Q3 2025 Baxter International Inc Earnings Call

Cancer segment of today's call.

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Speaker #2: that time , if you have a question , you will need to press star and the number one on your touchtone phone . If anyone should require assistance during the conference , please press star then zero on your touchtone phone .

I would now like to turn the call over to Mr. Kevin Moran, Vice President Investor Relations at Baxter International Mr. Moran you may begin.

Good morning, and welcome today, we will discuss Baxter's third quarter 2025 result, along with an update to our full year 2025 outlook a newly issued fourth quarter 2025 guidance. This morning, Our press release was issued with our preliminary earnings results and update.

Speaker #2: a reminder , this call is being recorded by Baxter and is copyrighted material . It cannot be recorded or rebroadcast without Baxter's permission .

Speaker #2: you have any objections , please disconnect at this time . I would now like to turn the call over to Mr. Kevin Moran , As President , If Investor Relations at Baxter International .

That outlook the press release and Investor presentation are available on the investors section of the Baxter website. Joining me today are Andrew Hider, President Chief Executive Officer, and Joe <unk>, Executive Vice President and Chief Financial Officer.

Speaker #2: Mr. Moran , you may begin .

Speaker #3: Good morning and welcome . Today we'll discuss Baxter's third quarter 2020 results , along with an update to our full year 2025 outlook and newly issued fourth quarter 2025 guidance .

During the call, we will be making forward looking statements, including comments regarding our financial outlook for the fourth quarter and full year 2025, and matters related to future dividend declarations.

Speaker #3: This morning , a press release was issued with our preliminary earnings results and updated outlook . The press release and investor presentation are available on the investor section of the Baxter website .

Anticipated impact the kidney care sale, including our ability to eliminate related costs.

Speaker #3: Joining me today are Andrew Hyder , President and Chief Executive officer , and Joel Grade Executive Vice president and chief Financial officer . During the call , we will be making forward looking statements , including comments regarding our financial outlook for the fourth quarter and full year 2025 and matters related to future dividend declarations .

Anticipated impact of various regulatory and operational matters, including ones related to our infusion pump platform, what we believe to be continuing fluid conservation and heightened inventory levels and commentary regarding the global macroeconomic environment, including tariffs and proposed mitigating actions.

Speaker #3: The anticipated impact of the kidney care sale , including our ability to eliminate related costs , the anticipated impact of various regulatory and operational matters , including ones related to our infusion pump platform , what we believe to be continuing fluid conservation and heightened inventory levels , and commentary regarding the global macroeconomic environment , including tariffs and proposed mitigating actions .

Forward looking statements involve risks and uncertainties, which could cause our actual results to differ materially from our current expectations.

Please refer to today's press release.

Forward looking statements slide at the beginning of our Investor presentation, and our SEC filings for more detail.

In addition, please note that on todays call all our comments will be on a non-GAAP basis, unless they are specifically called out as GAAP.

Speaker #3: Forward looking

Speaker #3: statements involve risks and uncertainties which could cause our actual results Vice to differ materially from our current expectations . Please refer to today's press release .

non-GAAP financial measures are used to help investors understand baxter's ongoing business performance.

GAAP to non-GAAP reconciliations for all relevant period can be found in the schedules attached to our press release and in our Investor presentation.

Speaker #3: The forward looking statement slide at the beginning of our investor presentation and our SEC filings . For more detail . In addition , please note that on today's call , all our comments will be on a non-GAAP basis , unless they are specifically called out as GAAP .

Finally, as a reminder, continuing operations excludes Baxter kidney care business, which is now reported as discontinued operations.

Speaker #3: non-GAAP financial measures are used to help investors understand Baxter's ongoing business performance . GAAP to non-GAAP reconciliations for all relevant periods can be found in the schedules attached to our press release and in our investor presentation .

Now I'd like to turn the call over to Andrew.

Thank you Kevin Let me welcome you officially as the new head of Baxter's relations team.

And good morning, everyone.

I am pleased to be here for my first earnings call as CEO I look forward to getting to know everyone here better as the quarters progress.

Speaker #3: Finally , 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 Andrew .

As I've said in many settings over the last several weeks. It is an honor to have the responsibility to lead this new chapter of Baxter. Our company is essential to health care with an iconic brand that is valued and trusted by caregivers and patients globally.

Speaker #4: Thank you . Kevin . Let me welcome you officially as the new head of Baxter's relations team . And good morning , everyone .

Since joining the company.

Speaker #4: I am pleased to be here for my first earnings call as CEO . And look forward to getting to know everyone here better .

Myself and Baxter's business, leading teams around the world 14th site visits across seven countries and counting.

Speaker #4: As the quarters progress . As I've said in many settings over the last several weeks , it is an honor to have the responsibility to lead this new chapter at Baxter .

Working side by side with employees.

Picking directly with customers and gaining a more detailed view of the opportunities and challenges we face.

Speaker #4: Our company is essential to healthcare with an iconic brand that is valued and trusted by caregivers and patients globally . Since joining the company , I've immersed myself in Baxter's business , leading teams around the world .

I've learned a great deal in a short period, but I want to reflect on two things that clearly stand out first.

First is that we're building from a fundamental position of opportunity.

I've been struck by the commitment and proud of this team brings to Baxter's mission to save and sustain lives and to serving our customers.

Speaker #4: 14 site visits across seven countries and counting . Working side by side with employees . Speaking directly with customers gaining a more detailed view of the opportunities and challenges we face .

This is a business whose portfolio has proven resilient over its almost a 100 year history <unk> has delivered significant revenues and attractive operating margins and generated solid cash flow over the years.

Speaker #4: I have learned a great deal in a short period , but I want to reflect on two things that clearly stand out . First is that we are building from a fundamental position of opportunity .

The strength of our business.

Critical role, we play in health care, and the talent and dedication of our people who are committed to win.

Speaker #4: I have been struck by the commitment and pride this team brings to Baxter's mission to save and sustain lives , and to serving our customers .

Should position us well to deliver lasting value second.

Second is that we are proactive and clear eyed about what needs to improve and change at the company. So we're better positioned to deliver on our potential.

Speaker #4: This is a business whose portfolio has proven resilient over its almost 100 year history , one that has delivered significant revenues and and attractive operating margins and generated solid cash flow over the years .

Let me be clear about that we are not satisfied with our current performance.

Speaker #4: The strength of our business , the critical role we play in healthcare and the talent and dedication of our people who are committed to win , should position us well to deliver lasting value .

There is a recognition that challenges must be met head on with both immediate actions as well as real long term solutions.

I'm also very realistic about the road in front of us as we work to prioritize our areas of focus.

Speaker #4: Second is that we are proactive and clear eyed about what needs to improve and change at the company so we're better positioned to deliver on our potential .

Improved execution and business performance deliver sustained growth and improved profitability and cash flows.

Speaker #4: Let me be clear about that . We are not satisfied with our current performance . There is a recognition that challenges must be met head on with both immediate actions as well as real long term solutions .

Turning briefly to this quarter's results.

Which Joe will speak to in detail, our third quarter topline performance came in lower than our previously issued guidance and exceeded expectations on the bottom line due to a favorable tax rate.

Speaker #4: I'm also very realistic about the road in front of us as we work to prioritize our areas of focus , improve execution and business performance , deliver sustained growth and improved profitability and cash flows .

These results reflect challenges in two divisions, the infusion therapies and technologies division within the medical product and therapy segment.

And the Injectables anesthesia division within the pharmaceutical segment.

Speaker #4: Turning briefly to this quarter's results , which Joel will speak to in detail , a third quarter top line performance came in lower than our previously issued guidance and exceeded expectations on the bottom line due to a favorable tax rate .

Importantly, Baxter's health care systems, and technology segment demonstrated improved performance before I turn it to Joel to discuss financial results in more detail I wanted to give you a better sense of how I am approaching the first several months of my time at Baxter.

Speaker #4: These results reflect challenges in two divisions: the Infusion Therapies and Technology Division within the Medical Products and Therapy segment, and the Injectables and Anesthesia Division within the Pharmaceuticals segment.

And to give you some context on the decisions and actions that we've taken to date and will take in the coming months.

We'll have more opportunities to discuss long term strategy down the road, but in the near term, you'll see us take actions and decisions designed to support three areas.

Speaker #4: Importantly , Baxter's Healthcare Systems and Technology segment demonstrated improved performance . Before I turn it to Joel to discuss financial results in more detail , I want to give you a better sense of how I'm approaching the first several months of my time at Baxter .

First stabilizing the areas of the business that require increased focus.

Second strengthening our balance sheet and third driving a culture of continuous improvement and enterprise wide efficiency.

Speaker #4: And to give you some context on the decisions and actions that we have taken to date and will take in the coming months , we will have more opportunities to discuss long term strategy down the road , but in the near term , you will see us take actions and decisions designed to support three areas .

Let me share my initial thoughts on each.

I'll start with stabilizing the business Baxter already has undergone significant transformation in recent years and is now a more streamlined and focused enterprise.

Speaker #4: First , stabilizing the areas of the business that require increased focus . Second , strengthening our balance sheet . And third , driving a culture of continuous improvement and enterprise wide efficiency .

