Baxter International Inc (BAX) — Q1 2025 Earnings Call Transcript

Good morning, and welcome to our first quarter 2025 earnings conference call. Joining me today are Brent Shafer, Baxter's Chair and Interim Chief Executive Officer; Joel Grade, Baxter's Executive Vice President and Chief Financial Officer; and Heather Knight, Baxter's Chief Operating Officer. On the call this morning, we will be discussing Baxter's first quarter 2025 results, along with our financial outlook for the second quarter and full year 2025. With that, let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook for the second quarter and full year 2025, the anticipated impact of our strategic actions, the potential impact of various regulatory and operational matters, and the global macroeconomic environment, including new and proposed tariffs 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 Baxter's 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 available in our earnings release issued this morning, both of which are available on our website. As a reminder, continuing operations excludes Baxter's Kidney Care business, which is now reported as discontinued operations. Now, I'd like to turn the call over to Brent.

Thank you, Clare, and good morning, everyone. Thank you for joining us. Our results in the first quarter reflect the building momentum of our strategic transformation journey and the hard work of our Baxter colleagues globally. As you saw in this morning's press release, our first quarter performance for continuing operations exceeded our previously issued guidance on both the top and bottom line. We're leveraging our verticalized operating model to create a more agile, focused product portfolio and advance innovation to improve execution and drive profitable growth. First quarter sales from continuing operations grew 5% on a reported and operational basis. As a reminder, continuing operations exclude the impact of our Kidney Care business, which was acquired by Carlyle on January 31, 2025. Sales rose in all three of Baxter's continuing segments with performance in Medical Products & Therapies and healthcare systems and technologies coming in ahead of expectations. Heather and Joel will share more on individual segment results later in the call. On the bottom line, adjusted earnings per share from continuing operations were $0.55. These results were fueled by top-line performance, our continued emphasis on driving operational efficiency, and a benefit from lower non-operational expenses. We're pleased with our strong Q1 performance and confident in our strategic trajectory. At the same time, we're cognizant of the volatility that is present in the global macro environment and the resulting uncertainty that has been created in the marketplace. We, like others, are keenly focused on evaluating and working to address the impact of newly enacted global tariffs and future potential tariffs as well as a range of other interrelated factors. As you're all aware, this remains an evolving and fluid situation. Joel will walk you through our key assumptions as they relate to our financial outlook for the remainder of this year and also how we plan to mitigate a portion of these impacts. To be clear, we remain positive about our opportunities to accelerate sales growth and expand margins. We continue to build on the strength of our operating model and the reinvigorated profile. And as always, we benefit from our durable portfolio of medically essential products, which has served as the underlying foundation of our strength for decades. Finally, I want to address the topic that I'm certain is on your mind, which is the identification of Baxter's next permanent CEO. While I'm not able to provide a detailed update, I can confirm that the search process is active and well underway, with the Board being assisted by a leading search firm in these efforts. As I shared previously, the Board is moving expeditiously but also deliberately to make sure we identify the right candidate to make the most of this opportunity to harness the potential our employees have helped create. We will, of course, keep our stakeholders updated on new developments as we are able to share them. In closing, I want to recognize our global team for their dedication to our mission and outstanding contributions to Q1 performance. And with that, I'll turn it over to Heather for a closer look at performance by segment.

