Baxter International Inc.

Good morning, ladies and gentlemen, and welcome to Baxter International's first quarter 2026 earnings 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 and one key on your touch tone phone. If anyone should require assistance during the conference, please press the star then zero on your touch tone 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'll discuss Baxter's first 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 reiterated 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 Anita Zielinski, Interim Chief Financial Officer, Chief Accounting Officer, and Controller. During the call, we will be making forward-looking statements, including comments regarding our reiterated financial outlook for the full year 2026 and the anticipated drivers of the second quarter and second half 2026 performance. The anticipated impact of various regulatory and operational matters, including ones related to our infusion pump platform and ongoing supply chain challenges, and commentary regarding the global macroeconomic environment, including estimated impacts of tariffs and broader inflationary pressures. 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 of 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 reconciliations can be found in the schedules attached in our press release and our investor presentation. On the call, we will reference organic growth. which excludes the impact of foreign exchange MSA revenues from Vantiv and impacts associated with business acquisitions or divestitures. As a reminder, continuing operations excludes Baxter's kidney care business, which is now reported as discontinued operations. Finally, Andrew, Anita, and I will take questions following the prepared remarks, and we kindly ask that you limit yourself to one question and one brief follow-up so that we can give as many people in the queue an opportunity. With that, I'd like to turn the call over to Andrew.

Thank you, Kevin, and good morning, everyone. And welcome, Anita, who is serving as interim CFO until we appoint a permanent successor. We'll continue her duties as Chief Accounting Officer and Controller. I have full confidence that Anita's stewardship, supported by the diligence of our finance team, will help ensure continuity and a seamless transition while also supporting our turnaround, including efforts to strengthen our balance sheet. I'd also like to thank Joel for his contributions and partnership during his time with Baxter. We wish him all the best. We have launched a comprehensive search for a permanent successor, and I look forward to providing an update when appropriate. In the meantime, my focus remains on executing our turnaround, including stabilizing the business, strengthening the balance sheet, and driving a culture of continuous improvement. The Baxter team is working hard and made progress in all three fronts in the quarter. I'll cover this in more detail in a few minutes. For the first quarter, Financial results were in line with our overall expectations, and we are on track to deliver on our guidance for the full year. Although we are not satisfied with where our performance stands today, we have a roadmap in place to improve results and drive shareholder value. I have clear insights into the challenges facing our business. We believe we are taking the actions necessary to fulfill the company's potential. As I have come to learn through my immersive nine months as CEO, and deep engagement with customers, employees, and our leaders. Baxter is a foundation of good businesses with leading positions and the potential to outgrow our markets, expand margins, and increase cash flow. We are focused on delivering not only better, but also more consistent and predictable performance. With that, let me provide a high-level overview of our performance within the quarter. First quarter global sales from continuing operations totaled 2.7 billion, representing an increase of 3% year-over-year on a reported basis and a decline of 1% on an organic basis. Adjusted earnings from continuing operations for the quarter were 36 cents per diluted share versus 55 cents in the prior year period. As we stated in our last call, we expected the first quarter to be challenging including difficult prior year comps. As a reminder, in the first quarter of 2025, we saw a one-time distributor build following Hurricane Helene, which benefited the MPT segment. Also in the prior year, operating margins realized a benefit due to the timing of certain functional costs being reclassified. In the quarter, we saw the expected headwinds for both tariffs and higher manufacturing costs, including absorption, pressure, operating margin. While we did not see material impact from Novum LVP related returns in the quarter, we believe it's prudent to continue to factor this possibility into our full year guidance. We remain focused on supporting our current Novum customers with their implementation of currently available mitigations. We continue to work diligently to finalize hardware and software corrections to resolve the active field actions. Once available, we will implement the corrections in coordination with regulatory authorities, including any necessary submissions. Looking at the overall demand environment, we continue to believe we are in attractive end markets. Advanced surgery, for example, had another great quarter, growing 10%, and we are sustaining a strong order book in our care and connectivity solutions business. We continue to monitor the direct and broader macroeconomic effects of higher oil prices and conflict in the Middle East. Our Middle East exposure is less than 2% of total revenue. Importantly, our exposure to fuel today is less than half of what it was historically, given the divestiture of the kidney business. That said, this is obviously a fluid situation which we are actively monitoring. In the event