Of course, there have been challenges in certain areas that have hampered growth and consistent execution and we expect our growth algorithm to continue to be pressured in the near term.

Speaker #4: Let me share my initial thoughts on each . I'll start with stabilizing the business . Baxter already has undergone significant transformation in recent years , and is now a more streamlined and focused enterprise .

With my background in operations I am, bringing our kenai the people process and performance of Baxter, along with what we call uniform value creators standardized metrics that we're focused on value creation.

Speaker #4: But of course , there have been challenges in certain areas that have hampered growth and consistent execution . And we expect our growth algorithm to continue to be pressured in the near term .

One critical area of focus and attention right. Now for example is related to a pause we've taken on deliveries and installations of the Novum IQ large volume pump.

Speaker #4: With my background in operations , I am bringing a keen eye to people , process and performance of Baxter , along with what we call uniform value creators , standardized metrics that we were focused on value creation .

While we're disappointed and we expect the current holds remain in place beyond year end.

We are working tirelessly to evaluate and test potential corrections to fully resolve the flow rate issues.

In parallel we will continue to closely support current <unk> RVP users.

Speaker #4: One critical area of focus and attention right now , for example , is related to the pause we've taken on deliveries and installations of the Novum IQ .

We will also continue to offer factors spectrum, IQ RVP, along standing and a well known product used in more than 1500 facilities across the U S and Canada as a leading option for infusion therapy, one that Baxter continues to invest them.

Speaker #4: Large volume pump over disappointed that we expect the current hold to remain in place beyond year end . We are working tirelessly to evaluate and test potential corrections to fully resolve the flow rate issues in parallel , we will continue to closely support current Novum IQ users .

The spectrum IQ LBP now operates on a shared gateway.

<unk> IQ syringe, creating a cohesive user experience and is built for the future with EMR interoperability enhanced software and innovative analytical capabilities.

Speaker #4: We will also continue to offer Baxter's Spectrum IQ , LVP , a long standing and well known product used in more than 1500 facilities across the US and Canada as a leading option for infusion therapy .

Our second area of focus will be improving baxter's balance sheet. It.

It is from the basis of our strong balance sheet that we will be better able to invest in the business.

Speaker #4: One that Baxter continues to invest in . The spectrum IQ , LVP now operates on a shared gateway with Novum IQ . Syringe , creating a cohesive user experience , and is built for the future with EMR interoperability , enhanced software and innovative analytical capabilities .

Support innovation and deliver and return increased value to our shareholders.

This means focusing on improved cash flow and taking a consistent approach to our capital allocation objective.

The first step in addressing our balance sheet is taking decisive and clear steps to reduce our leverage.

Speaker #4: A second area of focus will be improving . Baxter's balance sheet . It is from the basis of a strong balance sheet that we will be better able to invest in the business , support innovation and deliver and return increased value to our shareholders .

It is in this context that we and the board intend to reduce the quarterly dividend to <unk> <unk> per share beginning with the dividend to be paid in January 2026, This will free up cash to accelerate deleveraging.

Speaker #4: This means focusing on improved cash flow and taking a consistent approach to our capital allocation objective. The first step in addressing our balance sheet is taking decisive and clear steps to reduce our leverage.

Distant with our prior commitments.

Joe will provide more details on that in his section of the call as well.

The last area, you'll continue to see US prioritize is building enterprise efficiency and everything we do at Baxter earlier.

Speaker #4: It is in this context that we and the board intend to reduce the quarterly dividend to $0.01 per share , beginning with the dividend to be paid in January 2026 .

This month, we rolled out Baxter GPS our new growth and performance system aimed at driving continuous improvement in our growth and performance mindset.

Speaker #4: This will free up cash to accelerate deleveraging consistent with our prior commitments . Joel will provide more details on that in his section of the call , as well .

This data driven system is inspired by best in class models from organizations known for strong culture of continuous improvement.

Speaker #4: The last area you will continue to see us prioritize is building enterprise efficiency into everything we do at Baxter . Earlier this month , we rolled out Baxter GPS , our new growth and performance system .

And represents a positive change in how we work.

It also adapts in real time, helping to ensure we are moving toward greater efficiency stronger performance and impact.

Ultimately this will help build the habits and discipline across the enterprise that will define our future success I've led this type of system successfully at several other companies and I am confident it will lead to improved performance of Baxter over the long term.

Speaker #4: Aimed at driving continuous improvement and a growth in performance mindset . This data driven system is inspired by best in class models from organizations known for strong cultures of continuous improvement and represents a positive change in how we work .

In closing I want to step back and reflect on what makes me confident and excited about baxter's future.

Speaker #4: It also adapts in real time , helping to ensure we are moving toward greater efficiency , stronger performance , and impact . Ultimately , this will help build the habits and discipline across the enterprise that will define our future success .

Yes, there is work ahead.

In the coming quarters will require significant focus discipline and execution.

A company with a strong foundation, a clear path forward and the ability to turn challenges into opportunities.

Speaker #4: I've led this type of system successfully at several other companies , and I'm confident it will lead to improved performance at Baxter over the long term .

You can expect us to work with urgency and focus to accelerate growth improve margins and cash flow and drive enhanced innovation.

Speaker #4: In closing , I want to step back and reflect what makes me confident and excited about Baxter's future . Yes , there is work ahead and the coming quarters will require significant focus .

We are on a journey to build a better Baxter that is more resilient.

More agile and more capable than ever at Baxter with a more consistent execution, what I like to call it higher say do ratio.

Speaker #4: Discipline and execution . But I see a company with a strong foundation , a clear path forward and the ability to turn challenges into opportunities .

Baxter will work to redefine health care delivery and in doing so continue to deliver a meaningful impact for customers patients and long term value creation for shareholders.

Speaker #4: You can expect us to work with urgency and focus to accelerate growth , improve margins and cash flow , and drive enhanced innovation .

I look forward to keeping you updated on our progress and getting to know you all better in the coming weeks and months with that I will now turn it over to Joel Joel over to you.

Speaker #4: We are on a journey to build a better Baxter that is more resilient , more agile and more capable than ever . At Baxter , with a more consistent execution , what I like to call a higher Seydou ratio .

Thanks, Andrew and good morning, everyone.

Speaker #4: A Baxter that will work to redefine healthcare delivery . And in doing so , continue to deliver meaningful impact for customers , patients , and long term value creation for shareholders .

Let me also take a moment to welcome Kevin Brandt, as our new Vice President of Investor Relations.

Many of you already know Kevin from his prior roles at other companies in this space.

Kevin brings valuable finance, IR, and importantly, health care experience to the team.

Speaker #4: I look forward to updated on our progress and getting to know you all better in the coming weeks and months . With that , I will now turn it over to Joel .

Speaker #4: keeping you

We're excited to have Kevin on the team and look forward to his leadership and continuing to strengthen our relationships with you all.

Speaker #4: Joel , over to you . Thanks , Andrew , and good morning , everyone . Let me .

Speaker #5: Also take a moment to welcome Kevin Moran as our new Vice President of Investor Relations . Many of you already know Kevin from his prior IR roles at other companies in the space .

Before I begin our sales discussion a reminder, that results discussed on today's call will reference operational growth.

This excludes the impact of foreign exchange.

Speaker #5: Kevin brings valuable finance , IR , and importantly , healthcare experience to the team . We're excited to have Kevin on the team and look forward to his leadership in continuing to strengthen our relationships with you all .

MSA revenues from Vantiv, and the previously announced exit of IV solutions from China.

Third quarter 2025 global sales from continuing operations totaled $2 8 billion.

And increased 5% on a reported basis and 2% on an operational basis.

Speaker #5: Before I begin the sales discussion , 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 previously announced exit of IV solutions from China .

Performance in the quarter reflects growth across nearly all divisions.

On the bottom line total company adjusted earnings from continuing operations were <unk> 69 per share.

Speaker #5: Third quarter 2025 global sales from continuing operations totaled $2.8 billion , an increased 5% on a reported basis and 2% on an operational basis .

Results in the quarter reflect positive pricing in select segments.

Ah kidney care, TSA income and lower non operating expenses, including interest and tax.

Speaker #5: Performance in the quarter reflects growth across nearly all divisions on the bottom line . Total company adjusted earnings from continuing operations were $0.69 per share .

Now I'll walk you through results by reportable segment.

Commentary regarding sales growth will reflect growth on an operational basis.

Sales in our medical products and therapies, our MPC segment were $1 3 billion.

Speaker #5: Results in the quarter reflect positive pricing and select segments . Receipt of kidney care TSA income and lower non-operating expenses , including interest and tax .

And declined 1% in the quarter.

Performance for the quarter reflect softness of infusion therapies and technologies.

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Speaker #5: Now , I'll walk you through results by reportable segment . Commentary regarding sales growth will reflect growth on an operational basis . Sales in our medical products and therapies or empty segment were $1.3 billion and declined 1% in the quarter .

Slightly offset by strong demand for advanced surgery products.

Within MPT third quarter sales from our ICC division totaled $1 billion.

And declined 4%, primarily reflecting lower infusion pump sales due to the previously discussed shift and installation hold of November RVP.

