Q2 2025 Baxter International Inc Earnings Call
Operator: Good morning, ladies and gentlemen, and welcome to BAXTER International's second quarter 2025 earnings call. Your lines will remain in a listen-only mode until the question and answer segment of today's call. At that time, if you have a question, you will need to press, star one on your touchstone phone. Once again, star and the number one. If anyone should require assistance during the conference, please press star then zero on your touchstone phone. And as a reminder, this call is being recorded by BAXTER and is copyrighted material. It cannot be recorded or rebroadcast without BAXTER's permission. If you have any objections, please disconnect at this time. I would now like to turn the call over to Ms. Clare Trachtman, Senior Vice President, Chief Investor, excuse me, Chief Investor Relations Officer at BAXTER International. Ms. Trachtman, you may begin.
Good morning, ladies and gentlemen, and welcome to Baxter. International second quarter 2025 earnings call your lines will remain in a listen-only mode until the question and answer segment of today's call.
At that time, if you have a question you will need to press uh star 1 on your touchtone phone once again star and the number 1.
If anyone should require assistance during the conference, please press star then zero on your touchtone phone. And as a reminder, this call is being recorded by Baxter and is copyrighted material. It cannot be recorded or rebroadcast. Without paxtor permission. If you have any objections, please disconnect at this time.
I would now like to turn the call over to miss Claire, trackman, senior vice president.
Chief invest, excuse me, Chief investor relations officer at Baxter International miss trackman. You may begin.
Clare Trachtman: Good morning and welcome to our second quarter 2025 earnings conference call. Joining me today are Brent Schafer, BAXTER's Chair and Interim Chief Executive Officer; Joel Grade, BAXTER's Executive Vice President and Chief Financial Officer; and Heather Knight, BAXTER's Executive Vice President and Chief Operating Officer. On the call this morning, we will be discussing BAXTER's second quarter 2025 results along with our financial outlooks for the third quarter and full year 2025. With that, let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook for the third quarter and full year 2025, the anticipated impact of our strategic actions, the potential impact of various regulatory and operational matters, including matters related to the NOVUM IQ large volume pump and continuing fluid conservation in the global macroeconomic environment on our results of operations, contains forward-looking statements that involve risks and uncertainties.
Good morning and Welcome to our second quarter 2025 earnings conference call.
Joining me today are Brian kaper, baxer chair and interim, chief executive officer, Joel gra backs, with Executive Vice, President and Chief Financial Officer and Heather Knight back through the Executive Vice President and Chief Operating Officer.
On the call this morning we will be discussing back to second quarter of 2025 results along with our financial outlooks for the third quarter and full year 2025.
With that, let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook for the third quarter and full year 2025.
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 details 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 certain non-GAAP financial measures being discussed today to the consolidated GAAP financial measures is included in the accompanying investor presentation and available in our earnings release issue this morning, both of which are available on our website. As a reminder, continuing operations excludes BAXTER's kidney care business, which is now reported as discontinued operations. Now I'd like to turn the call over to Brent. Brent.
The anticipated impact of our strategic action. The potential impact of various Regulatory and operational matter, including matters related to the Nova IQ large, volume pump, and continuing fluid conservation in the global macroeconomic environment. On our results of operations contains forward-looking statements, that evolved risks and uncertainties, and of course, our actual results could differ materially from our current expectations.
Please refer to today's press release in our FCC filings for more details concerning factors that could cause actual results to differ materially.
Brent Shafer: Thanks, Clare. And good morning, everyone. Thank you for joining us. As you saw in this morning's release, our second quarter performance for continuing operations met our previously issued guidance on both top and bottom line. Specifically, second quarter sales from continuing operations grew 4% on a reported basis and 1% on an operational basis, with growth coming from all three segments. And on the bottom line, adjusted earnings per share from continuing operations were 59 cents, increasing 28% over the prior year. These results did come in at the low end of our guidance ranges, reflecting softness in demand for certain products within the medical products and therapies and pharmaceutical segments. Heather and Joel will walk through more details on these factors during their remarks.
In addition on today's call non-gaap Financial measures will be used to help investors. Understand factors ongoing business performance. A Reconciliation of certain non-gaap Financial measures being discussed today to the comparable. Gaap Financial measures is included in the accounting investor presentation and available in our earnings release issue this morning, both of which are available on our website, as a reminder, continuing operations excludes. Doctor's Kidney Care business, which is now recorded as discontinued operations. Now, I'd like to turn the call over to Brent.
Brent, thanks, Claire. Good morning everyone, thank you for joining us.
As you sign, this morning's release our second quarter performance for continuing operations met our previously. Issued guidance on both top and bottom line.
Specifically second quarter sales from continuing operations, grew 4% on a reported basis and 1% on an operational basis with growth coming from all 3 segments and on the bottom line, adjusted earnings per share from continuing operations were 59 cents. Increasing 28% over the prior year.
These results did come in at the low end of our guidance, ranges reflecting softness and demand for certain products within the medical products and therapies and pharmaceutical segments.
Brent Shafer: Importantly, with the sale of vans now complete, we have now created a more agile and focused business designed to deliver incremental value for all of our stakeholders. We expect to continue to identify opportunities to further advance our operational effectiveness and improve performance, which will be a key focus area for our next CEO, Andrew Hyder. I'll comment more on Andrew's appointment at the close of the call. We are confident in our strategy and our future opportunities to accelerate innovation, growth, and performance overall. We continue to build on the strength of our streamlined profile and to benefit from our portfolio of medically essential products. I also want to recognize our exceptional BAXTER colleagues globally, united by our mission to save and sustain lives. I'm grateful for their dedication to our company and our stakeholders.
Heather and Joel will walk through more details on these factors during their remarks.
Importantly with the sale of hands have now complete, we have now created a more agile and focused business designed to deliver incremental value for all of our stakeholders.
We expect to continue to identify opportunities to further advance our operational effectiveness and improve performance.
Which will be a key Focus area for our next CEO. Andrew Hydra. I'll comment more on Andrew's appointment at the close of the call.
We are confident in our strategy and our future opportunities to accelerate Innovation, growth and performance. Overall, we continue to build on the strengths of our streamlined profile and to benefit from our portfolio of medically essential products.
Brent Shafer: Now I'd like to turn it over to Heather and Joel, who will share details on individual segment results, financial performance, and updated guidance. Heather.
I also want to recognize our exceptional Baxter colleagues globally, united by our mission to save and sustain lives. I'm grateful for their dedication to our company and our stakeholders.
Now, I'd like to turn it over to Heather and Joel. We'll share details on individual segment, results, financial performance and updated guidance.
Heather Knight: Thanks, Brent, and welcome, everyone. I'm pleased to be here with you this morning to discuss our second quarter results. I'm going to walk through our sales performance in the quarter, and then we'll hand it over to Joel to walk through performance across the rest of the P&L, along with our updated financial outlook for the third quarter and full year 2025. Before I begin the sales discussion, I want to provide a reminder that results discussed on today's call will reference operational growth, which excludes the impact of foreign exchange, MSA revenues from Vantiv, and the planned exit of Ivy Solutions from China. Second quarter 2025 global sales from continuing operations totaled $2.8 billion and increased 4% on a reported basis and 1% on an operational basis.
Heather, thanks Brent, and welcome, everyone. I'm pleased to be here with you, this morning to discuss our second quarter results.
Of the P&L, along with our updated financial outlook for the third quarter and full year 2025.
Before I begin the sales discussion, I want to provide a reminder that results discussed on today's call Will reference operational growth which excludes the impact of Foreign Exchange MSA revenues from vantiv and the Planned exit of Ivy solutions from China.
Heather Knight: Performance in the quarter reflected strength in drug compounding, advanced surgery, and tear and connectivity solutions, which offset declines in injectables and anesthesia, infusion therapies and technologies, and frontline care. Now I'll walk through our results by reportable segments. Commentary regarding sales growth will reflect growth on an operational basis. Sales in our medical products and therapies, or MPT segment, were $1.3 billion and increased 1% in the quarter. Performance in the quarter reflected strong demand for advanced surgery products, offset by softness in infusion therapies and technologies, or ITT. Within MPT, second quarter sales from our ITT division totaled $1 billion and declined 1%, primarily reflecting the previously discussed impact of hospital IV fluid conservation efforts and slightly lower US patient admissions than previously anticipated.
Second quarter 2025 Global sales from continuing operations total 2.8 billion dollars and increased 4% on a reported basis and 1% on an operational basis.
Performance in the quarter reflected strength in drug compounding, Advanced Surgery and care and connectivity Solutions, which offset declines and injectables and anesthesia infusion therapies and Technologies and Frontline care.
Now I'll walk through our results by reportable segments, commentary regarding sales, growth will reflect growth on an operational basis.
Sales and our medical products and therapies or npt segment. Where 1.3% in the quarter?
Performance in the quarter, reflected strong demand for Advanced Surgery, products offset by softness and infusion therapies and Technologies or it.
Heather Knight: As noted in the press release, we have removed allocations for all IV solutions manufactured at Northcove and are working closely with our customers regarding current practices. While we have started to see a slight improvement with hospitals reducing fluid conservation efforts, our current outlook builds in potential downside risk that conservation efforts don't materially improve in the second half of the year, and US patient admission levels remain consistent with the second quarter. We continue to believe that hospitals will return to historic practices over time. The fundamentals of the business remain strong, and we continue to recapture business from existing customers and take on new customers following the recovery of Northcove. We are committed to maintaining the broadest and most comprehensive IV solutions portfolio offering in the market, which strongly resonates with our customers.
Within MPT second quarter sales, from our ITT division totaled, 1 billion dollars and declined. 1% primarily reflecting the previously discussed impact of Hospital IV fluid conservation efforts and slightly lower us, patient. Admissions than previously, anticipated.
As noted in the press release, we have removed allocations for all IV solutions manufactured at Northco, and are working closely with our customers regarding current practices.
While we have started to see a slight improvement with hospitals reducing fluid conservation efforts, our current Outlook built in potential. Down-side risks that conservation efforts don't materially improve in the second half of the year and US. Patient admission levels remain consistent with the second quarter.
We continue to believe that hospitals will return to Historic practices over time.
The fundamentals of the business remains strong and we continue to recapture business from existing customers and take on new customers. Following the recovery of North Cove.