Thanks, Brent, and welcome, everyone. I'm pleased to be here with you this morning to discuss our first quarter results. I'm going to walk through our sales performance in the quarter, and then we'll hand it over to Joel to walk through performance across the rest of the P&L, along with our financial outlook for the second quarter and full year 2025. Before I begin the sales discussion, I want to provide a reminder that results discussed on today's call will reference operational growth, which as stated last quarter when providing guidance excludes the impact of foreign exchange, MSA revenues from Vantive, and the planned exit of IV solutions from China. As Brent referenced and as you've seen from our release, all three Baxter segments delivered year-over-year growth for the quarter at both reported and operational rates, helping fuel company-wide top-line outperformance. First quarter 2025 global sales from continuing operations totaled $2.3 billion and increased 5% on both a reported basis and operational basis. This compared favorably to our previous guidance, which called for sales to increase 3% to 4% on a reported basis and approximately 4% on an operational basis. Outperformance in the quarter was led by our HST segment with particular strength in our Care and Connectivity Solutions division, along with better-than-expected sales in MPT. Now, I'll walk through our results by reportable segments. Again, commentary regarding sales growth will reflect growth on an operational basis at constant currency rates. Sales in our Medical Products & Therapies, or MPT segment were $1.3 billion, increasing 6% in the quarter and came in ahead of expectations. Within MPT, first quarter sales from our Infusion Therapies & Technologies division totaled $994 million and increased 6%. Sales in the quarter benefited from double-digit growth for our U.S. infusion systems portfolio as the rollout of our Novum IQ pump platform continues. Nutrition sales in the quarter advanced mid-single digits globally, reflecting strong growth in the U.S. due to the continued progress we are experiencing in alternate sites for this business as well as improved supply for certain products that resulted in the clearance of back orders. We also realized low single-digit growth for IV solutions. As we noted on the first quarter call, thanks to the team seller recovery efforts, production at our North Cove IV solutions facility is back to pre-hurricane levels following the impact of Hurricane Helene. We are now focused on replenishing inventory and making continued progress on allocations for our customers. We expect to be off virtually all product allocations this month. IV Solutions sales in the quarter reflected continued conservation of fluids at hospitals across the U.S. while the network fully recovers. Our current outlook reflects our expectation that hospitals will continue to conserve fluids in the near term but the utilization levels will improve, particularly as our allocations are removed and U.S. supply returns to normal levels. During the first quarter, we did see some distributors begin to rebuild their inventory levels, which helped to offset the impact from the conservation efforts. Sales in Advanced Surgery totaled $268 million and grew 4% globally. Results in the quarter reflected solid growth outside the U.S. due to increased demand for our hemostat sealants and the timing of sales to distributors. Sales in the U.S. reflected one less billing day as compared to the prior year period. In addition, the prior year period reflected the benefit of a backorder clearance for one of our hemostat products. In Healthcare Systems and Technologies, or HST, sales in the quarter were above expectations and totaled $704 million, increasing 6%. Within the HST segment, sales in the quarter for our Care and Connectivity Solutions, or CCS, division were $427 million, advancing 7% globally. Performance in the quarter was driven by 14% growth in the U.S. for CCS due to continued momentum in our Patient Support Systems or PSS business, which once again delivered strong growth and reflected a benefit from competitive wins in both our Med-Surg and ICU product lines as well as upgrades for existing customers. Total U.S. capital orders for CCS rose 20% in the quarter, creating a healthy backlog to support future growth for this division. To date, we have not seen a slowdown in U.S. capital hospital spending, but in light of the macroeconomic uncertainty, we are closely monitoring the situation. Our focus remains on highlighting the benefits of our broad portfolio and the enhanced digital capabilities we have added to improve workflow efficiency. Performance for this division was partially offset by weaker sales outside the U.S. Importantly, we did see capital orders pick up internationally, and these are anticipated to contribute growth over the course of the year. Front Line Care sales in the quarter were $277 million and increased 5%. Performance in the quarter reflected a favorable comparison as well as continued signs of stabilization of the primary care market in the U.S. Moving to our Pharmaceuticals segment. Sales in the quarter totaled $581 million, increasing 3%. First quarter sales within injectables and anesthesia of $335 million grew 4%. Performance in the quarter reflected mid-single-digit growth in our specialty injectables portfolio driven by strong international growth, reflecting government order and increased demand. This performance was partially offset by lower sales of anesthesia in the quarter. Our expectation is that the anesthesia business will begin to stabilize and the rate of decline for this business will start to slow. Drug compounding grew 2% and reflected a difficult comparison to the prior year period. And in other sales, which represent sales not allocated to a segment and primarily includes sales of products and services provided directly through certain manufacturing facilities were $15 million in the quarter. During the quarter, MSA revenue from Vantive totaled $63 million. These sales are not reflected in our operational growth but are included in our reported growth for the quarter. Before turning it over to Joel, I want to take a step back. Looking holistically, our strength across the segment reflects both the power and the trajectory of our newly defined enterprise. Our confidence in our future potential remains high, and we are committed to executing on our strategic objectives even amid a more dynamic global macroeconomic environment. I'm confident we'll navigate this uncertainty just as we always do with the support of our 38,000 colleagues across the globe and with our mission to save and sustain lives helping define our path forward. Now I'll pass it over to Joel, who will discuss performance down the rest of the P&L, along with our updated financial outlook.