Speaker #5: Performance in the quarter reflects softness in infusion therapies and technologies for it , slightly offset by strong demand for advanced surgery products . Within NPT , third quarter sales from our IT division totaled $1 billion and declined 4% , primarily reflecting lower infusion pump sales due to the previously discussed ship and installation hold of Novum LVP and ongoing softness in US hospital IV solutions , which we believe is due to continuing post-Hurricane Halloween fluid conservation efforts .

And ongoing softness in the U S Hospital IV solutions.

Which we believe is due to continuing post hurricane Hawaiian fluid conservation efforts.

Sales decline and infusion systems includes loss sales.

Novo LDP customer returns and certain customers electing to transition to our spectrum IQ LDP.

We expect sales across our infusion pump portfolio to remain under pressure as we work with our customers to complete the necessary corrections.

To fully address the outstanding field actions and lift the shipment and installation hold onto them.

Speaker #5: Sales decline in infusion systems includes lost sales . Novum LVP customer returns and certain customers electing to transition to our spectrum IQ . LVP .

While we see continued interest in our pump portfolio, we recognize that the timing and nature of the resolution of the Nova LBP hold is leaving some customers to evaluate alternative solutions.

Speaker #5: We expect sales across our infusion pump portfolio to remain under pressure as we work with our customers to complete the necessary corrections to fully address the outstanding field actions and lift the shipments and installation .

We are actively supporting novo customers with both initial and eventually additional corrections as well as offering spectrum IQ as an alternative.

Speaker #5: Hold on Novum . While we see continued interest in our pump portfolio , we recognize that the timing and nature of the resolution of the Novum LVP hold is leading some customers to evaluate alternative solutions .

We remain focused on minimizing disruption and maintaining strong relationships across our installed base.

With an IV solutions.

Demand remains below pre hurricane levels.

Based on our current expectations, we expect further recovery in demand.

Speaker #5: We are actively supporting Novum customers with both initial and eventually additional corrections , as well as offering spectrum IQ as an alternative . We remain focused on minimizing disruption and maintaining strong relationships across our installed base within IV solutions .

A more moderate pace and some level of fluid conservation is likely to remain in 2026.

Over the medium and longer term, we remain confident in the strength of a variety of solutions business.

Sales in advanced surgery totaled $306 million and grew 11% globally.

Speaker #5: US demand remains below pre levels . Based on our current expectations , we expect further recovery in demand , though at a more moderate pace and some level of fluid conservation is likely to remain in 2026 .

Results in the quarter reflect solid demand for our portfolio the hemostat band Sealants strong.

Strong commercial execution across all regions and steady procedure volumes.

MPT is adjusted operating margin totaled 44, 5% for the quarter.

Speaker #5: Over the medium and longer term . We remain confident in the strength of our IV solutions business . Sales and advanced surgery totaled $306 million and grew 11% globally .

Creasing 50 basis points over the prior year period.

And reflecting positive pricing in the quarter, partially offset by lower sales volumes and increased manufacturing and supply costs, resulting from the factors previously discussed.

Speaker #5: Results in the quarter reflect solid demand for our portfolio of hemostats and sealants . Strong commercial execution across all regions , and steady procedure volumes , Mpts adjusted operating margin totaled 20.5% for the quarter , increasing 50 basis points over the prior year period and reflecting positive pricing in the quarter , partially offset by lower sales volumes and increased manufacturing and supply costs resulting from the factors previously discussed .

R&D expense decline in the quarter, primarily due to one time items.

While underlying investment remained unchanged.

Kidney care TSA income contributed a positive performance in the quarter as well.

And health care systems, and technologies or HST sales in the quarter totaled $773 million increasing 2%.

Speaker #5: R&D expense declined in the quarter , primarily due to one time items . While underlying investment remained unchanged . Kidney care TSA income contributed to positive performance in the quarter , as well .

With NHS to sales of our care and connectivity solutions or Ccs Division.

$473 million.

It grew 3% globally.

Performance of the quarter was driven by 4% growth in the U S for Ccs, reflecting double digit growth in our surgical solutions business.

Speaker #5: In healthcare systems and technologies , or HST sales in the quarter totaled $773 million , increasing 2% within HST . Sales of our care and connectivity solutions , or KCS division , were $473 million and grew 3% globally .

And continued momentum across our patient support systems and care communications portfolios.

Total U S capital orders for Ccs increased 30% compared to the prior year.

Driven by broad based strength across patient support systems.

Speaker #5: Performance in the quarter was driven by 4% growth in the US for KCS , reflecting double digit growth in our Surgical Solutions business and continued momentum across our patient support systems and care communications portfolios .

Their communications and surgical solutions.

We continue to believe our order pipeline remains strong.

To date, we have not observed a slowdown in U S Hospital capital spending.

However, given the broader macroeconomic uncertainty we continue to closely monitor the situation.

Speaker #5: Total US capital orders for increased 30% compared to the prior year , driven by broad based strength across patient support systems . Care , communications and surgical solutions .

Frontline care sales in the quarter with $300 million.

It increased 1%.

Performance in the quarter reflect increased demand in our cardiology portfolio.

Speaker #5: We continue to believe our order pipeline remains strong 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 .

HFC adjusted operating margin totaled 13, 5% for the quarter.

Increasing 460 basis points compared to the prior year.

These results reflect higher costs related to tariffs.

Creased R&D investments and increased corporate allocation expenses following the sale of kidney care.

Speaker #5: Frontline care sales in the quarter were $300 million and increased 1% . Performance in the quarter reflects increased demand in our cardiology portfolio .

TSA income partially offset these increased expenses.

Speaker #5: HSC . Adjusted operating margin totaled 13.5% for the quarter , decreasing 460 basis points compared to the prior year . These results reflect higher costs related to tariffs , increased R&D investments , and increased corporate allocation expenses .

Moving on to our pharmaceutical segment.

Sales in the quarter totaled $632 million increasing 7%.

Within pharmaceuticals.

All of our Injectables in anesthesia division with $333 million and grew 3% globally.

Speaker #5: Following the sale of kidney care , TSA income partially offset these increased expenses . Moving on to our pharmaceuticals segment , sales in the quarter totaled $632 million , increasing 7% within pharmaceuticals .

Performance in the quarter reflects high single digit growth in our anesthesia portfolio driven by increased volumes in certain markets outside the U S.

Injectables growth benefited from a favorable comparison to the prior year period.

Which was negatively impacted by the timing of certain sales and supply constraints impacting international sales.

Speaker #5: Sales of our injectables and anesthesia division were $333 million and grew 3% globally . Performance in the quarter reflects high single digit growth in our anesthesia portfolio , driven by increased volumes in certain markets outside the US .

We continued to experience softness in certain premixed products, largely consistent with the dynamics discussed last quarter related to IV infusion protocols and increased use of IV push and select hospital settings.

Speaker #5: Injectables growth benefited from a favorable comparison to the prior year period , which was negatively impacted by the timing of certain sales and supply constraints impacting international sales .

Our team has remained focused on reinforcing the clinical value of our premium portfolio and driving improved commercial execution.

Drug compounding grew 11% and reflects strong demand for our services outside the U S.

Speaker #5: We continue to experience softness in certain pre-mixed products , largely consistent with the dynamics discussed last quarter related to IV infusion protocols and increased use of IV push in select hospital settings .

Pharmaceuticals, adjusted operating margin totaled eight 9% for the quarter decreasing 100 basis points compared to the prior year.

Speaker #5: Our team has remained focused on reinforcing the clinical value of our portfolio and driving improved commercial execution . Drug compounding grew 11% and reflects strong demand for our services outside the US .

These results reflect the unfavorable product mix.

<unk> procurement costs and increased corporate allocation expenses.

These expenses were partially offset by kidney care TSA income.

Finally, other sales, which represent sales not allocated to this segment.

Speaker #5: Pharmaceuticals adjusted operating margin totaled 8.9% for the quarter , decreasing 100 basis points compared to the prior year . These results reflected unfavorable product mix , increased procurement costs , and increased corporate allocation expenses .

Primarily include the sales of products and services provided directly through certain manufacturing facilities.

Were $16 million in the quarter.

MSA revenue from Vantiv totaled $85 million.

Speaker #5: These expenses were partially offset by kidney care . TSA income . Finally , other sales which represent sales not allocated to a segment and primarily includes sales of products and services provided directly through certain manufacturing facilities were $16 million in the quarter .

As a reminder, these sales are included on our reported growth.

However, they are not reflected in our operational growth for the quarter.

Before moving onto the rest of the P&L and important reminder, on our continuing operations reporting.

Following the sale of the kidney care business certain corporate costs that did not convey what the businesses are now allocated across our segments in both cost of goods sold and SG&A along with income from the TSA is which is currently recognized within other operating income.

Speaker #5: MSA revenue from Vantiv totaled $85 million . As a reminder , these sales are included on our reported growth . However , they are not reflected in our operational growth for the quarter .

Speaker #5: Before moving on to the rest of the PNL , an important reminder on our continuing operations reporting following the sale of the kidney care business , certain corporate costs that did not convey with the business are now allocated across our segments in both cost of goods sold and along with income from the SSAs , which is currently recognized within other operating income .