the landscape changes, It will not be Baxter specific. We are prepared to navigate any unforeseen dynamic with rigor and agility. To support our customers, we are continuing to advance innovation in targeted areas of the portfolio. This includes positive response from customers and strong order growth from Dynamo, a smart hospital stretcher designed to improve patient safety and care team efficiency. In the quarter, we also launched the IV verified line labeling system, an automated solution that supports safer medication administration, and the XR Spine Surgical Table, which is designed to support surgical teams across a range of spine procedures. We also have an active pipeline of differentiated solutions with integrated AI functionality designed to accelerate future growth. We are already leveraging AI in our Connected Care Foundation, which unifies Baxter's unique data set provided by Internet of Things devices like beds, pumps, and vitals to provide actionable data and analysis. In addition, we are using AI in frontline care to develop products that strengthen clinical insights and operational efficiency. Overall, our performance in the first quarter was in line with how we expected the year to begin, with a few puts and takes across the portfolio. Importantly, our results support the broader framework we laid out for 2026, including known mechanical headwinds and a more challenging comparison to the prior year in the first half and improving performance in the second half. It is still early in our turnaround, but we're on the right track and showing progress on our three strategic priorities. The first of those priorities is stabilizing the business, specifically in areas that require increased focus. As an example, last quarter we referenced backorder challenges at one of our manufacturing facilities that was impacting revenue and driving unfavorable mix within pharma. During the quarter, we made significant progress in clearing backorders in addition to increasing throughput. The second priority is strengthening the balance sheet. That includes improving free cash flow to support deleveraging. I'm encouraged with the positive free cash flow generation in the quarter, which reflects early success in our effort to improve working capital efficiency. While we still have more work to do, this is a solid step in the right direction and reinforces my confidence that the actions we are taking will strengthen cash generation and our overall financial flexibility over time. Our near-term capital deployment priority is debt pay down, and we continue to target net leverage of approximately 3x by the end of 2026. Once we reach our leverage goal, we will have a stronger balance sheet with more optionality to drive shareholder value, including strategic tuck-in M&A that enhances our customer offerings and growth profile, as well as the option to return capital through share repurchases. Turning to our third priority, driving continuous improvement. It has been almost six months since we rolled out the Baxter Growth and Performance System, or GPS, which is focused on simplifying processes, leveraging data, and strengthening performance management. In the time since launch, we have de-layered management teams and pushed down P&L responsibility directly to leaders of each of our operating businesses. We are setting rigorous KPI measures to drive accountability and continuing to embed the operating discipline into our culture to enable better execution, consistency, and improve performance over time. We have also started to deploy AI tools to accelerate efficiency gains within internal quality workflows such as the customer correspondence portal and AI-assisted corrective field action communications scheduled to be deployed later this year. Looking forward, we will thoughtfully embed AI directly into internal process improvements, frontline workflows, and manufacturing at enterprise scale with the goal of strengthening speed, consistency, and reliability while also maintaining rigorous governance and a focus on patient safety. Baxter GPS is becoming part of how the company runs the business. We kicked off the year with 10 President Kaizen events, and we've now launched more than 230 continuous improvement events. We're building a stronger culture of continuous improvement through leader training and establishing a lean community of practice. To date, much of our focus has been concentrated on cash flow service reliability, and speed to market. While we are still in the early stages of organization-wide adoption, we are seeing strong traction. Ultimately, the purpose of GPS is to enable a consistent approach across the enterprise to identify problems and opportunities earlier, improved visibility, simplified processes, and drive accountability. This is not a short-term initiative. It is the new core of how we will operate going forward and improve execution to deliver on Baxter's full potential. I want to take a moment to thank our more than 37,000 Baxter colleagues around the world for their resilience and dedication to our mission. As the oars begin rowing in the same direction and speed, the power we will collectively generate will be hard to stop. We continue to believe that our long-term earnings power is meaningfully better than today's level. We are taking decisive steps in the early stages of our turnaround to get us there. We have streamlined the organization for greater accountability. We have launched Baxter GPS to drive continuous improvement and competitive advantage. We have heightened our focus on innovation to better meet our customers' needs, all to drive improved performance and long-term shareholder value creation. I will now turn the call over to Anita to provide more detail on our first quarter results. including segment level performance, as well as our 2026 guidance, which we are reiterating today. Anita, over to you.