Heather Knight: Notably, last week, Vivian announced the expansion of its reserve program to include BAXTER IV fluids through a strategic partnership to help ensure reliable access to these critical products during times of supply disruption. The BAXTER program provides participating healthcare organizations with dedicated on-demand inventory warehoused here in the US. Strengthened infusion systems from the rollout of our NOVUM LBP infusion platform helped offset the impact from fluid conservation efforts. I do want to pause here and acknowledge a decision we made a couple of weeks ago. To address feedback that has been identified through our ongoing quality procedures and in careful consideration of customer insights, we communicated to our customers that we have decided to voluntarily and temporarily pause shipments and planned installations of the NOVUM LBP. During this temporary shipment and install pause, our customers have been working with us as we incorporate their feedback into our process.
We are committed to maintaining the broadest and most comprehensive IV Solutions portfolio offering in the market, which strongly resonates with our customers.
Notably last week, Vivian announced the expansion of its Reserve program to include Baxter IV fluids through a strategic partnership to help ensure reliable access to these critical products during times of Supply disruption.
The Baxter program provides participating healthcare organizations with dedicated on-demand inventory, warehouse, and tear in the U.S.
Strengthen infusion systems from the rollout of our Noble. Lvp infusion platform helped offset the impact from fluid conservation efforts.
I do want to pause here and acknowledge your decision. We made a couple of weeks ago to address feedback that has been identified through our ongoing quality procedures and in careful consideration of customer insights.
We communicated to our customers that we have decided to voluntarily and temporarily, pause shipments, and planned, installations of the Nova lvp.
Heather Knight: We are focused on supporting our existing customers' continued use of the device as they implement recommended actions from the recent NOVUM LBP correction. We remain confident in the NOVUM IQ infusion platform and its support of safe and connected infusion therapy, while recognizing that real-world implementation always provides opportunities to learn, adapt, and improve. While we are unable to currently commit to an exact timing for resuming shipment and installation for NOVUM IQ LBP, our goal is to resume both as soon as possible this year, depending on the progress we make with the related correction and feedback from our customers. We are handling this situation with our mission in mind and with the utmost priority, speed, and care. We will continue to work in partnership with our customers and in alignment with regulatory agencies. Sales in advanced surgery totaled $296 million and grew 5% globally.
During this temporary ship and install. Pause. Our customers have been working with us as we incorporate their feedback into our process.
We are focused on supporting our existing customers continued use of the device as they Implement recommended. Actions from the recent novam, lvp correction
We remain confident in the noble IQ infusion platform and its support of safe and connected infusion therapy, while recognizing that real world. Implementation, always provides opportunities to learn adapt and improve.
While we are unable to currently commit to an exact timing for resuming shipment and installation for Nova MyQ lvps. Our goal is to resume both as soon as possible this year depending on the progress we make with the related Corrections and feedback from our customers.
We are handling the situation with our mission in mind and with the utmost priority, speed and care.
we will continue to work in partnership with our customers and in alignment with regulatory agencies,
Heather Knight: Results in the quarter reflected solid demand for our portfolio of hemostats and sealants, strong commercial execution across geographies, and steady procedure volumes. In healthcare systems and technologies, or HST, sales in the quarter were above expectations and totaled $767 million, increasing 2%. Growth in the quarter reflected continued strong sales in the care and connectivity solutions, or CCS division, increasing 4% to $474 million, with a noted improvement internationally where sales rose 7%. US CCS sales increased 3% in the quarter, driven by strength in care communications and surgical solutions. Total US capital orders for CCS declined in the second quarter, primarily due to a difficult comparison to the prior year period where US capital orders rose 40%, which included a large contract win. To date, we have not observed a slowdown in US hospital capital spending.
Results in a quarter reflected solid demand for our portfolio of heist and sealant. Strong commercial execution, across geographies and study procedure volume.
In Healthcare Systems and Technologies (HST), sales in the quarter were above expectations and totaled $767 million, increasing 2%.
Growth in the quarter reflected continued, strong sales in the care and connectivity Solutions or CCS division, increasing 4% to 474 million with a noted Improvement internationally where sales Rose 7%.
U.S. CCS sales increased 3% in the quarter, driven by strength in Care Communications and Surgical Solutions.
total US Capitol orders for CCS declined in the second quarter, primarily due to a difficult comparison to the prior year period, where US Capitol orders, Rose 40%, which included a large contract win
Heather Knight: However, given the broader macroeconomic uncertainty, we continue to closely monitor the situation. Frontline care sales in the quarter were $293 million and declined 1% compared to the prior year, but increased mid-single digits sequentially. Performance in the quarter reflected a high single-digit decline internationally, driven by softness in select markets outside the US. Moving on to our pharmaceutical segment, sales in the quarter totaled $612 million, increasing 1%. Second quarter sales within injectables and anesthesia were $332 million and declined 4%. Performance in the quarter reflected a 1% decline in our injectables portfolio, driven in part by a difficult comparison to the prior year period due to the timing of a US government order. We have also experienced some softness in demand for select pre-mixed products within our US injectables portfolio.
To date, we have not observed, a Slowdown in US Hospital, Capital spending however given the broader macroeconomic uncertainty. We continue to closely monitor the situation.
Frontline care sales in the quarter. Were 293 million and declined. 1% compared to the prior year, but increased mid single digits sequentially.
Performance in the quarter, reflected a high single-digit, decline internationally driven by softness in select markets outside the US.
Moving on to our pharmaceutical segment sales in the quarter totaled 612 million increasing 1%.
Second quarter sales within injectables and anesthesia were 332 million and declined 4%.
Heather Knight: We attribute a portion of the softness in demand to follow-on impacts related to the hurricane, which caused some hospitals to evaluate IV infusion protocols, including utilizing IV push in lieu of pre-mixed products in certain situations. Our commercial teams are working with customers to reinforce the clinical benefit and value proposition of pre-mixed injectables while also continuing to execute on our new product launches. Lower sales of inhaled anesthesia continued to weigh on performance and declined low double digits in the quarter globally. Drug compounding grew 7% and reflected strong demand for our services outside the US. And other sales, which represent sales not allocated to a segment and primarily include sales of products and services provided directly through certain manufacturing facilities, were $13 million in the quarter. During the quarter, MSA revenues from Vantiv totaled $98 million.
Performance in the quarter, reflected a 1% decline in our injectables portfolio, driven in part by a difficult comparison to the prior year period, due to the timing of a US Government order. We have also experienced some softness in demand for select premixed products within our us injectables portfolio. We attribute a portion of the softness in demand to follow on impacts related to the hurricane which caused some hospitals to evaluate IV infusion protocols, including utilizing IV, push in Lumen premixed products in certain situations,
Our commercial teams are working with customers to reinforce the clinical benefit, and value proposition of premix injectables while also continuing to execute on our new product launches.
Lower sales of inhaled, anesthesia continued to weigh on performance and declined, low double digits in the quarter globally.
Drug compounding grew 7% and reflected strong demand for our services, outside the US.
And other sales, which represent sales not allocated to a segment and primarily include sales of products and services provided directly through certain manufacturing facilities worth 13 million dollars in the quarter.
Heather Knight: As a reminder, these sales are included in our reported growth; however, are not reflected in our operational growth for the quarter. Now I'll pass it to Joel, who will discuss performance down the rest of the P&L, along with our updated financial outlook. Joel?
During the quarter, MSA revenue from Vantiv totaled $98 million. As a reminder, these sales are included in our reported growth; however, they are not reflected in our operational growth for the quarter.
Now, I'll pass it to Joel who will discuss performance on the rest of the p&l along with our updated Financial Outlook.
Joel Grade: Thanks, Heather, and good morning, everyone. I'll start my remarks today with some additional commentary regarding the P&L profile for the second quarter before turning to our updated outlook for the remainder of the year. Second quarter adjusted gross margins from continuing operations were 40.7%, a decrease of 170 basis points compared to the prior year. The year-over-year decline primarily reflected the impact from the Vantiv MSA, lower manufacturing volumes, Ry-V solutions, and an unfavorable product mix. As a reminder, starting in the first quarter, we reclassified certain functional expenses to cost the goods sold from SG&A following the completion of the sale of our kidney care business. These functional costs were previously recorded in SG&A and support manufacturing and are now classified as indirect costs subject to inventory capitalization and recorded in cost of sales when sold.
Joel.
Thanks, Heather and good morning, everyone.
I'll start my remarks today with some additional commentary regarding the p&l profile for the second quarter.
The forward turning to our updated outlook for the remainder of the year.
Second quarter adjusts gross margins from continuing operations for 40.7%.
A decrease of 170 basis points compared to the prior year.
the year-over-year decline, primarily reflected the impacts of the vant of MSA
Lower manufacturing volumes. 5 e Solutions.
And an unfavorable product mix.
As a reminder starting in the first quarter, we reclassified certain functional expenses. The cost of goods, sold from sgna following the completion of the sale of our Kidney Care business.
These functional costs were previously recorded in sgna and support Manufacturing.
And are now classified as indirect costs subject to inventory capitalization and recorded in cost. Of sales would be sold.
Joel Grade: Second quarter adjusted SG&A from continuing operations totaled $639 million, or 22.7% as a percentage of sales, a decrease of 170 basis points from the prior year period. Results of the quarter reflect continued investments in sales and marketing efforts and a headwind related to certain employee benefit-related costs. These costs were offset by the benefits from the reclassification of functional costs and continued discipline expense management focused on mitigating the stranded cost impact. Adjusted R&D spending from continuing operations in the quarter totaled $134 million and represented 4.8% as a percentage of sales, consistent with the prior year period. We continue to make targeted investments focused on advancing our new product portfolio and bringing customer-focused innovation to patients across our segments. TSA income and other reimbursements totaled $52 million in the quarter. This came in higher than anticipated and reflected increased levels of support for Vantiv.
second quarter adjusted sgna from continuing operations totaled, 639 million
or 22.7 as a percentage of sales.
A decrease of 170 basis points from the prior year period.
Results of the quarter. Reflect continued investments in sales and marketing efforts.
And a headwind related to certain employee benefit related costs.
These costs are offset by the benefits, from the reclassification of functional costs.
And continue discipline expense management focused on mitigating, the stranded cost impact.
Adjusted R&D spending from continuing operations in the quarter total 134 million.
And represented 4.8 as a percentage of sales consistent with the priority period.
We continue to make targeted Investments focused on advancing our new product portfolio.
And bringing customer focused Innovation to patients across our segments.
TSA income and other reimbursements, so the $52 million of the quarter.
Joel Grade: As previously discussed, the associated expenses related to this income are reflected in other lines of the P&L, including cost of goods sold and SG&A. These factors resulted in an adjusted operating margin at 15.1% on a continuing operations basis, improving 180 basis points compared to the prior year period. Operating margin in the quarter reflects the lower gross margin due to the factors just mentioned, offset by continued focus on operational execution, as well as the benefit of TSA income and other reimbursements from Vantiv. Taking a look at adjusted operating margin by each reportable segment, MPT's adjusted operating margin totaled 18.1% for the quarter, increasing 10 basis points over the prior year period and reflecting positive pricing in the quarter, partially offset by the sales and manufacturing impact related to reduced fluid volumes associated with demand softness due to the factors we've discussed.