In addition, as previously discussed.

We reclassified certain functional expenses from SG&A to cost of goods sold beginning earlier this year.

These costs support manufacturing and are now treated as an indirect expenses subject inventory capitalization.

And recognized in cost of sales when sold.

Therefore, as a result of these cost shifts across the P&L.

Speaker #5: In addition , as previously discussed , we reclassified certain functional expenses from SGA into cost of goods sold beginning earlier this year . These costs support manufacturing and are now treated as indirect expenses subject to inventory , capitalization and recognized in cost of sales .

We believe it is most appropriate to focus on operating income expansion.

Importantly, operating margin on a continuing operations basis was 14, 9% in the quarter improved.

Improving 40 basis points compared to the prior year period.

Results reflect disciplined expense management and the benefit of TSA income.

Speaker #5: When sold . Therefore , as a result of these cost shifts across the PNL , we believe it is most appropriate to focus on operating income expansion .

We offset by softer volumes and mix.

Third quarter adjusted gross margins from continuing operations were 39, 4%.

Speaker #5: Importantly , operating margin on a continuing operations basis was 14.9% in the quarter , improving 40 basis points compared to the prior year period .

A decrease of 430 basis points compared to the prior year.

The decline reflects the factors I just discussed.

Third quarter adjusted SG&A from continuing operations totaled $629 million.

Speaker #5: Results reflect disciplined expense management and the benefit of TSA income , partially offset by softer volumes and mix . Third quarter adjusted gross margins from continuing operations were 39.4% , a decrease of 430 basis points compared to the prior year .

Turning to <unk> as a percentage of sales a decrease of 240 basis points from the prior year period.

Results reflect disciplined expense management and the benefit from the reclassification of functional costs.

Speaker #5: The decline reflects the factors I just discussed . Third quarter adjusted SG&A from continuing operations totaled $629 million , or 22.2 . As a percentage of sales , a decrease of 240 basis points from the prior year period .

Adjusted R&D spending from continuing operations in the quarter totaled $115 million or $4, one as a percentage of sales.

A decrease of 70 basis points from the prior year period.

Results reflect the timing of certain R&D expenses currently expected to shift into the fourth quarter.

Speaker #5: Results reflect disciplined expense management and the benefit from the reclassification of functional costs . Adjusted R&D spending from continuing operations in the quarter totaled $115 million , or 4.1 , as a percentage of sales , a decrease of 70 basis points from the prior year period .

And certain one time items, and therefore do not reflect our anticipated level of R&D spend going forward.

Kidney care TSA income and other reimbursements totaled $85 million in the quarter.

And came in line with our expectations.

As previously discussed the associated expenses related to this income are reflected in other lines of the P&L.

Speaker #5: Results reflect the timing of certain R&D expenses currently expected to shift into the fourth quarter , and certain one time items , and therefore do not reflect our anticipated level of R&D spending going forward .

And cost of goods sold and SG&A.

Altogether. These factors resulted in an adjusted operating margin of 14, 9% on a continuing operations basis.

Speaker #5: Kidney care TSA income and other reimbursements totaled $85 million in the quarter , and came in line with our expectations . As previously discussed , the associated expenses related to this income are reflected in other lines of the PNL , including cost of goods sold and SG&A .

Improving 40 basis points compared to the prior year period.

Net interest expense from continuing operations totaled $58 million in the quarter.

Decrease of $29 million versus the prior year period, reflecting lower interest expense following the pay down of existing debt with proceeds from the sale of Vantiv.

Speaker #5: Altogether , these factors resulted in an adjusted operating margin of 14.9% on a continuing operations basis . Improving 40 basis points compared to the prior year period .

Adjusted other non operating income totaled $7 million.

Flexing lower losses from foreign currency translation compared to the prior period.

Speaker #5: Net interest expense from continuing operations totaled $58 million in the quarter , a decrease of $29 million versus the prior year period , reflecting lower interest expense following the paydown of existing debt , with proceeds from the sale of Vantiv .

The continuing operations adjusted tax rate for the quarter was five 1% drip.

Driven primarily by the release of reserves withholding taxes.

In discrete benefits related to mix of earnings across jurisdictions.

Speaker #5: Adjusted other non-operating income totaled $7 million , reflecting lower losses from foreign currency translation compared to the prior period . The continuing operations adjusted tax rate for the quarter was 5.1% , driven primarily by the release of reserves for withholding taxes and discrete benefits related to mix of earnings across jurisdictions and as previously mentioned , adjusted earnings from continuing operations were $0.69 per share for the quarter , an increased 41% versus the prior year .

And as previously mentioned adjusted earnings from continuing operations were 69 cents per share for the quarter and increased 41% versus the prior year.

Contributions to earnings growth included positive pricing.

The receipt of kidney care TSA income as well as lower non operating expenses, including interest and tax.

Before turning to our updated outlook I want to comment on cash flow and liquidity.

Third quarter free cash flow was $126 million.

Speaker #5: Contributions to earnings growth included positive pricing , the receipt of kidney care , TSA income , as well as lower non-operating expenses including interest and tax .

Bringing year to date free cash flow to roughly flat.

As we close out the year, we expect continued free cash flow generation in Q4.

We remain focused on strengthening cash flow generation through improvement across all areas of working capital.

Speaker #5: Before turning to our updated outlook , I want to comment on cash flow and liquidity . Third quarter free cash flow was $126 million , bringing year to date free cash flow to roughly flat .

As Andrew mentioned to prioritize and accelerate our deleveraging.

We anticipate reducing the quarterly dividend to <unk> 10 per share beginning with the next payment scheduled to be made in January of 2026.

Speaker #5: As we close out the year , we expect continued free cash flow generation in Q4 . We remain focused on strengthening cash flow generation through improvement across all areas of working capital .

This action is expected to free up more than $300 million in annual cash flow.

Given our year to date business challenges, we now expect to achieve our three times net leverage target by the end of 2026.

Speaker #5: As Andrew mentioned, to prioritize and accelerate our deleveraging, we anticipate reducing the quarterly dividend to $0.01 per share, beginning with the next payment scheduled to be made in January 2026.

Once achieved we will look to expand our aperture for capital deployment.

We recognize the importance of improving our balance sheet and are continuing to prioritize deleveraging in the near term.

Speaker #5: This action is expected to free up more than $300 million in annual cash flow . Given our year to date business challenges , we now expect to achieve our three times net leverage target by the end of 2026 .

<unk> cash made available from the proposed reduction in our dividend.

Let me conclude my remarks by discussing our 2020 kind of outlook for the full year and the fourth quarter, including some key assumptions underpinning the guidance.

Speaker #5: Once achieved , we will look to expand our aperture for capital deployment . We recognize the importance of improving our balance sheet and are continuing to prioritize deleveraging in the near term , including with cash made available from the proposed reduction in our dividend .

For full year 2025, Baxter expects the total sales growth of 4% to 5% 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.

Speaker #5: Let me conclude my remarks by discussing our 2025 outlook for the full year and the fourth quarter , including some key assumptions underpinning the guidance .

In addition, our reported sales guidance includes the contribution of approximately $320 million of anticipated MSA revenues from Vantiv.

Speaker #5: For full year 2025 , Baxter expects total sales growth of 4 to 5% on a reported basis . This guidance reflects current foreign exchange rates , which are expected to contribute approximately 50 basis points to top line growth for the year .

Excluding the impact of foreign exchange, the MSA revenues and the exit of IV solutions in China.

Baxter now expects operational sales growth of one 2% for 2025.

Speaker #5: In addition , our reported sales guidance includes the contribution of approximately $320 million of anticipated MSA revenues from Vantiv , excluding the impact of foreign exchange , the MSA revenues and the exit of IV solutions in China .

This reflects a reduction from our prior expectations of 3% to 4% as we have updated our outlook to better reflect the evolving dynamics across select parts of the business.

Operational sales guidance for the full year by reportable segments is as follows.

For M. P. T. We now expect sales to be flat to 1%, reflecting the uncertainty around the November situation as discussed previously.

Speaker #5: Baxter now expects operational sales growth of 1 to 2% for 2025 . This reflects a reduction from a prior expectations of 3 to 4% , as we have updated our outlook to better reflect the evolving dynamics across select parts of the business .

We continue to expect sales in our HFC segment to increase 3% to 4%.

Performance reflects sustained momentum across the portfolio supported by a healthy order pipeline and strong execution.

Speaker #5: Operational sales guidance for the full year by reportable segments is as follows . For empty , we now expect sales to be flat to 1% , reflecting the uncertainty around the Novum situation .

We now expect pharmaceuticals to increase approximately 2%.

Which reflects the continued softness in select premix product, which we continue to work through.

Speaker #5: As discussed previously , we continue to expect sales at our HST segment to increase 3 to 4% . Performance reflects sustained momentum across the portfolio , supported by a healthy order pipeline and strong execution .

Turning to our outlook for other P&L line items, beginning with terrorists. We continue to estimate the net impact from our results is approximately $40 million in 2025.

