Q1 2024 Baxter International Inc Earnings Call

Operator: Good morning, ladies and gentlemen, and welcome to Baxter International's first quarter 2024 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'll need to press the star one key 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.

Good morning, ladies and gentlemen, and welcome to Baxter International's first quarter 2024 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 prestige start one Keith on your Touchtone phone if anyone should require.

Operator: We have time for one final question. Matt Miksic of Barclays is on the line with our final question. Please state your question.

Assistance during the conference. Please press Star then zero on your telephone.

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.

Operator: This call 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 Ms. Clare Trachtman, Senior Vice President, Chief Investor Relations Officer, at Baxter International. Ms. Trachtman, you may begin.

I would now like to turn the call over to MS. Clare Trackless Senior Vice President Chief Investor Relations Officer at Baxter International MS. Jaclyn you may begin.

Matthew Stephan Miksic: Hey, thanks so much for squeezing me in; caught me off guard there. So, you know, one of the things that, a question I get often on Baxter is sort of where is the sort of tall pole and attempt, you know, where is the, you know, where is the sort of significant single growth driver, you know, if there is one. And, you know, looking into the end of this year, in 25, maybe Joe or you could highlight, you know, which of the product lines or business lines do you think are going to emerge as, you know, something that we're all going to look to to sort of see lifting growth or lifting leverage into 25. Thanks. Matt...

Clare Trachtman: Good morning, and welcome to our first quarter 2024 earnings conference call. Joining me today are Joel Almeida, Baxter's Chairman and Chief Executive Officer, and Joel Grade, Baxter's Executive Vice President and Chief Financial Officer.

Joe: Matt, one of the advantages of Baxter, to a point where in the acute market, we provide a significant amount of infrastructure products for those markets. IV solutions, pharmaceuticals, pumps.

Clare Trachtman: Good morning, and welcome to our first quarter of 2024 earnings Conference call. Joining me today are Joe Almeida, Baxter's, Chairman and Chief Executive Officer, and Joe <unk>.

Jos E. Almeida: Baxter's Executive Vice President and Chief Financial Officer.

Clare Trachtman: On the call this morning, we will be discussing Baxter's first quarter 2024 results, along with our financial outlook for the second quarter and full year 2024. With that, let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook for the second quarter and full year 2024, new product developments, including the potential impact of recent regulatory clearances, the status and potential impact of our ongoing strategic and recent pricing actions, business development, regulatory matters, and the macroeconomic environment, including commentary on improving supply chain conditions and evolving customer capital spending trends, contains forward-looking statements that involve risks and uncertainties.

Joe: We also have the capital market with beds and monitors. And so when we think about Baxter in general, we have several of, several drivers of growth. You can see this quarter was a significant amount of growth, and it was more than enough to offset some headwinds that we had in HST. And HST is going to continue to, of course, be optimistic about their business. And I think we're back into our cycle of growth for that business.

Jos E. Almeida: On the call. This morning, we will be discussing Baxter's first quarter 2024 results along with our financial outlook for the second quarter and full year 2024.

Clare Trachtman: 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 Baxter's ongoing business performance. A reconciliation of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in the accompanying investor presentation and also available in our earnings release issued this morning, both of which are available on our website.

Joe: We have innovation in every single part of Baxter. We have significant drivers coming out of the pharmaceutical business, our injectable pharmaceutical portfolio. Our pump conversion rates will be what's going to make that business grow are going to be competitive conversions to our biggest competitor because we have a product that is new and fulfills significant market needs. We also have in our HST portfolio more than seven significant launches in 2025. So innovation in Baxter is not dependent on one or two products. It's a wide range of products that de-risk the company and put the company on a good, solid footing to achieve x kidney, 4% to 5% growth.

Speaker Change: With that let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook for the second quarter and full year 2020 for new product development, including the potential impact of recent regulatory clearances, the status and potential impact of our ongoing strategic and recent.

Speaker Change: Pricing actions business development regulatory matters in the macroeconomic environment, including commentary on improving supply chain conditions and evolving customer capital spending trends contained forward looking statements that involve risks and uncertainties and of course, our actual results could differ materially from our current expectations.

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

Speaker Change: Question on today's call non-GAAP financial measures will be used to help investors understand baxter's ongoing business performance.

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

Clare Trachtman: Now I'd like to turn the call over to Joe. Okay?

Matthew Stephan Miksic: That's great. Thanks so much, Joe.

Joe Joe: Thank you Claire and good morning, everyone. We appreciate you taking the time to join US today I will begin with an overview of our first quarter results and then provide some updates regarding our ongoing strategic transformation, Joe Grady will follow with a closer look at our financials as well as our outlook for the second quarter and the remainder of the year.

Joe: Thank you, Clare, and good morning, everyone. We appreciate you taking the time to join us today. I will begin with an overview of our first quarter results and then provide some updates regarding our ongoing strategic transformation. Joel Grade will then follow with a closer look at our financials as well as our outlook for the second quarter and the remainder of the year. Then, as always, we'll open it up to your questions.

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

Joel T. Grade: Then as always we will open it up to questions.

Joe: Baxter started the year on a positive note, delivering solid results which exceeded previously issued guidance on both the top line and bottom line. First quarter sales from continuing operations were 2% on a reported basis and 3% at constant currency rates. This compares to our original outlook of approximately 1% reported and 1 to 2% at constant currency. Overall revenue growth was driven by positive demand and pricing for a broad range of Baxter products. On the bottom line, adjusted earnings per share for continuing operations of $0.65 came in above our prior guidance range of $0.59 to $0.62 per share.

Operator: Please wait; the conference will begin shortly.

Joel T. Grade: <unk> started the year on a positive note delivering solid results, which exceeded our previously issued guidance on both the topline and bottom line first quarter sales from continuing operations grew 2% on a reported basis and 3% on a constant currency rates. This compares to our original outlook of approximately 1% reported.

Joel T. Grade: And once at 2% constant currency.

Joel T. Grade: Overall revenue growth was driven by positive demand and pricing for <unk>.

Joel T. Grade: Broad range of Baxter products on the bottom line adjusted earnings per share for continuing operations of 65 came in above our prior guidance range of 59 to 62 cents per share.

Joe: This performance was fueled by top-line results combined with our intense focus on driving improved supply chain execution across our manufacturing network. Overall, performance is clearly benefiting from the streamlining and strategic clarity afforded by our newly implemented operating model. As we leverage the advantages of improved visibility globally, increased accountability, and functional verticalization, the crisp execution of our margin improvement initiatives along with a more stable macroeconomic backdrop is driving enhanced performance across our integrated supply chain operations. And, as always, Baxter benefits from its enduring emphasis on essential health care needs in combination with the diversity and durability of our portfolio.

Joel T. Grade: This performance was fueled by top line results combined with our intense focus on driving improved supply chain execution across our manufacturing network.

Joel T. Grade: Overall performance is clearly benefiting from the streamlining strategic clarity afforded by our newly implemented operating model.

Joel T. Grade: We leverage the advantages of improved visibility globally increased accountability and function of vertical location.

Joel T. Grade: Crisp execution of our margin improvement initiatives, along with a more stable macroeconomic backdrop, just drive enhanced performance across our integrated supply chain operations.

Joel T. Grade: And as always backs or benefits from its enduring emphasis on essential health care needs in combination with the diversity and durability of our portfolio. This is clearly a factor in our overall performance this quarter as the strength of our results across medical products and therapies pharmaceuticals, and kidney care helped offset underperform.

Joe: This is clearly a factor in our overall performance this quarter as the strength of our results across medical products and therapies, pharmaceuticals, and kidney care helped offset underperformance in our health care systems and technologies. Taking a closer look at our performance by segment, medical products and therapies, or MPT, delivered first quarter growth of 6% in both reported and constant currency rates. Growth was fueled by both pricing and volume gains amid stable market conditions globally.

Joel T. Grade: In our health care systems and technology segment.

Joel T. Grade: Taking a closer look at our performance by segment medical products and therapies or MPT delivered first quarter growth of 6% in both reported and constant currency rates growth was fueled by both pricing and volume gains amid the stable market conditions globally, we believe were well positioned.

Joe: We believe we're well positioned to build on our momentum in MPT with the recent U.S. FDA clearance of our leading-edge Novum IQ large volume infusion pump and IQ safety software. This integrated platform, which also includes our previously cleared syringe pump, comprises a single connected intelligence system offering a broad range of benefits for nurses, physicians, and other clinicians, as well as the patients who depend on them. Our Novum IQ technology is now available to order in the U.S. as part of our expanding portfolio of connected care solutions.

Joel T. Grade: <unk> to build on our momentum in MPT with a recent U S. FDA clearance of our leading edge Novo <unk> large volume infusion pump and those IQ safety software. This integrated platform, which also includes our previously cleared syringe pump comprises a single connected intelligence.

Joel T. Grade: System offering a broader range of benefits for nurses physicians and other clinicians as well as the patients who depend on them. Our novum IQ technology is not available to order in the U S. As part of our expanding portfolio of connected care solutions customers are excited about the novel platforms ability to advanced connectivity.

Joe: Customers are excited about the Novum platform's ability to advance connectivity, intelligence, and fusion therapy, and the team is already engaged with many customers interested in this new technology. In fact, a large existing Novum Syringe and Spectrum customer will begin implementing the full Novum platform in the next few months. And just last week, we secured a 100% competitive account conversion to Baxter Pumps with a top-tier multi-state health system. As you may recall, Novum LVP clearance was not factored in our original FY 2024 outlook.

Joel T. Grade: Allergan infusion therapy and the team is already engaged with many customers interested in this new technology.

Joel T. Grade: In fact, the large existing novum to reengineer spectrum customer will begin implementing the full <unk> platform in the next few months and just last week, we secured a 100% competitive account conversion to Baxter pumps with a top tier multi state health system as you may remember Novum LPP.

Joel T. Grade: Louis was not factoring in our original FY 2024 outlook given the time of the approval. We expect the contribution from northern launch to be more notable in the second half of the year, even as it displaces to some degree sales of our spectrum IQ pump and the outlook. We are sharing today reflects this expected benefit.

Joe: Given the time of the approval, we expect the contribution from Novum launch to be more notable in the second half of the year, even as it displaces, to some degree, sales of our Spectrum IQ Pump. And the outlook we are sharing today reflects this expected benefit, along with the outperformance in the first quarter. Also, in late-breaking NPT news, last week we received FDA approval of an expanded indication for clinolipid, our mixed oil lipid emulsion that provides a source of calories and essential omega fatty acids for parenteral nutrition patients. Clinolipid is now indicated for use in pediatric patients, including preterm and term neonates.

Joel T. Grade: Along with the outperformance in the first quarter.

Joel T. Grade: Also in late breaking MPT news last week, we received the FDA approval of an expanded indication for Clinton liquid are mixed oil lift in motion that provides a source of calories and essential Omega fatty acids for parental nutrition patients come in the lipid is now indicated for use in pediatric patients, including preterm and term.

