work realigning the businesses to simplify streamline our operating model. These airports are resulting in a more agile company with better visibility to our global markets and customers in line with this re alignment today is the.

First time, we formally report our results under the new operating model is for global vertically integrated business segments medical products and therapist healthcare systems Technologists pharmaceuticals, and kidney care. Each segment now has global profit and loss of accountability dedicated.

Commercial operations and fully aligned research and development manufacturing supply chain and functional support teams. This reorganization is already creating meaningful advantages and helping us set priorities build alignment in operationalize our strategy advantages they have already.

Are expected to continue to pay dividends going forward.

Our new segments are also a reminder of our highly diversified portfolio with strong brands, a global presence and hide trust among clinicians and patients the diversity and durability of our portfolio focused on the special healthcare needs helps fuel sustained demand the multiple.

Fronts, allowing us to better weather challenges that can emerge while continuing to deliver on our mission of savings and sustaining lives as discussed this quarter. We also completed the divestiture of our Biopharma solutions business.

Further is streamlining our focus on our core businesses. We are deploying substantially all of our estimated net after tax cash proceeds of approximately $3.7 billion to pay down debt in accordance with already stated kept our location priorities the third trust.

<unk> action, we laid out at the start of the year was the plans separation of what is now our kidney care segment, we are making significant progress in currently expect to launch kidney care as an independent publicly traded company by July 2024.

Continue to be impressed with the leadership of Christophe who joined US in June as president of our kidney care segments and designated CEO of Vantiv in just five months. He has already proven himself as an astute the sizes engaging leader he has already surrounded himself.

With an outstanding team of experienced direct reports drawn from across Baxter and externally and we expect to finalize the organizational structure for the new company by the end of the year. Meanwhile, the hard work of separating kidney care from back to his ongoing across commercial legal regulatory supply chain.

And numerous other key operational channels, just like Baxter post separation kidney care will be positioned to benefit from heightened focus and the ability to pursue its unique investment priorities to serve patients and clinicians drive growth and innovation and create better value for shareholders.

With these S context, I wanted to briefly share some perspective on recent headlines regarding G LP ones, including northern nor disk.

Dobra announcement about flows study and broader speculation about the future of dialysis therapy, we like the rest of the dialysis community continued to follow developments closely.

And we are eager to see the fully study results, which are expected to be published in the first half of 2024.

Given baxter's life sustaining mission, we welcome any new therapeutic approaches they have the potential to improve the lives of patients, particularly those with chronic conditions. We also believed that is premature to assume that these drugs, particularly given the <unk> results heavier.

To be published we will bring about any material shift in the need for dialysis services from a global market perspective, we believe that dialysis therapy will remain in demand and a critical element of patient care for the foreseeable future. Let me highlight a couple of data points that we believe.

Leave are irrelevant.

<unk> data on demographics and disease patterns continue to consistently suggest that the global incidence of end stage kidney disease or E. S. K D will continue to rise over the next 15 to 20 years to.

To provide it'd be more context current data suggest that the global <unk> incidents overall will continue to grow driven by a greater than 35% expected increase in the prevalence of diabetes by 2040.

At the same time global demographic data showed that the number of people over 65 years old should be increasing by approximately 75% globally between now and 2040, which is also expected to increase the number of potential patients at risk of developing <unk> <unk>.

Collectively these macro changes suggested global incidence of <unk> is expected to continue to rise over the next 15 to 20 years, even with important innovations in CK therapeutics.

We also believe that these new drugs are doing important working raising the awareness and prevalence of primary care discussions about <unk> diagnosis and management, we welcomed this focus because better informed and empowered patients drive better preparation for dialysis.

And studies have shown that the more informed the patient is above your treatment options.

So that and we're looking forward to seeing the new study data and understanding how it may provide additional options and benefits for patients with C. K D. My excitement in Ford the trajectory of kidney care remains high or thesis and sense of opportunity for an independent standalone.

Kidney care business remained unchanged from the day, we first announced the spin.

This has been a year of investment of transformation of important and sometimes difficult steps taken to strengthen our present.

And redefine our future we knew when we first laid out this transformation in January that we had to get it right in less than a year later, our progress is evident in our path forward. It's clear we have delivered on our vps divestiture, we have implemented our verticalized segment structure, and we are well on our way.

Right toward achieving the planned kidney care separation.

Our continued progress on this transformation of journey is a credit to the exceptional hard work and commitment of our backs to colleagues worldwide, who is always have my profound. Thanks.

