Baxter International Inc. Price & Performance (BAX)

Please refer to today's press release and our SEC filings for more detail concerning factors that could cause actual results 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 available in our earnings release issued this morning, which are both available on our website. As a reminder, continuing operations is excludes Baxter Kidney Care business and Baxter's former biopharma solutions business which are both reported as discontinued operations. During the Q and A session this morning, Brent Heather, Joel and I will be available to address questions, Questions on our results and outlook will be addressed by me and Joel. Now I'd like to turn the call over to Brent.

Thank you, Claire, and good morning, everyone. I appreciate you joining us. As you know, I recently stepped into the role of Chair and Interim CEO at Baxter Baxter. Joe Lameda led the business through a period of significant evolution over his nine year tenure and we're sincerely grateful for his dedication to the company. One of the Board's top priorities, of course, is the identification of a permanent CEO. The Board is actively engaged in the search process with the support of the leading firm.

Evaluating both internal and external candidates. We're moving expeditiously, but most importantly, we're taking a rigorous approach to ensure we identify the right candidate to lead Baxter into the future. During the transition period, I'm committed to help you to ensure remain focused on crisp execution of our priorities. And delivering strong consistent results. I'm pleased to be working with the entire leadership team on these shared goals. We're continuing to move the company forward into a new era and as recently announced, we closed the sale of Vantiv on January 31, 2025. This significant milestone was the final step of three strategic actions outlined in January of twenty twenty three, to transform the business. You'll recall these actions included the implementation of a new verticalized [indiscernible] As a Director and in my role as Interim CEO, I can confirm that this segment driven approach has created increased focus, and execution related benefits bringing greater clarity and agility to how we pursue opportunities globally. And as part of our transformation efforts, we completed the divestiture of Baxter's non core biopharma solutions business in 2023. Since joining Baxter's Board in 2022 Baxter, I've observed and supported these shifts in the company's strategic direction.

And I'm extremely proud of the hard work and dedication of our teams to reach this stage. These actions have positioned Baxter to and to drive profitable growth for our shareholders.

Later in this call, Joe will provide details on our quarterly and full year performance, as well as our outlook for 2025. As you have seen in this morning's release, finished 2024 on a high note. Beating our fourth quarter guidance for continuing operations on both the top and bottom lines. And we're starting 2025 building on this positive momentum. During this interim period, I'll be working closely with Heather Joel and the rest of Baxter's strong leadership team to ensure we maintain that momentum. I've been very impressed by what I've experienced in the last few weeks. An engaged, talented, highly motivated team that is squarely focused on Baxter's mission to save and sustain lives. A truly collaborative spirit and an intense focus on delivering on our commitments. This includes initiatives focused on innovation, and profitable growth to enhance performance deliver increased value and to better serve the needs of our patients and customers. To support these efforts and as we've shared earlier this month, we've instituted a new Chief Operating Officer position as a next step in leveraging the potential of our vertical operating model. We're fortunate to have Heather Knight stepped into this role as COO. Heather brings extensive experience and a proven track record to this position.

After a successful tenure head of our largest segment, Medical Products and Therapies, among other key leadership roles at Baxter and prior large healthcare companies. She'll be leading day to day operations across our three segments encompassing global commercial operations, R and D, supply chain, medical and regulatory affairs. Her leadership will be critical as we navigate the next phase of growth. Now, I'd like to turn it over to Heather to share her perspective. Heather?

Thank you, Brent, and good morning, everyone.

I'm very pleased to be joining today's call. I look forward to building upon what we've achieved to date and helping to launch a new chapter of accelerated performance for the company. As Brent mentioned, over the last two years, I've had the privilege of leading medical products and therapies, or MPT, which is Baxter's largest segment with over $5,000,000,000 in sales and operations spanning the globe.

During this time, I spearheaded numerous vital initiatives with the support of my talented colleagues including the recent successful launch of our Novum IQ Infusion Pump Platform In The United States.

As the leader of NPT, I Also Helped Oversee The North Cove recovery efforts following Hurricane Helene.

Given the essential nature of the products that are manufactured in North Cove, we spared no expense in our efforts to help address product supply for patients and customers.

Including importing products from Baxter Baxter [indiscernible] Thanks to the incredible dedication and resilience of the North Cove and Broader Baxter team.