TSA income in other reimbursements are expected to range between $170 million to $180 million.

Speaker #5: We now expect pharmaceuticals to increase approximately 2% , which reflects the continued softness in select pre-mixed products , which we continue to work through .

We now expect full year adjusted operating margin from continuing operations between 14, 5% and 15%, which reflects the topline sales reduction and the associated impact on our integrated supply chain costs from lower volumes flowing through our manufacturing facilities.

Speaker #5: Turning to our outlook for other PNL line items , beginning with tariffs , we continue to estimate the net impact to our results .

Speaker #5: Approximately $40 million in 2025. TSA income and other reimbursements are expected to range between $170 million and $180 million. We now expect full-year adjusted operating margin from continuing operations to be between 14.5% and 15%, 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.

We expect our non operating expenses, which include net interest expense and other income and expense.

The total between $210 million to $220 million.

On a continuing operations basis, we now anticipate a full year tax rate of approximately 15%.

We expect our diluted share count to average approximately 515 million shares for the year.

Based on all of these factors, we have adjusted our outlook for full year adjusted earnings per share on a continuing operations basis.

Speaker #5: We expect our nonoperating expenses , which include net interest expense and other income and expense to total between 210 to $220 million on a continuing operations basis .

The $2 35 to.

The $2 40 per diluted share for.

The prior guidance of $2 42.

Speaker #5: We now anticipate a full year tax rate of approximately 15% . We expect our diluted share count to average approximately 515 million shares for the year .

The $2 52 per share.

This reflects our updated adjusted operating margin and tax rate assumptions.

Speaker #5: Based on all these factors , we have adjusted our outlook for full year adjusted earnings per share on a operations basis to $2.35 to $2.40 per diluted share for the prior guidance of $2.42 to $2.52 per share .

Specific to the fourth quarter of 2025, we expect continuing operations sales growth of approximately 2% on a reported basis and declined approximately 2% on an operational basis.

For the fourth quarter Foreign exchange is expected to positively impact the topline.

Speaker #5: This reflects our updated adjusted operating margin and tax rate assumptions . Specific to the fourth quarter of 2025 , we expect continuing operations , sales growth of approximately 2% on a reported basis and declined approximately 2% on an operational basis .

Approximately 100 basis points.

And MSA revenues are expected to total approximately $80 million.

Note that we have now mostly lap the China IV solutions exit and is not expected to have a meaningful impact to topline growth in the fourth quarter.

On a continuing operations basis, we expect adjusted earnings per share of 52 to 57 cents.

Speaker #5: For the fourth quarter , foreign exchange is expected to positively impact the top line by approximately 100 basis points , and MSA revenues are expected to total approximately $80 million .

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

Speaker #5: Note that we have now mostly lapped the China IV solutions exit and is not expected to have a meaningful impact to top line growth in the fourth quarter .

Thank you we will now begin the question and answer session.

You have a question. Please press Star then the number one on your Touchtone phone.

Wish to remove yourself from the queue press the pound key.

Speaker #5: On a continuing operations basis , we expect adjusted earnings per share of 52 to $0.57 . With that , we can now open up the call for Q&A .

You're using a speaker phone please lift the hedge handset you 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 if necessary.

I appreciate everyone's patience and would like to provide as many of you.

Speaker #2: Thank you . We will now begin the question and answer session . If you have a question , please press star . Then the number one on your touch tone phone .

The opportunity to ask questions as possible.

We will pause for a moment, while the west is being compiled.

Speaker #2: If you wish to remove yourself from the queue , press the pound key . If you are using a speakerphone , please lift the handset to your to ask your question so that we may be respectful of everyone's time .

To remind participants that this call is being recorded and a digital replay will be available on the Baxter International website for 60 days at Www Dot Baxter dotcom.

Speaker #2: Please limit your comments to one question with one follow up if necessary . We appreciate everyone's patience and would like to provide as many of you , the opportunity to ask a question as possible .

Our first question comes from Robert Marcus from Jpmorgan. Your question. Please.

Great. Thank you good morning, and welcome Andrew and Kevin.

Speaker #2: We will pause for a moment while the list is being compiled. I would like to remind participants that this call is being recorded, and a replay will be available on the Baxter International website for 60 days at www.baxter.com.

I'll ask both of mine up front there.

Theyre sort of intertwined Andrew you've been there for two months almost two months.

King.

Pretty.

Important in bold moves on capital allocation, maybe you could just help us understand.

Speaker #2: After our first question comes from Robert Marcus from JP Morgan , your question please .

Your your vision for Baxter, what you've learned what you've seen how you feel about the health and trajectory of the business.

Speaker #6: Great . Thank you . Good morning . And welcome , Andrew and Kevin . I'll ask both of mine up front . They're sort of intertwined .

Any other changes we should be expecting in the future as you look to right the ship.

Speaker #6: Andrew , you've been there for two months , almost two months . Making some some pretty important and bold moves on Capella . Maybe you could just help us understand your your vision for Baxter , what you've learned , what you've seen , how you feel about the health and trajectory of the business and any other changes we should be expecting in the future .

And then part two.

Fourth quarter is coming in well below.

The Street third quarter, EPS, probably would've been a lot lower without tax.

With that lower jumping off point into 2026, how do you want people to think about their models.

We extrapolate into next year or do you think there is still a potential you can grow on the top and bottom line next year and maybe any early thoughts on puts and takes thanks a lot.

Great Hey, good morning Ravi.

And I'll take the first part and then certainly we can dig into the second and make sure I don't Miss any part of the question, but look first and foremost as youre well aware, it's still early in the journey yet.

Really gained a lot of insight and I've been most impressed with our people deep commitment to building the best Baxter.

Advancing our mission.

Right.

I'll tell you and I outlined this in my my initial Ah.

Highlights in the quarter.

I'll focus on three areas first stabilizing the areas of the business that the truth that need focus and really driving our business around.

Execution, and I'm and I've referenced the say do ratio.

Strengthening our balance sheet and really aligning to two enabling this for future investment back into the business and long term shareholder value and you're going to hear me say that quite often how we think about capital allocation as our guide to long term shareholder value and then third.

So having a culture of continuous improvement.

And we've launched GPS, which which is our growth and performance system. It's early in our journey yet.

Statement on the team is aligned around how we monitor and track and improve everyday as we move forward now these journeys take time, but our team is committed and aligned to this is becoming the future of Baxter and we often referenced buildings are best Baxter it will be underpinned with our continued.

Improvement journey our GPS.

And lastly, and I'll just highlight around our strategy and look we do anticipate an investor day.

In 2026, we'll give a lot more insight around the long term strategy our portfolio focus and.

Deeper insight into our financial outlook.

But as we sit today, we are obviously not providing guidance for 2026 and again, we will continue to update as the year unfolds, but we will certainly we will be providing that as we go into next year.

Thanks, maybe if I could just ask do you think Baxter can have positive growth in 26, you're willing to comment on that.

You know.

What I'll say Ravi is as part of my standard work as the CEO as I go and visit customers on a frequent basis and I visited several customers.

<unk> really value Baxter as a value that the products, we have the solutions and in our ability to help them in their in their and their focus on patients and so certainly markets will do what markets do we look to outpace the markets we participate in and so I would I would anticipate a growth but ah.

Again, we are not providing guidance today.

Great.

Forward to working together I appreciate it but absolutely. Thank you Robyn.

David Roman of Goldman Sachs is on the line with a question. Please state your question.

Thank you and good morning, everyone and Andrew right.

Dmitry I look forward to working with you Kevin.

Welcome to Baxter.

I wanted just to start a little bit more I I understand you're going to have an analyst day and you just referenced ultimately lay out the long term strategy.

Andrew as you come into the company now that business has spent the better part of the past call. It five to seven years.

Based on cost <unk> cost rationalization and balance sheet required capital allocation moves up to the point of cutting the dividend today and potentially further moves beyond that.

About the Ford identity for Baxter is this a med Tech company in your eyes is this a diversified manufacturing company and what decisions are you going to make that ultimately aligned to supporting how you see the business then I had a follow up question.

Yeah, Hey, David.

First and foremost as youre, well aware I'm going very deep on the business of SaaS thing understanding our value story to our customers.

And then I'll turn it into long term shareholder value.

If I do a step back for a minute.

Look you will often hear me talk about capital allocation as a framework for our success and that is how we utilize that and really drive investment back into the business to really outpace and continue to add high value for our customers our employees and ultimately our shareholders.

So youre going to see US continue to focus on that again I will go into a bit more color around.

Where are we in the markets, how we're utilizing innovation to drive expansion really aligns with the needs of our customer base.

And how we continue our trajectory and our growth story of Baxter, but.

To give additional color today is a bit early in the journey, yes, we will go into that in 2026 as we as we lay out our view of the markets our position and where we're going to invest and also where we're going to continue to drive improvement in our in our operating system.

Okay, and then maybe just on the businesses more specifically.

Joel if you look across the different growth drivers here.

That's in pharma.

Or parts of parts at MPT, you are seeing a lot of the growth come from I think lower margin segments like compounding versus anesthesia and injectables.

