Q3 2024 Baxter International Inc Earnings Call
Speaker Change: Good morning ladies and gentlemen and welcome to Baxter International's third quarter 2024 earnings conference call.
Speaker Change: Your lines will remain in the listen-only mode until the question and answer segment of today's call. At that time, if you have a question, you will need to press star 1 on your touchtone phone. If anyone should require assistance during the conference, please press star 0 on your touchtone phone.
Speaker Change: 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.
Speaker Change: I would now like to turn the call over to Miss Clare Trachtman, Senior Vice President, Chief Investor Relations Officer at Baxter International. Miss Trachtman, you may now begin.
Clare Trachtman: Good morning and welcome to our third 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. On the call this morning we will be discussing Baxter's third quarter 2024 results along with our financial outlook for the fourth quarter and full year 2024.
Clare Trachtman: With that, let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook for the fourth quarter, full year 2024 and 2025, the status and anticipated timing and impact of our ongoing strategic action, including the pending kidney care sale and cost savings initiative.
Clare Trachtman: Regulatory matters and the macroeconomic environment on our results of operations contain forward-looking statements that involve risks and uncertainties and of course our actual results could differ materially from our current expectations.
Clare Trachtman: Please refer to today's press release and our ROTC filings for more detail concerning factors that could cause actual results to differ materially.
Clare Trachtman: In addition, on today's call, non-GAAP financial measures will be used to help investors understand Baxter's ongoing business performance.
Clare Trachtman: A reconciliation of certain 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.
Clare Trachtman: Please note, following the announcement of Basher's pending sale of our kidney care business to Carlyle, the kidney care business met the conditions to be reported as a discontinued operation.
Clare Trachtman: Accordingly, the kidney care business is now reported in discontinued operations and the company's prior paired results have been adjusted to reflect the discontinued operations presentation.
Clare Trachtman: Restated historical results reflecting the kidney care segment as a discontinued operation for the prior six quarters can be found on Baxter's website in the investor relations section.
Clare Trachtman: This continued operations for 2023 also includes Baxter's former Biopharma Solutions, or BPS, business, which was defested at the end of the third quarter of 2023.
Speaker Change: Current and prior year periods now reflect the continuing operations of Baxter's medical products and therapies, healthcare systems and technologies, and pharmaceutical segments. Now I'd like to turn the call over to Joe. Joe?
Speaker Change: Thank you, Clare, and good morning, everyone. We appreciate you taking the time to join us today. We'll start with a brief update on the hurricane recovery progress at our North Coast North Carolina facility, followed by some comments regarding our third quarter performance. Joel will provide a closer look at our third quarter results and our outlook for the remainder of the year. We will also share some preliminary thoughts regarding our financial outlook following the completion of the pending sale of the kidney care business. Then, as always, we'll take your questions.
Speaker Change: As you know, Hurricane Helene caused unprecedented devastation in western North Carolina in the closing days of September. This region is home to Baxter's North Cove Manufacturing Facility, the largest plant in our global network and a critical source of IV and peritoneal dialysis fluids for the U.S. market. I want to first recognize the amazing and tireless work of our North Cove team, who have helped rapidly advance the ongoing site recovery efforts while also navigating the
Speaker Change: Our heart goes out to the entire community, and we are so proud of what our colleagues across the Bachelor Network are accomplishing daily to help return the site to normal operations. In just six weeks, the NorthCope team has devoted more than one million hours collectively to restoring operations. This dedication was evidenced last week as our highest throughput IV solutions line in NorthCope was able to restart production.
Speaker Change: We also expect to restart a second IV solutions manufacturing line in the coming week. Together, these two lines represent at their peak operation approximately 50% of the site's total production.
Speaker Change: These key milestones were achieved ahead of our original expectations. However, I want to emphasize that in coordination with FDA, the earliest that new NorthCole product could start to ship is in late November, and more hard work remains as we return the plant to full production. Throughout this effort, our focus has remained squarely on our customers and their patients and our employees. And to this end, we have not spared any resource to ensure the needs of these key stakeholders are prioritized.
Speaker Change: Parallel to our North Cove recovery efforts, we have activated nine sites across our global manufacturing network to help increase available U.S. inventory to serve our patients and customers, and we work to bring North Cove fully back online.
Speaker Change: As we have shared previously, we anticipate restarting NorthCole production in phases by the end of the year, and our current expectation is that all lines in NorthCole will have resumed production before the end of this year.
Speaker Change: Throughout this journey, our North Cove and Global teams have demonstrated an unwavering commitment to Baxter's life-sustaining mission.
Speaker Change: I also want to express our gratitude to ASPR, FDA, and the state of North Carolina and HHS, among other federal, state, and local entities, for their steadfast support.
Speaker Change: And we deeply appreciate the patience and partnership of our customers as recovery efforts continue.
Speaker Change: We will continue providing updates through Baxter.com on planned recovery, supply continuity, and how Baxter is making a difference for its employees and the community. Now turning to our third quarter performance.
Speaker Change: Given the pendency of our kidney care business, current and prior period results for this business are now reported as discontinued operations. As Clare mentioned, restated historical results can be found on Baxter's website.
Speaker Change: For today's discussion, we'll be focusing our commentary on total company performance in the third quarter, which includes the impact of kidney care in both the current and prior periods, but excludes the impact of the biopharma solutions business, which moved discontinued operations in the third quarter of 2023.
Speaker Change: On that basis, total company third quarter 2024 sales grew 4% on both a reported and constant currency basis, in line with our prior guidance.
Speaker Change: All of our Baxter segments increased year-over-year on both a reported and constant currency basis. As always, we benefit from our focus on essential healthcare needs combined with the diversity and durability of our portfolio.
Speaker Change: In Q3, strength in our medical products and therapies and kidney care segments helped offset softness in the healthcare systems and technologies.
Speaker Change: Taking a closer look by segment, I will begin with the businesses that will comprise the new Baxter following the pending kidney care sale. Medical products and therapies led all segments with 7% growth at both reported and constant currency rates.
Speaker Change: Filled by positive demand across the portfolio, I particularly want to highlight the strong uptake of our Novum IQ platform in the U.S., including our large volume pump and syringe pump, both featuring those IQ safety software.
Speaker Change: The new platform is widely recognized across the market as advancing pump connectivity, intelligence, and fusion therapy, and we foresee sustained positive momentum both through existing customer upgrades and competitive conversions. Performance in the segment also benefited from strength globally in our advanced surgery division.
Speaker Change: Our Healthcare Systems and Technologies, or HSE, segment grew 1% in both reporting past and current rates.
Speaker Change: Growth was driven by strong U.S. performance in the Care Connectivity Solutions Division, particularly for our patient support systems products, which increased low double digits in the quarter.