Thanks, Heather, and good morning, everyone. As my colleague mentioned, we are pleased with our first quarter results, which came in ahead of our expectations on both the top and bottom lines. Before I begin, I want to highlight a point that both Brent and Heather referenced. As you're all aware, we now face a more dynamic global macroeconomic environment, which has created a level of uncertainty for everyone, including our customers. We remain squarely focused on addressing the needs of our customers through our broad portfolio of medically essential products and evaluating opportunities to better optimize our supply chain network in light of new tariffs, with some activities already underway. Importantly, we remain committed to accelerating our investments in innovation, focused on bringing products to the marketplace that solve the problems that our customers face and help redefine healthcare delivery. Importantly, we will not compromise on our efforts to thoughtfully accelerate innovation in targeted areas of the business as this is critical to support our future growth aspirations. Starting with the bottom line. First quarter adjusted earnings per share from continuing operations were $0.55 per share and came in ahead of our prior guidance of $0.47 to $0.50 per share, driven by the favorable top-line results, lower-than-expected SG&A expenses, and a benefit from TSA income and other reimbursements. In addition, our tax rate and other non-operational items came in favorable to our expectations, which more than offset a negative impact from foreign exchange. Before we're specifically addressing the rest of the P&L results, I want to make some comments regarding our continuing operations reporting. As a reminder, prior to the close of the Vantive deal, corporate costs that had previously been allocated in the Kidney Care segment that would not convey with the Kidney Care business in the sale were reported in unallocated corporate costs. Post close, these costs are now allocated to each of our segments, along with income from our transition services agreements, or TSAs, as well as cost containment initiatives the company is in the process of undertaking. Our goal remains to fully offset the impact of these stranded costs and loss of TSA income by the end of 2027. In addition, during the quarter, we reclassified certain functional expenses to cost of goods sold from SG&A following the completion of the sale of our Kidney Care business. These functional costs were previously recorded in SG&A and support manufacturing and are now classified as indirect costs, subject to inventory capitalization and recorded in cost of sales when sold. First quarter adjusted gross margin from continuing operations was 41.8%, a decrease of 160 basis points compared to the prior year. The year-over-year decline reflected the impact of MSA revenues from Vantive and higher expenses related to planning and fulfillment. First quarter adjusted SG&A from continuing operations totaled $608 million or 23.2% as a percentage of sales, a decrease of 310 basis points from the prior year period. This year-over-year decrease reflects the benefit from the reclassification of functional costs, along with lower stock compensation expenses in the quarter and continued disciplined expense management. Adjusted R&D spending from continuing operations in the quarter totaled $138 million and represented 5.3% as a percentage of sales, an increase of 50 basis points compared to the prior year period and reflects our continued investments in advancing new products across the portfolio and bringing innovation to patients across our segments. TSA income and other reimbursements totaled $40 million in the quarter. This came in higher than expected and reflected increased levels of support currently required by Vantive. The associated expenses are reflected in other lines of P&L. These factors resulted in an adjusted operating margin of 14.9% on a continuing operational basis, improving 260 basis points compared to the prior year period. This performance reflects continued focus on operational execution as well as the benefit of TSA income and other reimbursements from Vantive. Taking a look at adjusted operating margin by each reportable segment. MPT's adjusted operating margin for the quarter was 19.3%, increasing 80 basis points over the prior year period and reflecting positive pricing in the quarter, partially offset by elevated costs as we continue to improve volumes at North Cove and experience higher planning and fulfillment costs. TSA income contributed to positive performance in the quarter. HST first quarter adjusted operating margins of 13.2%, a 320 basis point improvement from the prior year, driven primarily by improved top-line performance. TSA income also contributed to performance and helped to offset increased corporate allocation expenses. Pharmaceuticals' adjusted operating margins were 10.8% for the quarter, decreasing 270 basis points compared to the prior year. These results reflect certain one-time expenses realized in the quarter and an increase in corporate allocations. These expenses were partially offset by TSA income. Net interest expense from continuing operations totaled $64 million in the quarter, a decrease of $14 million versus the prior year period, reflecting lower interest expense following the paydown of existing debt with proceeds from the sale of Vantive. Adjusted other non-operating income totaled $17 million in the quarter compared to income of $9 million in the prior year period, primarily reflecting lower losses from foreign exchange balance sheet accounts. The continuing operations adjusted tax rate for the quarter was 17.4%, benefiting from the strategic use of select tax attributes as we optimize our global structure following the sale of Kidney Care. And as previously mentioned, adjusted earnings from continuing operations were $0.55 per share for the quarter and increased 53% versus the prior year. Contribution to earnings included improved commercial performance, positive pricing, the receipt of TSA income and other reimbursements as well as the benefit of lower expenses from non-operational items, including interest and tax. Let me conclude my remarks by discussing our outlook for the