Joe: This is an example of our continued commitment to meeting the nutritional needs of patients of all ages and is expected to be a positive addition to our nutrition portfolio. Our pharmaceutical segment achieved growth of 11 percent in the first quarter at both reported and constant currency rates. Results for the quarter reflect the benefit from our recent new product launches in the U.S., including five new injectables in key therapeutic areas, including anti-infective and anti-hypotensive medications.

Joel T. Grade: Neonates.

Joel T. Grade: As an example of our continued commitment to meeting the nutritional needs of patients of all ages and is expected to be a positive addition to our nutrition portfolio.

Joel T. Grade: Our pharmaceutical segment achieved growth of 11% in the first quarter at both reported and constant currency rates results for the quarter reflect the benefit from our recent new product launches in the U S, including five new injectable in Q therapeutic areas, including anti infective and anti hypertensive medications to.

Joe: Together, these new product introductions demonstrate our continued focus on innovation and delivering differentiated products that address areas of need with proprietary, ready-to-use presentations that can simplify the preparation process and support patient safety. Our performance in the segment was also strengthened by heightened demand outside the U.S. for our drug compounding services. This overall momentum more than offset declines from inhaled anesthesia products.

Joel T. Grade: Together these new product introductions demonstrate our continued focus on innovation and delivering differentiated products that address areas of need with proprietary ready to use presentation. They can simplify the preparation process and support patient safety.

Joel T. Grade: Our performance in this segment was also strengthened by heightened demand outside the U S for our drug compounding services. This overall momentum more than offset declines from inhaled anesthesia products, our kidney care segment delivered 3% growth at reported rates of 4% at constant currency growth was driven by <unk>.

Joe: Our Kidney Care Segment delivered 3% growth at reported rates and 4% at constant currency. Growth was driven by pricing benefits as well as strong demand for our acute therapy portfolio and steady gains in peritoneal patients in nearly all markets. Growth in this business was tempered by the impact of select product and market exits and reduced volumes in China due to government-based procurement initiatives and a lower patient census. As noted, positive results across these three segments helped offset disappointing performance in health care systems and technologies, or HSA, which declined 9% at both reported and constant currency rates. This decline was driven, to some extent, by order timing as well as operational factors.

Joel T. Grade: <unk> benefits as well as a strong demand for our acute therapies portfolio any steady gains or bear to new patients in nearly all markets growth in this business was tempered by the impact from select product and market exits and reduced volumes in China due to government based procurement initiatives any lower pay.

Joel T. Grade: <unk> expenses as <unk>.

Joel T. Grade: Positive results across these three segments helped offset disappointing performance in health care systems, technologists, or HST, which declined 9% at both reported and constant currency rates.

Joel T. Grade: Decline was driven to some extent by order timing as well as operational factors, our new operating model has been vital in helping us isolate the underlying challenges affecting this segment.

Joe: Our new operating model has been vital in helping us isolate underlying challenges affecting these sectors. Decisive steps are already underway to address and enhance performance in this business and help realize our full opportunity in this business. These include forging a deeper partnership between the commercial and enterprise accounts teams focused on the value and quality of the broader portfolio, implementing new tools and processes focused on increasing visibility to historical participation, creating greater differentiation in customer engagement practices, and Related Measures.

Joel T. Grade: The size of steps are already underway to address any has performance in this business and help realize our full opportunity in this space.

Joel T. Grade: These include forging a deeper partnership between the commercial and enterprise accounts teams focused on the value end.

Joel T. Grade: Quality of the broader portfolio.

Joel T. Grade: Implementing new tools and processes focus on increasing visibility to historical purchases, creating greater differentiation customer engagement practices.

Joel T. Grade: And related measures.

Joe: We expect these staff to collectively improve operational performance for HST, particularly in the second half of the year. I remain excited about HST and the positive contribution it is expected to deliver to the overall Baxter portfolio. The team is working incredibly hard to address this challenge and turnaround performance in this business, and I am grateful for their dedication and effort. Before I pass it to Joel, I will share an update on our proposed kidney care separation. As we announced in a March 4th 8K filing, we're now pursuing dual pathways in the proposed separation of this business, including potentially selling the business to a private equity investor. The ultimate path forward would be determined consistent with our objective to accelerate performance for both entities and maximize shareholder value. I currently expect the separation to take place in the second half of 2024.

Joel T. Grade: We expect these steps collectively to improve operational performance for HST, particularly in the second half of the year I remain excited about HST and positive contribution it is expected to deliver to the overall <unk> portfolio.

Joel T. Grade: The team is working incredibly hard to address this challenge and turnaround performance in this business and I'm grateful for their dedication and efforts before I pass it to Joel I will share an update on our proposed kidney care separation.

Joel T. Grade: As we announced in a March 4th 8-K filing we're now pursuing dual pathways in the proposed separation of this business, including potentially selling the business to a private equity investor.

Joel T. Grade: Ultimate path forward would be determined consistent with our objective to accelerate performance for both entities and maximize shareholder value. We currently expect the separation to take place in the second half of 2024 looking ahead I want to express my excitement about Baxter overall trajectory our life sustain.

Joe: Looking ahead, I want to express my excitement about Baxson's overall trajectory. Our life-sustaining mission is, as always, our North Star, and our colleagues around the world are making it come alive with a tenacious focus on execution and operational excellence. Our progress against our strategic transformation initiative showcases our ability to deliver on what we set out to accomplish. The benefits are clear in our overall outperformance for the quarter, our building momentum, our recent innovation milestones, and the progress of our proposed kidney care separation journey.

Joel T. Grade: <unk> mission is as always our Northstar and our colleagues around the world, making it come alive with the tenacious focus on execution and operational excellence, our progress against our strategic transformation initiatives showcases our ability to deliver on what we set out to accomplish the benefits are clear in our AUM.

Joel T. Grade: Our performance for the quarter, our building momentum our recent innovation milestones and the progress of our proposed kidney care separation journey, we will continue to maintain the pace and intensity of our transformation and take the necessary steps so that all of our SEC.

Joe: We will continue to maintain the pace and intensity of our transformation and take the necessary steps so that all of our segments are well positioned to power our performance going forward. I will now pass this to Joel to provide more detail on our performance and outlook.

Joel T. Grade: <unk> are well positioned to power our performance going forward.

Joel T. Grade: I will now pass it to Joel to provide more detail on our performance and outlook.

Joel: Thanks, Joe, and good morning, everyone. As Joe mentioned, we are pleased with our first quarter results, which came in ahead of our expectations. First quarter 2024 global sales of $3.6 billion increased 2% on a reported basis and 3% on a constant currency basis and, as mentioned, compared favorably to our previously issued guidance. Performance in the quarter benefited from better-than-expected sales across all our product divisions, with the exception of those within our healthcare systems and technology segments.

Joel: Thanks, Joe and good morning, everyone.

Joel: As Joe mentioned, we are pleased with our first quarter results, which came in ahead of our expectations.

Joel: First quarter 2024, global sales of $3 6 billion.

Joel: <unk> increased 2% on a reported basis and 3% on a constant currency basis, and as mentioned compared favorably to our previously issued guidance.

Joel: Performance in the quarter benefited from better than expected sales across all our product divisions with the exception of those within our health care systems and technology segment.

Joel: On the bottom line, adjusted earnings from continuing operations totaled 65 cents per share, increasing 33% versus the prior year period and ahead of our prior guidance of 59 cents to 62 cents per share. These results reflect the meaningful operational improvements we are recognizing both commercially as well as within our integrated supply chain network, and these factors drove our outperformance in the quarter. Now, I'll walk through our results by reportable segment.

Joel: On the bottom line adjusted earnings from continuing operations totaled 65 per share increase.

Joel: Increasing 33% versus the prior year period and ahead of our prior guidance of 59.

Joel: To <unk> 62 per share.

Joel: These results reflect the meaningful operational improvements, we're recognizing both commercially as well as within our integrated supply chain network and these factors drove our outperformance in the quarter.

Joel: Now I'll walk through our results by reportable segments.

Joel: Commentary regarding sales growth will reflect growth at a constant currency rate. For example, sales in our Medical Products and Therapies, or MPT, segment were $1.2 billion, increasing 6%. Within MPT, first quarter sales from our Infusion Therapies and Technologies Division totaled $966 million and increased 6%. Sales in the quarter benefited from strong growth internationally across the division, including in our IV Solutions, Nutrition, and Infusion Systems portfolios. Solid demand in the U.S. for IV solutions also contributed to growth in the quarter.

Joel: Commentary regarding sales growth will reflect growth at constant currency rates.

Joel: Sales in our medical products and therapies or MPT segment were $1 2 billion increasing 6%.

Joel: Within MPT first quarter sales from our infusion therapies and technologies division totaled $966 million.

Joel: And increased 6%.

Joel: Sales in the quarter benefited from strong growth internationally across the division, including in our IV solutions nutrition and infusion systems portfolios.

Joel: Solid demand in the U S for IV solutions also contributed to growth in the quarter.

Joel: Sales from Advanced Surgery totaled $263 million and grew 8%, coming in ahead of expectations and reflecting strong growth internationally. For our Healthcare Systems and Technologies, or HST, segment, sales in the quarter were $667 million and declined 9% within the HFC segment.

Joel: Sales of advanced surgery totaled $263 million and grew 8% coming in ahead of expectations and reflecting strong growth internationally.

Joel: For our healthcare systems and technologies or HST segment.

Joel: Sales in the quarter was $667 million and declined 9%.

Joel: Within the HFC segment sales in our care and connectivity solutions or Ccs division were $402 million declining 7%.

Joel: Sales on our Care and Connectivity Solutions, or CCS, division were $402 million, declining 7%. Performance in the quarter was impacted by several factors, including the phasing of product installations, particularly for care communications, which is expected to accelerate later in the year; the timing of capital orders, which increased mid-single digits in the quarter but are expected to ramp more meaningfully over the course of the year; and lower rental revenues, which negatively impacted sales by approximately $5 million.

Joel: Performance in the quarter was impacted by several factors.

Joel: Including the phasing of product installations, particularly for care communications.

Joel: Which is expected to accelerate later in the year by the timing of capital orders, which increased mid single digits in the quarter, but are expected to ramp more meaningfully over the course of the year.

Joel: Lower rental revenues, which negatively impacted sales by approximately $5 million.

Joel: And finally, certain operational challenges for which the team is in the process of implementing clear plans to improve performance and enhance commercial rigor. Given all these factors, we expect to see significant improvements for CCS in both orders and revenue in the second half of the year, which is similar to the ramp we experienced last year in this division. Frontline care sales in the quarter were $265 million, declining 12%.

Joel: And finally by certain operational challenges.

Joel: For which the team is in the process of implementing clear plans to improve performance and enhanced commercial rigor.

Joel: Given all these factors, we expect to see significant improvements for Ccs in both orders and revenue in the second half of the year, which is similar to the ramp we experienced last year in this division.

Joel: Frontline care sales in the quarter were $265 million declining 12%.