I'm confident these actions I strongly positioning Baxter and in turn kidney care to unlock meaningful long term value for all stakeholders.

Now before we take a closer look at our third quarter financials and outlook for the remainder of the year I'll want to recognize Brian Stevens for serving so well as interim CFO for over the past five months. We're also pleased to welcome incoming CFO drove <unk>, whose wide ranging experience and track record make.

Human outstanding Spit at this time of transformation I will first hand, the call over to Joel for a few introductory comments before Brian and provide seemed more detailed overview of our results for the quarter. Thanks.

Thanks, Joe.

Let me start by saying how excited I am to join all of these today from my first earnings call is Baxter's new CFO.

And more importantly, how motivated I am going to be joining Baxter during such an important point and it's transformational journey.

For many years I've admired Baxter as an iconic company with an incredible mission to save and sustained lives.

When the opportunity arose to join the team I recognize that this is the right next steps in my career.

The position presented with the ability to utilize my broad experiences and finance operations strategy and transformation to help the company deliver on a strategic accidents that Joe outlined earlier.

Paul early I've been extremely impressed with a talented and dedicated employees at Baxter.

And there are unwavering passion for and commitment to our mission.

In addition, I'm very optimistic about the numerous opportunities that exist for the company.

The increase long term value for our stakeholders.

Finally, I look forward to both speaking with and meeting many of you over the next coming months.

Your perspective on our business and the surrounding market landscape will be incredibly valuable as we move forward in our transformation journey.

With that I'll turn it over to Brian to take us through the Q3 results.

Brian over to you.

Joel and good morning, everyone I'm happy to be joining the call. This morning to provide some additional details and baxter's third quarter financial performance as well as commentary on our updated financial outlook is Joel mentioned, we are pleased with our third quarter results, which came out ahead of our expectations.

Third quarter of 2023 global sales included $371 billion from continuing operations and $191 million from discontinued operations.

Sales in the quarter increased 3% on a reported basis and 2% on a constant currency basis and compared favorably to our guidance.

Sales performance in the quarter benefited from better than expected sales and medical products and therapies, particularly our infusion systems and Ivy solutions products as well as continued strength and our pharmaceuticals business driven by Injectables and drug compounding.

On the bottom line adjusted earnings from continuing operations totaled 68 cents, a share decreasing 4% versus the prior year period, and reflecting the ongoing operational improvements primarily offset by the impact of increased interest expense.

Adjusted EPS from continuing operations for the quarter came in ahead of our expectations of 65% to 67 cents per share primarily driven by sales and operational performance and partially offset by higher than expected tax rates in the aggregate inclusive of both continuing and discontinued operations adjusted EPS was flat year over year and totaled 82 cents per share.

Now walk through the performance by our new reportable segments.

Sales and our medical products in therapy segment, where 126 billion, increasing 4% on a constant currency basis within medical products and therapies sales from our infusion therapy and technologies Division, which includes our former medication delivery and nutrition businesses totaled $1 billion, an increase to 4% on a constant currency basis sales.

Sales in the quarter benefited from strong growth in our effusion systems portfolio, driven by continued demand for our infusion pump hardware, including the spectrum LDP say.

Sales from advanced surgery totaled $255 million and grew three per cent on accustomed currency basis in line with expectations and surgical procedure growth.

Moving on to kidney care sales in the quarter $1.1 billion and were flat year over year unaccustomed currency basis within kitten care global sales to chronic therapies were $921 million declining 3% unaccustomed currency basis sales performance in the quarter was impacted by difficult comparison to the prior year period.

Which benefited from certain discrete items that totaled approximately $20 million.

In addition, and consistent with our plans to enhance performance in our HD business sales in the quarter reflect the exit of a distribution agreement in the U S earlier this year.

Finally performance and chronic therapy continues to be impacted the government based procurement initiatives in China, and a lower patient census in the region due to the pandemic. We estimate that collectively these region specific factors negatively impacted sales by more than $40 million in the quarter.

Sales in our queue therapies business for $188 million, representing growth of 12% on a constant currency basis with double digit growth across all regions and reflecting a more stable environment for this business following significant heightened demand during the pandemic.

For our healthcare systems, and technology segment sales in the quarter, where $744 million and were flat to the prior year unaccustomed currency basis within the segment sales in our care and connectivity solutions Division, which includes our former patient support systems, and surgical solutions businesses, where $443 million decreasing 4% on it.