Were able to restart production on eight of the sites 10 manufacturing lines in the fourth quarter. Our final two manufacturing lines came online in January and I'm very proud to report that we are now producing at pre hurricane levels. This is just another critical milestone in our recovery as we continue to work to replenish inventory and support our customers' and patients' needs. Additionally, I've served as the lead interface to many of our key customers and have been deeply involved in successfully renegotiating the recent renewals of select U. S. GPO contracts. Helping to ensure we continue to meet our customers' needs while also delivering positive movement in pricing. As COO, I'm excited to build upon my deep knowledge and understanding of our markets and operations, to enhance collaboration across our segments and create a more holistic Baxter experience for our customers and the patients they serve. I'm confident that by harnessing our combined strength and expertise, we can unlock significant value and accelerate our efforts to drive customer inspired innovation for all of our stakeholders. I look forward to partnering with Brent, Joel and the entire Baxter team as we work to achieve our strategic objectives and deliver exceptional results.

I'll now turn it over to Joel to discuss our financial performance in more detail. Joel?

Thanks, Heather, and good morning, everyone.

I'm happy to be joining the call this morning to provide some additional details on Baxter's fourth quarter and full year 2024 financial performance. As well as commentary on our financial outlook for 2025. As Brent mentioned, we're very pleased with our fourth quarter results and how we ended the year. Our results came in the end of our prior guidance on both the top and bottom lines, driven by better than expected sales, and solid operational performance. Fourth quarter twenty twenty four global sales from continuing operations of $2,750,000,000 increased 1% on a reported basis 2% on a constant currency basis. And compared favorably to our previous guidance which called for sales to decline in low single digits. Outperformance in the quarter was broad based and reflected positive sales across most of our product divisions. As expected, during the fourth quarter, Hurricane Helene negatively impacted our sales by approximately $110,000,000 or approximately 400 basis points. Although the overall magnitude is less than the previously anticipated, approximately $150,000,000 given the company's swift recovery efforts. For the full year, Baxter reported sales from continued operation at $10,600,000,000 increasing 3% on both the reported and constant currency basis. Hurricane Helene negatively impacted growth for the full year by just over 100 basis points.

On the bottom line, fourth quarter adjusted earnings per share from continuing operations were $0.58 and came in ahead of our prior guidance of $0.5 to $0.53 per share driven by the favorable comp life results, and solid operational performance. In addition, our tax rate came in favorable to our expectations which offset a negative impact from foreign exchange. On a year over year basis, adjusted earnings per share from continuing operations declined 11% in the quarter primarily due to the negative impact of Hurricane Helene on our results. For the full year, adjusted earnings per share from continued operations totaled $1.89 per share. And increased 11% over the prior year. Reflecting solid underlying operational performance, and a benefit from non operational items, including lower interest expense and tax rate. Now I'll walk through our results for our portable segment Commentary regarding sales growth will reflect growth at constant currency rates. Sales in our Medical Products and Therapies or MPT segment were $1,300,000,000 increasing 1% in the Baxter, coming in favorable to expectations. Full year 2024 sales $5,200,000,000 advancing 5%, and ahead of the prior guidance of 2% to 3% growth, Adjusting for the impact of Wholesaleen, MPT sales growth in the quarter would have been approximately 9% at approximately 7% the full year.

Within FPT, fourth quarter sales from our Infusion Therapies and Technologies division totaled $1,000,000,000 and decreased 1%. Sales in the quarter benefited from significant growth for our U. S. Infusion systems portfolio as the rollout of our NovaVIQ plus platform, continues to build momentum with orders coming in from both new and existing customers, Nutrition sales in the quarter advanced double digits globally, reflecting strength in The U. S. As we continue to build out our alternate sites portfolio. Finally, as anticipated, IV Solutions declined in the quarter due to the impact of Hurricane Ali. Q4 sales of Advanced Surgery totaled $292,000,000 and grew 6% globally.

Results in the quarter reflected solid demand and positive pricing for our portfolio of hemostats and sealants across the globe. MPT's adjusted operating margin for the quarter was 15.5% coming in better than expected due to the sales outperformance. Margins declined year over year primarily reflecting the impact of the hurricane.

