Baxter International Inc.

Good morning, ladies and gentlemen, and welcome to Baxter International's third quarter 2024 earnings conference call. Your lines will remain in the 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 zero on your touchtone phone. As a reminder, this call is being recorded by Baxter and is copyrighted materials. 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 now begin.

Good morning and welcome to our third quarter 2024 earnings conference call. Joining me today are Joel Maida, Baxter's Chairman and Chief Executive Officer, and Joel Grady, Baxter's Executive Vice President and Chief Financial Officer. On the call this morning, we will be discussing Baxter's third quarter 2024 results, along with our financial outlook for the fourth quarter and full year 2024. With that, let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook for the fourth quarter full year 2024 and 2025, the status and anticipated timing and impact of our ongoing strategic actions, including the pending kidney care sale and cost savings initiative, regulatory matters, and the macroeconomic environment on our results of operations 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 factors ongoing business performance. A reconciliation of certain non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in the accompanying investor presentation and also available in our earnings release issued this morning. which are both available on our website. Please note, following the announcement of Baxter's pending sale of our kidney care business to Carlyle, the kidney care business met the conditions to be reported as a discontinued operation. Accordingly, the kidney care business is now reported in discontinued operations and the company's prior period results have been adjusted to reflect the discontinued operations presentation. restated historical results reflecting the kidney care segment as a discontinued operation for the prior six quarters can be found on Baxter's website in the investor relations section. Discontinued operations for 2023 also include Baxter's former biopharma solutions or BPS business, which was divested at the end of the third quarter of 2023. Current and prior year periods now reflect the continuing operations of Baxter's medical products and therapies healthcare systems and technologies, and pharmaceutical segments. 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 today. We start with a brief update on the hurricane recovery progress at our North Coast, North Carolina facility, followed by some comments regarding our third quarter performance. Joel will provide a closer look at our third quarter results and our outlook for the remainder of the year. We will also share some preliminary thoughts regarding our financial outlook following the completion of the pending sale of the kidney care business. Then, as always, we'll take your questions. As you know, Hurricane Helene caused unprecedented devastation in western North Carolina in the closing days of September. This region is home to Baxter's North Cove Manufacturing Facility, the largest plant in our global network and a critical source of IV and peritoneal dialysis fluids for the U.S. market. I want to first recognize the amazing tireless work of our North Cove team, who have helped rapidly advance the ongoing site recovery efforts while also navigating this storm's personal toll. Our heart goes out to the entire community, and we are so proud of what our colleagues across the Bachelor Network are accomplishing daily to help return the site to normal operations. In just six weeks, The North Cove team has devoted more than 1 million hours collectively to restoring operations. This dedication was evidenced last week as our highest throughput IV solutions line in North Cove was able to restart production. We also expect to restart a second IV solutions manufacturing line in the coming week. Together, these two lines represent at their peak operation approximately 50% of the site's total production. These key milestones were achieved ahead of our original expectations. However, I want to emphasize that in coordination with FDA, the earliest that new North Gold product could start to ship is in late November, and more hard work remains as we return the plant to full production. Throughout this effort, our focus has remained squarely on our customers and their patients and our employees. And to this end, we have not spared any resource to ensure the needs of these key stakeholders are prioritized. Parallel to our NorthCold recovery efforts, we have activated nine sites across our global manufacturing network to help increase available U.S. inventory to serve our patients and customers. And we work to bring NorthCold fully back online. As we have shared previously, we anticipate restarting NorthCold production in phases by the end of the year. and our current expectation is that all lines in North Cove will have resumed production before the end of this year. Throughout this journey, our North Cove and global teams have demonstrated an unwavering commitment to Baxter's life-sustaining mission. I also want to express our gratitude to ASPR, FDA, and the state of North Carolina and HHS, among other federal, state, and local entities, for their steadfast support. and we deeply appreciate the patience and partnership of our customers as recovery efforts continue. We will continue providing updates through Baxter.com on planned recovery supply continuity and how Baxter is making a difference for its employees and the community. Now turning to our third quarter performance. Given the tendency of our kidney care business, current and prior period results for this business are now reported as discontinued operations. As Claire mentioned, restated historical results can be found on Baxter's website. For today's discussion, we will be focusing our commentary on total company performance in the third quarter, which includes the impact of kidney care in both the current and prior periods, but excludes the impact of the biopharma solutions business, which moved discontinued operations in the