Constant currency basis, primarily driven by a lower contribution from rental revenues and lower hospital capital spending as compared to the prior year period orders within our current connectivity solutions division continued to improve sequentially, increasing more than 10% as compared to the second quarter.

Frontline care sales in the quarter with $301 million, increasing 8% on a constant currency basis, and reflecting the continued benefit of easing supply constraints during the quarter. The business was able to continue to reduce its backlog and we expect to exit the year with a more normalized backlog levels.

Sales and our pharmaceutical segment, where $580 million, increasing 9% unaccustomed currency basis performance in the quarter reflected continued strength and R. U S. Injectables portfolio, driven by new product launches as well as continued strong demand for our services within our hospital compounding portfolio internationally.

Other sales, which represent sales not allocated to a segment and primarily include sales of products and services provided directly through certain of our manufacturing facilities declines more than 50 per cent during the quarter.

This lower level of sales reflects reduced demand in 2023 for certain contract manufacturing volumes and the termination of a royalty arrangement following our acquisition of the rights to the underlying product.

Vps third quarter sales reported is discontinued operations or $191 million, increasing 11% on a constant currency basis.

Now moving through the rest of the piano are adjusted gross margin from continuing operations totaled 41.7% and represented a decline of 70 basis points over the prior year, but improved 130 basis points sequentially. The year over year decline in gross margin reflects the impact of higher costs for raw materials overhead and labor driven.

By the elevated inflationary impacts we've observed over the last couple of years, we were able to partially offset these cost increases through pricing an ongoing margin improvement programs and are integrated supply chain network.

Adjusted SG&A totaled $820 million or 22.1% of sales a decrease of 50 basis points versus the prior year period.

Performance in the quarter benefited from our ongoing transformation initiatives to enhance the operational efficiencies, partially offset by higher bonus accruals under our annual employee side of compensation plans compared to the prior year Oh.

Just that R&D spending in the quarter totaled $161 million and represented for 3% of sales an increase of 20 basis points versus the prior year, we have ramped up our R&D efforts, particularly increasing our investments and advancing are connected care technologies and like SG&A R&D expenses include the impact of higher employee incentive accruals.

As compared to the prior period.

These factors resulted in and adjusted operating margin of 15.2% a decrease of 50 basis points versus the prior year, but a sequential improvement of 200 basis points, an operating margin as compared to the second quarter.

Operating margin came in ahead of our expectations, primarily driven by topline performance and enhanced execution on our initiatives focused on driving improved operational efficiency.

Net interest expense totaled $128 million in the quarter, an increase of $24 million versus the prior year driven by the impact of higher interest rates on our variable rate that.

Adjusted other nine operating income totaled $7 million in the quarter compared to $4 million in the prior year period results were unfavorable to expectations, driven mostly by losses and foreign exchange.

The adjusted tax rate in the quarter was 21.8% compared to 22% in the prior year period, the year over year decrease as well as the Unfavorability versus expectations was primarily driven by changes in geographic earnings mix.

And as previously mentioned adjusted earnings from continuing operations totaled 68 cents and declined 4% versus the prior year, primarily reflecting the increasing cost of goods sold due to inflation as well as higher interest expense and foreign exchange headwinds with respect to our prior guidance earnings favorability was driven by better than expected sales and operation.

Efficiencies, partially offset by negative impacts from ethics, and a higher than expected tax rate in the quarter.

Total company adjusted earnings of 82 cents per diluted share, which includes discontinued operations with flat versus the prior year period.

With respect to cash flow in the first nine months of 2023, we've generated free cash flow of $666 million, including discontinued operations compared to $293 million in the prior year period, and we remain on track to more than double our free cash flow and 2023 from prior year levels.

Now let me complete my remarks by discussing our outlook for the fourth quarter and full year 2023, including some key assumptions underpinning that guidance.

For full year 2023, Baxter expects total sales growth from continuing operations of 1% to two per cent on a recorded basis and approximately 2% unaccustomed currency basis Foreign exchange is expected to be an approximate 50 basis points headwind to reported results on a full year basis.

And a continuing operations basis, we expect a full year adjusted operating margin of 14.3% to 14.5%.

With the closing of the bps transaction and related debt Paydown, we expect a reduction of net interest expense of approximately $45 million in the fourth quarter for the full year, we expect net interest expense to be approximately $450 million.

We anticipate a full year adjusted tax rate of 25% to 21%.

And lastly, we expect a diluted average share count of 508 million shares.

We now expect full year adjusted earnings from continuing operations of $2 57 to $2.60 per share.