In Healthcare Systems and Technologies or HST, sales in the quarter were in line with expectations, and totaled $784,000,000 decreasing 1%. Full year 2024 sales totaled $3,000,000,000 declined 2%. Within the HFC segment, sales in the quarter for our carrier and connectivity solutions or CCX division were $5.00 $4,000,000 advancing 3% globally Performance in the quarter was driven by 9% 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 were and increased 15% for the full year We are exiting the year with a healthy backlog and strong funnel. And look to build a positive momentum over the course of 2025. Performance for this division was partially offset by weaker sales outside the Reflecting a difficult comparison to the prior year period, we saw growth of 12% as well as softness in both China and France in the current year. [indiscernible] sales in the quarter were $280,000,000 and declined 8%. Consistent with commentary over the course of this year performance in the quarter was impacted by the backlog reduction.

Which positively contributed to sales in the prior year period.

Results in the quarter also reflected the impact of certain market exits and supply constraints, which collectively impacted sales by We expect the supply constraints that impacted the fourth quarter to be largely resolved for most products the first quarter of twenty twenty five. We believe that performance for this division will also benefit stabilization of the primary care market over the course of 2025, as well as the launch of several new products in the second half of this year that are expected to contribute to positive performance for FLC in 2025 and beyond. HSP fourth quarter adjusted operating margins of 18.5% increased sequentially considering the trend of sequential margin improvements. Margins declined year over year primarily reflecting higher investments. Moving on to our Pharmaceuticals segment, sales in the quarter came in favorable to expectations and totaled $643,000,000 increasing 8%. Full year 2024 sales $2,400,000,000 advancing at 7%. Fourth quarter sales with an injectables and anesthesia of $383,000,000 grew 8%. Performance in the quarter reflected mid teens growth in our specialty injectables portfolio, an anticipated rebound from the third quarter, which was impacted by the timing [indiscernible] Growth is driven by strong demand for U. S. Premixed products, and the continued rollout of new products, well as the benefit from targeted sales and marketing initiatives As expected, lower sales of abhaled anesthesia which declined mid single digits slightly tempered overall performance for the injectables and anesthesia.

Within drug compounding, continued demand for services, resulted in strong growth of 9% for the Baxter, Pharmaceuticals adjusted increasing 600 basis points sequentially Adjusted operating margins decreased three seventy basis points compared to the prior year reflecting the impact from the MSA entered into following the VPS sale and increased operating expenses to support the new and upcoming launches. Pharmaceuticals team remains focused on expanding margins through improved mix, stabilizing the anesthesia business, driving cost improvements, compounding business and executing on margin improvement initiatives in integrated supply chain. Other sales, which represent sales not allocated to a segment, and primarily includes sales of products and services, provided directly to serve of our manufacturing facilities were $12,000,000,000 in the quarter and totaled $67,000,000 for full year 2024. Before moving on to the rest of the PDL results, I wanted to make some comments regarding our continued operations reporting going forward.

As mentioned last quarter, to the change of moving kidney care business results to discontinued operations, corporate costs that have previously been allocated to the kidney care segment that would not convey with the Kidney Care business in the sale are now reported in unallocated corporate costs. As we previously commented, we plan to offset a large portion of these expenses in 2025 through incomes we receive from Vanta Baxter the transition services agreements or TSAs as well as cost containment initiatives the company is already in the process of undertaking. Our goal remains to fully offset the impact of these stranded costs in and the loss of TSA income by the end of twenty twenty seven. Fourth quarter adjusted gross margin from continuing operations was 44.5%, coming in favorable to expectations and reflecting a sequential improvement of 80 basis points. On a year over year basis, adjusted gross margins declined slightly by 10 basis points driven primarily by the impact of Hurricane Aleve higher spend within the sector manufacturing plant to support product growth as well as the impact of the manufacturing supply agreements following the sale of VPS. Other contributors to margin in the quarter were ongoing benefits from our margin improvement programs, which as well as favorable product mix, and pricing initiatives in select markets.

Adjusted gross margin from continued operations for the year totaled 43.5%, Fourth quarter adjusted SG and A from contingent operations totaled $679,000,000 24.7% as a percentage of sales, an increase of 190 basis points from the prior year period as we continue to make select investments to support our growth objectives, and new product launches, This increase also included approximately $30,000,000 of select discrete items that are not expected to repeat including increased employee healthcare expenses due to high cost medical claims incurred during the quarter, fees associated with our tax optimization program and phasing of stock compensation expenses. These higher expenses were offset by benefit from lower stranded costs. [indiscernible] Full year 2024 adjusted SG and A totaled $2,660,000,000 and represented 25% of sales. Adjusted R and D spending from continued operations in the quarter $131,000,000 represented 4.8% as a percentage of sales, an increase of 10 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. 2024 full year adjusted R and D totaled $510,000,000 or 4.8% as a percent of sales. These factors resulted in an adjusted operating margin of 15.2% on a continuing operations basis coming in favorable to expectations and improving 70 basis points [indiscernible] Compared to the prior year, adjusted operating margins from continued operations decreased 190 basis points driven by the factors I just discussed.

