Baxter International Inc.

Good morning, ladies and gentlemen, and welcome to Baxter International's fourth quarter 2022 earnings conference call. Your lines will remain in a listen-only mode until the question and answer segment of today's call. At that time, if you have a question, you will need to press star one on your touchtone phone. If anyone should require assistance during the conference, please press star, then zero on your touchtone phone. As a reminder, this call is being recorded by Baxter and is copyrighted material. It cannot be recorded or rebroadcast without Baxter's permission. If you have any objections, please disconnect at this time. I would now like to turn the call over to Ms. Claire Trachtman, Vice President, Investor Relations at Baxter International. Ms. Trachtman, you may begin.

Good morning, and welcome to our fourth quarter 2022 earnings conference call. Joining me today are Joe Almeida, Baxter's Chairman and Chief Executive Officer, and and Jay Saccaro, Vector's Chief Financial Officer. On the call this morning, we will be discussing Vector's fourth quarter and full year 2022 financial results, along with our financial outlook for 2023. With that, let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook for the first quarter and full year 2023, new product development, the potential impact of recently announced Strategic actions, proposed pricing actions, business development, and regulatory matters contain forward-looking statements that involve risks and uncertainties. And of course, our actual results could differ materially from our current expectations. Please refer to today's press release in our SEC filings for more detail concerning factors that could cause actual results to differ materially. In addition, on today's call, non-GAAP financial measures will be used to help investors understand Baxter's ongoing business performance. A reconciliation of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in our earnings release issued this morning and available on our website. On the call this morning, we will be discussing operational sales growth, which for the fourth quarter and full year 2022 adjusts for the impact of foreign exchange in the acquisition of Hill Round. Now I'd like to turn the call over to Joe. Joe?

Thank you, Claire, and good morning, everyone. We appreciate you taking the time to join us. I will begin with a brief overview of Baxter's performance for the quarter and year, and then provide some additional information on the strategic roadmap we announced on January 6. These actions Further outlined in this morning's press release will help Baxter to emerge as a more agile, innovative, market-responsive enterprise with expanded opportunities to create long-term shareholder value. Jay will follow with a deeper dive on our 2022 results and outlook for 2023, and we'll close with Q&A. Starting with our financial results, sales for the fourth quarter 2022 were $3.9 billion, growing 11% on a reported basis, 17% a constant currency, and 2% on an operational basis. Fourth quarter adjusted earnings per share were $0.88, came in below our expectations, primarily driven by foreign exchange losses and product mix in the quarter. For the four-year sales of $15.1 billion, advanced 18% on a reported basis, 23% at a constant currency, and 2% on an operational basis. Adjusted earnings per share for the year were $3.50. Jay will provide more granularity on the numbers, but some themes are clear. Demand across our portfolio remains solid, and sales rose across the majority of our legacy Baxter and Huron businesses. Offsetting modest or expected declines in others driven by factors such as generic competition or challenging year-over-year comparisons. As we've discussed previously, this top line growth was offset by a wave of macroeconomic and supply chain factors that has continued to put pressure on the cost of doing business. And as I have stressed many times, we will never pursue reduced costs in ways that could compromise our fundamental mission to save and sustain lives. But even factoring in these headwinds, we did not perform at the level we expected and demand of ourselves. And our ability to advance our mission is grounded first and foremost in our capacity to deliver steady, solid performance as a sustainable economy. corporate enterprise. This is precisely why earlier this year we announced plans to accelerate our transformation journey. The actions we announced on January 6 and are expanding on today are as necessary as they are timely. As I shared in January, we spent the latter part of 2022 undertaking a comprehensive review of our operations, focused keenly on opportunities to improve our commercial responsiveness. reinvigorate our innovation engine, and streamline our operations. This work led to last month's announcement of our intention to spin off a new kidney care company, explore options for our biopharma solutions, contract manufacturing business, and implement a new operating model for our remaining bachelor businesses. These are three distinct initiatives with a single agenda, increased stakeholder engagement, impact with improved long-term shareholder value. Cutting across these actions are common goals. Enhance and refine strategic clarity, increase accountability and line of sight, enhance agility, and bring our global businesses even closer to the patients, clinicians, and customers they serve. Today, I will share the next level of detail on the Backstreet business model we expect to begin implementing next quarter. This work entails a fundamental reconfiguration of how we operate and deliver products to the customers and markets we serve. This new operating model is focused on four vertically integrated global business units or GBUs grouped along general therapeutic areas encompassing multiple sites of care. These GBUs, which will become Baxter's core operating and reporting segments, when implemented, include medical products and therapies comprising our current medication delivery, advanced surgery, and clinical nutrition portfolios. Healthcare systems and technologies comprising our legacy heroine businesses, including patient support systems, global surgical solutions, and frontline care. pharmaceuticals, which will include our current pharma portfolio, as well as our biopharma solutions business until its potential separation. And finally, kidney care comprising our current renal care and acute therapies businesses. To reiterate, our intention subject to satisfaction of customary conditions is to spin kidney care into an independent, publicly traded company in the next 12 to 18 months Until then, this GBO will benefit from the strategic work we are doing right now, helping to hone a well-focused and streamlined entity in preparation for its anticipated launch as a standalone company. In this way, we can think of Baxter as having four GBO structure, or perhaps a three plus one GBO structure once the model is in place later this year. Each new GBU will have its own president reporting directly to me. Each will have full global P&L accountability. We'll begin to realign our current three-region global commercial structure, so the global commercial teams will report directly into each GBU. The dedicated R&D manufacturing and supply chain and functional support teams will also be embedded by GBU to optimize visibility and oversight. This new structure is designed to generate more direct, clear accountability across each business and promote more agile decision-making across sales, marketing, manufacturing, distribution, and innovation. So what you see upon completion of this process is that each of the GBUs will have more autonomy and agility than the current businesses do today. GBUs will be able to respond to market dynamics faster and more effectively, accelerate commercial investments, design and produce products, and prioritize R&D spending, all to help meet critical market needs and accelerate business performance. From a manufacturing perspective, Baxo will become more nimble, with manufacturing sites mapped directly to each GPU, leading to an optimized manufacturing footprint in a more resilient supply chain. Preparation for the new operating model is already surfacing opportunities for streamlining and efficiency that are intended to further bolster bottom-line performance. The redesign being contemplated coupled with additional actions the company has undertaken to enhance performance are expected to deliver more than $300 million in total savings during 2023 and a workforce reduction of less than 5%. We plan to begin implementing our new operating model early in the second quarter, Looking ahead to 2023, more broadly, we expect to continue navigating a challenging operational environment. Hand in hand with our transformation efforts, we have been taking a hard look at our forecasting models and processes as we reflect on our performance last year and the lessons learned in an era of unprecedented macroeconomic challenges. We have taken a stance of incorporating more potential downside risks into our financial outlook for 2023. Jay will provide additional details on our outlook and various assumptions included. Before I pass it out to Jay, I want to close by reinforcing my confidence and optimism for the future and our commitment to continue doing the important work we do every day. Baxter holds a fundamental place in global healthcare with a durable portfolio of essential products, market-leading positions, and passionate employees who bring our mission to life. We're setting out on a well-considered plan to redefine our operations and potential in pursuit of incremental long-term value for the stakeholders and shareholders that rely on us. 2023 now becomes a pivotal year. We are on our way to creating two leading healthcare companies with robust portfolios and strong market momentum. We look forward to sharing our progress and performance in the quarters to come. With that, I'll pass it over to Jay.