Specific to the fourth quarter of 2023, we expect global sales growth of approximately 1% to 2% on a reported basis and approximately one per cent on a constant currency basis, and we expect adjusted earnings excluding special items of 85 cents to 88 cents per diluted share with that we can now opened up the call for Q&A.

Thank you we will now begin the question and answer session. If you have a question. Please press Star then the number one on your Touchtone phone if you wish to remove yourself from the queue again press star one.

If you're using a speaker phone please lift the handset to ask you a question.

So that we may be respectful of everyone's time. Please limit your comments to one question, which one follow up question if necessary.

We appreciate everyone's patience and we'd like to provide as many of you as possible the opportunity to ask a question, we will pause for a moment, while the list as being compiled.

I would like to remind participants at this call is being recorded any digital replay will be available on Baxter international website, or 60 days at Www Dot <unk> Dot com.

Our first question comes from the lineup, Matt MC stick from Barclays. Your line is open.

Thank you so much for taking the questions and.

<unk> grandson, a really strong quarter here.

I appreciate all the color around dialysis and your position on.

All these concerns around G O P wants a super helpful. I'm wondering if.

You could talk a little bit about.

The the loops and hurdles such that they are in front of you still to complete.

This this and a kidney go dashes.

You could maybe just kind of got to where you're at what the next steps are.

And I have one.

Okay.

Thank you Matt good morning.

Met our preparations 40 proposed spin off of the kitchen care segment.

Its own company Santa continues to progress.

Well, we've made significant progress in the incentives operating model, we are designing the organization Spanish to actually and we are allocating personnel to the company in all operational levels and so it continues to.

Progress well, but consistent with boards the exercise of its fiduciary duties you will continue to pressures desk, they're related financials, including as a result of the evolving market conditions.

Sure. We proceed in the interest of maximizing shareholder value.

Of course.

And the a timeline for that sort of approval and presentation has been happening in the first half of next year.

It does have the board meeting, which freaks, but.

July 20th 24 is is is is the end of July 2024 is where we stand today as as the date as far as we know it today. The plan is July of 2024.

And then maybe just if I could ask you a business line question.

You know.

He'll run businesses had been under.

Under some pressure last year, obviously everyone's aware of that.

A variety of reasons. It just wondering if you could speak a little bit about how the back half is shaping up.

<unk> to your expectations and and if we should expect you know things to continue to improve into your <unk> and you have to give us an idea of a cadence into the fourth quarter year or or any sort of puts and takes her up days too.

With a bounce back in that company.

We mess we've made a lot of progress we redesign the organizations who put some really good people we had to replace a key positions as we thought that we needed higher caliper in some areas of the business and we have those folks in place where we put <unk> was this segment breast and to have Julie Brewer.

Came in and brought up a new team in place. So we feel that we've seen a steady momentum in our frontline care business as well <unk> managed by Jim Mcconnell is doing well with improved supply chain availability for electromechanical components up 8% and.

Quarter, and 7% year to date and and is doing well.

Ccs, which is we have the PSS and GSS and the <unk> communications. The former group that we used to call. Her score Ccs today is your senior financial is being impacted by lower ramped of revenues and a bit of softness in her captor, expanding we're seeing improved improved ignored.

Sequentially and expect that to continue in the fourth quarter into 2024, we have increased our investments and H S. D is you'll notice of our research and development has has increased yeah. We're going to continue to increase to get more innovation now, but I have to say is that the whole overall business of HST is gonna have.

Have a very large fourth quarter in terms of gross compared to the rest of the year and bring them more in line with our expectations, including its profitability, which will increase in the fourth quarter as the rest of the company.

Great. Thanks for the color and lots of covered but I'll leave it there with you and thanks again for taking my question. Thanks.

Sure.

Your next question comes from the line.

Kumar Evercore I S. I your line is open.

Hi, Joe Good morning, and thanks for taking my question.

I had one on Ah.

A financial question and one on fiscal 24.

On.

The updated guidance here.

What is the fourth quarter, assuming for interest expenses that stepping down.

I'm getting to implied operating margins, if you're close to 18% that's a pretty big.

Sequential step up it doesn't make sense to you.

Yeah, Yeah, you might as well BJ I'll just quickly obviously interest expense would be kind of have below that line item. So would not be part of our operating margin, but we are expecting I'll, let Brian get into the details in terms of what we're expecting but as we said in the prepared remarks, we expect interest to be down about 45 million net interest.

That $45 million in the fourth quarter, Yeah, and speaking to operating margin.

