Baxter International Inc.

an answer segment of today's call. At that time if you have a question you will need to press star then the number 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 Trackman, Senior Vice President, Chief Investor Relations Officer at Baxter International. Ms. Trackman, you may begin.

Good morning and welcome to our third quarter 2023 earnings conference call. Joining me today are Joel Meda, Baxter's Chairman and Chief Executive Officer, Joel Grady, Baxter's newly appointed Executive Vice President and Chief Financial Officer, and Brian Stevens. Baxter Senior Vice President, Chief Accounting Officer, Controller, and former Interim CSO. On the call this morning, we will be discussing Baxter's third quarter 2023 financial results along with our financial outlook for the fourth quarter and full year 2023. Please note that we closed the sale of our biopharma solutions or BPS business at the end of the third quarter and results in the current and prior periods have been adjusted to reflect BPS as discontinued operations. Restated schedules reflecting that discontinued operations presentation are included in the appendix to our earnings presentation and available in the IR section of our website. With that, let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook for the fourth quarter and full year 2023, new product developments, including the impact and status of pending regulatory approvals, the status and potential impact of our ongoing strategic and recent pricing actions, business development, regulatory matters, and the macroeconomic environment, including commentary on continuing supply chain challenges and evolving customer capital spending trends, 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 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 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 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, Clare, and good morning, everyone. We appreciate you taking the time to join us today. I am pleased to be joined this morning by Chief Accounting Officer and Controller, Brian Stevens, and to welcome our new Chief Financial Officer, Joel Grady, to the call. I will begin the call today with an overview of our third quarter performance and the continuing momentum of our ongoing transformational initiatives. I will also share perspective on the progress and potential of our proposed kidney care spinoff, including some context around recent developments in that therapeutic area. Brian will provide a more detailed account of Baxter's third quarter and financial outlook, And as always, we will close with your questions. To get started, Baxter reported solid third quarter results that came in ahead of our projections, both on the top and bottom line. Sales from continuing operations rose 3% on a reported basis and 2% on a constant currency basis. As Claire noted earlier, Sales from continuing operations exclude Baxter's biopharma solutions or BPS business, which Baxter divested at the close of the quarter. Sales in the aggregate, including discontinued operations, also increased 3% on a reported basis and 2% on a constant currency basis. Our better than expected top line performance was driven by positive demand for many of Baxter's products combined with continued abatement of supply chain challenges. On the bottom line, third quarter aggregate adjusted earnings per share totaled 82 cents, comprising EPS of 68 cents for continuing operations and 14 cents for discontinued operations. Adjusted EPS from continuing operations exceeded the top end of our outlook range of 65 to 67 cents, driven by end market stabilization and good sequential margin improvement across our business, which reflects strong execution against our strategic priorities. Overall, and especially when compared to what we've seen in recent quarters, we view the current market environment as relatively stable, though we continue to monitor hospital capital spending, particularly in light of an elevated interest rate environment. While we have seen sequential improvement in orders within our care and connectivity solutions division, we continue to expect hospitals to exercise some degree of caution with their capital budgets. The momentum we are building in financial performance is also reflected in the progress we're experiencing across the strategic priorities we laid out for you earlier this year. These initiatives in combination are focused on enhancing strategic clarity, increasing operational efficiency, and accelerating innovation to deliver greater value for all of our stakeholders. During the third quarter, we achieved some pivotal milestones towards driving this improved performance. First, we've been hard at work realigning the businesses to simplify and streamline our operating model. These efforts are resulting in a more agile company with better visibility to our global markets and customers. In line with this realignment, today is the first time we formally report our results under the new operating model as four global vertically integrated business segments, medical products and therapies, healthcare systems and technologies, pharmaceuticals and kidney care. Each segment now has global profit and loss accountability, dedicated commercial operations and fully aligned research and development, manufacturing, supply chain and functional support teams. This reorganization is already creating meaningful advantages in helping us set priorities, build alignment, and operationalize our strategy. Advantages they have already and are expected to continue to pay dividends going forward. Our new segments are also a reminder of our highly diversified portfolio with strong brands, a global presence, and high trust among clinicians and patients. The diversity and durability