Speaker Change: This growth was partially offset by declining U.S. frontline care sales, largely reflecting the ongoing dynamics impacting the U.S. primary care market, which we have discussed previously, plus a difficult comparison to the prior year period, which reflected the benefit from backlog reduction efforts.
Speaker Change: Softness, international and sharing connectivity solutions also muted overall HST growth as lower sales in China and France impact performance in the quarter.
Speaker Change: We fully recognize the need to drive continued improvement in the growth profile for both the frontline care division and HST as a whole. Our current expectation is that the U.S. primary care market begins to stabilize over the coming year. In addition, we are keenly focused on enhancing performance through innovation and launching new products to augment growth in both FLC and the broader HST segment. We have several new products scheduled to launch in 2025 and beyond, and we believe we will contribute to improved performance for this segment over time.
Speaker Change: Sales in our pharmaceutical segment increased 1% on both a reported and constant currency basis. Double-digit growth in drug compounding was partially offset by a high single-digit decline in our injectables and anesthesia division. Sales of injectables and anesthesia were impacted by phasing off selected sales into the fourth quarter, combined with supply constraints impacting international sales. While the performance in the quarter was disappointing, we believe the weakness is temporary, and we have already observed a course correction to restart the fourth quarter. At the same time, the injectables sales force continues to enhance its new product launch capabilities and remains focused on successfully driving the commercial launch of several new injectables in 2024 and beyond.
Now shifting toward the in-care segment.
Speaker Change: which will be known as Fanta following its separation from Baxter. This segment grew 4% on a reported basis and 5% at constant currency driven by both.
Speaker Change: demand and pricing for acute therapies and paired new dialysis products. These results reflect positive momentum as the segment prepares to operate as a separate entity.
Speaker Change: progress on the pending sale to Carlisle continues with the process well underway. We continue to expect the sale to close in late 2024 or early 2025.
subject to receipt of regulatory approvals and other customary conditions.
Speaker Change: As you know, this SEIA represents a key milestone across the three-pillar strategic transformation we announced in January 2023.
Speaker Change: These steps also included the realignment of our operating model and the divestiture of our non-core biopharma solutions contract manufacturing business, both of which were executed over the course of last year.
taken together.
Speaker Change: These three transformational actions have been uniformly focused on enhancing value for all stakeholders and empowering our ongoing transformation. In addition, we remain committed to crisp execution of several initiatives across the enterprise focused on enhancing the efficiency of our operations, heightening the productivity of research and development, and offsetting the impact from extended costs that result
from Dependency of Kidney Care.
Speaker Change: Post the separation of Medicare, we continue to expect our business can deliver 4-5% top-line growth and achieve an adjusted operating margin of 16.5% in 2025, with annual operating margin expansion thereafter.
Speaker Change: I'm excited about what we have accomplished to date while also recognizing there's still more to do. Our progress, as always, is due entirely to the hard work and commitment of our Baxter colleagues globally.
Speaker Change: Whether these efforts involve restoring our North Cove facility, empowering our ongoing transformation, or delivering on our goals in countless other ways, our colleagues are motivated by unparalleled dedication to advancing Baxter's mission to save and sustain lives. I salute this extraordinary team today and every day.
Speaker Change: Now I will pass it to Joel, who will provide more detail on our third quarter, our outlook for the balance of the year, and our trajectory following the pending kidney care divestiture. Joel.
Thanks, Joe, and good morning, everyone.
Joel: Before I begin, I would like to reiterate Joe's remarks regarding the presentation of our financial results for the third quarter.
Joel: Beginning this quarter, the kidney care business is now recorded as discontinued operations.
Joel: The company's prior period results have been adjusted to reflect the discontinued operations presentation, and historical restated schedules are available on our website.
Joel: For comparability purposes to previously issued guidance, commentary surrounding our third quarter performance will be provided on both a total company and continuing operations basis.
That will turn into some specific comments regarding the quarter.
Speaker Change: As Joel mentioned, in general, we were pleased with our third quarter results, which came in line with our expectations on the top line, and compared favorably to our previously issued guidance on the bottom line.
Speaker Change: Excluding the effect of BPS sales in the prior year period, 3Q2024 global total company sales of $3.85 billion increased 4% on both a reported and constant currency basis.
Speaker Change: Performance of the quarter reflected better-than-expected sales in infusion therapies, chronic therapies, drug compounding, and US patient support systems.
Speaker Change: which more than offset softness in injectables and anesthesia and HST.
Speaker Change: Sales from continuing operations increased 4% on both a constant currency and reported basis with all segments contributing to growth.
Speaker Change: On the bottom line, Total Company Adjusted Earnings, including continuing operations and discontinued operations,
Speaker Change: $0.80 per share ahead of our prior guidance of $0.77 to $0.79 per share.
Speaker Change: Earnings growth in the quarter was driven by operational performance and lower interest expense as compared to the prior year period.
Speaker Change: Adjusted earnings from continuing operations, which excludes kidney care and BPS, from both periods totaled 49 cents per share and increased 14% compared to the prior year.
Now I'll walk through our results by report of effectiveness.
Commentary regarding sales growth reflects growth at constant currency rates.
Speaker Change: Sales of our Medical Products and Therapies, or MPT, segment were $1.3 billion, increasing 7% and coming in ahead of expectations.
Speaker Change: Within MPT, third-quarter sales from our Infusion Therapies and Technologies Division totaled $1.1 billion and increased 7%.
Speaker Change: Sales in the quarter benefited from significant growth for our U.S. Infusion Systems portfolio as the rollout of our Novum IQ Pump platform continues to build momentum with orders coming in from both new and existing customers.
Speaker Change: The U.S. Infusion Systems sales in the quarter also benefited from strong customer demand for a spectrum pump.
Speaker Change: IV Solutions internationally continue to deliver solid performance, driven by favorable pricing and underlying volume demand.
Speaker Change: Mid-single-digit growth in nutrition globally also contributed to ITT performance in the quarter.
Speaker Change: Stills in advanced surgery totaled $272 million and grew 7% globally.
Speaker Change: Results in the quarter reflect demand for our portfolio of hemostats and spelens, as well as favorable pricing.
Speaker Change: Strong sales and operational performance in MPT resulted in an adjusted operating margin of 20% for the quarter, which represented an improvement of 50 basis points year-over-year and 200 basis points sequentially.
Sales in the quarter were $752 million and increased 1%.
Speaker Change: Within the HST segment, sales on our Care and Connectivity Solutions, or CCS, division were $456 million, growing 3%.
Speaker Change: Performance in the corridor was driven by continued strength in our US Patient Support Systems, or PSS, business.
which delivered double-digit growth.