third quarter of 2023. On that basis, total company third quarter 2024 sales grew 4% on both a reported and constant currency basis. In line with our prior guidance, all of our Baxter segments increased year over year on both a reported and constant currency basis. As always, we benefit from our focus on essential healthcare needs combined with the diversity and durability of our portfolio. In Q3, strength in our medical products and therapies and kidney care segments helped offset softness in the healthcare systems and technologies and pharmaceutical segments. On the bottom line, total company adjusted earnings per share across continuing and discontinued operations totaled 80 cents ahead of our guidance range of 77 to 79 cents per share. Performance was fueled by top line strength, continued improvements in integrated supply chain efficiency, and disciplined management of operating expenses. Taking a closer look by segment, I will begin with the businesses that will comprise the new Baxter following the pending kidney care sale. Medical products and therapies led all segments with 7% growth at both reported and constant currency rates. Filled by positive demand across the portfolio, I particularly want to highlight the strong uptake of our Novum IQ platform in the U.S., including our large volume pump and syringe pump, both featuring those IQ safety software. The new platform is widely recognized across the market as advancing pump connectivity, intelligence, and fusion therapy, and we foresee sustained positive momentum, both through existing customer upgrades and competitive conversions. Performance in this segment also benefited from strength globally in our advanced surgery division. Our healthcare systems and technologies, or HSD, segment grew 1% with both reported constant currency rates. Growth was driven by strong U.S. performance in the Care Connectivity Solutions Division, particularly for our patient support systems products, which increased low double digits in the quarter. This growth was partially offset by declining U.S. frontline care sales, largely reflecting the ongoing dynamics impacting the U.S. primary care market, which we have discussed previously, plus a difficult comparison to the prior year period, which reflected the benefit from backlog reduction efforts. Softness internationally inherent connectivity solutions also muted overall HST growth as lower sales in China and France impact performance in the quarter. We fully recognize the need to drive continued improvement in the growth profile for both the frontline care division and HST as a whole. Our current expectation is that the U.S. primary care market begins to stabilize over the coming year. In addition, we are keenly focused on enhancing performance through innovation and launching new products to augment growth in both FLC and the broader HST segment. We have several new products scheduled to launch in 2025 and beyond that we believe will contribute to improved performance for this segment over time. Sales in our pharmaceutical segment increased 1% on both the reported and constant currency basis. Double-digit growth in drug compounding was partially offset by a high single-digit decline in our injectables and anesthesia division. Sales of injectables and anesthesia were impacted by phasing out selected sales into the fourth quarter, combined with supply constraints impacting international sales. While the performance in the quarter was disappointing, we believe the weakness is temporary, and we have already observed a course correction to start the fourth quarter. At the same time, the injectable sales force continues to enhance its new product launch capabilities and remain focused on successfully driving the commercial launch of several new injectables in 2024 and beyond, now shifting toward a skincare segment. which will be known as fans of it following its separation from Baxter. The segment grew 4% on the reported basis and 5% at constant currency driven by both demand and pricing for acute therapies and paired to new dialysis products. These results reflect positive momentum as the segment prepares to operate as a separate entity. Progress on the pending sale to Carlisle continues with the process well underway. We continue to expect the sale to close in late 2024 or early 2025. subject to receipt of regulatory approvals and other customary conditions. As you know, this sale represents a key milestone across the three pillar strategic transformation we announced in January 2023. These steps also included the realignment of our operating model and the divestiture of our non-core biopharma solutions contract manufacturing business, both of which were executed over the course of last year. Taken together, These three transformational actions have been uniformly focused on enhancing value for all stakeholders and empowering our ongoing transformation. In addition, we remain committed to crisp execution of several initiatives across the enterprise focused on enhancing the efficiency of our operations, heightening the productivity of research and development, and offsetting the impact from stranded costs that result from the pending sale of kidney care. Post the separation of kidney care, we continue to expect our business can deliver 4% to 5% top line growth and achieve an adjusted operating margin of 16.5% in 2025 with annual operating margin expansion thereafter. I'm excited about what we have accomplished to date while also recognizing there's still more to do. Our progress, as always, is due entirely to the hard work and commitment of our Baxter colleagues globally. Whether these efforts involve restoring our North Pole facility, powering our ongoing transformation, or delivering on our goals in countless other ways, our colleagues are motivated by unparalleled dedication to advancing Baxter's mission to save and sustain lives. I salute this extraordinary team today and every day. Now I will pass it to Joel, who will provide more detail on our third quarter, our outlook for the balance of the year, and our trajectory following the pending kidney care divestiture. Joel.