This came in higher than anticipated and reflected increased levels of support for Vantas.
As previously discussed.
the associated expenses related to this income are reflected in other lines of the p&l including cost of goods sold and sgma
These factors resulted in an adjusted operating margin and 15.1% on a continuing operations basis.
Improving 180 basis points compared to the prior year period.
Operating margin in the quarter, reflects the lower gross margin due to the factors dispensed.
By continued. Focus on operational execution.
As well as the benefit of CSA income and other reimbursements from Vantage.
Taking a look at adjusted operating margin by each reportable segment.
Mpts adjusted operating margin totaled 18.1% for the quarter.
Increasing 10 basis points over the prior year period.
And reflecting positive pricing in the quarter. Partially offset by the sales and Manufacturing impact related to reduced fluid volumes associated with demand socks and due to the factors we've discussed
Joel Grade: R&D investments also increased in the quarter. TSA income contributed to positive performance in the quarter as well. HST adjusted operating margin increased sequentially and totaled 15.4% for the quarter. Margins declined 60 basis points from the prior year period, reflecting increased investments and higher corporate allocation expenses following the sale in kidney care. TSA income partially offset these increased expenses. Pharmaceuticals adjusted operating margin totaled 10.5% for the quarter, decreasing 200 basis points compared to the prior year. These results reflect an unfavorable product mix, increased investments, and increased corporate allocation expenses. These expenses were partially offset by TSA income. Net interest expense from continuing operations totaled $58 million in the quarter, a decrease of $28 million versus the prior year period, reflecting lower interest expense following the paydown of existing debt with proceeds from the sale of Vantiv, including the recent repayment of an outstanding European bond.
R&D Investments also increase in the quarter.
TSA income contributed to positive performance in the quarter as well.
HSC adjusted operating margin increased sequentially and told 15.4% for the quarter.
Margins declined, 60 basis points. From the prior year, period reflecting, increased Investments and higher corporate allocation expenses, followed the sales Kidney Care.
PSA income partially offset these increased expenses.
Pharmaceuticals adjusted operating margin, total 10.5% for the quarter.
The decrease in 200 basis points, compared to the prior year.
These results reflect an unfavorable product mix.
Increased Investments and increased corporate allocation expenses.
These expenses were partially offset by PSA income.
That interest expense from continuing operations till 58 million. In the quarter, a decrease of 28 million versus the prior year, period, reflecting lower interest expense following the pay down of existing debt with proceeds, from the sale of advances, including the recent repayment of an outstanding European Bond.
Joel Grade: Adjusted other non-operating income expense was not meaningful in the quarter compared to income of $24 million in the prior year period, primarily reflecting the impact of losses from foreign exchange balance sheet accounts reported in the quarter. The continuing operations adjusted tax rate for the quarter was 16.7%, decreasing 400 basis points over the prior year period. The year-over-year decrease is primarily driven by benefits from the strategic use of select tax attributes as we continue to optimize our global structure following the sale of kidney care. And as previously mentioned, adjusted earnings from continuing operations were 59 cents per share for the quarter and increased 28% versus the prior year. Contributions to earnings growth include positive pricing, the receipt of TSA income and other reimbursements, as well as the benefit of lower expenses from non-operational items, including interest and tax.
Adjusted other non-operating income expense was not meaningful in the quarter compared to income of 24 million in the prior year period.
Primarily reflecting the impact of losses from foreign exchange balance sheet accounts recorded in the quarter.
The continuing operations adjusted tax rate for the quarter was 16.7% decreasing 400 basis points over the prior year period.
The year-over-year decrease is primarily driven by benefits from the Strategic use of Select tax attributes.
as we continue to optimize our Global structure, following a sale of Kidney Care,
And as previously mentioned, just at earnings from continuing operations for 59 cents, per share for the quarter and increased 28% versus the prior year.
Contributions to earnings growth include positive. Pricing the receipt of CSA income and other reimbursements, as well as the benefits of lower expenses from non-operational items including interest in tax.
Joel Grade: Before turning to our updated outlook, I want to briefly comment on our cash flows. On a year-to-date basis, we have incurred negative free cash flows of $144 million, although during the second quarter, we generated $77 million of positive free cash flows. As a reminder, the first half of the year included certain hurricane-related costs that were paid this year. We are intensely focused on improving our cash flow generation in the second half of the year. To achieve this objective, we're taking several actions with a key focus area being on our inventory management. Let me conclude my remarks by discussing our 2025 outlook for the full year and the third quarter, including some key assumptions underpinning the guidance. For full year 2025, BAXTER expects total sales growth of 6% to 7% on a reported basis.
Before turning to our updated Outlook, I want to briefly comment on our cash flows.
On the year to date basis, we have incurred negative free cash flows of 144 million.
Although during the second quarter, we generated 77 million of positive free cash flows.
As a reminder, the first half of the Year included, certain hurricane hulling related costs that were paid this year.
We are intensely focused on improving our cash flow generation in the second half of the year.
To achieve this objective. We are taking several actions with a key, Focus area being on our inventory management.
Let me conclude my remarks by discussing our 2025, outlook for the full year and the third quarter, including some key assumptions. Underpinning the guidance.
For full year 2025.
Joel Grade: This guidance reflects current foreign exchange rates, which are expected to contribute approximately 50 basis points to top line growth for the year. In addition, our reported sales guidance includes the contribution of approximately $320 million of anticipated MFA revenues from Vantiv. Excluding the impact of foreign exchange, the MFA revenues, and the exit of Ivy Solutions in China, BAXTER now expects operational sales growth of 3% to 4% for 2025. This is a reduction from our prior expectations of 4% to 5%, so I'd like to take a moment to walk through some of the assumptions underpinning this updated outlook. While we never want to lower expectations, our overall objective in reducing the outlook was to capture more of the potential downside risks associated with some of the factors we've discussed today, primarily around infusion pumps and fluid conservation.
Back to expect. Total sales growth of 6 to 7% on a reported basis.
This guidance reflects current foreign exchange rates, which are expected to contribute approximately 50 basis points to topline growth for the year.
In addition, our reported sales guidance includes the contribution of approximately 320 million of an anticipated MFA revenues from bantad.
Excluding the impact of foreign exchange the MSA revenues and the exit of IV Solutions in China.
Back to now expects, operational sales, growth of 3 to 4% for 2025.
This is reduction from our prior expectations of 4 to 5%, so I'd like to take a moment to walk through some of the assumptions. Underpinning. This updated Outlook.
While we never want to lower expectations, our overall objective is reducing the Outlook with the capture more of the potential downside. Risks associated with some of the factors we've discussed today.
Primarily around infusion pumps and fluid conservation.
Joel Grade: With respect to the NOVUM infusion pump, as Heather mentioned, we have implemented a voluntary and temporary shift and implementation hold as we work through various updates for the NOVUM LBP. We are working closely with our customers, and our goal is to resume shipments as soon as possible this year, pending our review of the process for implementing related corrections. In addition, we offer customers the option of our Spectrum infusion pump as an alternative. The low end of our current guidance assumes we don't resume shipments for NOVUM prior to the end of the year. With respect to fluid conservation, our current expectation is that fluid conservation levels will begin to lessen over the course of 2025 and into 2026. But the low end of our guidance range assumes conservation levels remain similar to the first half of the year.
With respect to the movement infusion pump, as Heather mentioned.
We have implemented, a voluntary and temporary shift and implementation. Hold as we work through various updates for the November ldp.
We are working closely with our customers and our goal is to resume shipments as soon as possible this year.
Pending our review of the process for implementing related Corrections.
In addition, we offer customers the option of our Spectrum Infusion Pump as an alternative.
The low end of our current guidance assumes, we don't resume shipments for Nova prior to the end of the year.
With respect to fluid conservation. Our current expectation. Is that fluid conservation levels will begin to lessen over the course of 2025 and into 2026.
But the low end of our guidance range assumes conservation levels remain similar to the first half of the year.
Joel Grade: Our teams continue to work closely with our customers to improve utilization as our supply levels have stabilized. At this time, we felt this was the prudent approach to take with respect to our sales guidance. We are hopeful that we can resume shipments of NOVUM prior to the year end and that fluid conservation levels will continue to improve. Our teams are working diligently and expeditiously to execute on these objectives. The fundamentals of our business remain strong, and we are committed to accelerating sales growth and advancing innovation to drive incremental value. Operational sales guidance for the full year by reportable segment is as follows. For MPT, we now expect sales to increase 3% to 4%, reflecting the impact of the factors just discussed. We now expect sales in our HST segment to increase 3% to 4%.
Our teams continue to work closely with our customers to improve utilization as our supply levels have stabilized.
At this time, we felt this was The Prudent approach to take with respect to our sales guidance.
we are hopeful that we can resume shipments of November prior to the year end and that fluid conservation levels will continue to improve
our teams are working diligently and expeditiously to execute on these objectives.
The fundamentals of our business remains strong and we are committed to accelerating sales growth and advancing Innovation to drive incremental value.
Operational sales guidance for the full year by reportable segment is as follows.
For MPT. We now expect sales to increase 3 to 4% reflecting the impact of the factors just discussed
Joel Grade: We continue to be pleased with the building momentum we are experiencing in HST, but we'll continue to closely monitor the capital environment for any changes to hospital spending expectations. We now expect pharmaceuticals to increase approximately 4% to 5%, which reflects some of the softness we're experiencing in the US for injectables. The teams are executing on the new product launches and working with customers to reinforce the benefits and value proposition of injectables. We are optimistic these actions will drive improvements over time. Before turning to our outlook for other P&L line items, I wanted to provide our latest thoughts regarding assumptions around the impact from tariffs. Given what has been announced to date, we now estimate the net impact to our results from tariffs is approximately $40 million in 2025, which is a reduction from our prior estimate of $60 million to $70 million.
we now expect sales in our HST segment to increase 3 to 4%,
We continue to be pleased with the building momentum. We are experiencing in hfc.
But will continue to closely monitor the capital environment for any changes to hospital, spending expectations.
We without expect Pharmaceuticals to increase. Approximately 4 to 5%.
Which reflects some of the softness we're experiencing in the US for injectables.
The teams are executing on the new product launches and working with customers to reinforce the benefits and value proposition of injectables.
We are optimistic. These actions will drive improvements over time.
Before turning to our outlook for other penal line items.
Our latest thoughts regarding assumptions are on the impact from tariffs.