As well as the unfavorable impact from order exchange. Full year 2024 adjusted operating margin from continuing operations was approximately $1,500,000,000 or 13.9% of sales. Net interest expense from continuing operations totaled $90,000,000 in the quarter an increase of $18,000,000 versus the prior year period reflecting lower interest income. For the full year net interest expense, totaled $341,000,000 decreasing $98,000,000 and reflecting the benefits of our debt repayment initiative. Adjusted other non operating income totaled $4,000,000 in the quarter compared to income of $10,000,000 in the prior For the full year, adjusted other non operating income totaled $38,000,000 compared to $5,000,000 of income in the prior year period primarily reflecting lower foreign exchange losses. The contingent operations adjusted tax rate for the quarter was 10.8% and came in lower than expected. For the full year, the continuing operations tax rate was 17.5%. Both the full year and fourth quarter tax rates reflect the benefit of initiatives we have undertaken to optimize our global tax rate.

And as previously mentioned, adjusted earnings from continuing operations were $0.58 per share for the quarter and decreased 11% versus the prior year. Positive contributions to earnings include improved commercial performance from new product launches and positive pricing. In the quarter, these drivers were offset by the negative impact of Hurricane which we estimate impacted our results by approximately 10 tests per share and an unfavorable impact from foreign exchange and interest expense of approximately $0.06 per share. [indiscernible] Full year 2024 adjusted earnings per share from continued operations totaled $1.89 per share an increase of 11% as compared to the prior year period. Let me conclude my remarks by discussing our outlook for the full year 2025 the first quarter of twenty twenty five, including some key assumptions underpinning the guidance. All guidance provided excludes the impact of kidney care discontinued operation. [indiscernible] full year 2025, Baxter expects total sales growth of 5% to 6% on a reported basis. This guidance includes an approximate 200 basis points negative impact from foreign exchange based on current rates, as well as approximately $345,000,000 of anticipated MSA revenues from Vanta. Operationally, Baxter expects sales to grow 4% to 5% Baxter.

This guidance excludes the impact of foreign exchange FSA revenues and the planned exit of IV Solutions from China as the company continues to focus on driving profitable growth, The negative impact from exiting the ID Solutions business in China is approximately 60 basis points to growth. Operational sales guidance for the full year by reportable segments is as follows. For MPT, we expect sales to increase approximately 5% driven by continued momentum with our Buildium LVP launch the benefit of positive pricing in The U. S, and other underlying business momentum. This guidance excludes the impact of exiting the ID Solutions market in China, which is estimated to impact sales growth by 120 basis points. Sales in our HFC segment expected to increase approximately 3%, and is expected to be balanced across both CCS and FLT. We expect pharmaceuticals to increase approximately 5% to 6% driven by mid single digit growth in both specialty injectables and drug card pausing. Now I'll turn it to our outlook for other P and L line items. As previously shared, we expect full year adjusted operating margin continued operations to total approximately 16.5% and includes TSA income of approximately $125,000,000 We expect our non operating expenses which include net interest expense and other income and expense, to total between $250,000,000 to $270,000,000 On a continued operations basis, we anticipate a full year cash rate of approximately 19.5%.

We expect our diluted shares count to average approximately $515,000,000 shares for the year [indiscernible] does not contemplate any share repurchases. Based on all these factors, we now anticipate full year adjusted earnings on a continuing operations basis of $2.45 to $2.55 per diluted share. This outlook includes an estimated negative impact of approximately $0.03 per share from foreign exchange based on current rates. A couple of other quick comments I'd like to make regarding our outlook for 2025. First, I'd point out that our current guidance includes a slight impact from tariffs enacted in China but does not reflect any impact from potential tariffs that are contemplated for Mexico and Canada given the fluidity of the situation, and potential for further delays to implementation and possible exemptions, Second, in 2024, cost that has previously been allocated to kidney care that did not convey with the discontinued operations presentation were reported in unallocated corporate costs. Starting in 2025, these costs will be allocated into the three segments, along with related TSA income. Specific to the first quarter of twenty twenty five, we expect continued operational sales growth of approximately 3% to 4% on a reported basis and approximately 4% on an operational basis.