full year 2025 and the second quarter of 2025, including some key assumptions underpinning the guidance. For full year 2025, Baxter expects total sales growth of 7% to 8% on a reported basis. This guidance reflects current foreign exchange rates, which are expected to minimally impact growth on the top line. This is an increase relative to our prior guidance which had assumed that foreign exchange would negatively impact sales by approximately 200 basis points. In addition, our reported sales guidance includes the contribution of approximately $310 million of anticipated MSA revenues from Vantive, down slightly from our original expectations of $345 million. Operationally, Baxter continues to expect sales growth of 4% to 5%. As a reminder, this guidance excludes the impact of foreign exchange, MSA revenues and the planned exit of IV solutions in China. The negative impact from exiting the IV solutions business in China continues to be approximately 50 basis points to growth. Operational sales guidance for the full year by reportable segment is as follows: For MPT, we continue to expect sales to increase approximately 5%, driven by strength in our Infusion Systems business, positive pricing, and other underlying business momentum. As mentioned earlier, we do expect IV solutions growth to improve as we remove allocations in some of the compensation efforts. This guidance excludes the impact of exiting the IV solutions market in China, which is estimated to impact sales growth by 100 basis points. We continue to expect sales in our HST segment to increase approximately 3%. While we are very pleased with the building momentum and healthy backlog we have built in HST, we will continue to closely monitor the capital environment for any changes to hospital spending expectations. We continue to expect pharmaceuticals to increase approximately 5% to 6%. Before turning to our outlook for other P&L line items, I want to provide some thoughts regarding our assumptions around tariffs. Our updated guidance now includes the estimated impact from tariffs based on the current proposals enacted and assumes a reversion back to original proposed tariff rates following a 90-day suspension. In addition, our guidance does take into account that we are able to mitigate a portion of these impacts. In general, Baxter strives to make where we sell and buy where we make as part of our broader integrated supply chain approach. This allows us to deliver our products and solutions around the world with greater control and visibility to our operations. Currently, the majority of Baxter's products sold in the U.S. are manufactured in the U.S. and made largely from U.S. components. However, international procurement is part of our business operations, and as such, we are impacted from the U.S. and retaliatory tariffs that have been issued. We plan to take several actions to help minimize the impacts related to tariffs. Some of these actions will be able to be realized more near term to help mitigate the impact in 2025 and others will require more time than implemented but will help offset the impact in future years. Some of these mitigation opportunities include: actively communicating lift and assessing our supplier base to identify risks and work to improve mitigations, which could include carrying additional inventory and identifying alternative suppliers or manufacturing locations. Identifying alternative shipping routes for suppliers and finished goods to help minimize the overall impact, assessing targeted pricing actions. And finally, continuing to work closely with our trade association partners in various countries to advocate for possible exemptions. Taking all this into account, we estimate the net impact to our results from tariffs is approximately $60 million to $70 million in 2025. Additionally, based on our standard rollout period, we expect to see the majority of the tariff's impact in the second half of the year. I'd note that, while China represents a very small percentage of our total sales, given the magnitude of the tariffs that have been enacted between these countries, these tariffs now account for nearly half of the total impact. At this time, our tariff assumptions do not reflect any potential tariffs related to pharmaceutical products. One other item I'd like to highlight is that while current foreign exchange rates are expected to benefit top line relative to prior guidance, they do negatively impact our adjusted operating margins and adjusted earnings per share, which is driven by our current infrastructure footprint that remains post the sale of Vantive. We have plans over time to optimize our global footprint. Inclusive of these factors and underlying business performance, we now expect full year adjusted operating margin from continuing operations between 16% to 16.5%. TSA income and other reimbursements are now expected to range between $140 million to $150 million. This increase reflects incremental services provided to Vantive with the related expenses reflected in the other lines of the P&L. We expect our non-operating expenses, which include net interest expense and other income and expense to total between $220 million to $240 million. On a continuing operations basis, we anticipate a full year tax rate of approximately 19% to 19.5%. We expect our diluted share count to average approximately 515 million shares for the year, which does not contemplate any share repurchases. Based on all these factors, we are increasing the low end of our prior guidance range and now anticipate full year adjusted earnings on a continuing operations basis of $2.47 to $2.55 per diluted share. Specific to the second quarter of 2025, we expect continuing operations sales growth of approximately 4% to 5% on a reported basis and 1% to 2% on an operational basis. For the second quarter, foreign exchange is expected to positively impact the top line by approximately 50 basis points, and MSA revenues are expected to total approximately $80 million. The China IV Solutions exit is expected to impact top line growth by approximately 70 basis points in the second quarter. On a continuing operations basis, we expect adjusted earnings per share of $0.59 to $0.63. With that, we can now open up the call for Q&A.