Given what has been announced to date. We now estimate, the net impact to our results from tariffs is approximately $40 million in 2025.
Which is a reduction from our prior estimates of 60 to 70 million.
Joel Grade: This remains a dynamic area, and as such, we will continue to evaluate adjustments to our supply chain network and targeted pricing actions in response to various tariff impacts. Note that these assumptions do not reflect any potential tariffs related to pharmaceutical products. As a reminder, the cash-related costs for tariffs will be higher than the P&L impact due to the capitalization and associated rollout timing for these costs. TSA income and other reimbursements are now expected to range between $170 million to $180 million. This increase reflects incremental services provided to Vantiv with the related expenses reflected in the other lines of the P&L. We now expect full-year adjusted operating margin from continuing operations between 15% to 16%, which reflects the top line sales reduction and the associated impact on our integrated supply chain costs from lower volumes flowing through our manufacturing facilities.
This remains a dynamic area and as such we will continue to evaluate adjustments to our supply chain Network and targeted pricing actions in response to various Charities impacts.
Note, these assumptions. Do not reflect any potential. Tariffs related to pharmaceutical products.
As a reminder, the cash related costs for tariffs will be higher than the p&l impact.
Due to the capitalization and associated rollout, timing for these costs.
TSA income and other reimbursements are now expected to range between 170 million to 180 million.
This increase reflects incremental Services provided to advantage of with the related expenses, reflected in the other lines of the p&l.
We now expect a full year adjusted operating margin from continuing operations between 15% to 16%, which reflects the Topline of sales reduction and the associated impact on our integrated supply chain costs from lower volumes flowing, through our manufacturing facilities,
Joel Grade: We expect our non-operating expenses, which include net interest expense and other income and expense, to total between $210 million and $220 million. On a continuing operations basis, we now anticipate a full-year tax rate of approximately 18% to 18.5%. We expect our diluted share count to average approximately 515 million shares for the year, which does not contemplate any share repurchases. Based on all these factors, we have adjusted our outlook for full-year adjusted earnings on a continuing operations basis to $2.42 per share to $2.52 per diluted share from the prior guidance of $2.47 to $2.55 per share. This update reflects the impact from lowering our operating margin expectations, partially offset by a benefit from lowered interest expense and tax rate assumptions.
We expect our non-operating expenses, which include net, interest, expense, and other income and expense.
To total between $210 million and $220 million.
On a continuing operations basis. We now anticipate a full year tax rate of approximately 18% to 18.5%.
We expect our diluted share count to average approximately 515 million shares for the year which does not contemplate any share repurchases.
Based on all these factors. We have adjusted our outlook for full year adjusted earnings on a continuing operations basis.
To $2.43 per share to $2.52 per diluted share for the prior guidance of $2.47 to $2.55 per share.
This update reflects the impact.
From lowering our operating margin expectations.
Partially offset by a benefit from lowered interest expense and tax rate assumptions.
Joel Grade: Specific to the third quarter of 2025, we expect continuing operations sales growth of approximately 6% to 7% on a reported basis and 3% to 4% on an operational basis. For the third quarter, foreign exchange is expected to positively impact the top line by approximately 100 basis points, and MFA revenues are expected to total approximately $80 million. The China IV solutions exit is expected to impact top line growth by approximately 70 basis points in the third quarter. On a continuing operations basis, we expect adjusted earnings per share of 58 cents to 62 cents per share. Now I'd like to turn it back over to Brent for some closing comments.
The Civic to the third quarter of 2025, we expect continuing operations in sales, growth of approximately 6 to 7% on a reported basis.
And 3 to 4% on an operational basis.
For the third quarter, foreign exchange is expected to positively impact the top line by approximately 100 basis points and MFA revenues are expected to Total approximately 80 million dollars.
The China IV Solutions exit is expected impact Topline growth by approximately 70 basis points in the third quarter.
On a continuing operations basis. We expect adjusted earnings per share of 58 cents to 62, cents per share.
Brent Shafer: Thank you, Joel, and thank you, Heather. As we look to the future, I want to share my thoughts on the recent news that Andrew Hyder will join BAXTER in the coming weeks as our next CEO. The board led a comprehensive and thorough search and sought a range of experience in the candidates, including a track record of value creation, innovation, and transformation, and the ability to drive quality and operational excellence. We determined that Andrew is the right leader for BAXTER's next chapter to build on our rich history and nearly a century of leadership. I've had the opportunity to spend time with Andrew during the process and since the announcement, and I've directly observed his character, deep respect for the BAXTER brand, and passion about our team, our culture, and our mission to save and sustain lives.
Now, I'd like to turn it back over to Brent for some closing comments.
Thank you, Joel, and thank you, heather.
As we look to the future, I want to share my thoughts on the recent news that Andrew Hider, will join Baxter in the coming weeks as our next CEO.
The board led a comprehensive and thorough search and sought a range of experience in the candidates, including the track record of value creation, Innovation and transformation, and the ability to drive quality and operational excellence.
We determined that Andrew is the Right leader for Baxter's. Next chapter to build on our Rich history and nearly a century of leadership.
Brent Shafer: Andrew is a highly experienced public company CEO with a strong operational background. He will bring a fresh perspective and new ideas to the table from his 25 years of cross-industry experience. Throughout his career, he has consistently demonstrated an ability to advance innovation, drive growth, deliver commercial success, and create shareholder value. I can tell you that Andrew is very eager to join the BAXTER team, to make an impact, and to meet many of you. Finally, I want to thank all of BAXTER's 38,000 employees across the globe, our patients, customers, and other stakeholders. It's been my great honor to serve as interim CEO for BAXTER these last several months, and I'm pleased to continue to serve the company as chair of the board of directors following Andrew's official start date. With that, we'll begin our question and answer session for the call.
I've had the opportunity to spend time with Andrew during the process and since the announcement and I've directly observed. His character deep respect for the Baxter, brand and passion about our team, our culture and our mission to save and sustain lives.
Andrew is a highly experienced public company CEO with a strong operational background.
He will bring a fresh perspective and new ideas to the table from his 25 years of cross-industry experience.
Throughout his career, he has consistently demonstrated an ability to advance innovation, drive growth, deliver commercial success, and create shareholder value.
Finally, I want to thank all of the Baxter's, 38,000 employees across the globe, our patients, customers and other stakeholders. It's been my great honor to serve as interim CEO for Baxter. These last several months, and I'm pleased to continue to serve the company as chair of the board of directors following Andrew's, official start date.
With that, we'll begin our question and answer session for the call.
Operator: Thank you. We will now begin the question and answer session. If you have a question, please press star one on your touch-tone phone. Once again, star one. If you wish to remove yourself from the queue, press star one again. And if you are using a speakerphone, please lift the handset to ask your question. 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 would like to provide as many of you as possible the opportunity to ask a question. And we will pause just 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.
Thank you. We will now begin the question and answer session. If you have a question please press star 1 on your touchtone phone once again star 1 if you wish to remove yourself from the queue press star 1 again
And if you are using a speaker-phone, please lift the handset to ask your question.
So that we may be respectful of everyone's time. Please limit your comments to 1 question with 1 follow up question, if necessary.
We appreciate everyone's patience and would like, to provide as many of you as possible, the opportunity to ask a question.
And we will pause just 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.
Operator: And our first question comes from Robbie Marcus at JP Morgan. Robbie, your question, please.
In our first question comes from, Robbie Marcus at JP Morgan.
Robbie Marcus: Great. Good morning, and thanks for taking the questions. Two from me. Maybe first on NOVUM, and maybe you could help us understand exactly how much weakness in the quarter was related to this, both on sales and on the operating margin line. And it sounds like you have a voluntary temporary pause. How do you get comfort in the implied guidance for the rest of the year? If it's a temporary pause, what happens to the guide if it turns out to be something more durable than that?
Robbie your question, please.
Great. Good morning. And, uh, thanks for taking the questions. Uh, two from me. Maybe first on Noam. Could you help us understand exactly how much weakness in the quarter was related to this, both on sales and on the operating margin line?
Um, and it, it sounds like you have a a voluntary temporary pause.
How do you get Comfort Inn? Uh, the implied guidance for the rest of the year. If it's a temporary pause, what happens to the guide. If it, if it turns out to be something more more durable than that.
Heather Knight: Hi, Robbie. This is Heather. Good morning, and thanks for the question. So there was no impact in the second quarter from NOVUM, as I said in the prepared remarks. We just made this decision voluntarily a couple of weeks ago and just want to reinforce that we remain confident in the NOVUM platform. There are significant advantages with this pump over others on the market, and our customer receptivity to this platform, even in light of some of these field actions, has been positive. But with patient safety and quality really at the forefront of everything that we do as a company, this decision aligns with our mission focus as an organization. So I think, you know, highlighting that it's important to recognize that infusion pumps are one of the most widely used electromechanical devices in the healthcare setting, and you're solving for millions of permutations around infusion therapy.
Hi, Robbie, this is Heather. Good morning and thanks for the question. So um, there was no impact and the second quarter from November. As I said in the prepared remarks, uh, we just made this decision voluntarily a couple weeks ago and just want to reinforce that we remain confident. In the November platform, there are significant advantages with this pump over others on the market. And our customer receptivity to this platform. Even in light of some of these field actions has been positive. But with patient, safety and quality really at the Forefront of everything that we do is the company this decision aligns with our mission Focus as an organization. So I I think, you know, highlighting the
Heather Knight: And this is relevant because when we assess the various care settings, the patient conditions, the thousands of drug combinations, fluid dynamics, human factors, all of that creates complexity. So the field actions that we have out there pertain to a very small subset of clinical use cases and particular workflows that we've identified, and we're working closely with our customers and, importantly, leveraging data that we have from our connected ecosystem to understand where those are happening and working with our customers where we see those instances. So our decision to voluntarily institute the ship and implementation hold was really because we're working transparently with our customers, and we wanted to stop and pause and take their feedback and make sure that we're working through the interim mitigations with them. We don't need to have a permanent fix in place to release the ship hold.
That it's important to recognize that infusion pumps are 1 of the most widely used electromechanical devices. And the health care setting and you're solving for millions of permutations around infusion therapy. And this is relevant. Because when we assess the various care settings, the patient conditions, the thousands of drug combinations, fluid dynamics, human factors. All of that creates complexity. So the field actions that we have out there pertain to a very small subset of clinical use cases and particular workflows that we've identified and we're working closely with our customers and importantly, leveraging data that we have from our connected ecosystem to understand where those are happening and working with our customers, where we see those instances. So our decision to voluntarily Institute, the ship ship and implementation hold was really because we're working transparently with our customers and we wanted to stop and pause and take their feedback.