Speaker Change: Orders for USPSS capital increased mid-teens in the quarter, driven by existing accounts and competitive wins.
Speaker Change: Performance was partially offset by weaker sales outside the U.S. driven by softness in China due to ongoing government policy initiatives.
and the delay in the release of stimulus funding.
Speaker Change: In addition, sales in Western Europe declined on a year-over-year basis due to certain market exits and weaker demand due to delayed government funding.
Speaker Change: While year-to-date, we have seen strong order growth for our care, communications, and connectivity business.
Sales performance hasn't been impacted by the timing of installations.
Speaker Change: Our backlog remains strong, and we have a very low cancellation rate for this business. And as such, we see many of these installs phasing into 2025.
Speaker Change: Finally, sales for our Mobile Surgical Solutions, or GSS, business declined as compared to the prior year period due to ongoing supply constraints, which the company continues to quickly work to remediate.
Speaker Change: and expressed to be largely resolved by the end of the year.
Speaker Change: Frontline care sales in the quarter were $296 million and declined 2%.
Speaker Change: Growth in the core continued to be impacted by a difficult comparison to the prior year, as backlog reductions positively contributed to growth in the prior year period.
Speaker Change: The fourth of the quarter was also impacted by ongoing softness in the primary care market.
Speaker Change: We have been in close contact with our distributor partners, but have also acknowledged the challenging market dynamics in the U.S. primary care market.
Speaker Change: Our current assumption is that the market begins to stabilize over the course of 2025.
Speaker Change: Notably, HSP recognized significant expansion in operating margins during the quarter, driven by improved operational efficiency.
Moving on to pharmaceuticals.
Sales of this segment were $588 million, increasing 1%.
Sales within injectables and NFTs have declined high single digits.
Speaker Change: Performance in the quarter reflected a mid-single-digit decline in our injectables portfolio, driven by a difficult comparison of the prior year period, which benefited from a competitor being out of the market.
Speaker Change: In addition, sales in the quarter were impacted by some orders shifting to the fourth quarter and the delay in the anticipated new product launch.
Speaker Change: Supply constraints outside the United States also impact the performance of the quarter.
Speaker Change: Lower sales in Hailey Anesthesia continued to weigh our performance and declined mid-teens in the quarter.
Speaker Change: As Joel mentioned, we have seen sales rebound in this business to start the fourth quarter.
Speaker Change: In addition, the Ejectables team continues to enhance its new product launch playbook. Given the volume of new products this team is targeting to launch over the coming months and years.
Speaker Change: Within drug compounding, strong demand for services continued in the quarter, resulting in double-digit growth.
Speaker Change: Given lower sales of injectables and anesthesia per quarter, pharmaceuticals margins declined both year-over-year and sequentially.
Pharmaceuticals adjusted operating margins were 9.9% for the quarter.
Speaker Change: The Pharmaceuticals team is keenly focused on expanding margins to improve the mix with injectables growth accelerated.
Taking Acid, Stabilizing Anesthesia Business.
Driving Cost Improvements in the Comicomic Business.
and executing on margin improvement initiatives in integrated supply chain.
Speaker Change: Within Kidney Care, global sales for chronic therapies were $952 million, increasing 5%.
Speaker Change: Strong PD growth in the quarter was partially offset by the expected negative impact of certain product and market exits in our in-center HD business.
Speaker Change: Sales in our acute therapies business were $203 million, representing growth of 9% driven by strong demand in the United States.
Speaker Change: Other sales, which represent sales not allocated to a segment, and primarily include sales of products and services provided directly through certain of our manufacturing facilities.
Speaker Change: for $17 million and an increase of 12% during the quarter.
Speaker Change: Before moving on to the rest of the P&L results, I wanted to make some comments regarding our continuing operations results.
Speaker Change: Given the reporting change moving kidney care business results to discontinued operations,
Speaker Change: Corporate costs that had previously been allocated in the kidney care segment and will not convey with the kidney care business in the pending sale are now reported in unallocated corporate costs.
Speaker Change: As well as cost containment initiatives, the company is in the process of overtaking.
Speaker Change: As we previously stated, we currently expect to fully offset the impact of these transit costs and loss of TSA income by the end of 2027.
David, David, David, David, David,
Speaker Change: Third quarter total company adjusted gross margin, including discontinued operations from kidney care, was 42.5% and represented an increase of 80 basis points over the prior year.
Speaker Change: The year-over-year expansion of gross margin primarily reflects the continued efficiencies within our integrated supply chain network, as well as pricing initiatives in select markets.
Overall, product mix partially offset margin expansion in the quarter.
Speaker Change: Adjusted gross margin from continuing operations totaled 43.7% and declined 110 basis points versus the prior year period, driven by a mix in the quarter and the impact of a contract manufacturing agreement we entered into following the sale of DPS.
Speaker Change: Adjusted SG&A, including discontinued operations from kidney care, totaled $871 million, or 22.6 as a percentage of sales.
Speaker Change: An increase of 50 basis points from the prior year period.
Speaker Change: as we continue to make select investments to support our growth objectives and new product launches.
Adjusted SG&A from contingent operations totaled $665 million.
Speaker Change: or 24.6 as a percentage of sales, an increase of 20 basis points versus the prior year.
This increase is partially offset in another P&L line item.
Speaker Change: referred to as other operating income and expense, which reflects income the company has received from TSAs entered into following the BPS sales.
Speaker Change: Total adjusted R&D spending in the quarter, including discontinued operations from kidney care, totaled $159 million and represented 4.4 as a percentage of sales, an increase of 10 basis points compared to the prior year period.
It reflects our continued investments in advancing new products.
Speaker Change: across the portfolio, and bringing innovation to patients across our segments.
Speaker Change: driven by the factors of both, as well as a favorable impact from foreign states.
Speaker Change: Adjusted operating margin from continuing operations totaled 14.5%, and reflects an approximate $65 million headwind from stranded costs.
Speaker Change: which negatively impacted operating margin by 240 basis points in the quarter.
Speaker Change: 2024 Year-to-Date Continuing Operations Adjusted Operating Margins reflects approximately $200 million or 250 basis points of negative impact on stranded costs.
Speaker Change: That interest expense totaled $88 million in the quarter, a decrease of $40 million versus the prior year period, driven by debt repayments completed with the proceeds from our BPS divestiture.
Speaker Change: Adjusted Other Non-Operating Income totaled $9 million in the quarter compared to income of $7 million in the prior year period.
Speaker Change: Adjusted other non-operative income from continuing operations totaled $1,000,000.25 Compare the income of $12,000,000.00 in a prior year.