You are correct, our full year operating margin guidance that we gave a $14, 3% to 14.5% implies a fourth quarter adjusted operating margin that exceed 16% versus the 15.2% adjusted.

Justin operating margin, we landed at in the third quarter really the primary driver of that increase is the sequential improvement in our sales, which is typical seasonally that provides us a lot better operating leverage against our cost base and we're really encouraged to see the progress we've made insignificantly expanding our margins and the second half of the year compared to the first task.

As we discussed our last two earnings cause that expansion is driven not just by the higher sales, but also by cost favorability on our supply chain network as we sold through a lot of our higher cost inventory during the first half of the year and we're starting to see the savings from our margin improvement initiatives. We think is going to begin to slightly outpaced inflation starting in the <unk>.

Fourth quarter, and then finally, driven by cost savings from the operational efficiency initiatives, we've been undertaking in recent periods.

Understood and maybe just pop up that question drill for you on let's go 24.

Can you talk about the big area, both like what gets better when it gets worse and in 24 when can bash, we get back to them at mid single.

You know L. R. P. P. S. S. At the I think the streets modeling hundred basis points of March and expansion Bay.

And some of the girls Commons sure does it seem reasonable for you for the street to be modeling hundred basis points margin expansion.

You know, we see stability in the market in admissions market growth rates you saw some of the published numbers from other companies their hospitals wished aren't we see that as well and we continued to have a pretty stable.

Top line growth and consistently into 2024, so I'm confident about that we have X X or kidney care. The all the three business a Bachelor have have a steady growth into next year.

Probably be higher identity 2023.

Talking to buy the bottom line issue see the sequential improvement in our bottom line Zed will continue into 2024.

We continue to have cost reductions in our manufacturing facilities. We also get more stable volume and growth in volume absorption of her head of overhead and some and some are pricing opportunities in couple of our business is that just highlights for instance, just turn around that.

We have seen our pharmaceutical business. So we will continue with new product launches from 23 24 and also the good demand for a stigma spectrum bumped from 23 to 24 just to mention a couple of things and also we stabilization of our HST business that we see.

In terms of our anniversary and some of the the the difference using in end of fiscal years between <unk> and Baxter restarting the stabilization and and and the successful launch of our progressive plus just to give you a couple of things to give us more confidence June 2020.

<unk> in terms of top and bottom line.

Mmm.

Thanks, guys.

Your next question comes from the line.

People your line is open.

Good morning, everybody good morning, Joe.

It's a funny place to start maybe but and I know that Joel.

What did you charged.

Joel.

Maybe talk about the.

Your request of him as he stepped into the role and Joel I I'd be curious to hear you know.

What kind of special sauce, you're going to bring to the job and.

Where where your priorities lie and just your initial thoughts there.

Rick Good morning, good to hear a voice listen when we're in the process of selecting the C. A full for the company were looking for.

Ability of for the person to get operation into the details and continued to help the transformation of the finance organization and if you. If you look back into finance organization and vast so we had a lot of things that we've changed we have initiated and have done successfully shared service.

<unk> across the board also the development of new talent to the culture and the people are very important to Baxter, So Joel come into the company need to understand that we are complex operating company. We have a lot of manufacturing sites, we have a significant amount of r&d's sites across the globe. It is a company that spans over 100 different countries.

In terms of sales and more than than than 25 to 30 countries in terms of manufacturing and distribution alone. So somebody who had the intellect to combine delta ability to understand complexity and get through it and get operational efficiencies out of it but continues to transform the finance organization and bring the talent.

And the culture to the point that we need to day, agility, and the and and the ability to cope with different inputs also experienced in the M&A space.

Two new to rotate the portfolio of Baxter look at opportunities to transform <unk> into a higher Wham guard to better value for our shareholders, but it passed onto Joel to answer the other side of your questions.

Thank you great Bill called me this morning, and I really look forward to meeting all of you in person.

And hopefully in the near future So look it's.

First of all really excited to be here you know I think all the things that I've thought about when I was going through the process with Joe and with the team or only been reiterated to me as I've gotten your realize the wonderful opportunities that we have here at Baxter, Yes, I'd say early impressions certainly as I said love slots ahead of US there's lots to do but we have great people here.

And an incredibly passionate people as it relates to listen to this company and again I'm really a lot of talent as well as my early view you I'd say moderately focused first of all give me about learning the business you know I'm, a newer to the industry, but certainly.

B focus totally on making sure I understand and learn this complex interesting business. So I can really make the best decisions to support the team and and from there we're going to focus a lot on how do we continue to accelerate growth or accelerate.