Can you maybe help us think about the implications from the key drivers of top line growth down the rest of the P&L and how that's factoring into your Q4 and updated guidance for 2025.

Yeah. Thanks, David a couple of things and first of all I'll just speak one comment you are right. One of the challenges we have had and had this quarter was around mix. The one thing I would like to call out to though is our advanced surgery business.

In MPT, which certainly is on the positive side of the mix continues to have strong performance and so again I agree.

I agree with your general thesis just did it I did want to point that out as well, there's a number of things I would say that are really factoring into some of the both the challenges we've had in sort of the forward looking it's not just one thing it's a number of different areas.

Certainly.

Yeah, we expect the sales across our infusion pump portfolio to remain pressured as we work with our customers to fully address the out.

Standing field actions.

In order to lift ultimately lift the shipment install hold on to them and so as we sort of think about where we are and where we're ahead of our updated guidance reflects the uncertainty around the November situation, including the potential impact in various customer responses.

I think with an IV solutions.

The demand in the U S. Certainly remains below pre hurricane Halloween levels.

Certainly below our expectations and I'd say based on our current expectations.

We do expect further recovery in demand and although the pacing and the timing of that I would say is.

Thats a piece at a time, that's less than we had originally expected.

So there is some level of fluid conservation, we're anticipating is likely.

To remain in.

In the 2026.

From a pharma standpoint, you're right. We certainly grew our compounding at a high rate this quarter. The the main challenge is really there is in our injectables business in the U S.

<unk> continued to experience softness there.

Certain <unk> products, which is fairly consistent with what we have.

The dynamics, we discussed last quarter related to IV infusion protocols and the increased use of IV push into select hospital settings. Again. Some of this is also kind of a follow on to some of the challenges we've had the IV solutions, but.

All in all there our updated guidance reflects the continued softness in select premix products.

We continue to work through that and so.

That's really sort of the topline discussion David and then as it flows through to the bottom line, but the real story there really is around just the volume.

For the most part of our pass through.

It's been pretty pretty predictable and consistent and in fact have.

We actually even excluding the tax item that actually we would have ended up on the lower end of our guidance without some of the tax benefit on EPS basis, just operationally however.

However, the impact as we think about our forward look really are truly related to volume and the impact that has on our supply chain.

So I'll pause there.

Hopefully that answers your question.

Yeah.

Travis Steed of southwest Securities is on the line with a question. Please state your question.

You are welcome and doing Kevin and I look forward to working with you both at Baxter.

Wanted to ask.

A follow up on the Nova first why is it kind of taking longer.

Do you need to redesign the product or refiled with the FDA and you also mentioned I think customer responses because in November.

Answer if that's when it kind of a follow up on that and how much of the guide changes.

From the dome.

<unk>.

Yeah, Charles Thanks for the question. So let me basically maybe take you back in this perspective in mind.

That you know our hold is in place to support our customers safe use of the device, while we seek to develop additional traction as the field actions.

Yeah, we're working with urgency with our customers to complete the necessary actions.

Order to fully address the outstanding field actions that ultimately unless the shipment but.

Certainly we see continued interest in our pump portfolio went back to be very clear.

One of the takeaways I want to certainly the half year and that is but we do recognize the timing and nature of the resolution of the novel multi P. Holden is leading some customers a valid alternative solutions.

That is so they've already initiated returns some of them initiated exchanges for spectrum.

We're actively supporting our customers in this way.

With both initial and obviously additional corrections eventually, but also offering our spectrum IQ as a as an alternative and there is certainly we all remain focused on minimizing disruption and maintaining strong relationships across our installed base.

From a timing standpoint again at this point, we're unable to commit to specific timing around the shipment installed for normal B piece, we do anticipate there still being in place beyond 2025, and I would just say again, we'd assume we're working closer with our regulators.

Implementing field actions any time, we will continue to do so and look forward to providing updates on the proposed corrections and timing when they're available.

Okay. Thank you.

Andrew I don't know your past roles, you've you've done M&A to transform the portfolio at what stage do you think.

Baxter is willing to start doing more acquisitions and willingness to take on margin dilution from those acquisitions in and Joel in terms of free cash flow you know how how do you anticipate improved free cash flow in this business and to kind of help fund some of those acquisitions. If I'm looking at this right. It doesn't look there's been a lot of free cash flow generation.

Over the last nine months I don't know if there's any kind of onetime things to kind of point out there and underlying free cash flow is better but kind of wanted to touch on the free cash flow aspect as well.

Yeah. So soon.

I'll hit the first part here.

Okay.

As you know, we're pretty clear on as we think about capital allocation. Our first priority right now is to strengthen our balance sheet, which means obviously that drive to delever.

While we're going through that.

We're continuing to invest in innovation and.

Just to highlight one area, we and in our business. We did launch a product very excited about our product and our <unk> business and and we're seeing strong uptick in customer excitement around that product around the connect 360. So.

First and foremost delever, our balance sheet continue to invest in areas around innovation and then and then just be specific on M&A.

This will be this will be part of our journey in the future we're going to continue to cultivate build our portfolio and then when we're in a position to be able to balance will move forward that said, we've got our focus around the first two is upset earlier.

Yeah, I'll take the cash piece and this one maybe one add to Andrew's piece, the one thing to be clear on.

Certainly as you said that would eventually certainly be a part of our growth story thinking about that as fold in tuck in opportunities versus something that would be a larger strategic clearly I just wanted to make that clarification.

Free cash flow perspective, so the good news is we haven't we haven't really strong September we did have positive free cash flow.

$126 million in the quarter and.

I certainly do anticipate having continued a positive free cash flow as we head into the fourth quarter, it's typically our strongest quarter.

Quarter of the year, and so I certainly do anticipate that.

As we go forward and maybe I'm, just a broader comment I mean, the main issues. We've had with cash this year for those couple of categories, one as you'd probably expect as operational performance.

Youll recall, we did have.

A fairly large outlay of cash in the first quarter related to hurricane in expenses and the expenses incurred in the prior year, but the payables got paid for the most part in Q1.

There's certainly been a tariff impact and then from a working capital perspective.

Payables and receivables are at a pretty decent place.

The issue has really been around inventory.

It's been driven really by some of the challenges in all of them.

Leeward conservation as well as test and in a few last time buys.

I do think some of the things again I do anticipate as we head into next year continuing the improvement in those areas, we're putting a lot of work and focus.

Around all areas of working capital.

And so as we head into next year I do think that's going to improve.

I've talked in the past.

How about a cash conversion of 80% and I think again, that's a that's something that I think ultimately this company should aspire to.

I look forward to making continued progress towards that target was we had an investor.

Yeah.

Larry Big Gossan is on the line from Wells Fargo with a question. Please state your question.

Oh excuse me good morning, Thanks for taking the question.

Andrew Thank you.

Kevin Welcome Andrew.

Given this is your first call I wanted to ask you two high level questions. First you you can't not many of US on this call don't know you from your prior experience and it was a non medical device company that you came from so help us understand how you experienced at Ats.

We'll help you turn.

Baxter around and I had one follow up.

Yeah, Good morning, Larry.

A couple of things first having having launched and driven the continuous improvement culture at several businesses.

It takes time, yet it drives impact at every level of the business and we've launched GPS to really align around that and it's more empowerment tools then the disablement.

So it's really aligning to putting a power of the business units driving and enabling our teams to have impact.

And I'm excited about.

The passion of this team has for Baxter and for our share of future and that's usually an area that aligns well with continuous improvement.

As far as my experience within within medical tack in med devices, and roughly our space you've got to remember.

Not only was Baxter, our customer many of our areas and tears, where customers as well so clearly understand the space and we have a we have a leadership team that has deep insight around our area and where we have a key focus on enabling our customers. So.

Getting getting comfortable and where we are in the journey yet we have some work ahead and youre going to see us continue to highlight where we're making progress and where we need to have a laser focus to improve.

That's helpful. Andrew I'd also love to hear your thoughts on the Baxter portfolio, It's still a diversified company with call points in the hospital and physician office do you think all the pieces fit together or could we see you focus more on on the hospital setting lessor in the office setting.

Thanks for taking the question.

Yeah, So so again and.

And I will default to two months, yet I've been able to meet with many customers and or several customers.

Their focus on on Baxter and their feedback on Baxter has been been very positive.

There's work to do.

And ought to be very clear around what that looks like and how we need to drive the operational execution.

And so where we sit today, we believe our portfolio is a strong portfolio for the future of course, we are going through the assessment and we've also done some some some reassessment of that before my time.

And we've become more streamlined more aligned to our higher value areas of focus and so on.

I'd say, it's early days, yet really really pleased with the feedback I've received and as I mentioned one of our standard works as a CEO is I'll be visiting with customers frequently to gain insight to drive impact into our ability to execute in the markets we serve.

Yeah. So so again you know and and and I'll default to 2 months um yet uh I've been able to meet with many customers and and or several customers and and you know the the their focus on on Baxter and and their feedback on Baxter's been and been very positive. Now certainly there's work to do and and I want to be very clear around what that looks like and and and and how we need to drive operational execution.

The next question comes from the line of Joanne Wuensch of Citi. Your line is open.