Joel: Growth in the quarter was impacted by a difficult comparison to the prior year, as backlog reductions positively contributed to growth in the prior year period. Additionally, performance of the quarter was also affected by softness in the primary care market, which negatively impacted sales in both our Connected Monitoring and Intelligent Diagnostics product portfolio. Similar to CCS, we expect performance to meaningfully improve in the second half of the year as market conditions for primary care are anticipated to ease, the pace of custom orders is expected to increase, and we anniversary the prior year impact from the backlog reduction.

Joel: Growth in the quarter was impacted by a difficult comparison to the prior year as backlog reductions positively contributed to growth in the prior year period.

Joel: Performance for the quarter was also affected by softness in the primary care market, which negatively impacted sales in both our connected monitoring and intelligent diagnostics product portfolios.

Joel: Similar to Ccs, we expect performance to meaningfully improve in the second half of the year as market conditions for primary care anticipated to us the pace of customer orders are expected to increase and we anniversary the prior year impacts from the backlog reduction.

Joel: Sales in our pharmaceutical segment were $578 million, increasing 11%. Performance in the quarter reflected double-digit growth in both our U.S. and international injectables portfolio, driven by new product launches, as well as continued strong demand for services within our drug compounding portfolio internationally. Moving on to kidney care,

Joel: Sales in our pharmaceutical segment were $578 million increasing 11%.

Joel: Performance in the quarter reflected double digit growth in both our U S and international Injectables portfolio, driven by new product launches as well as continued strong demand for services within our drug compounding portfolio internationally.

Joel: Moving on to kidney care.

Joel: Sales in the quarter were $1.1 billion, increasing 4%. Within kidney care, global sales for chronic therapies were $888 million, increasing 2%. Solid PD growth in the quarter was partially offset by the negative impact from certain product and market exits in our in-center HD business, as well as reduced sales in China through government procurement initiatives and lower patient census volumes following the pandemic. We estimate that these items negatively impacted sales by approximately $50 million in the quarter.

Joel: Sales in the quarter were $1 1 billion <unk>.

Joel: Increasing 4%.

Joel: Within kidney care global sales for chronic therapies were $888 million increasing 2%.

Joel: Solid PD growth in the quarter was partially offset by the negative impact from certain products and market exits in our in center HD business as.

Joel: As well as reduced sales in China due to government procurement initiatives and lower patient census volumes following the pandemic.

Joel: We estimate that these items negatively impacted sales by approximately $50 million in the quarter.

Joel: Sales in our acute therapies business were $214 million, representing growth of 15%, driven by strong demand and competitive wins in the U.S. and solid performance internationally. Other sales, which represents sales not allocated to a segment and primarily include sales of products and services provided directly through certain of our manufacturing facilities, were $16 million and declined 47% during the quarter in line with our expectations and reflecting reduced demand for certain contract manufacturing volume. Now moving on to the rest of the P&L.

Joel: Sales in our acute therapies business were $214 million, representing growth of 15% driven by strong demand and competitive wins in the U S and solid performance internationally.

Joel: Other sales, which represent sales not allocated to the segment and primarily include sales of products and services provide a direct read through certain of our manufacturing facilities were $16 million and declined 47% during the quarter in line with our expectations and reflecting reduced demand for.

Joel: Certain contract manufacturing volumes.

Speaker Change: Now moving on to the rest of the P&L.

Joel: Our adjusted gross margin totaled 42.5%, and represented an increase of 170 basis points over the prior year and was favorable to our expectations. The year-over-year improvement in gross margin primarily reflects the strong operational efficiencies we are realizing within our integrated supply chain network. This resulted from execution of the margin improvement programs we're implementing and the anniversary of the negative margin impacts from inflationary pressures that drove higher costs of goods sold in the prior year period.

Speaker Change: Our adjusted gross margin totaled 42, 5% and represented an increase of 170 basis points over the prior year and was favorable to our expectations.

Joel: The year over year improvements in gross margin primarily reflects the strong operational efficiencies we are realizing within our integrated supply chain networks.

Joel: Resulting from execution of the margin improvement programs, we are implementing.

Joel: And the anniversary of the negative margin impacts from inflationary pressures.

Joel: You have higher cost of goods sold in the prior year period.

Joel: Pricing initiatives in select markets also positively contributed to margin improvement in the quarter. First-quarter margins also reflected a benefit from the closure of our dialyzer facility as production in the facility was increased in advance of the closure, resulting in better absorption and lower costs for these dialyzers. This benefit is expected to be isolated to the first quarter.

Joel: Pricing initiatives in select markets also positively contributed to margin improvement in the quarter.

Joel: First quarter margins also reflected a benefit from the closure of our dialyzer facility as.

Joel: As production in the facility was increased in advance of the closure, resulting in better absorption and lower costs for these dialyzer.

Joel: This benefit is expected to be isolated to the first quarter.

Joel: Overall product mix in the quarter did partially offset margin expansion in the quarter. Adjusted SG&A totaled $856 million, or 23.8 as a percentage of sales. Consistent with the prior year period, as ongoing transformation initiatives to enhance operational efficiencies were offset by higher spend on select investments in sales and marketing initiatives.

Joel: Overall product mix in the quarter did partially offset margin expansion in the quarter.

Joel: Adjusted SG&A totaled 856 billion.

Joel: With 23, eight as a percentage of sales consistent with the prior year period as ongoing transformation initiatives to enhance operational efficiencies were offset by higher spend and select investments in sales and marketing initiatives.

Joel: SG&A leverage is expected to improve as sales ramp over the course of the year. Adjusted R&D spending in the quarter totaled $160 million and represented 4.5% as a percentage of sales, similar to the prior year period, and reflects our continued investments in advancing new products across the portfolio and bringing innovation to patients across our. These factors resulted in an adjusted operating margin of 14.3%. An increase of 180 basis points versus the prior year.

Joel: SG&A leverage is expected to improve as sales ramp over the course of the year.

Joel: Adjusted R&D spending in the quarter totaled $160 million and represented four and a half as a percentage of sales similar to the prior year period and reflects our continued investments in advancing new products across the portfolio and bringing innovation to patients across our business.

Joel: These factors resulted in an adjusted operating margin of 14, 3% an increase of 180 basis points versus the prior year.

Joel: Net interest expense totaled $78 million in the quarter, a decrease of $39 million versus the prior year period, driven by debt repayments in the fourth quarter of 2023 with proceeds from our BPS divestiture. We plan to continue to repay debt in 2024, consistent with our stated capital allocation priorities. Adjusted other non-operating income totaled $7 million in the quarter compared to income of $2 million in the prior year period.

Joel: Net interest expense totaled $78 million in the quarter, a decrease of $39 million versus the prior year period, driven by debt repayments in the fourth quarter of 2023 with proceeds from our bps divestiture.

Joel: We plan to continue to repay debt in 2024, consistent with our stated capital allocation priorities.

Joel: Adjusted other non operating income totaled $7 million in the quarter compared to income of $2 million in the prior year period.

Joel: The adjusted tax rate in the quarter was 25.0%, compared to 23.1% in the prior year period. The year-over-year increase is primarily driven by the evaluation allowance recognized in the quarter. And as previously mentioned, adjusted earnings from continuing operations totaled $0.65 per share and increased 33% versus the prior year, primarily driven by commercial performance and operational efficiencies within our integrated supply chain. Let me conclude my remarks by discussing our outlook for the second quarter and full year 2024, including some key assumptions underpinning the guidance.

Joel: The adjusted tax rate in the quarter was 25.0% compared to 23, 1% in the prior year period.

Joel: The year over year increase was primarily driven by evaluation allowance recognized in the quarter.

Joel: And as previously mentioned adjusted earnings from continuing operations totaled 65 per share.

Joel: And increased 33% versus the prior year, primarily driven by commercial performance and operational efficiencies within our integrated supply chain.

Speaker Change: Let me conclude my remarks by discussing our outlook for the second quarter and full year 2024, including some key assumptions underpinning the guidance.

Joel: For full year 2024, Baxter now expects total sales growth of approximately 2% on a reported basis and 2% to 3% on a constant currency basis, which is an increase from prior guidance of approximately 2% on a constant currency basis. Constant Currency Sales Guidance for the Full Year by Reportable Segments is as follows. For MPT, we expect sales growth of 4% to 5%. This is an increase from the prior guidance of 3% to 4% and reflects the first quarter outperformance and the inclusion of Novum, which is currently expected to contribute an incremental $25 million to infusion pump sales and some cannibalization of prior planned sales of Spectrum. Sales in our healthcare systems and technology segment are expected to be flat for the prior year, as compared to previous guidance of approximately 3%.

Joel: For full year 2020 for Baxter now expects total sales growth of approximately 2% on a reported basis.

Joel: And 2% to 3% on a constant currency basis.

Joel: Which is an increase from prior guidance of approximately 2% on constant currency basis.

Joel: Constant currency sales guidance for the full year by reportable segments is as follows.

Joel: For MPT, we expect sales growth of 4% to 5%.

Joel: This is an increase from the prior guidance of 3% to 4% and reflects the first quarter outperformance and the inclusion of Nova which is currently expected to contribute an incremental $25 million to infusion pump sales.

Joel: And reflects some cannibalization of prior planned sale of the spectrum.

Joel: Sales in our health care systems, and technology segments are expected to be flat to the prior year as compared to previous guidance of approximately 3%.

Operator: As mentioned earlier, we expect performance to meaningfully improve in the second half of the year, driven by the factors discussed, including timing of installations, order phasing, and improved operational execution. We expect pharmaceutical sales growth of 6% to 7%, which compares favorably to prior guidance of 4% to 5% and reflects the strong start to the year and continued momentum for our new product launches. Collectively, sales for these Baxter businesses are expected to increase 3% to 4% in 2024.

Joel: As mentioned earlier, we expect performance to meaningfully improve in the second half of the year driven by the factors discussed including timing of installations order phasing and improved operational execution.

Joel: We expect pharmaceutical sales growth of 6% to 7%, which.

Joel: Which compares favorably to prior guidance of 4% to 5% and reflects the strong start to the year and continued momentum for our new product launches.

Joel: Collectively.

Joel: Sales for these Baxter businesses are expected to increase 3% to 4% in 2024.

Operator: For kidney care, we expect sales growth of flat to 1% as compared to 2023. This also compares favorably to prior guidance and reflects the underlying momentum of this business. Now turning to our Outlook for other P&L line items, we continue to expect adjusted operating margin to increase by at least 50 basis points in 2024. We expect our non-operating expenses, which include net interest expense and other income and expense, to total approximately $350 million in aggregate during 2024.

Joel: For kidney care, we expect sales growth of flat to 1% as compared to 2023.

Joel: This also compares favorably to prior guidance and reflects the underlying momentum of this business.

Joel: Now turning to our outlook for other P&L line items.

Joel: We continue to expect adjusted operating margin to increase by at least 50 basis points in 2024.

Joel: We expect our non operating expenses, which includes net interest expense and other income and expense to total approximately $350 million in aggregate during 2024.