Heather Knight: We're working through those interim mitigations as we speak and that timeline of just those mitigations and corrections. We want to get this right, and our focus is on doing this the right way, like we always do here at BAXTER. So we've set expectations and timelines at this point that we're communicating that we feel like we can meet, and that's being done in close concert with the mitigations and corrections that we're putting in place, working with our customers. But as I said again in the remarks, we're moving with care and speed and urgency, and the goal is to start shipping as soon as possible, you know, targeting by the end of the year with our process of review, and, you know, certainly, we'll keep you posted on that front. But I want to reinforce that we believe that this is transient in nature.
And uh make sure that we're working through the interim mitigations with them. We don't need to have a permanent fix in place. Um to release the ship hole. We're working through those interim mitigations as we speak. Uh, and that timeline of just those mitigations and Corrections, we want to get this right and our focus is on doing this the right way, like we always do here at Baxter. So we've uh, We've set expectations and timelines at this point, that we're communicating that we feel like we can meet, uh, and that's
Heather Knight: And I want you to know, like, I'm still really excited about NOVUM, our continued ability to convert competitive accounts, and we've signed a number of new contracts recently, and, you know, our customers are looking forward to the NOVUM platform and the advantages that it offers. There's a lot of commercial momentum on capital and MPT, including Spectrum and NOVUM, and I think it really positions us well for when this hold is released.
Being done in close concert with the mitigations and corrections that we were putting in place working with our customers. But as I said again in the remarks, we're moving with care and speed and urgency, and the goal is to start shipping as soon as possible. You know, targeting by the end of the year with our process of review. And, you know, certainly we'll keep you posted on that front. But I want to reinforce that we believe that this is transient in nature. Uh, and I want you to know like I'm.
Joel Grade: Yeah, and Robbie, if I could just add your guidance question, essentially, the 2026 guidance assumes we're actually not shipping 25--I'm sorry, I said 26. 25 guidance assumes that we're actually not shipping another NOVUM pump essentially the rest of the year, the low end of that. So the low end of the guidance assumes no more NOVUM being shipped the rest of the year. So I just, to be clear on that, your question is what, you know, what else could wrong? We actually feel that is capturing the downside risk that we think is appropriate at this time.
Momentum uh on Capitol and MPT including spectrum and novam and I think it really positions us well for when this hold is released.
yeah, and Robbie, if I could just add, uh, your guidance question, essentially the
2026 guidance assumes. We're actually not shipping 25. I'm sorry. I said 26, 25 guidelines that we're actually not shipping. Uh, another Noble pump. Essentially the rest of the year, the low end of that.
So the low end of the guidance assumes no more no than being shipped the rest of the year. So I just uh to be clear on that. Your question is, what you know, what else could go wrong. We we actually feel that is is uh, is capturing the downside risk that we think is appropriate at this time.
Robbie Marcus: Great. Maybe just to tag along on that. So it sounds like the upper end of the range does assume that there is a resumption. So, Joel, maybe you could bridge the lowered EPS guide and what's happening down the P&L. It sounds like there's some other margin weakness in the business. And then as we follow that into 2026, I know after the Vantiv deal, there were some preliminary thoughts on 2026. What's the updated thought, and how do you want the Street to take into account NOVUM here? Thanks a lot.
Joel Grade: Yeah. Thanks, Robbie. I'd say a couple of things. First of all, the guide for '25 contemplates really primarily the impact of both what we talked about here with NOVUM, but also the, as we commented in our prepared remarks, the downside view of the fact that we're not going to have any further improvement in fluid conservation. So what that impacts significantly is the amount of volume running through our manufacturing plants. And so therefore, really the operating income and EPS part of that is really, number one, a big kind of is a volume impact that we're talking about for the rest of the year. Second piece is mix. You know, as we talked about some of the products, you know, we talked about growth in compounding versus injectables in pharma. Again, obviously, the pump sales themselves would have a positive impact on that.
Great. Um maybe just to to tag along on that. So uh, it sounds like the the upper end of the range does assume um, that there is a resumption. So so maybe you could Bridge, uh, the lower DPS guide and what's happening down the pnl. There. It sounds like there's, there's some other margin weakness in the business and then, um, as we follow that into 2026, I know after the vantiv deal, there were some preliminary thoughts on 2026. What's the updated thought? And how do you want the street to take into account? Uh, November here. Thanks a lot. Yeah, thanks Robbie. I, I'd say a couple of things. First of all, the
Guide for 25.
Really primarily, uh, the impact of both what we talked about here with Noom. Uh but also the uh as we've commented in our prepared remarks, the uh, that says the downside view of the fact that we're not going to have any further Improvement in fluid conservation.
So the that, what that impact significantly is, uh, the amount of volume running through our manufacturing plants. And so therefore the really the operating income, the EPS part of that is is really number 1. A big, uh, kind of is a volume impact that that you were talking about for the rest of the year.
Joel Grade: But those, from a mix perspective, again, that's really the second component to this. Now, we do have continued price benefit. I want to be clear on that. We're actually, I would say, ahead of schedule, if you will, on some of the impact of the GPO pricing. But again, those two key areas are offsetting, which is really kind of, I'd say, the primary driver of our OI impact for the rest of this year. I'd say as we head into 2026, you know, Robbie, the way I would look at this, you know, obviously, given what we assume is going to be a, again, a positive impact on volume as we head into next year. In other words, some of the fluid conservation we certainly expect will ease.
Second piece is mix, you know, as we talked about some of the products, you know, we talked about growth in compounding versus injectables in Pharma. Uh, again obviously the, you know, the the pump sales themselves uh, would have a positive impact on that. But those from a mixed perspective, again, that's, that's really the second component to this. Now, we do have continued price benefit. I want to be clear on that. We're actually, uh, we're actually out to say ahead of schedule if if you will on some of the impacts of the GPO pricing.
But the, uh, but again, those 2 are a key areas are off setting, uh, which is really kind of I've had a primary driver of our, our own oi uh, impact for the rest of this year.
Since we head into 2026.
Joel Grade: We, as Heather indicated, you know, we do, again, we're hopeful that we're going to be able to continue and resume shipping NOVUM. Those things, as we head into '26 relative to '25, are going to be a driver of some margin expansion relative to this year. Because, again, volume matters a lot in this company. When you don't have it, it impacts downward, but when we do, it obviously drops through. And so that's one thing. I would say the second really is our continued efforts around stranded cost and the work that we're doing there, along with margin improvement programs in our supply chain, you know, new product introductions, and again, just general, you know, growth that we anticipate heading into next year.
You know, Robbie the way I would look at this you know, obviously given when what we assume is going to be a, again, a a positive impact on volume as we head into next year. In other words, uh, some of the fluid conservation, we certainly expect will ease. Uh, we as Heather indicated,
You know, we we do uh again we're hopeful that we're going to be able to continue and resume shipping. November those things as we head into the 26th relative to 25 are going to be uh a a driver of some of the you know, margin expansion relative to this year because again volume matters a lot in this company when you don't have it, it impacts downward. Uh but when we do it obviously drops through
And so that's 1 thing I would say, the second really is our continued uh, you know, efforts around us, you know, stranded costs.
And the work that we're doing there along with margin Improvement programs, uh, in our uh, in our supply chain.
Joel Grade: So again, we're not going to quantify what that is from a margin perspective, obviously, at this time, but certainly, we do expect we're going to have continued opportunities to expand our margins in 2026 relative to 2025.
Uh you know, new product introductions and and again just general you know growth that we anticipate heading into next year. So again, we're not going to quantify what that is from a margin perspective, obviously at this time but it's certainly, uh, we do expect we're going to have to continue to opportunities to, to expand our margins in 2026 relative to 2025
Robbie Marcus: Appreciate it. Thanks a lot.
Appreciate it. Thanks a lot.
Clare Trachtman: Thanks, Robbie.
Joel Grade: Thanks, Robbie.
Thanks Robbie. Thanks Robbie.
Operator: And David Roman with Goldman Sachs is on the line with a question. David, please state your question.
Robbie Marcus: Thank you. Good morning, everybody. I wanted just to start with the broader evolution of business trends throughout the quarter. As we reflect on the May earnings call and the dynamics we introduced then, as well as some of the public disclosure throughout the quarter, it does sound like business trends did worsen materially as you progressed through the quarter. So can you maybe help us understand how things evolved and to what extent the exit rate in the business is reflected in the 1%, or did you exit the quarter at a growth rate below that? Then I'd have P&L follow-up.
And David Roman with Goldman Sachs, is on the line with the question, David, please. State your question.
As you progress through the quarter security, maybe help us, understand how things evolved and, and to what extent the exit rate in. The business is reflected in the 1%. Or did you exit the quarter at at a growth rate, below that? Then I have pnl follow-up.
Heather Knight: Yeah, David, I'll start and then have Joel chime in. So thanks for the question. This is Heather. So, you know, we were very purposeful in the guidance that we set. And I know originally maybe folks thought it was conservative, but we knew, particularly coming out of the hurricane, that the first half would be a bit choppy. So it played out, and Ivy Solutions, I would say, largely as we expected in the half. We had a strong first half. Again, with our speed and urgency, we delivered every timeline coming out of Northcove that we had set, and our goal was to get the channel restocked as urgently and quickly as possible. And we saw that in Q1. And then in Q2, kind of the subsequent bleed down of that inventory across the channel.
Heather Knight: At the end user level, we really saw conservation pretty consistent through the half. So I would say Ivy Solutions, you know, largely played out as we expected. A bit of the surprise in the quarter was US injectables and pharma. So we saw an elevated amount of IV push in the quarter that was a bit of a surprise. You know, we expected a bit more recovery of that, quite honestly, and have now contemplated that in the guidance that's been set. So we felt like at this point it was prudent to be a little bit more reserved, and I would say measured in our approach for the second half, just based on the utilization and consumption backdrop that we're seeing across the market and the current macroeconomic environment.
Yeah, David I'll start and then uh and then have Joel chime in. So thanks for the question. This is this is Heather. So you know we were very purposeful in the guidance that we set uh and I know originally maybe folks thought it was conservative but we knew particularly coming out of the hurricane. That's the first half would be a bit choppy so it played out in IV Solutions. I would say largely as we expected in the half, we had a strong. Uh, first half again with our speed and urgency we delivered. Every timeline coming out of North Cove that we had set and our goal was to get the channel restocked as urgently and quickly as possible. And we saw that in q1 and then in Q2 kind of the subsequent, uh, bleed down of that inventory, across the channel, uh, at the end user level, we really saw conservation pretty consistent through the half. So I would say IV Solutions you know largely played out as we expected a bit of the surprise in the quarter was us injectables and Pharma. So we saw an
Heather Knight: You know, we put what I would call a realistic level-loaded assumption, assuming what we saw in Q2 remains for the rest of the year. Again, I think this is temporary. We fully expect that customers will resume normal practices, and we've started to see that already, but we're taking just a more prudent approach at this point. I'll let Joel comment on any other comments you want.