For the first quarter, foreign exchange is expected to negatively impact the by more than 200 basis points and MSA revenues are expected to total approximately $50,000,000 The China ID Solutions exit is expected to impact top line growth by approximately 60 basis points in the first quarter. On a continued operations basis, we expect adjusted earnings per share of $0.47 to $0.5 per share This guidance reflects the impact of closing Vantiv on January 31, which negatively impacted earnings per share by approximately $0.04 in the quarter as compared to the closing of sale on December 31. Had we been able to close on that date. With that, we can now open up the call for Q and A. Thank you. We will now begin our question and answer session. One question with one follow-up question if necessary. To ask a question. I would like to remind the participants that this call is being recorded. And a digital replay will be available on the Baxter International website for Baxter days at www.baxter.com Baxter. Thank you. Your first question comes from the line of Robbie Marcus with JPMorgan. Please go ahead. Great. Good morning and thank you for taking the questions.

Two for me. Joel, how should we think about with all the moving pieces on the top and bottom line that cadence for 2025?

Sure. Good morning, Robbie. Thanks for the question. So I'll start off with sales line. And as as you know, we normally have some ramp of our business over the course of the year, but there's a couple of things I'd call out this year. Specifically. First and foremost is if the I'd say the first quarter we're taking a somewhat more conservative approach in the sense that we're still recovering from the hurricane. And so we've given ourselves a little bit of I'd say conservatism to see how that all plays out. So I would say despite should be a relatively easier comp with HST, certainly there could be element of assets built into the first quarter from a conservative standpoint. I would say the other thing I would call out over the course of the year is that in the fourth quarter, we do anticipate that being a larger quarter in the sense that obviously we're comparing up against the impact from Helene. So are a couple of things that I'd probably call out from a kid's perspective on the top. From an earnings perspective, the OI yes, I think the basic I'd call out there is that we do anticipate a continued ramp over the course of the year, mostly driven by the Baxter of our stranded cost per that will be kicking in and continue improvements over the course of the year.

And so obviously, that's work we've already started to do. But obviously that will continue to build over the course of the year. And so therefore, you can expect some ramp to provide. [indiscernible] Great. Maybe a quick follow-up The HST business, especially frontline care, was still negative growth this quarter. What's the latest you're seeing there, the confidence you could turn it around in 2025 and your level of visibility to it?

Thanks. Yes. So I'd say a couple of things there. I mean, first of all, we are anticipating a stabilization of the primary [indiscernible] and we certainly have seen some of that or starting to see that even as we head into the first quarter. So I think that obviously had a substantial decline in 2024. And so from that perspective, I think the stabilization of markets important piece of this. [indiscernible] as you know, we do anniversaries some difficult comps. Over the course of the year. For example, things like some of the government orders some of the things that were again some of the stimulus packages, some of the spending things in the backlog, we're up against in '24 versus '23. We don't have those headwinds to the extent that we did obviously as we headed to '25. So I think that's another important piece of this. And then I think some of the things we called out in the prepared remarks around some of the things that the supply constraints, I think that we're looking to resolve that. I think Q1 of this year. And so I think generally speaking, some of the impacts that we had last year, we won't be up against is the same way this year.

And in addition to that, in a little bit of a longer term perspective, we do have some interesting new product launches that are coming out with that older practice. Certainly more later in the year than '26, but [indiscernible] I know you asked about MLC, but just from the perspective of CCS as well, One of the other differences this year versus last year was as you recall, we had it in the last year with with a an order book that actually had quite a bit of softness in it. And has an impact in the early part of the year last year.

As we talked about in the second half of this year, our order book in CCS has remained quite strong, particularly in PSS US. And so we had into this year was certainly a lot better momentum. In that business as well. So I think the combination of those things Rodney, give us a perspective on how we think there's a good opportunity for some recovery this year on HST overall. Appreciate it. Thanks a lot. Yes.

You got it.

Your next question comes from the line of David Roman with Goldman Sachs.

