Baxter International Inc.

Second Quarter 2023 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, then 1 on your touchtone phone. If anyone should require assistance during the conference, please press star, then 0 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 Trackman, Vice President, Investor Relations at Baxter International. Ms. Trackman, you may begin.

Good morning, and welcome to our second quarter 2023 earnings conference call. Joining me today are Joe Almeida, Baxter's Chairman and Chief Executive Officer, and Brian Stevenson. Baxter's Interim Chief Financial Officer and Chief Accounting Officer. On the call this morning, we will be discussing Baxter's second quarter 2023 financial results along with our financial outlook for the third quarter and full year 2023. Please note, results in the current periods and prior periods have been adjusted to reflect the pending sale of our biopharma solutions or BPS business. While the closing of this transaction is subject to the satisfaction of customary closing conditions That business is now reported as a discontinued operation. We have posted restated schedules reflecting that presentation for prior periods to our IR website. In addition, we will be providing a walk to reconcile our prior guidance for full year 2023 to our updated financial outlook for continuing operations and in the aggregate. With that, let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook, for the third quarter and full year 2023, new product developments, including the impact of pending regulatory approvals, the potential impact of our in-flight strategic and pricing actions, business development, regulatory matters, and the macroeconomic environment, including commentary on continuing supply chain challenges and evolving customer capital spending, contain forward-looking statements that involve risks and uncertainties, and of course, our actual results could differ materially from current expectations. Please refer to today's press release and our SEC filings for more detail concerning factors that could cause actual results to differ materially. In addition, on today's call, non-GAAP financial measures will be used to help investors understand factors ongoing business performance. A reconciliation of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in the accompanying investor presentation and in our earnings release issued this morning, which are both available on our website. Now I'd like to turn the call over to Joe. Joe?