Operator: We continue to anticipate a full-year adjusted tax rate between 22.0% and 22.5%. Additionally, we expect our diluted share counts to increase slightly and average 511 million shares for the year. Based on all these factors, we now anticipate full-year adjusted earnings excluding special items of $2.88 to $2.98 per diluted share, which also compares favorably to prior guidance of $2.85 to $2.95 per diluted share and reflects the outperformance we realized in the first quarter.

Joel: We continue to anticipate our full year adjusted tax rate between 22.0% and 22, 5%.

Joel: We expect our diluted share count to increase slightly and average 511 million shares for the year.

Joel: Based on all of these factors, we now anticipate full year adjusted earnings excluding special items of $2 88 to.

Joel: To $2 98 per diluted share.

Joel: Which also compares favorably to prior guidance of $2 85 to $2 95 per diluted share and reflects the outperformance we realized in the first quarter.

Operator: Specific to the second quarter of 2024, we expect global sales growth of approximately 1% on a reported basis and 2-3% on a constant currency basis. And we expect adjusted earnings excluding special items of $0.65 to $0.67 per diluted share. With that, we can now open up the call for Q&A.

Joel: Specific to the second quarter of 2024, we expect global sales growth of approximately 1% on a reported basis and.

Joel: And 2% to 3% on a constant currency basis.

Joel: And we expect adjusted earnings excluding special items of <unk> 65 to <unk> 67 per diluted share.

Speaker Change: With that we can now open up the call for Q&A.

Operator: Thank you. We will now begin the question and answer session. If you have a question, please press the star 1 key on your touchtone phone. If you wish to remove yourself from the queue, press star 1 again. If you are using a speakerphone, please lift the handset to ask your question. Also, so that we may be respectful of everyone's time, please limit your comments to one question and one follow-up question if necessary.

Speaker Change: Thank you we will now begin the question and answer session. If you have a question. Please press the star one key on your Touchtone phone, if you wish to remove yourself from the queue.

Speaker Change: Well to start one again, if you are using a speaker. Please lift the handset to ask your question.

Speaker Change: So that we may be respectful of everyone's time. Please limit your comments to one question with 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 is being compiled.

Operator: We appreciate everyone's patience and would like to provide as many of you as possible the opportunity to ask a question. We will pause for a moment while the list is being compiled. I would like to remind participants that this call is being recorded and a digital replay will be available on the Baxter International website for 60 days at www.baxter.com. Our first question comes from Vijay Kumar of Evercore ISI. Your question, please

Speaker Change: I would like to remind participants that this call is being recorded and a digital replay will be available on the Baxter International website for 60 days at Www Dot Baxter Dot com.

Speaker Change: Our first question comes from Vijay Kumar of Evercore ISI. Your question. Please.

Vijay Muniyappa Kumar: Hey guys, thanks for taking my question. I guess my first one is on the top line here. When I look at the business here, the HILROM portion of the HILROM portion of the business, the health care tech part of the business underperformed. All other segments came in about right.

Vijay Muniyappa Kumar: Hey, guys. Thanks for taking my question.

Vijay Muniyappa Kumar: I guess my first one is on top line here.

Vijay Muniyappa Kumar: The when I look at the business here.

Vijay Muniyappa Kumar: The Hill ROM portion of health care.

Vijay Muniyappa Kumar: Part of the business underperformed all other segments came in about right.

Joe: And Joe, when you think about this exiting fiscal 24, can Baxter get back to like 4% top line? Like when does HILROM normalize, and perhaps talk about what gives you confidence that this business is actually growing? Is there any reason to fear share loss within that part of the business?

Vijay Muniyappa Kumar: And Joe when you think about this exiting fiscal 'twenty for <unk>.

Vijay Muniyappa Kumar: And Baxter will get back to like 4% topline like Windows Hill ROM normalized.

Vijay Muniyappa Kumar: Perhaps talk about what gives you confidence that this business is actually growing is there any reason to fear share loss within that part of the business.

Joe: Vijay, we are committing to a 4%, or around 4%, exit rate for the year. We see what happened at HST in the first quarter as a postponement of orders and some operational issues that we have that we are addressing very diligently. We're starting to see good results coming out of it. What gives me confidence in the second half of the year for HST is that the orders that we have have improved from the exit of Q1 into Q2, with a healthy funnel of opportunities for the rest of 2024. We have commercial and operational challenges that we have identified, and we have very specific action plans in place.

Vijay Muniyappa Kumar: Yes.

Vijay Muniyappa Kumar: P J.

Vijay Muniyappa Kumar: Sure.

Speaker Change: Committing to up 4%.

Joe: Around 4% exit rate for the year.

Vijay Muniyappa Kumar: We.

Vijay Muniyappa Kumar: See what happened in HST in the first quarter as a postponement of orders and some operational issues that we have that we are addressing very diligently we are starting to see good results coming out of it.

Joe: What gives me confidence in the second half of the year for HST is dead.

Vijay Muniyappa Kumar: The orders that we have have improved in the exit of Q1 into Q2.

Joe: With a healthy funnel of opportunities of the rest of 2024.

Joe: We have commercial and operational challenges that we identified and we have very specific actions and action plans in place.

Joe: We are also executing on the existing backlog, and we also saw some typical seasonality. The first quarter is always the weakest quarter for HST, and the fourth quarter is the highest quarter for HST vis-a-vis 2023. We exit Q4 with 7% growth. So, what I want to make sure to our investors is that we will exit Baxter around 4% this year, four to five percent, actually, four to five percent, and, and, and, and, and, and, we will have a recovery of HST based on our operational results and the good funnel that we have established and we're starting to see.

Joe: We also are executing on the existing backlog and we also saw some typical seasonality the first quarter is always the.

Joe: The weakest quarter for HST in the fourth quarter is the.

Joe: The highest quarter for HST vis vis 2023, we exit Q4 was 7% growth so what I want to make sure our investors that we were.

Joe: We are we will exit Baxter around 4% this year.

Joe: 4% to 5% actually 4% to 5% and and and and we will have a recovery of HST based on our operational results and a good funnel that we have established and we're starting to see this is ex kidney I want to make sure that even though.

Joe: This is ex-kidney, I want to make sure that you know, when I talk about Baxter exit four to five, it's ex-kidney, so to your question, there's good confidence in exiting the business four to five, good plans in place, and starting to see the recovery in HST. This is the headline.

Joe: When I talk about Baxter exit four to five is executing these so to your question is a good confidence in exiting the business four to five good plans in place and starting to see the recovery in HST just the headlines.

Joe: Yeah, that's helpful comments, Joe. One on maybe margins here. Q1, you know, both gross margins and operating margins came in about. What drove that gross margin? Are we seeing benefits of cost actions, or is this any timing element? Are we seeing pricing contribution? Because when I look at the second quarter EPS, it's below street.

Speaker Change: Okay. That's helpful.

Joe: Comments, Joe one on maybe on margins here.

Joe: Q1.

Joe: Both gross margins operating margins came in about.

Joe: What drove that gross margins are we seeing benefits of cost actions or assess any timing element are we seeing pricing contribution because when I look at the second quarter EPS is below sea. So was there any timing element here on that margins. Thank you.

Vijay Muniyappa Kumar: So was there any timing element here on margins? Thank you. Yes, good morning. Thanks. This is Joel.

Joel: And so, a couple of things on the Q1 margins I would call out. Number one, the ISC drove a substantial portion of that. We had strong operational efficiencies. We had positive manufacturing variances that flowed through. And so I think just in general, our ISC performance was a strong contributor there. Our pricing also has, I'd say, a modest but partial part of that as well in terms of enhancing our margins. There was a little bit of a mixed impact that was offsetting some of that, but I think that's really... Those are some of the really primary drivers in the first quarter.

Joel: Yes, good morning. Thanks. This is Joel.

Vijay Muniyappa Kumar: Yes. Good morning. Thanks. This is Jos and so a couple of things on the Q1 margins I would call out number one.

Joel: <unk> drove a substantial portion of that we had strong operational efficiencies, we had positive manufacturing variances that flow through and so I think just in general our IC performance was strong contributor there.

Joel: Our pricing also.

Joel: I'd say, a modest partial part of that as well in terms of enhancing our margins, there's a little bit of a mix impact that was offsetting some of that but I think that's really those are some of the really primary drivers in the first quarter I think from a second quarter standpoint, there's a couple of things I'd just call out there number one is there.

Joel: I think from a second quarter standpoint, there are a couple things I'd just call out there. Number one is that there was some favorability in the first quarter that was related to the closing of our dialyzer facility. And we had production that was increased, or we had better absorption there. And so from a timing standpoint, that benefited the Q1 margins to some extent that you won't see as much in Q2. And I think the other thing I would call out in Q2, while we certainly continue to have positive contribution from the ISC, positive contribution from pricing, and in particular some OUS markets, but we also did have a pharma MSA that was part of our BPS divestiture that is impacting pharma margins in the second quarter as well. So those are a few of the puts and takes from the Q1, Q2 margins.

Joel: There was some favorability in the first quarter, if that was related to.

Joel: The closing of our dialyzer facilities.

Joel: We had we had production there was increased we had better absorption there and so from a timing standpoint does that benefit the Q1 margins.

Joel: To some extent that you won't see as much in Q2, and I think the other thing I would call out in Q2, while we certainly continue to have positive.

Joel: Contribution from the ISC.

Joel: A positive contribution from pricing in particular, some U S markets, but.

Joel: But we also did have a pharma msas that was part of our bps divestiture.

Joel: That has.

Joel: As the impact of the pharma margins.

Joel: The second quarter as well so those those are few of the puts and takes from the Q1 Q2 margins.

Speaker Change: Thanks, guys.

Philip Chickering: Peter Chickering of Deutsche Bank is on the line with a question. Please state your question. Hey, good morning. Going back to this office and healthcare systems technology, can you give a little more detail on what exactly were the operational factors That impacted the first quarter and why it should ramp sort of in the back half the year And also on the capital orders I guess you know why it does not flow through in the quarter as you guys were expecting and then following a kind of why You saw lower rental revenues you're expecting I guess I'm trying to understand that the Delta and the guidance You're seeing sort of today sit down 300 bips for the year versus three months ago, and what changed so dramatically

Joel: Peter Chickering.

Speaker Change: Deutsche Bank is on the line with a question. Please state your question Hey, good morning.

Philip Chickering: Going back to the softness in health care systems and technology can you give a little more detail on what exactly was the operational factors that in.

Philip Chickering: Impacted the first quarter and why it should ramp sort of in the back half of the year and also on the capital orders I guess, what it does not flow through in the quarter. As you guys are expecting and then following your kind of why you saw lower rental revenues, you're expecting I guess I'm trying to understand the delta on that.

Philip Chickering: Guidance Youre seeing sort of today sit down 300 bps for the year versus three months ago, and what changed so dramatically.

Joe: I will take the first part of your question, and Joel will take the second part of your question. We saw the operational issues were more related to how we were integrating our enterprise accounts and our folks who are out there every day in the field. We had made significant changes halfway through the quarter but did not catch up fast enough. We have seen a great deal of large orders being signed today. As a matter of fact, a couple of them are full conversions, competitive conversions.