Speaker Change: The total company adjusted tax rate for the quarter, including discontinued operations from kidney care, was 13.8 percent, decreasing 100 basis points as compared to the prior year, and came in slightly lower than expectations.
Speaker Change: The year-over-year decrease is primarily driven by changes in earnings base and incremental R&D tax credit benefits in the U.S. versus the prior year.
Speaker Change: And as previously mentioned, total adjusted earnings were $0.80 per share for the quarter and increased 18% versus prior year, primarily driven by improved commercial performance.
and our adoption interest expats.
Speaker Change: Adjusted earnings from continued operations totaled 49 cents per share, increasing 14% versus the prior period, and reflected an 11 cents per share head when related to stranded costs.
We expect the effects from the hurricane to negatively impact total company fourth quarter sales by approximately $200 million.
Speaker Change: Including an estimated $40 million to $50 million impact on kidney care sales.
Speaker Change: At approximately $150 million to $160 million impact on <unk> sales.
Speaker Change: Total company adjusted earnings per share, including discontinued operations.
Speaker Change: I expected to be negatively impacted by 15.
Speaker Change: To <unk> <unk> per share.
Speaker Change: In addition, all guidance provided on a total company basis includes the impact of kidney care discontinued operations at.
Speaker Change: That excludes the impact of bps discontinued operations.
Speaker Change: Based on these factors for full year 2024.
Speaker Change: Baxter now expects total sales growth of 1% to 2% on a reported and approximately 2% on a constant currency basis.
Factoring in the 100 plus basis point negative top line impact from Hurricane Alley.
Speaker Change: On a continuing operations basis Baxter expect sales growth of approximately 2% of.
Speaker Change: Both reported and constant currency basis.
Speaker Change: Inclusive of approximately 150 basis points negative impact from Hurricane Helene.
Speaker Change: Constant currency sales guidance for the full year by reportable segments is as follows.
Speaker Change: For MVP, we now expect sales to increase 2% to 3%.
Speaker Change: <unk>, a 300 basis point negative impact from Hurricane Alley.
Speaker Change: Sales on our HFC segment are now expected to decline low single digits, reflecting year to date results and the continued slow market recovery in the U S primary care.
Speaker Change: We continue to expect pharmaceuticals to increase approximately 7%, which reflects the phasing of some injectables in anesthesia sales in the fourth quarter.
Speaker Change: And better than expected sales and drove comp pumping.
For kidney care, we now expect sales growth of approximately 2%.
Speaker Change: Approximately 100 basis point headwind from hurricane related.
Speaker Change: This compares favorably to prior guidance and reflect the underlying momentum of this business.
Speaker Change: Now turning to our outlook for other P&L line items.
Speaker Change: We continue to expect full year adjusted operating margin to increase by more than 50 basis points in 2024.
Speaker Change: Inclusive of approximately 50 basis point headwind to full year adjusted operating margin from Hurricane Helene.
Speaker Change: On a continuing operations basis Baxter expect adjusted operating margins to the 590 to 100 basis points.
Speaker Change: The headwind from stranded cost is expected to impact full year 2024, adjusted operating margin by approximately 250 basis points.
Speaker Change: Full year 2023, adjusted operating margins of 14, 7%.
Speaker Change: Reflects an approximate 300 basis point negative impact from stranded costs.
Speaker Change: We expect our non operating expenses, which includes net interest expense and other income and expense.
Speaker Change: The total of approximately $320 million in aggregate during 2024.
Speaker Change: Approximately $300 million on a continuing operations basis.
Speaker Change: We now anticipate a total company full year adjusted tax rate of approximately 22%.
Speaker Change: On a continuing operations basis, we anticipate a full year tax rate of approximately 18, 5%.
Speaker Change: We expect our diluted share count to average 511 million shares for the year.
Speaker Change: Based on all of these factors, we now anticipate full year total company adjusted earnings excluding special items and inclusive of discontinued operations of.
Speaker Change: A $2 90.
Speaker Change: To $2 94 per diluted share.
This guidance reflects the 15% to <unk> <unk> per share headwind from Hurricane Dorian.
Speaker Change: Additionally, given that the kidney care business met the criteria to be classified as a discontinued operation in the quarter.
Speaker Change: U S. GAAP guidance requires the company to fifth third floating a certain depreciation and amortization I'm kidney care assets.
Speaker Change: This accounting change creates a full year benefit of approximately <unk> seven per share, which will be reflected in adjusted discontinued operations.
Speaker Change: On a continuing operations basis, we expect full year adjusted earnings per share before special items of $1 81 to.
Speaker Change: <unk> to $1 84 per share.
Second the negative impact from Hurricane Dorian.
Speaker Change: And an approximately <unk> 42 per share headwind from stranded costs.
Speaker Change: 2023, and the full year continuing operations adjusted earnings per share of $1 72.
Speaker Change: Reflect an approximately <unk> 48 per share headwind from stranded costs.
Okay.
Speaker Change: Specific to the fourth quarter of 2024.
Speaker Change: We expect total company and continuing operation sales to decline low single digits on both reported and constant currency basis.
Speaker Change: This guidance is inclusive of a 500 basis points negative headwind from hurricane related.
Speaker Change: We expect total company adjusted earnings excluding special items and inclusive of discontinued operations.
Speaker Change: At <unk> 77.
Speaker Change: So <unk> 81 per diluted share.
Speaker Change: This outlook reflects a headwind of 15 to 20 <unk> per share related to the hurricane and an approximately eight per share depreciation benefits.
Speaker Change: On a continuing operations basis, we expect adjusted earnings per share before special items of <unk> 50.
Speaker Change: To <unk> 53 per share, reflecting the negative impact from hurricanes in lien and an approximately <unk> <unk> per share heading on the stranded costs.
Speaker Change: With that we can now open up the call for Q&A.
Speaker Change: Thank you we are now open for questions. If you have dialed in and would like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue.
Speaker Change: If you would like to withdraw your question Press Star one again.
Speaker Change: If you are called upon to ask you a question in a listening via loud speaker on your advice. Please pickup your handset and it shows that your phone is not on mute when asking a question.
Speaker Change: Today, we kindly request you to limit questions to one and one follow up.
Speaker Change: And your first question comes from the line of Travis Steed Bank of America Securities. Please go ahead.
Speaker Change: Everybody can you hear me okay.
Speaker Change: Thank you Travis Alright, great I had two questions on this broad enough fills up fronts, one I wondered outs on HSN to you in the quarter, but a little bit light versus the street wanted to make sure.
Speaker Change: What youre seeing in that business versus expectations. This quarter and are confident that the primary care market is going to improve under 25 and the second question is on 2025, what do you assume for the hurricane impact on 2025, and how do you still get the confidence later.