Good morning, and thank you so much for taking the question I look forward to working with you.

Two quick questions upfront.

A little confused about IV fluid conservation, thus far after hurricane lien and at what stage is this just sort of a more normalized.

And so, uh, where we sit today, we we believe our portfolio was a strong portfolio for the future. Of course, we're going through the assessment, and we've also done some some, some reassessment of that, uh, before my time. And and, and we've become more streamlined more aligned to our higher value areas of focus. And so, um, I would say it's early days yet, um, really, really pleased with with the feedback I've received. And, you know, as I mentioned 1 of my standard works, is a CEO is I'll be visiting with customers frequently to gain insight to drive impact into our ability to to execute in the markets we serve.

Adoption or utilization rate and not every covenant lately.

And then my second question I'll, just toss it out there.

The next question comes from the line of Joanne winch of City. Your line is open.

You guys are always closest to the hospital environment and understanding capex in procedures and everything else that's going on there what are you seeing and do you anticipate any change or keen jazz given.

I don't know how breakfast politics.

Thank you.

Thanks for the question Joanne.

So I'll start with the who and transformation fees there was certainly a.

Uh, good morning. And thank you so much for, um, taking the question. I look forward to working with you. Um, 2. Quick questions up front. I'm I'm a little confused about IV fluid conservation. Um, this far after Hurricane mine, um, at what stage is this, just sort of a more normalized um adoption or utilization rate and not a recovery rate.

Look this is Don.

Been an ongoing issue as you said as the demand remains below the hurricane and the holding levels.

Again, we do expect a recovery in demand Joanne, but certainly what we the best estimate and the best information we have available today.

And and then my second question, I'll just toss it out there. Um, you guys are always closest to 2 the hospital environment and understanding, capex and procedures and everything else that's going on there. What are you seeing and um do you anticipate any change or changes given? Um,

From our customers from market insights, we certainly believe our customers' buying patterns still continue to reflect who are constantly and it's more of a I'll say baidu pattern issue.

I don't know how to work at this politics. We'll just put it at that. Thank you.

Thank you for the question, Joanne.

Interestingly.

Recently, there has been also articles that have come out on this.

Various interviews with hospitals were.

They've seen they've said hey look there is also.

Also the reinforced this focus on the fact that they really are focused on conservation and.

I would remind you I mean again back in 2017.

We did have again that are directly related but somewhat similar experience. So that's some of the return to buying patterns.

Good.

Take even the obviously the better part of two years in order to recover so I think the thing that I would leave you with is that over the medium and long term.

We remain confident in the strength of our IV solutions business.

Clearly our teams are actively focused on working closely with our customers to make efforts to improve utilization.

And Helen levels. Um, again we do expect recovery in the band Joanne but but certainly what we the best estimate and the best information we have available today uh from our customers from Market insights. Uh, we certainly believe our customers buying patterns, still continue to reflect who would conserve and is more of a Balsa buying pattern issue, uh, you know, interestingly, uh, you know, recently there's been also articles that have come out on this, uh, from previous interviews with hospitals, where, you know, they've seen, uh, they've said, hey look there's uh, hospitals are reinforced this focus on the fact that they really are focused on conservation. And you know, I would remind you I mean again back in 2017

Given the certainly the improved supply of fluids that we have in and obviously the clinical benefits of our products. So.

So I guess I'll leave you with that as far as the conservation and then as it relates to your other question from a hospital Capex, obviously since certainly with I'll just say some of the uncertainty that's been going on.

Uh, we did have again, not a directly related, but somewhat similar experience to this and and some of the returned to buying patterns uh, did uh, take even, you know, up to the better part of 2 years in order to recover. So I

Coming out of Washington, Gilead has generally been.

We've certainly been looking carefully for signs of.

Hesitancy from a capital spend perspective, and that's just it just hasn't been something that we've seen at this point are our our order books are in our capital business.

The thing that would leave you with is that over the medium and long term, you know, we certainly remain confident in the strength of our IV Solutions business. You know, uh, clearly, uh, our teams are actively focused on working closely with our customers to make efforts to improve utilization. Uh, given the certainly, the improved supply of fluids that we have and, and obviously, the clinical benefits for our product. So, uh, that's I guess I'll leave you with that as far as the conservation. And then, uh, as it relates to your other question, from a hospital.

It has been in.

Our HFC business has actually been quite robust.

It continues to be in fact, our year over year growth for this quarter, our orders were up around 30% and so I think we haven't seen that yet.

<unk> certainly been looking for it.

Big attention for that purpose, but.

So at this point, we really haven't seen a slowdown in the hospital capex just kind of could be those buying patterns.

Vijay Kumar of Evercore is on the line with a question. Please state your question.

Hey, Andrew.

Good morning, and thank you for taking my question and welcome welcome to our inaugural earnings call.

Yes, My first one.

Perhaps the usual Q4, I just wanted to clarify.

Is the implied injectables something like down mid teens on the pharma side, what drives that and I. Thank him guide implies operating margin decline. So I just wanted to make sure.

Uh, has been, uh, in our hsd business. This is actually been quite robust. Uh, it continues to be, in fact, are you over year growth from, uh, for this quarter? Our orders, we're we're uh, we're up around 30% and so I think, you know, we haven't seen that yet. Uh, certainly been, you know, looking for it. Uh, paying attention for that purpose. But uh, but at this point, we really haven't seen uh, slow down in the hospital capacity. The kind of creepy those buying patterns

The J Kumar of evercore is on the line with a question, please State your question.

We're thinking about the right yeah.

Yeah. Thanks P J.

Pharma I mean, it really truly is as I've kind of talked about it.

Its sublet it I'll say a change in the marketplace that we're in we're working through.

Theres been a softness.

Some of our Premixes again, there's always competitive pricing in this space, that's something that's kind of always been a thing there and so I don't know that there's something new although there is some some shifts again, we've talked about using IV push.

Uh, hi Andrew. Um, good morning and thank you for taking my question and, uh, welcome. Welcome to your inaugural lab earnings call. I, I guess that, my first 1, uh uh, perhaps you, you all, uh, Q4, I just want to clarify. Uh is is the implied, injectable something like down my teens on, on the far side. You know what drives that and I think I'm guide implies operating margin declines. I just want to make sure um, what we're thinking about the right.

Ivy related protocols, a little different where there is some more purchasing of vials versus.

<unk> Premixes.

So I think there is really to me has been some shifts that was mostly in the U S. Our business outside the U S premise for the most part been quite good.

I think the one of the things that maybe I would focus on here to this or kind of what are we doing about this as opposed to some of the things that are being done to us so to speak and one of them is just really remaining focused on reinforcing the clinical value and the value add of our premium portfolio in order to continue to drive.

Commercial execution, one of our new product launches.

We've taken a real comprehensive cross functional work of this portfolio to kind of assess the current state of it and identified some areas for improvement in terms of including like really focus teams on how to drive out even more effectively our product launches.

Yeah. Thanks DJ. Um, so for Pharma, I mean, it really truly is as I've kind of talked about, it's it's uh, it's something that I'll say a change in the marketplace that we're we're working through again, there's been softness with with some of our premixes again, there's, there's always competitive pricing in the space. That's something that's kind of always been a thing there and so I don't know that there's something new. Although there is some, some shift, again, we talked about using IV push, um, Ivy related protocols have been different, where there's some again more purchasing of of vials and versus premixes. Uh, so I think there's there's really to me has been some shift that it's mostly in the US. I've been outside the US primaries for the most part been quite good.

Active territory management, and just a real end to end review process and then on the from an Oi perspective.

How do we think about the ways that we're making investments in that space.

I think 1 of the things that maybe I would focus on here too is so kind of. So what are we doing about this? As opposed to, you know, here's some of the things that are being done to us so to speak and and 1 of them is just really remaining focused on reinforcing the clinical value and the value add of our premix portfolio. And in order to continue to drive, you know, commercial execution on our our new product launches

<unk> is our opex spend.

To make sure getting prioritization is the key there. So so that's that's the best that's what I can tell you from a pharma perspective.

From an O I I'm, taking your question to be an overall oi as it relates to our guidance given that really truly is an impact of the sale of volume declines as we think about the guidance again, that's our business right now really is a bit of a topline story from a software perspective.

Rob through really does reflect the impact of volume on our overall operations.

Uh, we've taken a real comprehensive kind of cross-functional. Look at this portfolio, the kind of assess the current state of it and identify some areas for improvement in terms of including, like, really focused teams on how to drive out. Even more effectively, our product launches, uh, active territory management and just a real end to end review process. And then on the, from an oi perspective, how do we think about the ways that we're making investments in that space, uh, to optimize our Opex spend? And really, to make sure again, prioritization is the key there. And so, so that's that's the best.

Perspective.

Understood and then maybe Andrew one for you.

Noam is such a key topic for the story right now.

What is the issue that you.

<unk> been able to identify.

<unk> been in touch with the FDA when was the last communication what has the FDA asked you asked Baxter.

From a remediation perspective.

Again, that really truly is an impact uh to say of of volume declines. As we think about the guidance again, it's our our business right now really is a bit of a, a Topline story, from a softness perspective. Uh, the drop through really does reflect the, uh, just the impact of of volume uh, on our overall operations.