Philip Chickering: Yes.

Speaker Change: I will take the first part of your question and Joey Jacobs second part of your question.

Joe: We saw.

Joe: Sure.

Joel: The operational issues were more related to how we were integrating our enterprise accounts.

Joe: Are folks who are everyday in the field, we have made significant changes halfway through the quarter, but did not catch up fast enough we can see.

Joe: A great deal of large orders being signed today as a matter of fact couple of them are full conversion competitive conversions, we have a very effective in large enterprise accounts that now is fully integrated with HST and those were the things that we saw and didn't start in the first quarter you should have been integrated in <unk>.

Joe: We have a very effective and large enterprise account that is now fully integrated with HST, and those were the things that we saw and didn't start in the first quarter. It should have been integrated and done a better job probably in August and September last year. We did catch up, and we see that better.

Joe: Drop in.

Joe: Probably in August September last year, we did catch up to that and we see that better we also have.

Joe: We also have integrated some of the sales systems with more rigor than we had before, and we are making some changes at the mid-level management in that operation so we can get more rigor in how we sell products. But I have to tell you that we have already seen the momentum that Baxter brings to HST, the power of the two companies, and how the connectivity of our, for instance, new Novum pump and how that works with the beds and the monitors makes a difference. So that is one part.

Joe: Integrated some of the sales systems with more rigor that we had before and we are making some changes at the mid level management and data operations. So we can get more rigor in how we sell product, but I have to tell you that we already seen the.

Joe: The momentum that Baxter brings to HST the par of the two companies and how the connected the connectivity of our for instance, our new novel pump and and how that works with the beds in the monitors how that makes a difference so Dennis one part there were operational issues.

Joe: There were operational issues in frontline care, completely different than our CCS business. Frontline care issues were related to government orders slowed down by the government, and also primary care issues with the payment system that got hacked in the first quarter. It was a division of UnitedHealthcare.

Joe: In frontline care completely different than ours our cc.

Joe: <unk> business.

Joe: <unk> <unk> were related to government orders slowed down by the government also primary care issues with.

Joe: The payment system Delek got hacked in the first quarter. There was a division of Unitedhealthcare that effective primary care physician's offices, therefore affect how they were ordering the products and getting paid so that affect us as well and and there is a.

Joe: That affected primary care physicians' offices and, therefore, affected how they were ordering the products and getting paid. So that affected us as well. And there is a temporary contraction in the primary care physicians' market, where we have a very high market share. As a matter of fact, we probably gained market share in that business. Instead of losing, we actually have proof that we gained share. So we see there is a temporary blip in frontline care. In the CCS business, there were pure operational issues and a lack of better integration in our key account management or enterprise accounts.

Joe: Temporary contraction the front and the primary care physicians market, which we have very high market share as a matter of fact, we've probably gained share in that business instead of losing we'd actually have proof that we gained share. So we see that as a temporary blips in the front line care in the Ccs business, where pure operations.

Joe: No issues and lack of better integration are key account management, our enterprise accounts. So the headline of the answer is we are executing much better right now we're starting to see the effect in the Ccs. We have converted a couple very large accounts from the competition and are offering off launches from last year.

Joe: So the headline of the answer is we are executing much better right now, and we're starting to see the effect in the CCS. We have converted a couple of very large accounts from the competition. And our offering of launches from last year, Progressive Plus and Centrela CLR with a continuous lateral rotation, have done very, very well. As a matter of fact, that was the reason why a Midwest system switched from competition to us.

Joe: Progressive plus and centrella CLR without with a continuous lateral rotation have done very very well. It's a matter of fact, the reason why our Midwest system converted from the competition to us in terms of front line care, we are starting to see the rebound.

Joe: In terms of frontline care, we are starting to see the rebound. I think we hit rock bottom in the primary care office, and what we saw in terms of all the things coming together, the payment system, and the slowdown of the market. And we're starting to see that it's starting to pick up. So I feel cautiously optimistic that our actions are starting to provide results. And Baxter, in general, has a pretty strong portfolio they're bringing together, as you can see by the results of the quarter. Now, passing on to Joel on the second part of the question on revenue.

Joel: I think we hit the bottom in the primary care office and while we saw that in terms of all the things coming together the payment system and the slowdown of the market and we're starting to see that start to pick up so.

Joe: I feel cautiously optimistic that our actions are starting to Stuart to provide the results and Baxter in general has a pretty strong portfolio the bringing together as you could see by the results of the quarter now passing on to Joel on the second part of the question on the revenue yes.

Joel: Yeah, I would say your question about the second half, why are we not fully recovering all the way to 3%? I mean, I guess what I'd say, the first quarter was a fairly sharp decline relative to expectations, and I think more than anything, it's simply that we're not fully anticipating making that up throughout the rest of the year. Having said that, to Joe's point, we certainly do remain optimistic about the growth prospects of this business.

Joel: I would say your question around the second half of July and why are we not recovering fully all the way to the 3% I mean, I guess, what I would say the first quarter was a fairly sharp decline relative to expectations and I think more than anything it is simply that we're not fully anticipated and making that up throughout the rest of the course of the year, having said that at the <unk>.

Joel: <unk> point, we certainly we do remain optimistic about the growth prospects in this business. Yes, we have a number of new product launches that are coming in they're going to continue to enhance our growth as Joe pointed out.

Joel: Yeah, we have a number of new product launches that are coming in that are going to continue to enhance our growth, as Joe pointed out. The improvement in frontline care, we had a lot of issues, we were going through a lot of backlog last year, and so there were actually a lot of difficult comparisons in this first half of the year that we're going to be lapping in the second half of the year.

Joel: The improvement in frontline care, we had a lot of issues or we are going through a lot of backlog last year and so there was actually a lot of difficult comparisons in this first half of the year that we're going to be lapping in the second half of the year. We certainly expect our orders from Ccs to continue to meaningfully accelerates.

Joel: We certainly expect our orders from CCS to continue to meaningfully accelerate, and as Joe said, we've taken specific actions to ensure that commercially and operationally we're executing better as we head into the back half of the year. So I guess, again, in summary, we plan that we're not going to be able to make up the entire impact that we had in the first quarter of the year, but we're still confident in how we're moving forward. And I would say this, we started to see some modest improvements even in Q2 in that business as well.

Joel: As Joe said, we've taken specific actions to ensure that commercially and operationally, we're executing better as we head into the back half of the year. So I guess again in summary, I don't know, we're planning that we're not going to be able to make up the entire.

Joel: The impact that we had in the first.

Joel: Quarter of the year.

Joel: We're still confident in how we're moving forward and I would say this we start to see some modest improvements even starting in Q2 in that business as well.

Joel: Okay, and then a follow-up question on gross margins, which is such a key part of the Baxter story here. Can you quantify the impact of the closing of the dializer facility in the quarter and look at the rest of the gross margin improvement year over year? What's the split between inflationary pressure is easing versus increased pricing versus just simple operational efficiencies? And should inventories rolling through the balance sheet on the P&L be a tailwind of margins for this year and any seasonality around that happening?

Speaker Change: Okay, and then a final question on gross margins.

Joel: Part of the Baxter story here too.

Joel: Quantify the impact of the closing of the dialogues are facility in the quarter and looking at the rest of the gross margin improvement year over year, what's the split between deflationary pressures easing versus the increased pricing versus just simple operational efficiencies and should inventories rolling through the balance sheet on the P&L will be a tailwind to margins this year and any seasonality around that occurring thank you.

Joel: So, Peto, I'll take that. There are a lot of questions in there. What I would say is that the key is, within our integrated supply chain, a lot of this comes down to the execution of our margin improvement initiatives. They've always been designed to offset inflation. So, even this year, we do have normal inflationary pressures within our organization, but the MIPs that the team is executing against are more than offsetting that and driving the savings, both on a year-over-year basis and relative to our expectations.

Joel: <unk>.

Philip Chickering: Thank you. So, Peto, I'll take that.

Speaker Change: So Peter I'll take that.

Philip Chickering: A lot of questions in there what I would say is that the key is within our integrated supply chain a lot of this comes down to the execution on our margin improvement initiatives.

Philip Chickering: It's been designed to offset inflation. So even this year, we do have normal inflationary pressures within our organization, but the MIP is that the team is executing against our more than offsetting that and driving the savings both on a year over year basis and relative to our expectation now in the first quarter, we did benefit from some of the.

Joel: Now, in the first quarter, we did benefit from some of the positive and favorable manufacturing variances that Joel was referencing. So, within the fourth quarter, we did have, you know, better volumes than we had anticipated. So, those favorable manufacturing variances rolled off in the first quarter, giving us a benefit inclusive of what Joel referenced on Opelika, where we were preparing for the closure of that dialyzer facility down in Opelika, Alabama.

Joel: Positive and favorable manufacturing variances that Joe was referencing so within the fourth quarter. We did have better volumes than we had anticipated that did so those favorable manufacturing variations rolled off in the first quarter, giving us a benefit inclusive of what Joe referenced in opelika are preparing for that.

Joel: That's preparing for the closure if that dialyzer facility Domino Black Opelika, Alabama, So that's really what I would say pricing is a benefit.

Joel: So, that's really what I would say. Pricing is a benefit. It's a benefit on a year-over-year basis, and it's a benefit relative to our expectations. And this is pricing, again, across the organization on a net basis. And what we're doing is really outside the U.S. We're looking at those businesses and driving a lot of targeted actions within those markets outside the U.S. So, I think this is a collective effort. This is in line with what we said earlier, that a lot of our margin improvement this year would be coming from gross margin. Great, thanks so much. Larry Biegelsen of Wells Fargo is on the line with a question. Please state your question.

Joel: It benefited on a year over year basis, and its a benefit relative to our expectations and this is net pricing again across the organization on a net basis Ian.

Lawrence H. Biegelsen: Doing is really outside the U S.

Joel: We're looking at those businesses and driving a lot of targeted actions within those markets outside the U S.

Joel: This is collective this is in line with what we said earlier that a lot of our margin improvement this year would be coming from gross margin.

Lawrence H. Biegelsen: Great. Thanks, so much.

Lawrence H. Biegelsen: Larry Beagleson of Wells Fargo is on the line with a question. Please hear your question.

Lawrence H. Biegelsen: Larry <unk> of Wells Fargo is on the line with a question. Please ask your question.

Lawrence H. Biegelsen: Good morning, Thanks for taking the question.

Lawrence H. Biegelsen: Joe There was a lot of strength in Q1 outside of HST, but the guidance implies growth slows in all segments.

Lawrence H. Biegelsen: Why why would growth slow.

Lawrence H. Biegelsen: So much.

Lawrence H. Biegelsen: Relative to Q1 and Q2 through Q4 in those other segments and I had one follow up.