Speaker Change: Later in the guidance of four to five and 16, 5% on the margin given the hurricane and what Youre seeing in Hs and key at the moment. Thank you.
Speaker Change: Thank you Travis.
Listen let me, let me start with <unk>.
Speaker Change: PSS this was the biggest concern.
Speaker Change: In the first quarter and throughout the year a lot of questions that business is has grown now.
Speaker Change: Low double digits.
Speaker Change: Actually converted some really key competitive accounts, we see us not our stabilized which gained.
Speaker Change: <unk> market share the team went through a lot of transformation and I think is getting to the point that is really.
Speaker Change: Really competitive and a market share gain demonstrates our superiority in our product lines.
Speaker Change: Second when I think about the orders coming in for that we have a very healthy pipeline of orders coming into that.
Speaker Change: So about 20% growth at the moment on the on the pipeline and the operational issues issues and PSS are all resolved. We have we have made a transition between two plants. So we see that going well care communications, we see a very healthy 14% growth in orders that business heads.
From some delays in installation that we have seen mainly because hospital volumes are healthy in those are.
Speaker Change: We indicated that hospitals need a break to take rooms down. So we can install our equipment, but the orders are in the book and the postponement of some of this installation we will come into first quarter of next year and beyond.
So let's focus on <unk> because <unk> is the core of your question in terms of we see the U S primary care market weakness that weakness and softness has been demonstrated by our distributors, which actually destock some of our products throughout this year.
Speaker Change: And but we see that starting to stabilize and we see that normalize into 2025, so if I look outside the U S.
Speaker Change: The third piece of disposal.
Speaker Change: China, and France has shown weakness in their in their orders with capital being postponed.
So youll know capital outside the U S is much more prevalent for this business in the U S.
And we also exited low margin business, which are social some comp issues going into 2025.
Speaker Change: No U S. PSS continued the momentum good order levels surgical solutions is stabilizing from 2023 to 24 with significant growth in 'twenty three showing some some.
Speaker Change: Level of negative growth in 24 due to the.
Speaker Change: Very significant growth in 'twenty three go back into growth in 'twenty five NFL see easier comps, we have significant amount of new products being launched this supply growth streams will be.
But resolved most of them resolve into the fourth quarter and stabilize into 2025. So overall, we see the business further recovering most of the operational issues that we had and the stable is stabilization of the primary care market, which has been the biggest debates for SLC in 2024.
Speaker Change: Let me talk about 2025, and Joel I'll take it from that.
Joel: The way, we see 2025, he lead is going to impact mostly in Q4 of 2024, we may see some impact in the first quarter 2025, as we announced all lines will be producing product by the end of this year.
Joel: We give priority to the highest demand and the one most critically medically needed on the market. So our one one liter bags coming out of the plant, which is almost 50% of its production will be fully operational go into 2025 and the other lines to fall. So we see this first quarter slight impact because of.
Joel: Debt, but then turn into a significant improvement that we've made in pumps not only we are growing up Paul.
Joel: The competitors who've recently announced but we are actually see significant competitive conversions, which has helped us that enhanced youll see the growth.
Joel: Our our our business in the third quarter of 7% that has driven significant bumps in SaaS. So I would tell you that.
Joel: We see great great growth of 50% in 2024 and to continue significant growth in 2025, so that gives us a really good view of how our business will offset some of the devine.
Joel: Impact in the first quarter HST normalizing in pharma.
Joel: As a fluke each quarter that we had really goes back to.
Joel: Above mid single digit growth, mostly with injectable strength being driven by new products Joel Yes.
Speaker Change: Thanks, Joe and Kevin I would add a couple of things here to this related to our confidence that 2025 number one.
We are certainly anticipating continued positive impact from pricing as we've talked about that heading into next year and certainly in addition to what Joe just talked about that doesn't change.
Speaker Change: We also continue to expect positive impact from our IFC.
Speaker Change: The continued mlps and given continued driving efficiencies that we have from the growth that we are.
Speaker Change: Expected next year again, so thats, a second part of the positive yield.
Speaker Change: <unk> is just what I'll call the benefit of expense leverage from the growth of our anticipated having.
Speaker Change: Got it.
Speaker Change: With the growth that we're anticipating in the businesses.
Speaker Change: Certainly expecting leverage growth from that standpoint, and then and then finally there is there is some headwind impact of Msas that we've called out before but.
Speaker Change: The work that we're doing in terms of the cost containment is to eliminate stranded costs.
TSA income that we're anticipating.
Speaker Change: I guess I would say in addition, there is some one time issues. This year that we had that were not expected to repeat next year. So all in all the idea of that.
We are reaffirming our confidence in the 4% to 5% from a topline perspective.
Speaker Change: <unk> bottom line.
Speaker Change: Thanks, so much.
Speaker Change: Your next question is from the line of Robbie Marcus Jpmorgan. Your line is open.
Robbie Marcus: Good morning, and thank you very much for taking the questions.
Robbie Marcus: Maybe to follow up on <unk> question I wanted to ask about the 25 guidance. It seems like there'll be a little bit of impact going into at least first quarter of next year. So I guess, what gives you the confidence to be able to reiterate 16, five and do you view that as sort.
Robbie Marcus: Hi.
Robbie Marcus: Target you should be able to reach or.
Robbie Marcus: And more like historical Baxter guidance philosophy is that a margin that.
Robbie Marcus: That you should be able to exceed and then I'll just throw part two of the question in a.
Robbie Marcus: Since it might be a longer answer.
Speaker Change: Maybe walk us through some of the initiatives you're taking to offset.
Speaker Change: The stranded costs and over time, the lost TSA is to be able to grow.
Underlying operating margin expansion, while offsetting some of the declining.
Speaker Change: Income from Vantiv, Thanks, a lot.
Speaker Change: Yes, Thanks Ravi.
Speaker Change: It's still I think a couple of things first of all I guess, what I would say that the <unk> right now.
It was set as what we believed was a good anchoring point.
Speaker Change: The organization in terms of how we see it again post separation again, both from US as we've talked about here from a growth standpoint from a margin standpoint, given both on the gross margins and then obviously down all the way to the OLED lighting I think the.
Speaker Change: It also was if you remember almost a kind of a starting point for what we said it would be continued margin expansion.
Speaker Change: Over the longer term horizon and so.
Speaker Change: Again, I just would reiterate the fact that as Joe said, we are expecting some impact but relatively minimal in the first quarter relative to the <unk> impact and then all the things we've talked about in terms of just reiterated pricing.
Speaker Change: Yes.
Speaker Change: IP opportunities leverage all expenses, which we continue to anticipate gaming and so I.