Elevated amount of IV push, uh, in the quarter, that was a bit of a surprise, you know, we expected a bit more recovery of that quite honestly, and have now contemplated that, uh, in the guidance that's been set. So we felt like, at this point, it was prudent to be a little bit more reserved, uh, and I would say measured in our approach for the second half, just based on the utilization and consumption backdrop that we're seeing across the market and the current macroeconomic environment. You know, we we put what I would call a realistic level loaded, assumption, assuming what we saw in Q2 remains for the rest of the year. Again, I think this is temporary, we fully expect, uh, that customers will resume normal practices and we've started to see that already, uh, but we're taking just a more prudent Approach at this point.
Joel Grade: Yeah, no, I think I would just reinforce again the point that, you know, we certainly, we had been very clear and purposeful on suggesting the second quarter was going to be our toughest comparison. And as we headed into the year, you know, the one to two, I know a lot of people, I think, thought that was, I don't know, super conservative all the way to a sandbag. We didn't see it that way, obviously. And we actually, I think, you know, came in, as Heather said, for the most part, where we anticipated. I think I would agree the injectables is the piece that was probably the biggest surprise.
I'll let Joel comment on any other cam.
Yeah, no I I think I would just reinforce again. The point that you know, we certainly we had we had been very clear in purposeful on the suggested here. The second quarter was going to be our toughest comparison and as we headed into the year, you know, the the 1 to 2. I know a lot of people I think, thought that was, I don't know. Super, super conservative all the way to a sandbag. Uh, we, we didn't see it that way obviously. And, uh, we actually, I think, uh, you know, came in as Heather said, for the most part where we anticipated. I think I would agree the injectables of the piece. That was probably the biggest surprise.
Robbie Marcus: Very helpful. And maybe just to follow up on the P&L, as we look at the TSA income interplay with stranded costs, can you maybe help us think about the timelines of working down stranded costs and the process by which the TSAs roll off? And how do you avoid a gap there whereby the TSA roll-off is faster than your ability to work down stranded costs?
Joel Grade: Yeah, thanks, David. So a couple of things I would say. First of all, we are on track with our progress towards mitigating our stranded costs. So let me start with that. And one of the things we said during this year is we anticipated about a 40 basis point impact negatively from, you know, unsolved stranded costs, I'll call it. We're on track with that for what we anticipated for 2025. We're also on what I would consider on track to be, as we talked about, we're going to have them all removed by 2027. And so again, that's just a reminder of the commitment we made as it relates to that. The TSAs, think about those generally as about a 24-month from the start of the year. We obviously remember we closed the deal at the end of January of this year.
Uh, very helpful and maybe just to follow up on, on the p&l. As we look at the the the TSA income interplay with stranded costs, you may be helped us, think about the timelines of working down stranded costs and uh process by which the tsa's roll off and and how do you avoid a gap? There whereby the TSA roll off is faster than your ability to work down, stranded costs. Yeah, thanks David. Uh, so a couple things I would say, first of all, uh, we are on track with our progress towards visiting our stranded cost. So let me start with that. And 1 of the things, we said uh, during this year is we anticipated about a 40 basis. Point impact, uh, negatively from, you know, unsolved stranded costs. I'll call it. We're we're we're on track with that. Uh for uh what we anticipated for 2025. Uh we're also on what I would consider on track to be. As we talked about, we're going to have them all removed by 2027. And so again, that's just to remind you of the commitment we made
As it relates to that, the TSA is think about those generally as about us about a 24 month.
Joel Grade: And so think about that for the most part as about a 24-month time period while those TSAs will be in place. Now, they will be, you know, working themselves down to some degree as we, you know, go towards the 24-month time period. But David, that's where obviously the work that we're doing on the stranded cost is specifically designed to ensure we stay ahead of that, so to speak, so that we're not in a situation, to your point, where we, for whatever the reason, the TSA falls off and the cost hasn't been taken out. We're obviously working through a lot of stranded cost programs, and we've been, we've actually been working through that since the end of last year to really stay ahead of that, David. So like I said, I think we're on track.
Uh from the start of the Year remember we closed the deal at the end of January this year and so think about that for the most part is about a it's a 24-month time period, while those csas will be in place, now they will be, you know, working on themselves down to some degree.
As we?
Joel Grade: We're certainly well aware of that phenomenon, and I'm trying to stay well ahead of that, and I feel good about where we're at today.
You know, go towards the uh, 24 months time period. But but David that's where obviously the work that we're doing on the stranded cost is specifically designed to ensure we stay ahead of that so to speak. So that we're not in a situation to your point where we uh for whatever reason, the TSA falls off and and the cost hasn't been taken out. We're obviously working through a lot of straight across programs and uh we've been we've actually been working through that since the end of last year and really stayed stay ahead of that day. So like I said I think we're on track we're certainly well aware of that phenomenon and uh I'm trying to say, well ahead of that and I I feel good about where we're at today.
Operator: And we're feeling up with appreciate all the perspective. Thank you.
Helpful. Appreciate all the perspective. Thank you.
Robbie Marcus: Thanks, David.
Clare Trachtman: Thanks, David.
Operator: And Travis Steed with BV.Securities
Operator: is on the line with a question. Travis, please state your question.
Operator: Hey, guys. Thanks for the question. First, I just the $100 million GUIDE reduction on revenue this year. How much of that is Spectrum versus IV solutions versus pharma? And then on the Spectrum, I guess that's like a $200 million product annualized. So maybe you're assuming $50 million of that comes out. Just what are you assuming on Spectrum fill-in versus kind of Spectrum loss there?
Thanks David and Travis Steed with BFA Securities is on the line with a question. Travis please State your question. Thank you, guys, thanks for the question. Um, first the hundred million dollar uh guide reduction on on Revenue this year, how much of that is, is Spectrum versus, uh, IV Solutions versus Pharma. And then on the Spectrum, I guess that's like a hundred million dollar product annualized. So maybe like, you're assuming 50 million of that comes out. Just what are you assuming on Spectrum? Fill in versus uh you know kind of spectrum loss there.
Clare Trachtman: You know what? Thanks for the question, Travis. I don't know that we're going to give specific guidance around the numbers themselves, but here's what I would say, just to reiterate. We're assuming in the low end of our guidance that we're not going to ship Novum. We are assuming in the low end of our guidance that we assume that we're going to ship some Spectrum, although some of that is going to be offset by things where we may end up, again, replacing Novum and there'll be a credit involved, et cetera, et cetera. So I would say that's sort of the best way to think about that. The other part of it, again, regarding the fluid conservation piece, so again, there's essentially no improvement assumed, if you will, over the next second half of the year in fluid conservation for the low end of our guidance.
You know what? Thanks for this. I I don't know. We're going to we we get a specific guidance around the numbers themselves. But here's what I would say, industry reiterate
Uh we're assuming in the low end of our guidance that we're not going to ship know of. Um we are assuming in the low end of our guidance that we assume that we're going to ship some Spectrum. Although some of that is going to be offset by things where we may end up picking November and it will be a credit involved. Etc, etc. So I I would say that's the sort of the best way to think about that the other part of it again. Uh if regarding the fluid conservation piece
Clare Trachtman: And so in the event there is improvement, which certainly, again, the team is, again, working day and night in order to work with our customers for that to happen, that would be an improvement over the lower end of our guidance. But again, assuming the low end of the guidance essentially assumes that there's not any improvement from where we are in the first half. That's, I think, the most clarity I can give you in terms of how to think about that.
So again, there is there's essentially no improvement assumed if you will, over the next, uh, you know, second half of the Year influent conservation for the low end of our guidance.
Brent Shafer: Yeah. I'll just add one more bit of color. I mean, I've personally been working with a lot of our top customers, and they have minimum committed volumes and compliance with BAXTER. And they fully expect that they will either get back to those minimum committed volumes or we will get priced in the process. So you know the contracts are pretty clear, and we'll be working with our customers directly as they resume practices. But again, that gives me confidence that this is temporary in nature, and you know we factored in what should be a relatively modest forecast at this point.
Uh, and so, in the event, there is improvements. Which certainly again, the team is again, you know, working, uh, day and night in order to work with our customers. For that to happen, that would be an improvement over the lower end of our guidance. But, but, uh, again, assuming the low end of the guidance essentially assumes, uh, that there's not any improvement from where we are in the first half, that's I think the, the most Clarity I can give you in terms of the, uh, how to think about that. Yeah, I'll just add 1 more bit of color. I mean, I personally been working with a lot of our top customers and they have minimum committed volumes and compliance with Baxter. Um, you know, and they fully expect that they will either get back to those minimum committed volumes or we will get price in the process. So, you know, the contracts are are pretty clear and we'll be working with our customers directly as they resume practices. But again, that that gives me confidence that this is temporary in nature. And, you know, we factored in what, what should be a relatively modest forecast?
Operator: Okay. I guess the second question is kind of, yeah, I think the second question is more on the long term. You guys have kind of talked about 4% to 5% revenue growth. Clearly, not there this year. Kind of what needs to go right to get back to that is you know the new CEO coming in, kind of an opportunity to kind of reevaluate kind of the long-term growth model. And can you kind of get back to kind of hiking with the GDPS growth next year?
At this point.
Brent Shafer: Yeah. I'll take a stab at a few things you know that I've personally been focused on and let Joel add some color. I mean, BAXTER was really starting to hit a momentum in innovation and new product launches, and we're going to start to see that. We're starting to see some in '25, moving into 2026 in a more aggressive cadence over the LRP. So innovation, it's something I'm definitely focused on and excited about. You know some of these headwinds definitely will start to abate, I think, as we move into 2026. And we've got a number of transformational programs that we're focused on, and we'll be working with Andrew on reshaping the organization and the company for growth, driving both top and bottom line contribution. So I think there's a lot to like about where we're headed as an organization.
Okay. Um, I guess the, the second question is kind of, yeah, I think the second question is more on the kind of, the long term, you guys are just going to talk about 45% Revenue growth. Uh, clearly not there, this year, kind of what needs to go, right? To get back to that is, you know, the new CEO coming in kind of an opportunity to kind of re reevaluate kind of the long term growth model, and, you know, can you kind of get back to kind of high some of the gdps growth next year?