It's Joanne Wuensch, and very nice quarter and start to the year. I have to ask the obligatory tariff question, specifically what you are pulling back on or managing to offset some of the headwinds? And how should we think about 2026? Should we just annualize your run rate that you gave for '25? And then I'll give you my second question upfront. The HST business, I think this was your strongest quarter since 2023. How should we think about that recovery and the sustainability? Thank you.

Thanks, Joanne. I'll take the first part and then pass it to Heather for the second. From a tariff perspective, we have several mitigation activities underway, while others are still being developed. Timing will play a role, so there will be some variability. I categorize our efforts into a few areas: first, in terms of supply chain, we are optimizing by negotiating with suppliers, exploring alternative sources, tweaking freight logistics, and improving supply routes to enhance efficiency. From a pricing standpoint, our approach is very targeted rather than broad. Additionally, we are continuing to pursue more exemptions by working with our government team and industry groups to explore possibilities for other products. These are the main areas of focus regarding our mitigation strategies. Looking toward 2026, it's reasonable to expect that while many mitigation efforts aren’t fully in effect yet, their impact will gradually increase as we move into next year. Now, I'll pass it to Heather for the second part.

Joanne, thanks for the question, and thanks for acknowledging the HST performance. We're really pleased with the first quarter. And our teams have been working really hard with our customers. So we're pleased overall with the beat. It was broad-based and across all of our businesses, really exceeding expectations, particularly around the building momentum that we're seeing across the U.S. So we've got a healthy backlog, particularly in the PSS business, as I mentioned, strong order growth, and a lot of competitive account wins. So the commercial excellence that we talked about last year and customer programs are starting to pay off as we've managed the supply recovery that we talked about last year. While we haven't seen any slowdown today in the capital environment, we are monitoring the situation. But didn't feel even based on the momentum that it was prudent to just raise guidance in HST this year, but more maintained. But overall, I would say we're happy with the momentum of the team and business and the leadership across the organization. So thanks for the question.