Thank you, Claire, and good morning, everyone. We appreciate you joining today's call. I will begin with an overview of Baxter's second quarter 2023 performance, followed by a look at the progress we're making across the strategic actions we announced earlier this year. I will then turn it over to our interim Chief Financial Officer and Chief Accounting Officer, Brian Stevens, who will walk you through our quarterly performance and outlook in more detail. Finally, as always, we will welcome your questions. Second quarter sales rose 3% on a reported basis and 4% on a constant currency basis. Both measures exceeding our prior guidance of 1% to 2%. and 2% to 3% respectively. As a reminder, and as Claire noted, we are reporting results of our biopharma solutions or BPS contract manufacturing business as discontinued operations in light of its pending sale, which I will touch on shortly. I will note there was no impact in the quarter on top one growth rates from discontinued operations on either a reported or constant currency basis. Our top line outperformance was driven by solid demand across the portfolio. On the bottom line, second quarter adjusted earnings per share from continuing operations totaled 55 cents and discontinued operations totaled 11 cents. In the aggregate, adjusted earnings per share totaled 66 cents and exceeded our outlook range of 59 cents to 61 cents driven by a combination of top-line performance and operational efficiencies. Several factors combined to help bolster both top-line and bottom-line results. First and foremost, I want to highlight positive demand and greater stability across most corners of the healthcare marketplace following the erratic impact of the pandemic and its recurrent surges over the past few years. Overall, we are continuing to see sustained recovery in hospital admissions and procedural volumes, as well as in alternate sites of care, which are contributing to solid performance across the portfolio. The more stable inflationary environment is also contributing to an improved microeconomic backdrop, further helping to steady our operational performance. While positive signs are emerging, we remain cognizant of the potential for inflationary disruptions consistent with our approach this year, and in general, we have tried to capture these potential risks in our updated financial outlook. Similar with last quarter, we are also seeing continued improvement in availability of key electromechanical components, This reflects a combination of overall environmental impacts and steps we have taken to shore up supply within our own integrated supply chain operations. While there is still work to do, these factors and actions are contributing to enhanced cost management and greater predictability on the supply chain front. As we have previously commented, We continue to see a degree of caution in hospital capital spending, which has impacted our patient support systems or PSS performance. Encouragingly, we saw a significant sequential improvement in the second quarter for orders and are building momentum with the recent launches of our Progressive Plus ICU beds and enhanced features to our segment-leading Centrella beds. Progressive Plus is the latest version of our unique ICU-focused bed, which now offers a range of additional features developed to help healthcare professionals address the complex critical needs of ICU patients. Our current expectation is for hospital capital spending to improve in the second half of the year as compared to the first half of the year as hospitals reevaluate their budgets and reprioritize areas of spending. We're building momentum and making significant progress across the transformative strategic actions we announced to kick off 2023. The proposed spin-off of our renal care and acute therapies businesses into an independent publicly traded company, the pending sale of our BPS business, and the implementation of a new operating model for the remainder of our Baxter businesses. As I noted at the time, these are three initiatives with a single agenda, enhance our focus on patients and clinicians with the goal of creating incremental value for our shareholders. While all are still in progress, these efforts are already enhancing strategic clarity across the company, increasing accountability and helping bring the businesses even closer to the patients, clinicians, and customers they serve. Our proposed kidney care spin-off is moving ahead on multiple fronts. Last month, we welcomed Christophe, who will ultimately serve as CEO of the standalone kidney care business upon its separation next year. I couldn't be more excited to have Chris on board, and I can assure you that our leaders and colleagues across our kidney care team feel the same. He's a passionate and proven leader, and his experience as a longtime executive at Varian, a Siemens health and years company, makes him an outstanding fit as the CEO of the new publicly traded company. I look forward to extending the opportunity for you to meet him at our upcoming investor events. As you may also be aware, we have just announced Ventiv as the name of our kidney care spinoff, Formalizing the brand name is an important milestone as it sets the stage for a range of necessary regulatory legal entity IT and branding work that are essential to successfully establishing the new company. Separately, we are finalizing the organization structure and the financial model for the new company. We expect to file Form 10 publicly with the SEC by early next year, which will provide additional details on the financial structure and other important information for the new entity. As a standalone entity, it will benefit from increased management focus and the pursuit of its unique investment priorities, better positions to accelerate growth and innovation, emphasizing its distinct market drivers. We continue to be on track to launch Ventiv as a standalone company by July 2024 or earlier. Moving on to the developments in our biopharma solution business, in May we announced entry into a definitive agreement to divest BPS to private equity investors, Advent International and Warburg Fincas. BPS is an outstanding and profitable business, but as a contract manufacturer, it is not for to back to strategic fast forwards. Our current expectation is that the transaction will close towards the end of the third quarter, subject to receipt of required regulatory approvals and satisfaction of other customary closing conditions. As previously stated, we intend to utilize the after-tax proceeds to reduce debt consistent with our capital allocation priorities. And lastly, in future, we initiated the launch of Baxter's new operating models. realigning our portfolio of businesses into four global vertically integrated business segments, medical products and therapies, healthcare systems and technologies, pharmaceuticals and kidney care. Under this new reporting structure, each segment will have global profit and losses accountability, dedicated commercial operations and fully aligned research and development manufacturing supply chain and functional support teams. While these are still early days, I believe that this approach is already driving clear, meaningful benefits, including enhanced market responsiveness through greater strategic clarity, tighter alignment, faster decision-making, and an invigorated innovation mindset across all aspects of our operations. Not coincidentally, it has also yielded streamlining and efficiency opportunities that I expect to benefit our bottom line. We plan to complete our transition to the new operating model and report under this new segment structure beginning in Q3, which will provide additional perspective on the financial metrics of each of the four segments. Assessing both our year-to-date performance and the progress of our strategic actions, I'm excited and optimistic about our trajectory. We are responding to a rapidly evolving marketplace with fresh, decisive thinking that will redefine how we operate and serve our stakeholders. We are positioning ourselves to emerge as two leading companies, emphasizing a range of medical essential products focused on delivering outstanding results for our patients, shareholders, and the many other stakeholders communities that rely on us. Before concluding, I would like to point you to Baxter.com, where you can review Baxter's most recent corporate responsibility report published last month. It highlights meaningful actions taken in 2022 in support of our goals to empower our patients, protect our planet, and champion our people and communities. Baxter's well-recognized emphasis on sound corporate citizenship is another important way that we advance our mission to save and sustain lives. Now, I'll pass it on to Brian to provide more detail on our performance and outlook.