Brent Shafer: And as we've talked about, we completed a lot of the strategic transformation items over the last few years that I think set us up well to get through some of these temporary headwinds and then just execute like crazy. Joel?
Yeah, I'll take a stab at a few things, you know, that that I've personally been focused on and let Joel, uh, add some color. I mean, uh, Baxter, you know, was really starting to hit a momentum in Innovation and new product launches and we're going to start to see that we're starting to see some uh, in 25 moving into 2026 in a more aggressive Cadence uh, over the the lrp. So Innovation is something I'm definitely focused on and excited about. Um you know some of these headwinds definitely will start to Abate. I think as we move into uh 2026 and we've got a number of transformational programs that we're focused on and we'll be working with Andrew on you know reshaping the the organization and the company for growth uh drove driving both top and bottom line contributions. So um I think there's a lot to like about where we're headed is an organization and as we've talked about we completed a lot of the Strategic transformation items over the last few years that I think sets us up well to get through some
Clare Trachtman: Yeah. Travis, I think a couple of things I would say. I mean, you're sort of, well, you know what gets you back to a 4% to 5%? I mean, I think a few things there. I mean, number one, clearly, as Heather's already said, we're very bullish on the Novum platform. So clearly, some of the impact we're talking about this year is related to that. But as we've said before, we continue to be in a pump replacement cycle. The product itself, we've had a lot of competitive wins in that space. And again, I think we certainly anticipate as we get through this, and again, we're doing the right thing for the right reasons. And when the time comes and we continue to move forward, that's certainly something we anticipate being a driver of growth.
Clare Trachtman: Certainly, again, the volumes that we're seeing from a fluid perspective, again, these are key components of that. But clearly, we're not anticipating that remaining in the place that it is today. You asked about pharma a little bit. I think some of the pharma, we see some of the impacts that we talked about in the prepared remarks also as temporary in nature as it relates to, again, they're somewhat tied to some of the fluid discussions we've had. But we certainly anticipate the focus on injectables, the new product launches in pharma, and again, really new product launches across the business itself, I think, are going to be our key elements of that. You know, the second half of this year, from a pharma standpoint, we do anticipate compounding, actually having a fair amount of, again, pretty strong second half of the year.
Some of these temporary headwinds and then just execute like crazy Joel. Yeah, it's true. It was, I think a couple things I would say. I mean, you're you're sort of well, you know what gets you back to a 4 to 5. I mean, I think a few things there, I mean, number 1. Clearly, uh, as Heather has already said, uh, we're very bullish on the Nova platform, so, so clearly some of the impact we're talking about this year is related to that. But as we've said before, we we continue to be, you know, in a pump replacement cycle, uh, the product itself. Uh, we've had a lot of competitive wins in that space and again, I think, we certainly anticipate as we get through this. And again, we're doing the right thing for the right reasons. And when the time comes and we continue to move forward, that's certainly something. We anticipate being a driver of growth, uh, certainly again, the volumes uh, that we're seeing from a fluid perspective. Again, these are key components to that but clearly, uh, we're not anticipating that
In the place that it is today, you know, you asked about Pharma a little bit. I think, you know, some of the, you know, Pharma, you know, we see some of the impacts that we talked about, in the prepared remarks. Also, as as temporary in nature, as it relates to again there somewhat tied to some of the fluid, uh, discussions we've had but we certainly anticipate, you know, the focus on on injectables the new product launches and Pharma. Uh, and again really new product launches across
Clare Trachtman: So from a growth standpoint, we anticipate that kicking in as well. And so I think, you know, I would just say those are things that, you know, and as Heather said, part of the work that we're doing today in terms of driving innovation, really focusing on processes around new product introductions, the product lifecycle management, some of those things, we're really excited about. And as we think about the efficiencies we're going to continue to drive through some of the transformation program that really are looking to be reinvested into the business for growth. And so that's how I think about the opportunity to go back to about that 4% to 5% growth, which we certainly believe is still very doable for this company.
The uh, the business itself. Uh, I think they're going to be our key elements to that uh, you know, the second half of this year from a pharmacy standpoint. Do we do anticipate compounding, uh, actually having a fair amount of uh, against pretty strong second half of the year. So from a growth standpoint, we anticipate that kicking in as well and and so I think you know, I would just say those are things that, you know, uh, in and as Heather said, part of the work that we're doing today in terms of driving innovation.
Really focusing on processes around new product, interactions your product life cycle management, some of those things. Uh we're really excited about. And as we think about the efficiencies, we're going to continue to drive through some of the transformation program that really are looking to be reinvested into the business uh, to for growth. And so that's how I think about the opportunity to go back to about like 4 to 5% growth. Which we we certainly believe is still.
Operator: Okay. Great. Thanks for the long answer.
Uh, very doable for this company.
Okay, great. Thanks for the the long answer.
Operator: Thanks, Travis. And Vijay Kumar with Evercore ISI is on the line with a question. Vijay, please state your question.
Thanks Travis.
Heather Knight: Hi, guys. Thanks for taking my question. Maybe my first one for Heather on MPT. IV fluids are off allocation. Like, why are hospitals still conserving fluids? And this Novum, I think the FDA letter noted two deaths. Historically, when we've had recalls, like sometimes it's taking years. Any thoughts around how you would grade this current issue with Novum in terms of severity, whether this is something more severe, could take years, or is this more temporal, if you will?
And Vijay Kumar with evercore isi, is on the line with the question. BJ, please State your question.
Hi guys, thanks for taking my question. Maybe my, my first 1 for Heather on on. Npt it, you know, Ivy fluids are off allocation like, why? Why are hospitals still conserving? Uh, fluids and no, um, I think the FDA letter, um, noted to Deaths, um, you know, historically when we had recalls like sometimes it it's taking years. Um, any any, um, thoughts around? Um, you know, how you would create this current issues with no 1 in uh, no. Um, in terms of severity, uh, whether this is something more severe could take years or is is more um, a temporal if you will.
Brent Shafer: Yeah. I'll start, Vijay. And good morning. Thanks for the question. So you know the change in MPT, I think, as we've stated here throughout the call, is really driven by a more modest approach to fluid conservation. And hospitals are still conserving because I think, as you know, nothing changes fast in healthcare. And so we're working directly with our customers as they start to resume normal practices. But if you think about it, and we've communicated this, we were in force majeure really through the end of May. So we've been working over the last coming weeks just with our customers on getting back to their minimum committed volumes, helping with our medical affairs and commercial teams and resume normal practices, and again, ensuring competence around supply.
Good morning. Thanks for the question. So
Brent Shafer: So the Vizient partnership and program is one of the first that we've launched just emphasizing and reinforcing that we have good supply in the US and competence so they can resume normal practices. And then regarding Novum, as I communicated earlier, this was something that we did voluntarily and temporarily just to start to work with our customers. This is the field actions that we're addressing are on a very small subset of clinical use cases and particular workflows that we've identified and we saw through our quality listening systems, customer feedback, and honestly, our own infusion data. So we're working through that. We do not have to have permanent fixes in place. We're working transparently with the regulators on this. But I would say that this is very different than maybe what you've seen historically with competitors.
Upcoming weeks, just with our customers on getting back to their minimum committed volumes, helping with our medical Affairs and Commercial teams and resume normal practices and, uh, again ensuring confidence, um, around Supply. So, the vision partnership and program, you know, is 1 of the first that we've launched just emphasizing and reinforcing that, we have good Supply and the US and confidence that they can resume, uh, normal practices. And then, you know, regarding novam, as I communicated earlier, you know, this was something that we'd had voluntarily and temporarily just to start to work with our customers. This is the field actions that we're addressing are on a very small subset of clinical use cases and particular workflows that we've identified and we saw through our quality listening systems customer feedback and honestly our own infusion data. So we're working through that. You know we do not have to have permanent fixes in place where
Brent Shafer: So we did this on our own to just take a pause and listen to our customers and look internally about the work that we needed to do. And as Joel said and as we've reflected in the guidance, right now, we're assuming that we don't ship any Novums for the rest of 2025. But our goal is to resume shipping as soon as possible and before the end of the year. So we're hopeful to beat that. But at this point, we thought that it was prudent to bake that in for the second half of the year.
Working transparently with The Regulators on this. But I would say that this is very different than maybe what you've seen historically, um, with competitors. So, we did this on our own to just take a pause, and listen to our customers and look internally about the work that we needed to do. And as Joel said, and as we reflected in the guidance right now, uh, we're assuming that we don't ship any notebooks for the rest of 2025, but our goal is to resume shipping as soon as possible. And before the end,
Heather Knight: That's helpful, Heather. And maybe, Joel, one for you on operating margins down 80 basis points versus prior guidance. You know it's possible for you to give us a bridge, right? I think the fiscal '24 jumped off of 16.5%. I know we have a number of moving parts between TSA, MSA, and stranded costs. There are some tariff resumptions, et cetera. If you don't mind building a bridge on the 16.5% jump-off versus 15.5%.
So um, we're hopeful to be that, but at this point, we thought that it was prudent to take that in for the second half of the year.
Have a number of moving Parts between TSA, MSA, if stranded costs, um, there are some character assumptions, Etc. Um, if you don't mind, um, building a bridge on on the 16 and a half, jump off versus 15 and a half.
Clare Trachtman: Yeah. So I would say there's a couple of key puts and takes of that. I'll just address the tariff point for a second. You know, again, we did actually lower our assumption of the net impact of tariffs. And so on the positive side, that is something that actually we are suggesting that you know our prior, that was 60 to 70 million with a $65 million kind of midpoint, if you want to call it that. We talked about the fact that we're actually going to lower that. We're lowering that given what we know today and not including pharmaceutical tariffs. But that's a $40 million impact. So that on the positive side, Vijay, is a $25 million net positive impact.
Yeah. So
I can you know again we did actually lower our uh Assumption of the net impact of tariffs and so on. On the positive side that is something that I actually we are.
Clare Trachtman: I think the, and again, as I mentioned earlier, the pricing is actually something that we continue to, we're on track with, and we've had a positive impact to this. The main impact, you know, really and truly is a volume impact on our integrated supply chain. So from an absorption perspective, that's something that is, you know, as we as volume declines, particularly in the fluids area, the absorption is impacted from an ISC standpoint. And that's one of the really main drivers of this. And then the other one really is mix. Again, I think some of the mix of products that we assumed, again, particularly driven by pharma in this case, this is something that is, I think, really those are the two main impacts, Vijay, of the drop, if you will, in the operating income percentage. And so I think main puts and takes there.
Suggesting that, you know, our our prior that was 60 to 70 million with a 65 million dollar kind of midpoint if you want to call it. That, uh, we talked about the fact that we're, we're actually going to lower that. We're lowering that given what we know today and not including pharmaceutical therapists, but uh, that's a 40 million dollar impact. So, that that, um, on the, on the positive side, the obj is is the 25th of impact.