Yes. And actually, if I could just add one thing, Heather, to that, even in the FLC side, I think one of the things that was actually a good impact on this quarter was a balanced growth between both the CCS and Front Line Care. And I think we saw some stabilization in the primary care market. On the FLC side, we also had less headwinds. In 2025 and 2024, we kind of talked about that heading into the year. Our backlogs are closer to normal levels in FLC. And then obviously, we also had some favorable year-over-year comparisons that we're up against. But just wanted to add to Heather's point there. I think, again, it really was not only the CCS part, which we're really pleased with, but also balanced across that portfolio.

Thank you. Good morning, Heather, Joel, and Clare. I wanted to start here on the IV side. Hospitals have been pretty successful at implementing conservation programs. And we haven't seen much of a disruption at least it seems from the outside in hospital operations or elective procedure volumes. So as you remove hospitals from allocation, can you maybe help us frame what you expect the impact to be on your business? And then also if you think hospitals will return to pre-hurricane inventory management levels, or is there something that may have more structurally changed in how they approach managing this particular supply line? And then I have a follow-up on tariffs.

Sure, David. Good morning. It's Heather. So when you think about conservation, it's really not across all hospitals, there's a subset of hospitals that are conserving right now. And we still assume in our outlook that there will be conservation as we exit the year in the 10% to 12% range as what we are assuming when you exit the year. So that’s broadly for the U.S. There are many customers that are actually using more solution than pre-hurricane levels. So it's definitely not a one-size-fits-all, but we are assuming conservation continues, and there's been some adjustments in practices. We saw some of that with Hurricane Maria as well. It sort of took about a year or so for that utilization to continue. So we baked that into the forecast. I think it's important to note when you think about MPT for the half, we worked really hard to stabilize our customers with inventory and IV. So the timing of how we manage that in the half, we recovered really quickly and we're focused in Q1 on getting inventories back to good with our customers and with distributors. But the half when you look at it is really largely in line with our expectations. So that is driving how we're thinking about MPT, particularly for the first half. But I would say that customers now are starting to really think about safety stock in an area like IV that is critical to healthcare and overall, very happy with the recovery out of North Cove, and I'm really proud of our teams' efforts to make sure that we could get products to patients as quickly as possible. So that drove some of the overachievement in the beats in MPT, but largely have baked in conservation to the forecast for the rest of the year. Thanks, David.

Thank you for that information, Joel. Regarding tariffs, there has been quite a bit of confusion and misinformation about your tariff exposure in recent weeks. While we don't know what the pharmaceutical tariff may entail, could you provide some guidelines on how to approach this issue? If a pharmaceutical tariff is announced before your next earnings report, we will need to assess its impact. Could you clarify where your exposure lies? Specifically, how much finished goods do you import from the Claris plant? I believe it’s a small amount, but there is clearly an impact on APIs. Please walk us through the various factors at play and the potential level of exposure.

Yes, David, thank you. To address your question about Claris, it is a minor issue and does not have a significant impact. We will continue to monitor its development. We are considering litigation aspects that may apply, and we are planning for various scenarios. Currently, it remains uncertain how this will unfold or any potential exemptions that might arise. Our discussions with government officials involve the possibility of product exemptions, especially since we operate as generics compared to larger brands, which may have a larger effect on our margins. In summary, we are being proactive in our planning and mitigation strategies, but there is nothing more specific to add at this time.

Hi. First, wanted to ask a margin question, both kind of short term and long term. First, on the gross margin. There was a little bit of a delta between your gross margin consensus. I assume that's because you reclassified certain functional expenses from COGS to SG&A. So I wanted to touch on that and kind of understand when you think about TSA MSAs over the course of this year and next year, how to think about the margin impact? And then longer term, the path back to that kind of pre-COVID 19% operating margins for this business?