Consistent execution.

Of things and how do we think about where are those mechanisms are ultimately swung growth and value creation, certainly we spending time understanding our talents and really just focus the organization is Joseph.

The background I've got both of them grounded in finance op strategy emanate and transformation and so bringing all of those things to the table here for all the opportunities we have Baxter, they're really thrilled to be here and those are some of the areas I'm going to be spending time, focusing on looking forward.

That's great.

A quick call if I could.

It started picking up on beaches question earlier on 24.

R.

When we think about current consensus X kidney <unk>, how do we think about the impact of the spin relative to Dissynergy does contentious adequately reflect.

You know numbers inclusive.

Synergy costs for when you think about the separation of the two companies Standalone standup cost.

Set differently.

Well numbers need to come down that's what I think people are that's what I'm concerned about it I think that's what folks are concerned about thanks, Joe I appreciate it.

Yeah.

Rick maybe maybe a few a few comments on that you know as as Joe mentioned earlier in the process of the span is going between now and we're planning to wrap up on July of 2024. All the models are still in progress and we are refining our dissynergy and stand alone cost <unk>.

Estimates we.

We do plan to be providing additional information on this in connection with our 2024 guidance that we provide a year and as well as in connection with an investor day that we intend to have an advance of that's been taking place so.

No specific guidance on that particular quantification of Dissynergies at this time.

And I want to underscore the fact that we're going to continue to see progress some Bachelor stop lines and bottom line X dose assume that just because we continue to accumulate the cost improvements that we put in place also margin improvement programs, new product launches to turn around.

Pharmaceuticals and Andy.

And a great demand that we're having four hour Sigma distract from bumps. So there are some really good catalytic.

Catalyze uptake in place that will make 24, a better union twenty-three, but I want to make sure that you understand that we will have the disengages where in process of putting them in place.

<unk>.

Your next question comes from the line.

Deutsche Bank your line is open.

Good morning, guys and thanks for taking my questions.

The nowhere my coupon.

Competitors with the next door and with extra and pumps market right now.

The pump sales remain pretty robust and a quarter I will point to get worry about losing market share.

To the other.

Then on your pump approval any updates there is it worth pulling that five 10-K, and we followed helps you the process or any any updates there.

On the current infusions market, we we have really good demand really really good the menu. We haven't lost a one 1% of market share at all or somebody shall we gain market share our growth.

Future hardware growth has increased in the meetings and for next year there is.

The demand is pretty solid for our product remember our product has <unk> right.

Precision the pump cause the right decision and it has what is very well liked in the marketplace. So we continued to get significant.

Income interest from competitive accounts to our pump okay.

On the on the specifically on the on the specific Lee November.

I want to make sure that we.

We continue to work with the F D. A we have.

Given them all the information required.

We submitted with a package we also give them all the <unk>.

All the incremental changes that we've made to the to the product and we are in continue in regular conversations with them during the review period.

While we are with Nelson.

But I just want to let you know, we we really want to get this bump approved of what we're doing everything we can but he meantime, we have a very keeping it really good pump out there. The continues to gain market share and has very good demand as you'll see do Shea and you're gonna see next year as well so is altogether a good situation for Baxter.

Of course, we are working very hard to have the other pump approved we wanted that approved.

Okay, and then next question oil and diesel will be very volatile over the last few months and white aren't giving 2024 guidance if oil and diesel stay in this range can you help us quantify the headwind for 2024 as it costs were all through the balance sheet and Andi P&L ways.

Ways of how you can offset those costs.

Yeah, we have we have put a significant amount of operational efficiencies in place primarily an hour.

Logistics and transportation and supply of group, we see we see the headwinds in parts of the business about.

The cost of energy, primarily fueled but that is a day has been more than offset by by the program. So we put in place. So our initiatives are expected to as I said more than offset an incremental impact from Verizon of oil and do so and DSO prices.

This.

Thank you.

Q.

Your next question comes from a line of Robbie Marcus from J P. Morgan Your line is open.

Oh, great. Thanks for taking the questions and congrats on a nice quarter.

<unk>, maybe just start I know there's been a couple of questions on 24 that had been centered around Martin's, but I wanted to ask on the top line at the analysts day. Your long range plan was for 4% to 5% organic top line growth the streets Madeline, 4% next year coming off a year of around 2% you know what.

What's your confidence level and being able to reach your long range plan targets.

Rob Me a good morning, we we expect.

As I say X R.

Our our kidney business.