I, I think the and, and again, as I mentioned earlier, the, you know, pricing is actually something that we continue to, uh, we're on track with and we've had a positive impact to this, the main impact, you know, really and truly is, uh, is the is a volume impact on, uh, on our, you know, integrated supply chain. So, the permanent absorption perspective, uh, that's something that is, you know, as we as volume,
Clients, particularly in the fluids area, uh, the absorption is impacted from an ISC standpoint, and that's one of the really main drivers of this. And then the other one really is mix.
Again I think the you know some of the mix of products that we assumed uh again particularly driven by uh by Pharma in this case. Uh this is something that is
Clare Trachtman: On the EPF part, again, as we've indicated, it's a tax rate slower down, but those are the main drivers.
Heather Knight: Thank you.
Uh, I think really those those are the 2 main impact DJ of uh, of the drop if you will in the operating income percentage. And so I think uh, main main puts and takes their on the EPS part again, is, is we've indicated, it's uh, you know, the tax rate flow or down but those are the main drivers.
Thank you.
Operator: All right. Thanks, Vijay. And Lawrence Beagleson with Wells Fargo is on the line with a question. Lawrence, please state your question.
All right, thanks Vijay.
Joel Grade: Good morning. Thanks for fitting me in. But just one for Joel, one for Brent. So Joel, just the gross margin was a little lighter in Q2 than we expected. Just talk about how we should think about the gross margin the rest of this year. And Brent, just more color on what attracted the board to Andrew, you know, given he looks like a strong candidate, but he doesn't have direct device experience. So what were the skills and experiences that the board thought were most applicable to Baxter? How long do you think it'll take for him to get his arms around the business, you know, and provide an update to investors on, you know, his goals and priorities? And just lastly, the press release said his start date could be earlier than September 3rd. Any update on when he's starting? Thank you.
And Lawrence Biegelsen with Wells Fargo is on the line with a question. Lawrence, please state your question.
Good morning. Thanks for fitting me in. I just 1, 1 for Joel 1, for Brent. So Joel just um, the gross margin was a little lighter in Q2 than we expected. Just talk about how we should think about the gross margin, the rest of this year. Um and Brent just more color on What attracted the board to Andrew, you know, giving uh he looks like a a a strong candidate but he doesn't have direct device experience. So what were the skills and experiences that the ball board? Thought were most applicable to Baxter? How long do you think it'll take for him to get his arms around the business? You know, and provide an
Update to investors on, you know, his goals and priorities and just lastly the uh the press release that is start date is uh could be earlier than September 3rd. Um any update on on when he's starting thank you.
Clare Trachtman: Yeah. Why don't I start? Your question regarding gross margin. I think the thing I would probably encourage you to do is to actually think about this on an operating margin perspective. And I guess I'll tell you why. There's a couple, you know, as we've talked about in the past, there's some reclassifications going back and forth, you know, between SG&A and our COGS lines. Also, the TSA revenues, which again are listed in a separate other line, some of those sit in SG&A, some of those sit in COGS. And so there's a lot of noise, I'm going to call it, between our gross margin and our SG&A lines. So really, truly, the way to look at this is on an operating income basis.
Yeah, why don't I start, uh, your question regarding gross margin. I think, the thing, I would probably encourage you to do is to actually think about this on a operating margin perspective. And I guess I'll tell you why. Uh, there's a couple, you know, as we've talked about in the past, there's some reclassifications going back and forth. You know, between, um, sgna and uh, our cons lines. Also the TSA
Revenues, which again are listed in a separate line, some of those sit in.
Sgna some of those sit in cogs. And so there's a lot of noise. I'm going to call us between our gross.
Clare Trachtman: And so, you know, again, as we guided for the remainder of this year, I would say really, truly, the primary drivers of that impact on the low end really is from volume. I think the, you know, I already kind of commented on the tariff piece being a positive. But that low end of the OI range really does assume that our fluid conservation does not come back and that obviously the impact from not shipping Novum. Those really are the main drivers of that. Obviously, you've know, you've got the, again, the positive from pricing, the positive from the, you know, the TSA revenues, and then between those two items and the, you know, MSA dilution, those really are the main drivers. But I just encourage you to think about that on an OI level because of the noise I just outlined between those other two lines. Brent.
Margin and our sgna lines. So that really truly the way to look at this is on an operating income basis. And so, you know, again as we guided for the remainder of this year, I would say really and truly, the primarily the primary drivers of that impact on the low end really is is from volume.
Are the main drivers, but I just encourage you to think about that. I don't know why, at this level, because of the noise I just outlined between those other two lines.
Joel Grade: Great. Yeah. And thanks for the question. We feel very good about Andrew coming in based on his experience and his background. And of course, I'm sure we've looked at his record with ATS Value Creation and what he brought to that company. And you probably saw that prior to that, he was with Danaher for a number of years. So he's very steeped in the Danaher grading system and is a very disciplined operator. And prior to that, was with GE. So these are all strong operating environments. And he brings that, I think, that mentality and experience with him. And as you hear from talking to us, the Baxter is a big organization, it's a manufacturing organization with a lot of operational complexities. So that operational discipline and skill set, I think, is a big advantage. And I think he can bring a lot to the company.
And front. Uh, yeah, and and thanks for the question. Um, what, what we feel, very good about Andrew coming in, based on his experience, and his background. And, and you, I'm sure have looked at his record with ATS, value creation and and what he brought to that company and and you probably saw that prior to that he's with Dan her for a number of years. So he's uh, very steeped in the operating system and is a a very disciplined operator and prior to that was with GE. So these are all strong operating environments and he brings that I think that um mentality and experience with him and and as you hear from talking to us, the, the Baxter is a a big organization. It's a manufacturing organization with uh, a lot of operational complexities so that operational, discipline. And skill set I think is is a big advantage and
Joel Grade: He's also a very energetic and passionate leader and moves at a quick pace. So I think to your question about how long to come up to speed, I think he'll be a quick study. That's my assessment of his personality. He's a sharp guy. He's quick. And I think it'll be a quick ran. And we're fortunate to have a great management team surrounding him who will be helping him come up to speed, who are very deep in the healthcare environment and know it very well. So I'm sure he'll be tapping into that and absorbing it quickly. And you know I think he'll also bring some fresh ideas to the company, and that's part of the benefit. And as far as the start date, we expect to be able to announce a date relatively soon.
And, and I, I think you can bring a lot to the company. He's also a very energetic and passionate leader, and, uh, moves at a quick pace. So, uh, I think to your question about how long to come up to speed. I think you'll be a quick study, um, that's my assessment of his personality. Um, his sharp guy he's quick and uh, I think it'll be a quick
Joel Grade: It should be a bit before the stated end of the month timeframe. So, but that'll come shortly. So I appreciate the question, and we're looking forward to having him on board soon.
Operator: Thank you for the response. All right. Thanks, Lawrence. And our final question today comes from the line of Matt Mixic with Barclays. Matt, please state your question.
Program. And we're fortunate to have a great management, team surrounding him, who will be helping him come up to speed, um, who are very deep in healthcare environment and know it very well. So I'm sure he'll be tapping into that and absorbing it quickly. And, uh, you know, I, I think you'll also bring some fresh ideas to the company and that's that's part of the benefit. And, um, as far as a start date, we, we expect to be able to announce a date relatively soon. It should be a bit before, uh, the, uh, stated end of the month time frame. So, um, but that'll come shortly. So, I appreciate the question and we're looking forward to having him on board soon. Thank you for the, uh, response.
All right, thanks Lords.
Robbie Marcus: Hey, thanks so much for fitting me in. You just covered a lot here. Maybe just two quick clarifying questions. On the conservation, fluid conservation efforts, I think last quarter you mentioned that you're sort of thinking about X in the year, like 10% hospitals still engage in those programs. So maybe some color on what your current assumptions now assume. And then the other just was on just like how one-time or transitory, or I think there was a government contract, you know, that impacted far enough. How much of that is kind of lumpy, and how much of that is sort of more just just a little bit slower demand that you're baking into the rest of the year? Thanks so much.
And our final question today comes from the line of Matt mix with Barkley's, Matt, please State your question.
Hey, thanks so much for putting me in um you just covered a lot here. You can just do 2, quick clarifying, questions on the conservation, uh, food, conservation, Network. I think last quarter you mentioned that you'd sort of thinking about acting me or like 10% hospitals, Still Still engage in those programs uh to maybe some color on what your current assumptions now assume. And then the other just was on, um,
uh, just like how, how, how 1 time or transitory or I think there was a government contract, you know, that impacted Pharma, how much of that is kind of lumpy
And how much of that is sort of more just just uh, just a little bit slower demand that you're you're picking into the to the rest of the year. And thanks so much.
Brent Shafer: Yeah. I can start that. And thanks for the question. So you know we've assumed at the low end of our guidance regarding IV conservation that you know we maintain about minus 20% regarding IV conservation. So again, you know we expect, based on feedback from customers, that hopefully we do better than that. But we're taking, as I said, a very modest and prudent approach at this point just based on the utilization backdrop and assuming you know minimal improvement really throughout the year. That's regarding IV conservation versus the minus 10 that we had stated before. And then the pharma government order, you know we've taken it out just based on you know some of the recent trends with government ordering. And there was an order last year, and we're assuming that that order does not repeat this year.
Yeah, I can start that thanks for the question. So, you know, we've assumed that the low end of our guidance regarding IV conservation that, you know, we maintain about minus 20% regarding IB conservation. So again, you know, we expect based on feedback from customers that. Hopefully, we do better than that, but we're taking, as I said, a very modest and prudent Approach at this point, just based on the utilization backdrop and assuming, you know, minimal Improvement really throughout the year, uh, that's regarding IV conservation versus the minus 10 that we had stated before. And then the, the Pharma government order, you know, we've taken that out. Just based on, you know, some of the recent Trends with government ordering and um, there was an order last year and we're assuming that that order does not repeat this year.
Robbie Marcus: Okay. Thanks so much.
Brent Shafer: Thank you.
Okay, thanks so much.
Operator: All right. Thanks, Matt. And ladies and gentlemen, that is the end of our Q&A session, and this also concludes today's conference call with Baxter International. Thank you for participating.
Thank you.
All right. Thanks Matt.
Brent Shafer: Thank you.
And ladies and gentlemen, that is the end of our Q&A session. This also concludes today's conference call with Baxter International. Thank you for participating.
Heather Knight: Please wait. The conference will begin shortly.
Thank you.
Please wait the conference will begin shortly.