Joel: So Larry, maybe I'll start with it and let folks know. I would say most of it, we did see some strength within our kidney care. That came in favorable to our expectations, so I think that we are still anticipating that to slow in the second half of the year as we get the impact from some of the government-based pricing initiatives in China. Also, just the impact of some of the market exits that we will be incurring for the rest of the year. So that's probably one of the biggest differences if I think about the rest of the year.

Lawrence H. Biegelsen: So Larry maybe I'll start with it and let folks I would say most of it we did see some strength within our kidney care that came in favorable to our expectations.

Joel: So I think that we are still anticipating that to slow in the second half of the year as we get the impact from some of the government based.

Joel: Pricing initiatives in China also just the impact of some of the market exits that we will be incurring for the rest of the year. So that's probably one of the biggest differences if I think about kind of the rest of the year. In addition, within our pharmaceuticals business, we had really strong performance.

Joe: In addition, within our pharmaceuticals business, we had a really strong performance from our hospital pharmacy compounding business outside the US. We are continuing. We have strong demand for that business, but we are also really focused on improving the profitability of that business. So as we look at it going forward, being very disciplined about some of the business and demand that we're taking on for that. So I'd say that's probably the other impact. Besides that, I think most of the other businesses really continue to perform in line. But those are the two big drivers of what changes between the first half and the second half.

Joe: Our hospital pharmacy compounding business outside the U S. We are continuing we have strong demand for that business, but we are also really focused on improving the profitability of that business. So as we look at it going forward being very disciplined about some of the business and the demand that we're taking on for that so I would say.

Joe: That's probably the other impact besides that I think most of the other businesses really kind of continue to perform in line, but those are the two big drivers of what changes between the first half in the second half and Youll see a tremendous acceleration for HST.

Joe: And you see a tremendous acceleration for HST, Larry, that is reflective of the pace of the business but also the acceleration of some of our actions that we took, you know, mid-Q1 that is starting to bear fruit in Q2. We have accelerated our pump sales. We also see tremendous demand for our IV solutions, and our nutritional, nutrition, IV nutrition is doing pretty well. And our pharmaceuticals are doing extremely well with the five launches. We should put those gains into the forecast, into the guidance going forward. However, we see us seeking profitability ahead of sales growth, so we make some of the decisions to be in markets where we can actually improve the bottom line. So it's a combination.

Joe: Larry that is reflective of the pace of the business, but also acceleration of some of our actions that we took.

Joe: Mid Q1, they are starting to get effect in Q2.

Joe: We have accelerated our pump sales, we also see tremendous demand for our IV solutions and our nutritional products.

Joe: Nutrition, IV nutrition doing pretty well.

Joe: And our pharmaceuticals, we're extremely well with the five launches wheat.

Joe: Put those gains into the forecast into into the guidance going forward. However, however, we see this us seeking profitability I had the sales. Both so we will make some of the decisions to be markets, where we can actually improve the bottom line. So it's a combination.

Joe: You saw what happened. We beat the top, we beat the bottom, and we continue to seek opportunities to, hopefully, overperform. And if I could just add one thing to the kidney piece for a little bit, just by one order of magnitude, that business that we talked about going from, you know, flat to...

Joe: You saw what happens we beat the top we'd be at the bottom and we continue to seek for opportunities to to hopefully over perform and if I could just add one thing on the kidney piece for a little bit just the one order of magnitude that business that we've talked about going from flat to 1% guidance respect would be closer to mid single.

Joe: And if I could just add one thing on the kidney piece for a little bit, just by one order of magnitude, that business that we talked about going from flat to 1% of guidance respect would be closer to mid single digits without some of the market exits. So, the Claire's point, that is a fairly sizable impact as we head the remaining part of the year on a whole at a slower pace. That's helpful. Just one quick one.

Joe: Digits without some of the market exits so to <unk> point that is a fairly sizable impact as we head into the remaining part of the year is on a wholesale basis.

Joe: That's helpful. Just one quick follow up.

Speaker Change: Go on.

Joe: The plan for kidney co a spin versus sale when do you expect to make a decision and how do you guys think about the pros and cons of a spin versus a sale. Thank you.

Joe: This is a sale. Larry, we will be separating the business in the second half of 2024, and I don't want to comment at the moment on which option is a better option than the other. We're contemplating both options, and we have said before that we will maximize shareholder return on the option. So whatever option we choose, it's going to be one of the two. We will separate, first of all. Second, when we separate, we will separate with the maximization of shareholder return in mind.

Joe: Larry we will be separating the business the second half of 2024, and I don't want to comment at the moment in which option is a better option than the other we are contemplating.

Joe: Both options and and we have.

Joe: Said that before that we will maximize shareholder return for the auction. So whatever option, we choose who is going to be one that the true.

Joe: We will separate first of all second and when we separate we will separate with maximization of shareholder return in mind.

Speaker Change: Thank you.

Robert Justin Marcus: Robbie Marcus of J.P. Morgan is on the line with a question. Please state your question.

Speaker Change: Robbie Marcus of Jpmorgan is on the line with a question. Please state your question.

Robert Justin Marcus: Oh, great. Thanks for taking the questions.

Robert Justin Marcus: Oh, great. Thanks for taking the questions.

Joe: Maybe one on R&D. You know, this is one of the first years in a while that R&D is growing slower than sales. How do you think about your R&D investment and where it's going? And are we just seeing some of the benefits of the Hillrun integration here?

Robert Justin Marcus: Maybe one on R&D. This is one of the first year in a while that R&D is growing slower than sales. How do you think about your R&D investment and where it's going in or are we just seeing some of the benefits of the hill ROM integration here.

Joe: Robbie, good morning. I want to start by saying that we actually increased R&D and HST, the former Huron business; we call HST in Baxter now. We increased R&D there. We are very, very judicious about capital allocation within the business and where to put money into R&D. We also have plans, in 24, but also in 25, to continue to increase the dollar value. Not as a percentage of sales, but the dollar value that we put there.

Speaker Change: Robert Good morning.

Joe: One of them.

Joe: You start by saying that we actually increased R&D and HST, the former Hill ROM business recall.

Joe: <unk> in Baxter now we increased R&D. There we are very very judicious about capital allocation within the business and what put money in R&D. We also have plans in 'twenty four but also in 'twenty five to continue to increase the dollar value.

Joe: As a percentage of sales the dollar value that we put there. So we have now reduced the dollar value of R&D for 'twenty four we actually increased debt as a percentage than number may show a slow down but he has dollar wise improved there is no. There are no savings that we are requiring from.

Joe: So we have not reduced the dollar value of R&D for 24. We have actually increased that. As a percentage, that number may show a slowdown, but it has improved dollar-wise. There are no savings that we are requiring from research and development.

Joe: As a matter of fact, we continue to hire folks. We are right now exploring alternate sites for more R&D centers, one in Ireland and another one on the East Coast of the United States. We are actually increasing that. So our objective is to accelerate.

Joe: Research and development as a matter of fact, we continued to hire folks we are.

Joe: Right now exploring alternate sites for more R&D centers in one in Ireland and another one in the east coast of United States, We are actually increasing their so our objective is to drive our go to 4% to 5% top line growth.

Joe: Our goal is to achieve 4% to 5% top-line growth with innovation, and that's going to be fueled by R&D. You're going to see the Novum.

Joe: With innovation and there's going to be fueled by R&D youre going to see de Novo we just had.

Joe: We just had clean lipid approved in the US for neonate and term baby utilization. We also have a significant pipeline coming in from HST. We have wireless communication devices.

Joe: <unk> approved in the U S for neonate and near term.

Joe: Term babies.

Joe: Utilization. We also had we have significant pipeline coming in from HST. We have wireless communication device, we have new monitors new thermometers will have a significant amount of new technology. So there's no slowing down in R&D is the other way around.

Robert Justin Marcus: We have new monitors, new thermometers. We have a significant amount of new technology. So there's no slowing down in R&D. It's the other way around.

Robert Justin Marcus: Sure.

Joe: Great. And maybe one that doesn't get a lot of attention, but I feel like almost every quarter for the past few years, it keeps driving upside, and now it's broken out as drug compounding. Nice high teens growth here. Same question following up on Larry, but more specifically, drug compounding.

Speaker Change: Great and.

Speaker Change: Maybe one it doesn't get a lot of attention, but I feel like.

Joe: Almost every quarter for the past few years, it keeps driving upside and now it's broken out as drug compounding.

Joe: Nice high teens growth here.

Joe: Kind of same question following up on Larry's, but more specific the drug compounding.

Robert Justin Marcus: How do we think about the trajectory of this business? It's one that keeps growing double digits year in and year out, and the expectations that it always will slow, but it hasn't yet. So what are your views here and what should we think about this for the rest of the year?

Robert Justin Marcus: How do we think about the trajectory of this business.

Robert Justin Marcus: One that keeps growing double digits year in and year out and the expectation is that always will slow, but it hasnt yet so.

Robert Justin Marcus: What are your views here on how to think about this for the rest of the year. Thanks a lot.

Robert Justin Marcus: Thanks a lot.

Joe: Robbie, we at Pharmaceutical Resources look outside the U.S. in very key markets, the combination of drug compounding and pre-mix and vial pharmaceuticals, as well as IV solutions, as Baxter provides a full solution to the customer. Drug compounding is not an area, a strategic area for Baxter, but it's strategic in specific markets that we do business in. I would look at the performance of injectable pharmaceuticals, which was 8% in this first quarter. We're starting to see the new products really taking shape and helping offset the price erosion headwinds, as well as the gross margin that got eroded during the pandemic. So I would say to you that,

Robert Justin Marcus: Robbie.

Joe: Pharmaceutical realized outside the U S in very key markets.

Joe: The combination of drug compounding and premix and vial pharmaceuticals, as well as IV solutions as Baxter provides a full.

Joe: Our full solution to the customers.

Joe: Drug compounding is not an area a strategic area for Baxter, but it is strategic in specific markets that we do business I would look at the performance of injectable Pharmaceuticals, which has been was 8%. This first quarter, we're starting to see the new products really taking shape and healthy.

Joe: <unk> offset.

Joe: Price erosion headwinds as well as.

Joe: As the gross margin that got eroded during the pandemic, so I would say to use that.

Robert Justin Marcus: I'm always optimistic about the second half of compounding business volume. It is an opportunity that we have to continue to grow, but it's more important for us to grow the new products that we're launching because for every dollar that we sell of a new molecule or a new premix, the gross margin is one of the highest in the company, and it goes between 70 and 85 percent. So that's the focus.

Joe: I'm always optimistic on the second half of the compounding.

Robert Justin Marcus: Business volume it is an alternate as an opportunity that we have to continue to grow but it's more important to us to grow the new products that we're launching because for every dollar that we sell of our new molecule or a new.

Robert Justin Marcus: Launched pre mix.

Robert Justin Marcus: The gross margin is one of the highest in the company and it goes between 70 and 85%. So thats the focus compound it is a good <unk>.

Robert Justin Marcus: Compounding is a good, all-around business in Australia, Zealand, UK, Canada, Ireland to bring IV solution volumes and some pharmaceuticals, but it's not the driver of the business in pharmaceuticals. The new product launches and the volume are.