Yeah. So.

Let me take this one.

This is Doug maybe describe the specifics of our field actions.

Those are going out there obviously, we're working closely with our regulators.

And when implementing field actually gladney time or can they continue to do so and are focused team is working really closely both with regulators and customers as it relates to these field actions again and those are those are all out there.

Understood then, maybe Andrew, uh, once you, uh, look no Noom is such a key. Uh, topic. Uh, for, for the story right now, uh, what, what is the issue? Andrew, uh, that you've been able to identify have has backs or been in touch with the FBA. When was the last communication? What has the FBA asked, you asked Baxter? Um, you know, from a remediation perspective

I would say for this audience, let's say I'd like to reinforce as much as anything as we remain confident that our northern and spectrum infusion platforms.

Yeah. So

Did you only take this 1?

And as we continue to work through the ship hold we've been duly focused on supporting our current customers continued use of the device.

This look, we describe the specifics of our field actions. Uh, those that have been out there. Obviously, we're working closely with our regulators.

Determining appropriate additional corrections to fully resolve our field actions.

I said earlier, we look forward to providing updates as decisions are made we continue to support our customers, including ramping up production to increase our available spectrum inventory is again is a great alternative as part of our pump portfolio.

Uh, and when implementing field actions of any kind, we're going to continue to do so. And our Focus team is working really closely both with regulators and customers as it relates to some of these field actions again. And those are those are all out there. I would say for this audience, the thing I'd like to reinforce as much as anything is. We remain confident in our Noble Spectrum infusion platforms.

Okay.

The next question comes from Matt Taylor of Jefferies. Your line is open.

And as we continue to work through the shiple, we've been duly focused on supporting our current customers to continue to use the device.

Yeah.

Hi, Thank you for taking the question good morning and I.

I guess I wanted to follow up on your comments regarding some of the near term and long term actions you know I realize youre not going to provide any quantitative guidance, but I'd love to hear from you what.

You know what you think could happen what could go right near term with some of these immediate actions youre, taking and maybe qualitatively describe the range of possibilities over the coming quarters, if things do go your way.

Uh, determining appropriate additional Corrections, the fully resolved, our field actions. And as I said earlier, we look forward to providing updates as decisions are made. We continue to support our customers including ramping up production to increase our available Spectrum inventory as again as a great alternative as part of our pump portfolio.

Your line is open.

Yeah. Good morning, Good morning, Matt look.

If I if I just walk through that journey.

<unk>.

And then I aligned around stabilizing it.

And our focus on areas of the business that didn't need support.

We've launched GPS, it's called growth and performance system for a reason.

Our business is aligned to not only monitoring but then also how do you improve and so while we've stated what we're going to be aligning too from a guidance perspective in Q4.

I thank you for taking the question. Um good morning and I guess I wanted to follow up on your comments regarding some of the near-term and long-term actions. You know, I realize you're not going to provide any uh, quantitative guidance but I'd love to hear from you. You know what, you think could happen, What could go right in your turn with some of these immediate actions you're taking and maybe qualitatively describe the range of possibilities over the coming quarters. If things do go your way.

It will be we'll be updating as we go into next year on what that would look like.

Yeah, good morning. Good morning, Matt. Um, look, uh, you know, if I just walk through the journey, um, first.

Our business has has.

A key area of in position with customers and we want to fully unlock that potential.

You know when we when we look to future and how we hold ourselves accountable, we will be driving at or above market performance and again, you know as we step back and look at our journey GPS is early yet we see we see real strong followership from from the early engagement and it takes time.

But we're excited about the future and where that takes us.

Yeah.

And then unfortunately, we are at time for today's call and this will be our last question. Matt next mixed with Barclays is on the line Matt. Please state your question.

And, and, and I aligned around stabilizing it and, and our, and our focus on, on areas of the business that, that that need support. Um, we've launched GPS. It's called growth and performance system for a reason. Um, our business is aligned to to not only monitoring, but then also how do you improve? And so while we've stated what we're going to be aligning to from a guidance perspective in Q4, um we'll be we'll be updating as we go into next year on what that would look like. Um, our business has has, you know, a key area in position with customers. And we want to fully unlock that potential.

Hey, Thanks, so much and welcome Andrew.

Oh.

A lot to cover so I'm going to just keep to one.

Question I'm getting a lot of questions on an issue of Japan.

Um, you know, when we, when we look to Future and how we hold ourselves accountable, we'll be driving at or above market performance. And, and again, you know, as we step back and look at our journey GPS is early yet we've seen we see real strong followership from from the early engagement and it takes time. Um, but, but we're excited about the future and where that takes us.

Japan.

I guess, just zooming out per se.

Maybe you can appreciate that investors are having a little difficulty reconciling what's been a pretty strong procedures surgical quarter for med Tech generally.

And unfortunately, we are at time for today's call and this will be our last question.

Matt, mix mix kit with Barkley is on the line. Matt, please State your question.

And in some sense sounds like slower.

Hey, thanks so much and welcome. Uh, Andrew and Kevin um

Lower demand so.

Is there a competitive factor your marginal are significant.

It's worth mentioning or you know.

Our mix of procedures shift to outpatient or something else that would explain help reconcile that disconnect between pretty strong surgical volumes in Q3 and in the ongoing demand around IV solutions that you've mentioned.

Yeah.

Hi, Thanks for the question.

I guess all I can do is kind of really reinforce what I've said before I mean, we.

We've spent a lot of time.

With our customers. We also spent a lot of time getting market insights and and again I think as I referenced earlier, there's been some recent external articles probing on this topic, we're actually hospital Ceos and others have talked about their focus continued focus on.

A lot to cover. So I'm gonna just gonna keep it to 1. Uh, question. I'm getting a lot of questions on on this issue of, uh, of IV demand. Um, I guess just zooming out for a sec, you know, maybe you can appreciate that. Investors are having a little difficulty. Reconciling, what's been a pretty strong, uh, procedure surgical quarter, per Medtech, generally, um, and and some sense of like slower slower demand. So, um, you know, is there a is there a competitive Factor here in marginal or significant, that, that that's worth mentioning? Or, you know, a, a mix of procedures shift to outpatient or something else that would explain help reconcile, that that disconnect between pretty strong, surgical volumes of Q3 and, and, and the ongoing demand, uh, around IV solutions that you mentioned, thanks.

Fluid conservation and so.

Again, I will just continue to reinforce a couple of key points number one we do believe over the medium and longer term.

This will continue to recover and.

We're very confident in the strength of our IV solutions business and getting the second point again just.

Our teams are actively and urgency working with our customers to continue to help.

Prove their utilization because this is not an issue of product availability from our perspective.

And so I think that's just reinforcing that that it's available and reinforcing the clinical benefits of those products.

No question that the recovery to some degree is has come in below our expectations.

It's taking longer and again.

We then made that difficult to predict.

At the same time to get our guidance reflects our best expectations of that so.

I guess all I could do is kind of re reinforced, uh, what I said before, I mean, we, we spent a lot of time, uh, with our customers. Uh, we also spend a lot of time gaining, you know, Market insights. And and again, I as I referenced earlier there's been some recent external articles probing. On this topic we're actually Hospital CEOs and others have talked about their focus continued. Focus on uh fluid conservation. And so, you know, again, I I'll just continue to reinforce a couple key points. Uh, number 1, we do believe over the medium longer term. Uh, this will continue to recover and the we were very confident in the strength for IV Solutions business. And again, the second Point, again, I just, you know, we're just our teams are actively, uh, and 1 of the urgency working with our customers to continue to help, uh, improve their utilization because this is not a, an issue of product availability from our perspective.

I'll leave you with that.

Okay.

Okay.

And at this time I'll hand, the call back over to Andrew for some closing comments.

Thanks, operator.

I want to reinforce.

My confidence and excitement about baxter's future.

We're building on our solid foundation with a clear mandate to drive continuous improvement.

Strength in execution and accelerate our shared performance.

Uh, and so I think that's uh, just reinforcing that it's available and the reinforcement of the clinical benefits of those products. Uh, there's no question that the recovery to some degree has has come in below our expectations. Uh, it's, it's taking longer and again, since it's uh, certainly been made that difficult to predict, uh, at the same time again, our guidance, reflects our best expectations of that. And so,

I'll leave you with that.

And we are committed to delivering long term value for our shareholders.

Okie do.

I look forward to sharing our progress in the months ahead.

And at this time, I'll hand the call back over to Andrew for some closing comments.

And stay safe.

Ladies and gentlemen, this concludes the conference call with Baxter International Thank you for participating.

Thanks operator as we close. I want to reinforce my confidence and excitement about Baxter's future.

Yeah.

Okay.

We're building on a solid foundation with a clear mandate to drive continuous Improvement.

Yeah.

strength and execution, and accelerate, our shared performance,

Yeah.

And we are committed to delivering long-term value for our shareholders.

I look forward to sharing our progress in the months ahead.

Thanks and stay safe.

Ladies and gentlemen, this concludes the conference call with Baxter. International, thank you for participating.

Yeah.

Yeah.