Speaker Change: I think if you think about what how do we see our company post separation that was good.
Speaker Change: Note that we will anchor the company on.
Speaker Change: For us to continue to build on over the next years to come.
Speaker Change: I think the yes.
Some of the actions, we're taking with certainly Youll think about these things is the what we call the elimination of stranded costs.
Speaker Change: The things we've talked about is this idea that we have.
Speaker Change: Gary.
Speaker Change: Distribution Center network.
Speaker Change: And I would state it today because of our kidney business.
Speaker Change: Home deliveries of that business, we have a large number of distribution centers in the U.
Speaker Change: Yes.
That ultimately will be something that we will we will rationalize down significantly.
Speaker Change: Our new business improves not only our operational efficiency and improves our inventory management. There is a whole set of things.
Speaker Change: That perspective, we've talked about essentially the size of the reef.
Speaker Change: Ensuring we are right sized as an organization to support the size of the business going forward and so as we plan for that well certainly be taking those types of actions and then if you think about some of the TSA is obviously, we've talked about the fact that we are anticipating TSA income in.
Speaker Change: 2025, so that offset some of those expenses, but but obviously we are anticipating.
Speaker Change: That's not something that will last over a multiyear time period and so therefore, we're planning carefully activities to ensure that as those start to fall off. We're ahead of the game and that we have the opportunity to eliminate the stranded costs, which as we've said we're planning to do by by the end of 2027.
Speaker Change: So I'll pause there.
Speaker Change: Is there anything else.
Speaker Change: Now that said I appreciate the insight.
Speaker Change: Thank you.
Speaker Change: Yes, the question from Peter Chickering Deutsche Bank. Please go ahead.
Speaker Change: Hey.
Speaker Change: Good morning, I guess two questions here. So first one is like a few months ago.
Speaker Change: Like IV solutions was viewed as a commodity product.
Speaker Change: In a few weeks.
Speaker Change: After the facility was shut down your hospital GPO during a full fledged panic mode asking for governments nationalized companies to solve its problem. So can you just congrats to your team for solving what could have been a nightmare for the country.
Speaker Change: As you look back at what happened do you begin to spread out manufacturing them among other facilities to reduces risks in the future and we're talking to customers. They couldnt do surgery is due to the bag of IV do you think this can lead to a new recognition and increased pricing due to the importance of IV bags and the health care system or it's more of a headwind as hospital looked at <unk>.
Speaker Change: Diversify their suppliers to multiple manufacturers.
Speaker Change: Good morning.
The.
The recognition.
Baxter has been a long coming we recognize this is not a commodity.
Speaker Change: Commodities defined by something that is readily available and where the barriers to entry are very low.
We have invested over half a billion dollars in debt facility since 2016 to two to date with highly highly automated.
And our recovery and the time, there where recovery is very fast compared to what <unk>.
Some of the competitors would have experienced stem cells. So they spoke on our behalf. We never did we are much faster than they are in recovery.
Speaker Change: This shows that not only we have the ability to come back fast after a devastating devastating.
Speaker Change: Event.
Speaker Change: We are producing product as we speak today by the way.
Speaker Change: To have.
Speaker Change: Worldwide network of plants.
<unk> can actually bring products into this country registered cross registered.
Speaker Change: At Lightning speed.
Speaker Change: And that is the difference between us and our competitors our competitors have capacity constraints every place in Europe and other parts of the world. We are able to have capacity in other parts.
Speaker Change: To bring together the plant.
Speaker Change: In North Dakota, and augment the market EBIT faster. So we have of course, we have some lessons learned and we're going to get even better at this but we have facilities in Spain, U K, Canada, Mexico, Brazil, Colombia, Australia, China, just to give you a few Nathan few places that allowed Baxter to brief brought.
Speaker Change: <unk> back.
Speaker Change: People have done a wonderful job in Baxter is an example.
Speaker Change: Why this product is not a commodity I don't want to get into pricing what I wanted to tell you is that while we have invested in how we do things is what made us come back so fast.
Speaker Change: In heavy products being produced as we speak out of that plant.
Speaker Change: Okay, Great and then a follow up question on 2025 fourth quarter sales are impacted by the $200 million flipped in kidney medical products and therapies because distributors it provider to the draw down on inventories. Despite patients from North Cove is offline as you think about the first quarter of 'twenty five should we get.
Speaker Change: The bulk of the 150 $160 million back from IV as you restock inventory channel just looking at the revenue guidance for next year, it's implying revenue growth of less than $500 million.
Speaker Change: I'm wondering why that.
Speaker Change: 150 $160 million.
Speaker Change: So the loss in the fourth quarter doesn't sort of recover next year, so that revenue growth may be it.
Speaker Change: The conservative yes.
Speaker Change: Yes.
Speaker Change: Peter.
Speaker Change: A few of the if you think about.
Speaker Change: Something similar that happened to us in the past was Maria.
Speaker Change: So I think there is we have not factored that into the calculus yet.
Speaker Change: Because we need to get certainty that all lines up producing at pre choline volumes, but of course, you're going to have you have a destocking situation not only in baxter's inventory, but also in.
Speaker Change: In the market.
Speaker Change: I fully expect us to be producing <unk>.
Speaker Change: <unk> 47 for many many many months trying to restock the market and trying to get things back at the level. They were before and Furthermore, also offer some alternatives for people to start things that they need that they have not stopped in the past. So I think I saw.
Speaker Change: See potential upside upon that area, but we need to get our our lines are fully up to speed and then we'll go from there, but I find I find that is an opportunity that we have not explored yet.
Speaker Change: Fully.
Speaker Change: Great. Thanks, so much.
Speaker Change: Your next question is from the line of Vijay Kumar of Evercore ISI. Please go ahead.
Speaker Change: Hey, guys. Good morning, and thanks for taking my question.
Speaker Change: Joe maybe off of those comments you just made right.
Speaker Change: What is the right framework for fiscal 'twenty five guidance is the 4% to 5%.
Organic growth coming off of a lower base.
Speaker Change: <unk>.
Speaker Change: If I understood you correctly youre not assuming.
Speaker Change: The $150 million.
Speaker Change: <unk>.
Speaker Change: And the IV fluids shortage impact to come back next share paid is are those lost revenues or should they come back to Baxter I am just trying to trying to see what does the conservatism being baked into this guidance.
Speaker Change: Yes Vijay.
Speaker Change: I guess, what I would say this I mean.
Speaker Change: So as Joe talked about we get.
Speaker Change: The revenue ramp again in the year, there is going to be some potential impact that we talked about here in the first quarter.
Speaker Change: But.
Speaker Change: We're certainly comfortable holding our guidance.
Speaker Change: 4% to 5%.