Thank you. Good morning, everybody. Heather, congratulations on the new role. I'm looking forward to working with you. This capacity. And Claire, thank you and the finance team for the extensive financial information Super helpful as we look at the company post Vantiv. I answered my first question The past several years for Baxter have been characterized by exogenous events like Hurricane Helene, elevated inflationary pressures, the transition with the Hill Rom deal on the strategic actions you've taken with BPS and Vantiv. Can you help us think about the direction of the company from here and how you're thinking about strategic priorities and maybe at the same time, give us a flavor for how that fits into the profiling characteristics as you go through the CEO search? Absolutely. I'll start with Brett Kanan, and he's like to answer on the second piece of that. And obviously, Dave, you're right. There certainly has been a lot going on here at Baxter. But what I would say, first of all, this company has done an amazing job of working through these transformational efforts here over the last couple of years. And really sets us up in a good place for this company moving forward.

And so how do I think about priorities for the company? And again, [indiscernible] new CEO has been named. But we're start I would say it starts with inspired innovation. These are things that we as a company want to make sure that we are driving innovative products and opportunities and obviously inspiring them by our customers. We're certainly going to have a focus on targeted markets. I would say it's one of the kind of the grow of the growers. How do we find those opportunities where we can actually invest our capital in places that ultimately going to drive growth for the organization I'd say the third thing really I think about it is how do we optimize the structure of our company obviously was the sale of the Kibbe business optimizing both our cost structure from a standard stripped cost perspective but also optimizing our supply chain and some of the things that allow us to take advantage of some of the well, hold on, more simple supply chain opportunity without having to have our home deliveries in the kidney business. So that's the third thing. I'd say fourth is really around this concept of commercial excellence and how do we drive consistent execution as a company as again a key focus.

Lars, the last I'd say is is really around disciplined capital allocation, those things that allow us to both focus on driving growth both organically and again in a folded tuck in way inorganically but then also balance with returning value to shareholders. And so So I would call those things really out as think about our company moving forward. And again, I'll turn it over to Brent in terms of just how does that fit into the CEO search. Brent?

I'd just add in this transition period, certainly, I'm looking for stability predictable, consistent, strong results and Joel, I give tremendous credit to this organization for all the things they have worked [indiscernible] Many of them very complex projects, time consuming, etcetera. So directionally starting to move the organization to more of an emphasis on growth both through innovation and through commercial execution is in the short term moves we can make that accelerate progress in the company.

And as far as CEO search, how we're looking at that at the Board level, That work is already underway. And as you can imagine, there's pretty good pro Baxter's portfolio where we are at this point in time. So the experience set we're looking for is would be appropriate with the company's situation and opportunities in front of us So the candidates need to have that experience and a vision that can lead the company forward to its next chapter. And having been here and now been on the Board and just working with his management team, I just think there is phenomenal opportunity here because so much heavy lifting has been done over the last few years to streamline and to put this new vertical organization in place, which I think is a real winner honestly. It's a great opportunity you. And maybe just a quick follow-up on the financial side. Joel, can you walk us through the post VANTIV sale capital structure of the company and maybe update us on target leverage ratios and the timeframe to achieve that Yes, absolutely. So maybe I'll start with the leverage ratio. Certainly, what we've talked about, we're continuing to be committed to is a target leverage ratio around three times net debt to EBITDA.

I think that is a a level that gives us opportunity to both balance strategic investments in the company as well and get return value to shareholders. In a way that I think balances out our capital structure. I We anticipate being able to achieve that term and leverage by the end of twenty twenty five. We'll certainly have some time in the later part second half of the year. So good about that. Obviously, since the deal closed, [indiscernible] $3,000,000,000 of debt The first part of it was taking out our delayed draw term loan that we had taken out earlier in 2024. And then we also paid off a portion of $1,000,000,000 with 2026 term loan that was actually our highest coupon debt. So I guess I would say through that work and our continued efforts in terms of driving free cash flow out of the organization, I feel comfortable with the fact that we're heading towards that target. That will allow us to really to adjust our capital allocation priorities from what's been mostly paying down debt to those areas that it was allow us to get to investors continue investments in driving organic growth continued opportunities for the fold in tuck in opportunities, whether that makes sense.

And the opportunity to restart buyback program. Certainly initially the offset option dilution and I'd say opportunistically from there.

Terrific. Thanks so much. Thanks Dennis.