Dead or margin will be in line with the expectations. Okay.

The short term and our objective for me to long term for the company is 4% to 5% as we improve Delaware member as well, but we have plans X Reno to get back at of growth.

Close to one today expert so it is a good story. There is we have momentum in several different areas of the company with some product launches as as I said one of the biggest headwind still where you had experienced in the past few years.

B R. A pharmaceutical business day, we were able to turn around with great lunches, so not giving guidance in 2024, but our expectations as to beat around the expectation soft in marketing terms of growth and our mid to long term expectations it used to be 4% to 5%.

Great I appreciate that and.

You know I I Wanna say, it's really helpful to get the segment margins. Thank you for that.

But when I ask on sort of the trend here you know we.

Got year to date and.

Third quarter.

And as well as 22.

How should we think about maybe some of the the past few years and your expectations for margins and the segments here and now with four segments and more ownership on the leadership within each what are some of the examples of things they could do that weren't able to be done before to help improve margins.

Technet basis, Thanks, a lot.

<unk>, we have a significant amount of programming seem in our manufacturing team logistics team also pricing initiatives as well as new product.

Proving our margins you're gonna see that in the fourth quarter as we had.

And now we have guided us we're always are going to see that in 2024, so our our our confidence in continued to improve our margins and once we have the business is spun off the remaining batch. So we will have even further ability to continue to grow which.

Margins, Okay. So because.

Because you saw a bum mix and new products and and also pricing so.

<unk> story is is about the same is that is that is the aspiration to 4% to 5% of the top on the bottom of top line I'm, sorry, and the bottom line of continued to improve sequentially and continues to find a ways of getting productivity improvement through volume mix in pricing.

And Robby R plan right now this this third quarter completing our verticalization in reporting up segment profitability was a big milestone for us and we're extremely excited to be able to share that with you.

And I think our long term plan is when we get to your end and we're putting out information. We do plan to go back and provide supplemental information and history to provide some better compare ability as we've as we've done in other situations in the past, but I think the way to generally think about it as you are looking at the overall directionality of we're back.

Our margins have trended from the first half of the year as we are selling through some of our higher cost inventory to the second half of the year I pretty much across all of our segments, you're going to see sequential margin increases in the back half contributing match us too.

Items I pointed out before but also to additional operating leverage just from higher sales in the back half of the year. So stay tuned in providing any more of that information.

Very helpful. Thanks, a lot.

Your next question comes from the line of traffic speed from Bank of America Securities. Your line is open.

Hey, Joe Thanks for taking the questions I just wanted to follow up on something you said earlier in the call about on the renal spin pressure testing and evolving market conditions that maximize sharing of shareholder value I assume current market conditions, you're still okay with with the the real thing going forward, given you're still talking about it but maybe just talk about you know what's left of analysis of <unk>.

Pressure tests, the real span and and and kind of what you meant by that comment.

I mentioned before is the same master we are we are.

Very much into the preparations we have the team in place we had with all the things in place of companies working very hard does that it is a complex separation primarily now from the point of view of sales and marketing and the company itself, but installed a manufacturing and distribution of it. So we're working on that we have put people in place we always always have the fiduciary.

Responsibility and duty as your boy S. S. R Board has it as well to continue to pressure test did related financials, including as a result of evolving market conditions in the interest of maximize shareholder value to ensure that we proceed with that in mind that is our number one responsive.

When we do anything and Bachelor. So yes, we are moving forward, but we are always making sure that Daddy step is taken and being analyzed and checked.

The teams taking these rely on the financial will allow those things. So it's a part of this is also helping me you know, bringing me up to speed in terms of the <unk>.

Financial applications of it as well so just to add that this.

How helpful. Thanks for clarification, and then 2024 I.

I guess, it sounds like you're confident and accelerating growth kind of above this one to two per cent that you are doing now, but but not quite back four to five. So is there any examples you can give an unreasonably should believe in kind of a little bit better growth and 24, I guess, none of them would be one of those anything else that can really kind of <unk>.

Went out that can give some confidence that 24 revenue growth can be above just kind of wanted to that you're seeing right now.

Well, we're gonna anniversary some headwinds that we had in H H S. D primarily in the <unk> business is one of them then we have some.

Some good launches into our pharmaceutical business and we have continued demand increase four hour stigmas Brecht and pump no you've been taken into consideration novum on this okay. Just just bite while we currently have today give us confidence in our growth next year X X Reno to be higher.

What we have today across all of the three segments MPT HST and farmer.