Robert Justin Marcus: All around business in Australia, and New Zealand, UK, Canada, Ireland to bring the IV solutions volumes and some of the pharmaceuticals, but it's not the driver of the business in pharmaceuticals, the new product launches.

Robert Justin Marcus: And the volume is.

Speaker Change: I appreciate it thanks a lot.

Robert Justin Marcus: Yeah.

Robert Justin Marcus: Sure.

Danielle Joy Antalffy: Danielle Antalffy of UBS is on the line with a question. Please state your question.

Robert Justin Marcus: Daniele <unk> of UBS is on the line with a question. Please state your question.

Danielle Joy Antalffy: Appreciate it. Thanks a lot. Danielle Antalffy of UBS is on the line with a question. Please state your question. Hey, good morning, everyone. Thanks so much for taking the question and congratulations on a good start to the year here.

Danielle Joy Antalffy: Hey, good morning, everyone. Thanks, so much for taking the question and congrats on a good start to the year here.

Danielle Joy Antalffy: Just wanted to ask about Nova obviously, that's probably the biggest event that has happened now.

Danielle Joy Antalffy: We were all last on the phone together. So just curious what youre seeing I know, it's early days, but with Nov on how much of that is factored into the Q1 outperformance or maybe drove some of the Q1 outperformance and into the higher guide.

Danielle Joy Antalffy: Just sort of what youre seeing from a competitive dynamic now that you do have Nelson out there.

Joe: Good morning, and thank you for the compliment opening the question. It was very nice of you to recognize that.

Danielle Joy Antalffy: Good morning, and thank you for the compliment open and the question was very nice of you to recognize that.

Joe: We agree with you that Novum had no impact in the first quarter. As a matter of fact, that performance is driven by strong volumes all around the MPT portfolio, but Novum. So Novum is going to be, will have an impact on the company in the second half of the year when we start shipping. As we noted in the prepared remarks, we have two large accounts that have just ordered the product. One is a full conversion from our competitor, our largest competitor, and we're going to continue to see that as our technology is modern and new.

Danielle Joy Antalffy: We agree with you Novo has had no impact in the first quarter as a matter of fact that performance is driven by strong volumes all around the MPT portfolio, but no firm. So nobody is going to be we will have an impact in the company in the second half of the year when we start with us.

Joe: Shipping as we noted in the prepared remarks, we have.

Joe: Two.

Joe: Large accounts that just ordered the product one is a full conversion from our competitor our largest competitor and we're going to continue to see that as our technology is modern is new.

Joe: The equipment was designed with a significant amount of productivity built in. It comes with the best drug library on the market, and we're going to continue to have a combination of good alternatives for our customers between Sigma Spectrum and Novum. So, as we transition between one technology and the other, we will have customers who will continue to use Sigma Spectrum with our award-winning version 9 of the pump, and those who will have the need for Novum to go there.

Joe: The equipment was designed with significant amount of productivity built in it comes with the best drug library on the market and we're going to continue to have a combination of good alternatives to our customers between Sigma spectrum in all of them. So we as we transition between one technology and the other we will.

Joe: Have customers, who will continue to use Sigma spectrum with you are our our award winning version nine of the pump and the ones who will have the need for Nova to go there, but our objective right now is competitive conversions and I think we can make a significant impact there.

Joe: But our objective right now is competitive conversions, and I think we can make a significant impact there, some in 2024 and more so in 2025. Yeah, and I could just add a couple of things to that. Number one,

Joe: Some in 2024 and more so in 2025, yes, and if I could just add a couple of things to that number one keep in mind, though as Joe talked about we continue to see really strong performance in our spectrum pump and so throughout the course of the year, we anticipated still strong double digit growth in the spectrum as we head into the <unk>.

Joel: Yeah, if I could just add a couple of things to that. Number one, keep in mind, as Joe talked about, we've continued to see really strong performance in our spectrum pump, and so throughout the course of the year, we still anticipated a strong double-digit growth in spectrum. As we head into the second half of the year, again, we will start rolling out NOVIM. We talked about the prepared remarks. You know, we've anticipated some speculation of spectrum with the NOVIM rollout, but we've included certainly $25 million in the fourth quarter of the year as an anticipation of incremental impact from the NOVIM rollout, and as Joe said, much more heading into 2025.

Joel: Second half of the year again, we will start rolling out Novum, we talked about in the prepared remarks, we've got.

Joel: Anticipated some cannibalization of spectrum with the normal rollout, but we've included certainly a.

Joel: $25 million in the fourth quarter of the Europe, as an anticipation of incremental impact from a from an overall rollout and as Joe said much more heading into 2025.

Speaker Change: Got it thanks, so much.

Patrick Andrew Robert Wood: Patrick Wood of Morgan Stanley is on the line with a question. Please say your tune.

Speaker Change: Patrick Wood of Morgan Stanley is on the line with a question. Please <unk>.

Patrick Andrew Robert Wood: Yes.

Patrick Andrew Robert Wood: Amazing. Thank you I'll keep it to one given the amount going on this morning. So thank you for taking it.

Patrick Andrew Robert Wood: taking it. Pharmaceuticals, obviously, again, very strong growth. I'm just trying to think bigger picture. The drug shortage list is still very long. You've got some outsourcing, certainly on the syringe side of things. And I think the Civica experiment didn't really work. And some of the Indian manufacturers have been having a difficult time. I guess, what do you see as a long-term opportunity within that business to keep pushing out ANDAs and potentially either benefit from onshoring or pulling back some capacity and better pricing because of the drug shortage list? Just curious about the outlook there. Thanks.

Patrick Andrew Robert Wood: Pharmaceuticals, obviously again very strong growth I'm, just trying to think bigger picture. The drug shortage list is still very high you've got some onshoring certainly of the sovereign side of things and I think the <unk>.

Patrick Andrew Robert Wood: Experiment didn't really work.

Patrick Andrew Robert Wood: And some of the Indian manufacturers have been having a difficult time I guess.

Patrick Andrew Robert Wood: What do you see as a long term opportunity that within that business to keep pushing on the andas and potentially either benefit from onshoring or pulling back some capacity and better pricing.

Patrick Andrew Robert Wood: The drug shortage does just curious for the outlook. Thanks.

Joe: Patrick, we are in an injectable space that is called a specialty generic. We take and ANDAs, and we create premixes. They're very safe.

Speaker Change: Patrick we are in the injectable space.

Joe: That is.

Joe: Sure.

Joe: It's called a specialty generic we take.

Joe: And Andas and we create.

Speaker Change: <unk>, they're very.

Joe: They have good shelf life, and they can be deployed to hospitals very quickly. So as we think about drug shortages, we continue to explore drugs that can be put into that format. But we also have another technology. We have two technologies. One we call Galaxy, but we have another one that we call ViyaFlow.

Joe: Safe.

Joe: They have good shelf life and they can be deployed to hospitals very quickly. So as we think about drug shortages will continue to explore drugs that can be put into that format. But we have also a different techs know we have two technologists, one with coke, Alex but we have another one that we call <unk>.

Joe: Via flow and Firefly technology also allows for premix, even better without having to refresh your rates for the most part so our.

Joe: And the ViyaFlow technology also allows for premixing even better without having to refrigerate for the most part. So our portfolio, and Luke Sonnick, who runs that business, has brought in a significant number of opportunities for us to look at more drugs, more molecules. We revamped our portfolio of new molecules that are going into premix and put more relevant ones in. So, you see, the five we just launched will have a really good effect in 24 and 25 for Baxter.

Joe: Our portfolio and I'll look Sonic who runs that business has brought in.

Joe: Significant amount of opportunities for us to look at more drugs more molecules, we revamped our portfolio of new molecules that is going into premix and put more relevant one so you'll see the five we just launched and we have a really good effect in 2004 and 25 for Baxter.

Joe: That business is launching probably three to four or five relevant molecules a year. And between the expansion of markets outside the U.S. and in the U.S., we will have more than 25 different launches in 2025. So we continue to accelerate innovation, but it's the quality of the innovation. In terms of making the product available, we will continue to invest in the technology. As you know, all Galaxy technology is U.S.-based, is made here in Illinois, and we have some of our products made in Puerto Rico as well as Ireland, but most onshore. So that should be a good value proposition for our customers who look for security of support. I appreciate it.

Joe: Business is launching probably three to four five relevant molecules a year and between.

Joe: Expansion of markets outside the U S. In the U S. We will have more than 25 different launches in 2025. So we continue to accelerate the innovation, but as the quality of the innovation in terms of making the product available. We will continue to invest in the technology as you know.

Joe: All Galaxy technology is U S. Based is made here in Illinois, and we have some of our products made in Puerto Rico as well as Ireland, but most onshore so that should be of a good value proposition for our customers, who look for security of supply.

Patrick Andrew Robert Wood: I appreciate the color. Thanks, Joe.

Speaker Change: Appreciate the color thanks Jay.

Speaker Change: Thank you.

Travis Lee Steed: Travis Steed of Bank of America Securities is on the line with a question. Please state your question.

Patrick Andrew Robert Wood: Sure.

Speaker Change: Travis Steed of Bank of America Securities is on the line with a question. Please state your question.

Travis Lee Steed: Hey, thanks for the question. I wanted to ask some of the segment margins, like renal margins were really strong this quarter, and HST margins were lower. I assume that's just the revenue stuff, but I just wanted to make sure there was any other color you could provide on kind of those segment margins this quarter, given they were kind of way off trend.

Travis Lee Steed: Hey, Thanks for the question.

Travis Lee Steed: I wanted to ask some of the segment margins like renal margins were really strong this quarter HST margins were lower I assume that the revenue stuff, but just wanted to make sure.

Travis Lee Steed: Any other color you can provide on kind of those segment margins. This quarter, just given they were kind of way off trend.

Joel: Yeah, thanks for the question. Yeah, you're correct in your assumption on that.

Speaker Change: Yeah. Thanks for the question, Yes, Youre correct in your assumption on that and then the kidney side in particular, yes. There is a lot of impact on that and some of that I referred to earlier in terms of closing our opelika plant. So again in that in the first quarter.

Joel: And then on the kidney side, in particular, there's a lot of impact on that, and something I referred to earlier in terms of closing our Opelika plant. So again, in the first quarter, there was a lot of increased production that drove a fairly significant amount of margin in our kidney business, and in Q1 in particular. So I think that's really the main driver of that business that you saw that looked like a bit of an outsized margin. We're certainly not anticipating that to continue.

Joel: I'd call, there's a lot of increased production that drove a fairly.

Joel: A significant amount of margin in our kidney business in Q1 in particular, so I think that's really the main driver.

Joel: That business that you saw that looks like a bit of an outsized margin. We're certainly not anticipating that to continue in Q2.

Travis Lee Steed: Okay, and then this kind of bigger picture, when you think about the core Baxter business kind of excluding the renal business, just the opportunity for continued margin expansion. You're getting, you know, good margin expansion this year, but just in general, like, what are the line of sights that you have? Is the cost rolling off? Is it based on revenue growth acceleration, you know, cost opportunities that you can take out of this business, just to kind of keep this margin trajectory and expansion kind of going, longer term? Yeah, I think it's really important.