Thank you, Travis. I'll address that. Regarding your question on gross margin, it primarily hinges on a couple of factors. You mentioned the reclassification, which is part of it, but the dilution from MSA income is also significant. Additionally, we are still recovering from planning and fulfillment costs in North Cove that are affecting our gross margins this quarter. These are the main factors influencing our gross margin. We expect some recovery in these areas throughout the year. In terms of TSAs and MSAs, we foresee the TSAs being part of our operations for the next 18 to 24 months as we prepare for their eventual phase-out. We are actively managing costs in anticipation of this transition. This year, we expect a 40 basis point impact on net margins due to streaming costs, which will continue. Although MSA income is slightly below expectations and thus has a less dilutive impact on margins, we believe the $310 million figure will phase out over the next couple of years. For long-term margin expansion, we have several opportunities, including maintaining strong growth, investing in innovation, and launching new products. We expect some price increases this year and have GPL renegotiations ahead that may also affect pricing. Additionally, focusing on product and business mix will help us expand margins by selling higher-margin items. Finally, our ongoing margin improvement programs in the supply chain will continue to drive expansion, alongside the expected removal of stranded costs related to kidney operations by 2027. These are key factors related to margins and the opportunities for growth ahead.

Hi, guys. Thanks for taking my questions, and congrats on the nice execution here. Joel, maybe my first one for you on the guidance kind of question. If you look at the second quarter, 1% to 2% for core Baxter. That's a 350 basis point deceleration at the midpoint from Q1 levels. I think your comps get a little bit harder, a couple of hundred basis points. So what's driving this deceleration in the second quarter in the operating margins prior 16.5%, did that change because of tariffs?

Thank you for the question. In terms of revenue for Q2, there are a couple of factors influencing that outcome. Firstly, as we've mentioned before, some hospital systems are showing conservation in their use of IV fluids, which is a key driver. We anticipated this trend and are now observing its effects in the second quarter. Additionally, there's a degree of conservatism regarding the performance from the HST side. While we’re pleased with the momentum in that area, especially on the government side and the stabilization in Front Line Care, there remains a cautious approach for that specific business. These elements are among the main reasons for the changes observed between Q1 and Q2. It's also worth noting that despite these shifts, the overall performance for the first half of the year aligns closely with our expectations. Regarding your second question, the impact on operating margins you mentioned is linked to tariffs and foreign exchange dynamics. While we’ve seen a positive effect on revenue from foreign exchange, there is also a dilutive effect on our bottom line due to our operations outside the U.S. This is part of our ongoing plans to optimize our international infrastructure and business operations, which also contributes to the impact you've noted.

Yes, Vijay. I'll tackle the first one, first question on Novum. So the backlog and pipeline for Novum is strong. So yes, we have taken market share in the low single-digit range already. So there's good momentum in the Novum franchise, not just for the launch. Novum has been in the market now for less than a year, but also the innovation pipeline coming behind it is pretty robust and rich. So we're excited and our customers are excited about partnering with us around Novum. A lot of the pumps in the market have been a decade plus old. So we're bringing new technology to the market with smarter and more sophisticated capabilities on interoperability, with digital suites that are going to follow and supplement that launch. So good momentum around Novum and happy with the progress. And then your second question was about consumables? Behind that with the IV solutions?

Yes.

Yes. We observed a steady increase in customers rebuilding and rebalancing their inventory and consumption in the first quarter, aligning with our expectations for the half in terms of consumption and conservation. Some customers who maintained their inventory are utilizing more than they did before the hurricane, while others are still concerned due to limited inventory in the market, although this is beginning to stabilize. As I mentioned earlier, we expect to have allocations almost fully resolved by mid-May. Rebuilding customer confidence so they can order and stock their shelves normally with IV solutions, which support all aspects of IV therapy, has been a significant focus. Thank you, Vijay, and I appreciate the acknowledgment of the quarter.

