Baxter International Inc.

Good morning, ladies and gentlemen, and welcome to the Baxter International's fourth quarter 2025 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 the star, then one keys 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 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 fourth quarter results along with our financial outlook for the full year 2026. 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. Joining me today are Andrew Heider, President and Chief Executive Officer, and Joel Grady, 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 full year of 2026 and anticipated timing and impact of our deleveraging efforts, the amount and timing of charges related to recent operating model and cost structure actions, the anticipated impact of various regulatory and operational matters, including ones related to our infusion pump platform and to clinical practice changes following Hurricane Helene, 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, 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. Non-GAAP financial measures are used to help investors understand Baxter's ongoing business performance. GAAP to non-GAAP reconciliation can be found in the schedules attached to our press release and our investor presentation. On the call, we will reference operational growth. which excludes the impact of foreign exchange, MSA revenues from Vantos, and the previously announced exit of Ivy Solutions from China. We will also reference organic growth, which excludes the impact of foreign exchange, MSA revenues from Vantos, and any impact from future business acquisitions or divestitures. We plan to utilize the organic growth measure going forward. Finally, as a reminder, Continuing operations excludes Baxter's kidney care business, which is now reported as discontinued operations. With that, I'd like to turn the call over to Andrew.

Thank you, Kevin, and good morning, everyone. Fourth quarter 2025 global sales from continuing operations totaled $3 billion and increased 8% on a reported basis and 3% on an operational basis. Total company adjusted earnings from continuing operations were 44 cents per diluted share. While the top line exceeded our expectations, adjusted EPS fell short. Joel will get into greater detail on the results, but there were a few areas that differed from our expectations we provided in October. On top line, we saw a more modest net impact from Novum IQ large volume pump customer returns, which was favorable to results. While responses have varied, in general, customers are waiting for additional clarity on the nature and timing of the additional corrections that we will look to deploy. Margins were pressured by both an unfavorable mix of sales as well as some non-recurring items, including inventory adjustments. And finally, we saw a higher tax rate. The results in the quarter are disappointing and underscore the work ahead to improve performance and execute more consistently. I stepped into this role in August with confidence in the potential of the business, given the central role Baxter plays in healthcare, but also with a practical sense of the hurdles before us. As I've continued to visit our sites and engage directly with the team and customers, I've deepened my understanding of both the challenges and opportunities facing Baxter. We're in the early stages of a turnaround and have more work to do to deliver strategically, operationally and commercially, and recognize that it will take time to implement real long-term solutions. That said, there's a strong thesis on where we can take this business. And we saw some examples of this in the quarter's results. For example, the advanced surgery business kept off a great year with a strong quarter growing 11% with contributions both across the portfolio and around the globe. And the healthcare systems and technology segment had another quarter of consistent performance, including a contribution from the recently launched Connect360 monitor in the frontline care division. We're also preparing for the launch of the recently announced Dynamo Series Stretcher, the latest innovation in our portfolio of smart beds, services, and connected care solutions. Innovation will be a critical element to our success, and we recognize the importance of bringing new innovation into the market. Accordingly, you should expect a heightened focus going forward and continued investment in R&D at or above historical levels. As I said during our last earnings call and reiterated last month, I'm focused on three main priorities. These are stabilizing the areas of the business that require increased focus, strengthening our balance sheet and driving a culture of continuous improvement and efficiency. We are moving with focus and urgency on each of these, and our teams are driving relentlessly to improve execution and performance across the enterprise. It is with this in mind that we have decided to hold off on our investor day. Let me share a few updates on our priorities and the actions we have taken Stabilize. Just a few weeks ago, we internally announced a new operating model that is designed to simplify our organization, accelerate innovation, and improve performance. Most significantly, we are de-layering levers of leadership, including removing the segment management layer and embedding critical functional roles directly in each of our businesses. This will allow each leader to have full P&L responsibility for their business with fully aligned commercial R&D, manufacturing, medical, and targeted functional support, and importantly, full accountability to the results. These changes are significant and are designed to reduce complexity, eliminate barriers for decision-making, bringing us closer to our customers, and help us to improve our say-do ratio. We've also taken actions within our IB solution business to right-size a support footprint to align to the lower demand environment we believe is a new baseline in the market. In pharma, in addition to market demand softness, supply and backorder challenges have impacted revenue and driven unfavorable product mix. Specific initiatives to address these are in progress. However, it will take some time to bear fruit. Overall, across the enterprise, we are taking actions to further strengthen our focus on quality and improving on-time delivery. our two customer value creators. Balance sheet. We continue to focus on improving our cash generation and leverage. In line with our expectations, free cash flow generation exceeded $450 million in the quarter and continuous improvement. As a reminder, operational efficiency is at the center of what we are driving. As you know, a key element of this is our Baxter growth and performance system, Baxter GPS, which we rolled out in October to ensure continuous improvement, enterprise efficiency, and a growth and performance mindset are integrated into our day-to-day work. We recently held our first annual President's Kaizen, where I was impressed by the resolve each of our leaders demonstrated in driving change for the better with a focus on 10 events that will drive cross-business impact. focused week-long sprints teams tackle critical opportunities aligned to our eight value graders the work underway is helping us reduce complexity better anticipate customer needs accelerate innovation commercialize faster and deliver value sooner we're focused on improving every aspect of our operations and we will be consistently measuring our performance to deliver just that importantly this is not a one-off event it's how we're building a continuous improvement culture where everyone is empowered to make things better every day before i turned over to joel i just wanted to reiterate the key steps we're taking we have streamlined the organization for greater accountability we have launched gps to drive continuous improvement and we have heightened our focus on innovation to better meet customer needs, all to drive improved performance and long-term shareholder value creation. Now I will turn it over to Joel. Joel, over to you.