Speaker Change: Okay, and then just kind of bigger picture when you think about the.

Travis Lee Steed: Core Baxter business kind of excluding the renal business.

Travis Lee Steed: Just the opportunity for continued margin expansion youre getting good margin expansion this year.

Travis Lee Steed: In general like what are the line of sight that you have is the cost rolling off is it based on revenue growth acceleration.

Travis Lee Steed: Cost opportunity that you can take out of this business just to kind of keep this margin trajectory and expansion kind of going going longer term.

Joel: Yeah, I think it's really a combination of things. First of all, it's the volume, as you said. It is continued opportunities from pricing. As you know, we've had some pricing impacts this year, and we've renegotiated some of our contracts with our GPOs as we head into next year. We're anticipating continued favorability from a pricing standpoint. The IFC continues to be an area of strength for us that is going to positively impact our margins.

Speaker Change: Yes, I think it's really a combination of things first of all it's it's the volume as you said it is and continued opportunities from pricing as you know.

Joel: We've had some pricing impact this year and as we've renegotiated some of our contracts with our GPO is as we head into next year. We are anticipating continued favorability from a pricing standpoint.

Joel: We also continue to.

Joel: <unk> continues to be an area of strength for us that there's going to be positively impacting our margins I think the.

Joel: I think the continued operations for execution, the operational efficiencies, some of the automation opportunities we've had. We continue to do work from a procurement standpoint, and some of the buying opportunities we have both to leverage our scale as well as for risk mitigation. I see continued opportunities in the IFC space. I think the other thing I would say, I've said this before, and I'll say it again, we're not going to SG&A our way to prosperity.

Joel: Continued operations for execution the operational efficiencies.

Joel: Some of the automation opportunities. We've had we continue to do work from a procurement standpoint, and some of the the buying opportunities we have a draft of the total.

Joel: Leverage our scale as well as to for risk litigation.

Joel: Should we.

Joel: I see continued opportunities in the IFC space and I think the other thing I would say I've said this before I'll say it again, we're not going to SG&A, our way to prosperity. However.

Joel: However, there are areas of opportunity there. For example, we'll be hiring even starting next week a person that's going to be leading our global business service. That is an opportunity for us to continue to think about how we, what our operating model is, post-verticalization, and how we can leverage some of those opportunities across our organization. So I think, again, I see a variety of ways really up and down our P&L in terms of those types of opportunities to continue to expand our margin.

Joel: However, there are areas of opportunity there for example, you'll be hiring even start.

Joel: Turning next week, a person thats going to be leading our global business services.

Joel: As an opportunity for us to continue to think about how we what our operating model is as opposed to virtualization and how we can leverage some of the.

Joel: Those opportunities across our organization. So I think again I see a variety of ways really up and down our P&L in terms of those types of opportunities to continue to expand our margins.

Speaker Change: Okay, great. Thanks, a lot.

Joshua Thomas Jennings: Josh Jennings of TD Cowan is on the line with a question. Please state your question.

Joel: Josh Jennings of TD Cowen is on the line with a question. Please question.

Joshua Thomas Jennings: Hi, good morning. Thanks a lot.

Joshua Thomas Jennings: Hi, good morning, Thanks, a lot.

Joshua Thomas Jennings: Going to ask Joe and team just about the geographic expansion initiative for the Hill ROM or HST portfolio.

Joe: I was hoping to ask Joe and the team just about the geographic expansion initiative for the HILROM or HST portfolio. Has it taken a little bit longer than Baxter thought, or are there challenges to bringing HILROM technologies into international geographies where Baxter is a presence and HILROM doesn't? Some of the international softness was based on government order timing in Q1, but I just wanted to get an update there as it was part of the strategic rationale for the Hiram acquisition.

Joshua Thomas Jennings: Has it taken a little bit longer than infection. She thought or are there challenges to bring Huron technologies into international geographies, where Baxter has a presence and hill ROM did it sounds like.

Joe: Some of the international softness was based on government order timing in Q1, but just wanted to get an update there as it was part of the strategic rationale for the Hill ROM acquisition.

Joe: Yeah, we have good performance in Western Europe, and we see that, and we see good performance in Latin America as well. So we see that Baxter's combination with Hiram has expanded Hiram's opportunities in those markets. We are making changes in our Asia-Pacific organization to bring more focus on capital sales to supplement what Baxter is strong at, which is general acute market sales. So we're increasing talent in the Asia-Pacific region with some changes we just recently made.

Speaker Change: Yes, we have we have good performance in.

Joe: In Western Europe, we see that and we see good performance in Latin America as well. So we see that Baxter combination with Hill ROM has expanded hill ROM opportunity in those in those markets. We are making changes in our Asia Pacific organization to bring more focus on capital sales.

Joe: To supplement what Baxter is strong which is.

Joe: General acute market sales, so we're increasing talent in the Asia Pacific with some changes, which has recently made and western Europe continues to be a strong market for us and we continue to strength their group their Latin America as well. So he has been a positive.

Joe: And Western Europe continues to be a strong market for us, and we continue to strengthen that group there and in Latin America as well. So it has been a positive take on Baxter and Hiram combined outside the West. One market where things are not as strong is China, but China because specifically meeting Chinese restrictions in VBP, as is known in the market, but our sales ambitions there were not very great, as opposed to the fact that in Latin America, Europe, the Middle East, and Africa, and the rest of Asia-Pac, they have become very strong, including Australia. We're very successful in Australia, and we just closed some really good deals there. So Baxter brought a lot of talent into that equation, and we continue to strengthen the team with new hires that we're bringing on board.

Joe: <unk>.

Joe: Uptake on Baxter and Hill ROM combined for outside the West one market, where things are not as strong is China, but China, because specifically meeting China restrictions in DPP.

Joe: <unk> is known in the market, but our sales ambitions there were not very great.

Joe: Yeah.

Joe: Post to the fact that in Latin America, Europe, Middle East and Africa, and the rest of Asia Pac they become very strong including in Australia were very successful strategies close some really good deals there. So baxter brought a lot of talent into that equation and we continue to.

Joe: And the team with new hires that we're bringing on board.

Speaker Change: Understood and just one follow up I wanted to just ask ask about the connectivity solutions technology, It sounds like Novum IQ.

Joe: Art beds, they're adding to the connectivity solutions portfolio, but maybe if you could share with us any pipeline initiatives.

Joe: And how you think they can roll in and start to bring bigger sales impacts.

Joe: As we move into 'twenty five in 2026, thanks for taking so.

Speaker Change: Thank you.

Joe: We with Novum, IQ syringe and LDP are large volume parental.

Joe: Now we have a suite that connect with Baxter.

Joe: <unk> way overall gateway cocoa Nexus and the connects brings all of these devices to talk to each other so right now if you went to our center our customer experience center in Batesville or in any other place.

Joe: Have you would see the bump communicating to devices like volt.

Joe: The bad communicating to vote, you will see the connectivity and as it becomes more important to our customers Baxter has the right solutions for the hospital interesting speaking debt.

Joe: He has to bring productivity improvement to the hospital the ability to connect by just connecting is table Stakes, but what battery seeking is continue to innovate to bring specific solutions to improve productivity in the hospital setting. So we when we do our later this year.

Joe: We do our Investor day, we will be able to bring a demo where youll be able to see how these devices will be connected to each other but they are very important and with novo now the last piece of this puzzle is complete.

Speaker Change: Thanks, Joe.

Speaker Change: We have time for one final question.

Speaker Change: Mixing of Barclays is on the line with our final question. Please state your question.

Speaker Change: Hey, Thanks, so much for squeezing me in caught me off guard there.

Joe: No.

Speaker Change: I'd love to understand.

Speaker Change: One of the things that my question I get often on Baxter is sort of where is the tall pole in the tent where it is.

Joe: Where is the sort of significant single growth driver.

Joe: If there is one in.

Joe: Looking into into the end of the back half of this year and 25.

Joe: Maybe Joe you could highlight.

Joe: Which which are the product lines of your business lines.

Speaker Change: Do you think youre going to emerge as.

Joe: And it's something that we're all going to look to to sort of see lifting growth, we're lifting leverage into 'twenty five.

Joe: Matt.

Joe: One of the advantages of Baxter its diversity of portfolio as it brings.

Joe: Stinks.

Joe: To a point where acute.

Joe: The acute market, we provide significant amount of infrastructure products for those markets IV solutions Pharmaceuticals pumps. We also have the capital market with beds monitors and so when we think about Baxter in general our.

Joe: We have several of several drivers of growth you could see this quarter was a significant amount of growth and it was more than enough to offset some headwinds that we had in HST and HST is going to continue to.

Joe: Im cautiously optimistic about their business I think we have we are back into our our our cadence of growth for that business.

Joe: We have innovation.

Joe: In every single part of Baxter, we have significant drivers coming out of pharmaceutical our injectable pharmaceutical portfolio, our pump conversion rates will be what's going to make that business growth is going to be competitive conversions to our biggest competitor because we have a product that is new.

Joe: Any in fulfilled significant market needs. We also have in our HST portfolio more than seven significant launches in 2025, So innovation and Baxter is not is not dependent on one or two product is a wide range of products.

Joe: De risk the company and put the company in a good solid footing to achieve excuse me, 4% to 5% growth.

Speaker Change: That's great. Thanks, so much Joe.

Speaker Change: Thank you.

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

Joshua Thomas Jennings: understood. And just one follow-up question.

Joe: Please wait the conference will begin shortly.

Joe: I wanted to just ask about the connectivity solutions technology. It sounds like Novum IQ, the smart beds, they're adding to that connectivity solutions portfolio. But maybe if you could just share with us any pipeline initiatives and how you think they can roll in and start delivering bigger sales impacts as we move into 2025 and 2026. Thanks for taking the questions. Thank you.

Joe: Thank you. We, with Novum IQ, Syringe, and LVP, Large Volume Parenteral, now have a suite that connects with Baxter Gateway, an overall gateway called Connexus. And the Connexus brings all these devices to talk to each other. So right now, if you went to our center, our customer experience center in Batesville or to any other place that we have, you would see the pump communicating with devices like Volt, the bed communicating with Volt.

Joe: You see the connectivity and as it becomes more important to our customers, Baxter has the right solutions for the hospitals. Interestingly speaking, that He has to bring productivity improvement to the hospital. The ability to connect by just connecting is table stakes. But what Baxter is seeking is continue to innovate to bring specific solutions to improve productivity in the hospital setting. So when we do our, later this year we do our investor day, we'll be able to bring a demo where you're going to be able to see how these devices will be connecting to each other. But they're very important and we know them now. The last piece of this puzzle is.

Joe: Sure.

Joe: [music].

Joe: Yes.

Joe: Okay.

Joe: Yes.

Joe: Yes.

Joe: [music].

Joe: Yes.

Joe: [music].