Nice quarter. Two for me. One, I guess, 2.5, a quick clarifying. How much of stocking in fluids is moving from second quarter to first quarter? And then I guess the first real question. HST had nice performance, drove a good part of the beat in the quarter. Maybe speak to the trends you're seeing there and how you're feeling about the sustainability of the performance?

Yes, Robbie. This is Heather. I'll start that. So in terms of the stocking that we saw, I would say roughly about 1.5 points on the total company that we saw in terms of the distributor stocking. Again, our priority was to make sure that we could get product to customers and rebuild the network as quickly as possible so people could resume normal patient care. So having that in Q1 versus Q2 is actually a good thing. And as I said, largely in line with what we expected in the half. So about 1.5 points in terms of the total company impact. And then HST's performance, again, very pleased with the first quarter. As both Joel and I have mentioned, we've got a strong order book that we built in CCS, strong order growth. We've got competitive share gains that we've seen primarily in CCS. Additionally, we've got higher-than-expected nurse call installations and really positive response so far to the launch of Voalte Linq with Scotty. So in that CCS. So there's a lot of reasons to believe not just in the U.S. but also building momentum OUS. And then as Joel mentioned, FLC has largely stabilized. So we are seeing some really good benefits around our vital signs monitoring and recovering from some of the backlog in our cost business and strength OUS as well. So right now, there's a lot reasons to believe, but I think like many other companies that are reporting, we're being a little cautious on the capital environment that we're seeing just because of some of the reimbursement challenges that our customers are facing and tariff concerns. I'm not sure how pricing is going to roll out. But internally within Baxter, we're really pleased with where HST is. I think HST, we feel like is back. And based on a lot of the work that we've done around commercial excellence, customer programs, partnering with our customers on the things that they need and then furthering the integration of HST, I think we can sort of all acknowledge at the beginning of that integration didn't quite go as planned, but we've done a lot of work over the last 12 months to really get that business back on track and delivering the growth that we expect. So we're pretty bullish internally on HST and what that team can deliver. So thanks for that comment.

Good morning. Thank you for including me. Congratulations on a great quarter. Most of my questions have likely already been addressed, but I have a couple of quick ones. Brent, can you provide any update on the timing for the announcement of a permanent CEO? And Joel, regarding oil prices, they have dropped significantly. We recall that rising oil prices had a negative impact on Baxter. How should we view the potential benefits of falling oil prices for your company? Thank you.

Great. This is Brent. I appreciate the question. Obviously, I don't have a specific date. What I can tell you is the Board is very focused and has been very diligent in their efforts to keep the process moving. We're really pleased with the search firm and their efforts as well. So although, I can't give you an exact date, we don't expect it to be an extended period; I think it's making good progress.

Great. Larry, thanks for the questions. And from an oil perspective, I mean, yes, the price of oil is going down. The one thing I would remind you of is that for us, there's a lot less variability at the company as it relates to that. Now that the Kidney Care exit has occurred. That was part of the business that obviously from a supply chain perspective had a higher level of consumption on that. So while there is some impact, they get at somewhat diluted pretty significantly given that our kidney business has exited.

Good morning, and thanks for fitting me in here. Looking at the updated EPS guidance, definitely a lot of moving parts here. Can you bridge the previous EPS guidance to the updated EPS guidance in terms of the good guys from operational strength in FX to bad guys and tariffs?

Sure. So I mean, obviously, the top of the line stayed, and obviously, we moved a little bit underneath. I would say a couple of things. One of the things we've talked about is, again, continued strong operational performance. The downside of it, as we talked about, was really related to some tariff impact and the impact of the FX. Those are basically the main drivers of the downside of that; it's probably $0.15 on the EPS side that those are combined at. From there, obviously, we continue to talk about some of the strong operational performance as well as some under beneath the line, interest and taxes are obviously our interest in a little bit better than we anticipated. And the work that we did from a tax perspective to optimize some of the opportunities there is other product that's really driving that. So that's probably the bridge I've got for you.