Speaker Change: So vijay.
P. J what are the builders for this 4% to 5% okay. So.
First is in the very beginning of the quarter of course, we have an impact of the plants coming up to speed, but as I've said in the previous question to Pedro.
Speaker Change: So it's a theater was specifically we will see.
Speaker Change: A destocking and then a restocking and that balances out the rest of the year. So the first thing is you may see a dislocation of growth just because what comes in the first couple of months off that early in the year picking up towards the end of the first of all second evolve the product launches that we have.
Speaker Change: Primarily in the three businesses, we have five remarkable product launches coming out at HST, we have several molecules.
Sure.
Speaker Change: It's later for 2025 coming off a.
Speaker Change: A significant amount of launches through 2024, and our pharma team getting much more accustomed to a large number of product launches.
Speaker Change: Our pump, which is do we extraordinary well in 2025 and 10 between 2024. Following 2025, just to underscore again, a 50% growth in 2024 with significant potential for growth in 2025. So those are the main drivers of the top line bottom line will be mostly <unk>.
Speaker Change: Given by the drop through of this innovation when do we start restocking the marketed with IV solutions does have disproportionately better margins that go into the business Thirdly is the airports that we already starting 2024th in offsetting the Australia cost that we start to come in.
Speaker Change: Which will offset the difference between our our tsa's and our cost of doing the tsa's. So so.
Speaker Change: The strength of our conviction today at the moment.
Speaker Change: On the top line buildup of just <unk> and also the ability to offset that and the manufacturing cost reductions that continue to.
Clock work come in every single year slightly better than we planned.
Speaker Change: Understood and maybe my second one for Joel.
Speaker Change: When you look at the operating margins in the third quarter 14, and a half.
Speaker Change: Optically I think 90 basis points year on year on a comparable basis is that is that like a.
Joe: Apples to apples comparison Joe.
Joe: Any any cost allocation, which makes the comparison.
Joe: Heart and reason I'm asking is when you look at that 16 and a half for.
Joe: For next year, Thats, a 200 basis points jump jump off are there.
Joe: The bridge to that 16, and a half and any implications on free cash flows and guidance excuse me dividend policy is Baxter.
Joe: <unk> the dividend thank you.
Speaker Change: Yes, so thanks, Vijay I think a couple of things here first of all again one of the things that we've talked about previously is the difficulty of comparison, if you will between.
Speaker Change: What you would see on a continuing operations basis.
Speaker Change: And next year you might recall, please that the continuing operations in the fourth quarter includes stranded cost.
Speaker Change: That is essentially was previously allocated to kidneys, but now is actually sitting in a good one you called unallocated corporate costs in.
Speaker Change: In 2024 that does not show the impact of some of our cost out work and so if you look as we head into 2025 to $16.
Speaker Change: So clearly represents the opportunities that we're taking other things that Joe just talked about with the previous question, but in addition to that the starting to work.
Speaker Change: We're assuming TSA income against our expenses starting to work of our cost containment measures that were already starting to take this year that will start to impact next year. So I guess, that's the way I would think about this thing again, it's not necessarily a comparison that you could make based on what we have on a continuing ops basis out of Europe.
Speaker Change: Bruce the 60, perhaps next year.
Sorry on the dividends.
Speaker Change: Yes, and from a free cash flow standpoint, I think it was kind of a couple of comments.
Speaker Change: This year, obviously this year has been a choppy year for free cash flow standpoint.
Speaker Change: <unk> separation related costs.
Speaker Change: That are impacting this as well as I would call. Some discrete items, we've had in the first particularly the first half of the year, we do have seasonality in our cash flows.
Speaker Change: And that happens as we head into the second half of the year and we certainly anticipate as usual continue.
Speaker Change: Seasonal positive impact as we head into the fourth quarter. The one thing I would remind you also of though is that we do now have some cash flow impact that were that are occurring from north Dakota.
Speaker Change: And so while there is.
Speaker Change: Yes.
Speaker Change: We will have some insurance proceeds that will be coming back as an offset to that.
Speaker Change: There will be some.
Speaker Change: Impact from both the fourth quarter and heading into next year from a cash flow perspective for Northcote, but but again, our cash flow as we head into next year, we anticipate continued leverage from an expense perspective.
Speaker Change: Continued benefits from improved working capital.
Speaker Change: And.
And again, just a general generally beneficial perspective from the proceeds of the kidney care sale that obviously as we head into the second part of the year.
<unk> targeted three times leverage by the end of the year.
Speaker Change: Again with the combination of the free cash flow the proceeds of kidney, we're certainly anticipating being on track for our cash flow forecast second half of the year.
Speaker Change: And with respect to the David do you want to comment on the dividend tenant filed then yes, so from a dividend perspective.
Speaker Change: Obviously, we are anticipating as we've said resetting our dividend from the perspective of essentially re sizing. If you will based on the new size of our organization, we are committed to a dividend.
Speaker Change: And we obviously will be coming out with that shortly here as it relates to the sizing of it will be.
Speaker Change: Understood. Thanks, guys.
Speaker Change: Your next question is from the line of Joanne Wuensch from Citi. Please go ahead.
Speaker Change: Good morning, and thank you for taking the question I'll put them both right upfront I'd love to get your view on what you're seeing in China.
Speaker Change: And with that.
Speaker Change: Discussion of the week the potential for tariffs on the impact.
And then as a secondary question just anything you can add on what Youre seeing in your uptake of your expectations for next year. Thank you.
Got it.
Speaker Change: Okay.
Speaker Change: In China specifically.
Speaker Change: Joanne China post Vantiv for Baxter is going to be.
Speaker Change: With some of the access that we're having right now less than less than 2% of our sales.
So the impact for us is quite is quite <unk>.
Speaker Change: Small despite the fact, we had some impact this quarter for HST.
And the GBP buddies remarkably different different the new Baxter versus the old best So the tariffs that we're talking about here will be very much related to raw materials to be chips that we still buy there and other things that wound back the industry in general.
Speaker Change: But we do not make you specifically products in China for the U S. S. Baxter, even even today even to date with Vantiv with the renal business. We don't have that both vantiv, we will not have debt and with the reduction in sales volume.
Speaker Change: Some exits we're going to be.
Speaker Change: Very much not exposed to future be bps at the level that you've seen the industry first of all.
Speaker Change: And let me give you some context I think your question Bob.
Speaker Change: Update is as Dennis is going extremely well.
Speaker Change: Market share growth, we usually in the past used to gain about 1% market share every.
Every year just by rule of thumb, we're seeing two to two 5%.
Speaker Change: By the end of this year and we're going to continue to accelerate that to date. The acceptance of the pump has been significant and were very happy how the team has launched the products one of the best launches that I've seen in my career.