of our portfolio focused on essential healthcare needs helps fuel sustained demand on multiple fronts, allowing us to better weather challenges that can emerge while continuing to deliver on our mission of saving and sustaining lives. As discussed, this quarter we also completed the divestiture of our biopharma solutions business, further streamlining our focus on our core businesses. We are deploying substantially all of our estimated net after-tax cash proceeds of approximately $3.7 billion to pay down debt in accordance with our stated capital allocation priorities. The third transformational action we laid out at the start of the year was the planned separation of what is now our kidney care segment. We are making significant progress and currently expect to launch kidney care as an independent publicly traded company by July 2024. I continue to be impressed with the leadership of Christos, who joined us in June as president of our kidney care segment and designated CEO of Ventev. In just five months, he has already proven himself as an astute, decisive, engaging leader. He has already surrounded himself with an outstanding team of experienced direct reports drawn from across Baxter and externally, and we expect to finalize the organizational structure for the new company by the end of the year. Meanwhile, the hard work of separating kidney care from Baxter is ongoing across commercial, legal, regulatory, supply chain, and numerous other key operational channels. Just like Baxter post-separation, kidney care will be positioned to benefit from heightened focus and the ability to pursue its unique investment priorities to serve patients and clinicians, drive growth and innovation, and create added value for shareholders. With this as context, I wanted to briefly share some perspective on recent headlines regarding GLP-1s, including Novo Nordisk's October announcement about its flow study and broader speculation about the future of dialysis therapy. We, like the rest of the dialysis community, continue to follow developments closely, and we are eager to see the full study results, which are expected to be published in the first half of 2024. Given Baxter's life-sustaining mission, we welcome any new therapeutic approaches that have the potential to improve the lives of patients particularly those with chronic conditions. We also believe that it is premature to assume that these drugs, particularly given the full trial results have yet to be published, will bring about any material shift in the need for dialysis services from a global market perspective. We believe that dialysis therapy will remain in demand and a critical element of patient care for the foreseeable future. Let me highlight a couple of data points that we believe are relevant. The existing data on demographics and disease patterns continue to consistently suggest that the global incidence of end-stage kidney disease, or ESKD, will continue to rise over the next 15 to 20 years. To provide a bit more context, current data suggests that the global ESKD incidence Overall, we'll continue to grow, driven by a greater than 35% expected increase in the prevalence of diabetes by 2040. At the same time, global demographic data show that the number of people over 65 years old should be increasing by approximately 75% globally between now and 2040, which is also expected to increase the number of potential patients at risk of developing ESKD. Collectively, these macro changes suggest the global incidence of ESKD is expected to continue to rise over the next 15 to 20 years, even with important innovations in CKD therapeutics. We also believe these new drugs are doing important work in raising the awareness and prevalence of primary care discussions about CKD diagnosis and management. We welcome this focus because better informed and empowered patients drive better preparation for dialysis and studies have shown that the more informed the patient is about their treatment options, the more likely they are to choose home dialysis over other forms of dialysis when given the option. To that end, we're looking forward to seeing the new study data and understanding how it may provide additional options and benefits for patients with CKD. My excitement for the trajectory of kidney care remains high. Our thesis and sense of opportunity for an independent, stand-alone kidney care business remain unchanged from the day we first announced the spin. This has been a year of investment, of transformation, of important and sometimes difficult steps taken to strengthen our present and redefine our future. We knew when we first laid out this transformation in January that we had to get it right and less than a year later our progress is evident and our path forward is clear. We have delivered on our BPS divestiture. We have implemented our verticalized segment structure and we are well on our way toward achieving the planned kidney care separation. Our continued progress on this transformational journey is a credit to the exceptional hard work and commitment of our Baxter colleagues worldwide, who, as always, have my profound thanks. I'm confident these actions are strongly positioning Baxter and, in turn, kidney care to unlock meaningful long-term value for all stakeholders. Now, before we take a closer look at our third quarter financials and outlook for the remainder of the year, I want to recognize Brian Stevens for serving so well as interim CFO for over the past five months. We're also pleased to welcome incoming CFO, Joel Grady, whose wide-ranging experience and track record make him an outstanding fit at this time of transformation. I will first hand the call over to Joel for a few introductory comments before Brian then provides a more detailed overview of our results for the quarter.