You know what I wanted to just add a little contacts here because the one did to your pointing out remember does have some of the kidney care impacting it this year from Submetallic. One time payment received last year. So that is kind of putting some pressure if you think about how.

How much kidney can't represent a factor contributing to that one to two per cent.

Within the C. C. Activate this will see some of that momentum going into 2024, now with respect to kidney carrying twenty-twenty for it that's one of the business that we will anniversary. Some does one time payment, but we will have to continue to look at some of the other factors that impacted throughout this year, including just stay out within our China region that have been.

Impacted by the government procurement issue.

As well as just a rebasing filing the pandemic last year.

But.

Scoring desert growth is is in the in the remaining part of Bachelor X X Reno.

Steadily improving our MPT business has been growing at Boston market.

Every every quarter and continues to do well so I wanted to make sure that you appreciate the momentum Delaware embarking and we have shown where the third quarter results, what we mean by that.

Great. Thanks, a lot for that.

Your next question comes from the line Joanne one shot.

Thank you so much and then good morning, and thank you for taking the questions I have Q. The first one is when I take a look at uhm medical products and therapies year over year. It's been margin was down about 190 basis points.

And I think <unk>.

Heading towards this question earlier I'm trying to figure out the trend in that and if we should look at that continuing to any pressure that you're looking to next year and then my second question has to do with some of your G. P O contract and pricing and how we should think about uhm restructuring of renegotiating beds and the potential for taking higher.

Price. Thank you.

So.

Take the M. P. T question I would say within this corner there was a little bit of mixed coupled with some increased investments with an M. P. T. But we should see sequential entries made within that business as well as we go into the fourth quarter similar to what we will see what the most of the businesses. This lifestyle kind of following the general trend is Baxter, but this card around here.

Over a year basis, if you look at it this faced differences within next and some increased investments.

Think adding to that you know as as Joe mentioned, we have a strong pump on the market right now and we're seeing mid teens growth and some of the equipment sales that are coming through that business.

So I think that is something that that has helped us that will be a continuing to focus on next year.

Regarding the second question on pricing.

Puts and takes here, we do have some of our GPO contracts coming up for renewal and we are committed to negotiating pricing that reflects.

Current costs have increased in recent years and it's fair to both parties, we do did get some temporary price increasing.

During the recent periods, that's gonna be rolling off but shortly after that we'll be entering it in negotiation stage. So stay tuned on that but we are committed to focusing on pricing is one of our <unk> in the future just just causing on the GPO contracts were very engaged or two out of three being negotiated the moment.

Four 2025, and and Bryan said, we are looking at all the opportunities to compensate the company for the significant cost increase that we had experienced in 2022.

Thank you.

And your final question comes from the line Danielle and healthy from UBS. Your line is open.

Hi, good morning, everyone. Thanks, so much for taking the question Joel excited to meet you you have a great team over there Mclaren company. So I'm very excited to can work together.

And my question is around the new operating model and how to think about.

Tangible per second how this changes the way faster and Bastian R&D should we be thinking about the real benefit of the operating model Mara on the accountability and call side or R&D side, and elevating the Tan and wanker at that company. Okay. The next two.

Yeah, I think I've been trying to get an understanding where are the real benefit comes from issue operating model and that's it for me. Thanks, so much.

Thank you. It comes first from the accountability of each one of the segments President's who are fully accountable for the profit and losses of their business, including all the applications that got put on as your source is a fully I located P&L. So they make all the decisions on portfolio management within their do spectrum more business also all of this.

The decisions any vast been research and development. So you look at HST. This year, we've been <unk> invest in investing higher with higher intensity in the H S D to get products faster.

Faster there is no two different parties to talk to you all sits within the business also a great advantage you still have the manufacturing supply chain reporting introduced business. Despite the fact, we still have a coordination overall for the company. We do have this business.

The the plants and the heads of those plans in the business and D. R is on the same page and dead drive quite a bit of the cost reductions the optimization of product design because you saw within the same group somewhere fungible somewhere north fungible. Some are qualitative improvements do we see.

Communication. The other is really communication when you have set growth targets for <unk> for the business is easier that way. There's no two different parts you don't have a region of the world that will decide on growth versus a business line that goes across the globe, which is trying to negotiate dose number so is it.

Very simple conversation is very easy to do it in the end we started to see the effect in the creation of our annual operating plan at the moment is is it easier and and better process.

Thank you.

Ladies and gentlemen, this concludes today's conference call with Baxter International Thank you for.

Please wait the conference will begin shortly.

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