Kudos to Heather Knight and her team.
Speaker Change: Through significant uptick in interest not only the large volume pump, but also the syringe pump the syringe pump actually market share growth is actually double adapt taken from incumbents to date, who in the past have supplemented our.
Speaker Change: Spectrum by not having the syringe availability today, because we have it we're going back to the accounts and actually gaining those back.
Speaker Change: And I would just add to that our infusion hardware is actually up 50%. This year and that's on top of actually a significant growth in the prior year as well until that point. So thats certainly the strength of the business that we anticipate.
Speaker Change: Hindering on as we head into 2025.
Speaker Change: Excellent. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Your next question is from the line of Larry Nicholson <unk> Wells Fargo. Please go ahead.
Speaker Change: Good morning, Thanks for fitting me in.
Speaker Change: Hey, Joel obviously people have been trying to figure out the $16 five for next year should we be taking kind of you have the year to date continuing ops.
Speaker Change: Operating margin of 13, four should we be adding back the stranded cost on slide 19 to get to a kind of a $15 nine year to date because it <unk>.
Speaker Change: We will offset that is there any way to kind of help us understand what the year to date what.
Speaker Change: The 24 kind of.
Speaker Change: Underlying number is to bridge to that 16, five and secondly, the non operating expense I think you said $300 million for continuing ops in 2024 and any color on how much lower those could be next year. Thanks.
Speaker Change: So Larry first of all I'll start with the first one.
Larry Nicholson: The 16 and a half.
Speaker Change: I don't mean to sound.
Speaker Change: Helpful Here, but at the end of the bridge between R. R.
Speaker Change: Fourth quarter, continuing ops and the <unk> App is really complicated our whole purpose of setting the 16 and a half out there was to give people something to really anchor on in terms of what our company looks like post separation and I think the.
Speaker Change: Again.
Speaker Change: Costs that we're seeing on a continuing ops basis again really is.
Speaker Change: Impacted significantly as we have said by the stranded cost that does not reflect any TSA income in 2024 and does not reflect any impact of cost containment measures in 2024, and we are taking cost containment measures now that will impact 2005, but youre just not seeing.
Speaker Change: And the result in 2024.
Speaker Change: That comparison.
Speaker Change: I wish I could give you a better answer on that bridge, but thats. The 65 is really designed to be an anchoring point for our continued build going forward. Larry just one thing I'll add I did include the stranded costs by quarter in our earnings presentation. That's available on our website. So youll be in David's slides within the deck, so you'll be able to guarantee.
Speaker Change: That impact is on a quarterly basis, both for 2023 by quarter and then for the first three quarters of 2024 as well so that is available.
Speaker Change: And the non op expenses Joel.
Speaker Change: How should we think about that next year, how much lower than the 300.
Speaker Change: Yes, I guess I would say at this point, Larry Theres, not we don't anticipate something materially.
Speaker Change: Different from that perspective, again, obviously other than the size proportionate to the organization.
Speaker Change: Alright, we will see some reduction Larry obviously, because we do plan obviously to utilize the proceeds from that from kidney care towards debt repayments that we should see some benefit within our interest expense, but obviously on the other income expense line. That's something we'll have to look at as well so premature right now, but I'd say, we do expect the interest expense.
To come down a little bit next year.
Alright, Thank you Claire.
Speaker Change: We have a question from David Roman of Goldman Sachs. Please go ahead.
Speaker Change: Okay.
Speaker Change: Excuse me, thank you and good morning, everybody.
Speaker Change: Wanted to come back a little bit to the revenue outlook on the 4% to 5% and maybe if you can contextualize.
Speaker Change: The bridge from kind of <unk> and <unk> of 24, where you grew four ish percent in the Baxter business ex kidney care.
Speaker Change: Because those are probably you are to kind of normalized quarters. This year, given the HST issues in <unk> and the IV dynamics in Q and Q4. So as you go from the 4% to the 4% to five whats specifically changes next year that would give you an opportunity to see an acceleration because you're already seeing good price.
Speaker Change: About 50% growth in hardware, maybe just help us understand what are the levers to get from <unk>. This year up back into the mid or higher end of the range.
Speaker Change: Yes.
Speaker Change: Although the compounding growth that youre going to see for the pump hardware sets in going back perhaps too.
Ivy.
Pricing and other things that youre going to see that we already had a count on is basically HST getting to normality in primarily <unk>, we're seeing the normality already in the U S for PSS and so we expect to see our front line care business under HST too.
Speaker Change: Back to our normal growth base that had before normalized for that.
Speaker Change: The growth and 23% driven by by.
Speaker Change: The backlog catch up and the impact of getting 24, plus the softness that we had some operational issues. So that going back to normal is the main driver. So you have that level of debt and that is our level of confidence that our operational issues will be behind us most.
Speaker Change: By the end of the fourth quarter than the normalization of the primary care market and the resolution of some of the <unk> softness that we saw primarily in the third quarter related to France and China.
Speaker Change: Got it very helpful. And then maybe just a follow up on the capital allocation side I think on a year to date basis <unk> been growing SG&A and R&D in dollars to reinvest for future growth, but as you look into the fourth quarter, you are able to offset almost all of the IV impact.
Speaker Change: Through strength in the business elsewhere, and maybe some proactive measures youre taking down the P&L. So how can you help us think about that.
Speaker Change: The trajectory of internal capital allocation around different spending levels, what that trend in Q4, and how we should think about that.
Speaker Change: Into next year.
Yes, David Thanks for the question look I think the.
Speaker Change: <unk> said, we are making some continued level of investment.
Speaker Change: Our business in order to facilitate some of the growth that we're talking about which is what <unk> seen throughout the course of this year, but I think as we think about going forward.
Speaker Change: We are anticipating bold be continued allocation of resources to R&D.
Speaker Change: We anticipate continued modest growth in that area, but also gaining leverage in some of the things that we're doing from an SG&A perspective again as we worked through our cost containment measures and stranded costs as we do head into next year, we are anticipating.
Speaker Change: Some level.
Speaker Change: Leverage out of our growth that we anticipate.
Speaker Change: Alright, SG&A line in particular, so I think thats the way I would say it again innovation is going to be a big part of our story going forward and the continued investment in R&D will reflect that but again you should expect some leverage out of the SG&A line as we go into next year.
Speaker Change: Got it thanks, so much.
Speaker Change: Due to the constraints of time, we will close to Q&A session I would like to thank our speakers for today's presentation and I will say thank you all for joining US. This concludes today's conference call enjoy the rest of your day you may now disconnect.
Speaker Change: Please wait the conference will begin shortly.
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