Your next question comes from the line of Matt Miksic with Barclays. Please go ahead.

Thanks so much for taking the questions and congrats on a nice end to the to this busy, busy year. So I wanted to follow-up on some of the comments you've made on new product investments and [indiscernible] If you could talk a little bit about which business lines those which you'd highlight and then maybe timing as to when we might start to see some of the benefits of these investments? And I have one follow-up.

Sure. So really, let me start with the fact that it's really across our portfolio where we actually have really some innovation happening here. Again, certainly, I would start with Heather's business and FPT.

Obviously, the Nolan Pump has been a resounding success It's a differentiated product that again, it's got a great customer response launch has gone extremely well Obviously, we got a a partial year of that growth last year in 2024.

While the full year of that growth heavy forward here in 2025. So certainly Noble is obviously a huge key part of our innovation and to get really a great success story. Certainly in pharma, one of the things that you've heard from us talk about is the our need and our opportunity to continue to accelerate with new product launches in pharma. This past year, we launched nearly a cabinet and we anticipate another double digit year heading into '20 that is something you should expect from us to continue to do. And while there's not necessarily one large molecule that you can tie something to level of activity something that we are committed to and have a great pipeline of opportunities ahead of us. I would tell you that the effect of that, you see the the growth that we've had in our pharma business and so you see the impacts some of that that's already happened. And we anticipate as we head into Baxter year, we'll get another solid year from in terms of their innovation as well.

From an HSD perspective, [indiscernible] super helpful. One other comment I wanted to make is maybe a follow-up on Ravi's on HS It's just the environment for capital and some of the patient support devices and other things that you're selling fleets of beds etcetera you're selling in hospitals. Just maybe a general comment on that environment, demand cycles, sector trends, anything that can help us gauge where that business is going? Thanks so much.

Yes, absolutely. Thanks for the question. Yes, so would say generally speaking the capital environment is quite good. I think we've talked about this year, our capital orders particularly PSS in The U. S. Is the second half of the year have actually been been very consistent. And over year over year, we've had about 50% growth in those orders, which obviously there's a timing element in terms of when the orders turn into cash. Or turn into sales. But we certainly headed this next year with some good momentum and we expect to continue to build on that momentum as we head into 2025.

So would say generally speaking, the capital environment is quite good. Both from the, I'd say, the monitoring, the patient monitoring devices as well as the a VAD's perspective.

Obviously, we've had continued success with our progressive plus model as well. So I think overall the environment is healthy. We're encouraged by some of the competitive wins that we've had in those areas. As I said, we're anticipating some new products coming out a little Baxter, but as as we stick to that area as we have in 2020. And maybe Joe, this is is Brent just had a comment here. I believe from what I've seen, there's been a significant improvement in the commercial organization in The U. S. Particularly.

In those categories. And so I think we're seeing the benefit of upgrades made in that area and real rigor around the commercial processes there. So a credit to those Excellent. I appreciate the color. You bet.

Your next question comes from the line of Vijay Kumar with Evercore ISI. Please go ahead. Hi guys, good morning and thank you for taking my question. Joel, maybe my first question on OUS and margins here. I know the OpEx, these are apples to oranges comparison rate. But the year on year, it does look margins were up two fifty basis points. So if you can just break that down, right? What is TSA? How much of this was stranded costs, which were there in fiscal twenty twenty four? And that's going away. What is pricing elements here And did the China agu fluid exit, is that a headwind or a tailwind to margins?

Okay. For the question, Vijay. Let me start with the I guess, so I think the easiest way to bridge our ended the year at 13.9 to our target of that we've talked about and guided to a 16.5%. Think the way to think about that is that if you take the 13.9 And you add about 40 basis points for the 2024 impact of pulling then you have about two twenty basis points of what would be the stranded cost impact And then you take about 100 basis points of what we call operational improvements as we head into 2025. Those are things like [indiscernible] particularly in The U. S, in our MPT business. Those are things like product mix, One of the things that we talked about is the improvement of our injectables portfolio, the the higher growth in our advanced surgery the improvement in HST, all of our mix elements that add to the are positive there. We talked about some of the leverage from that we get from volume growth. And so I think and again, obviously, some of the things we talked about, new product launches, where you get that 100 points of benefit. And obviously, we're reinvesting some of that, but that's a key element of it.

And then there's two elements of the stranded cost and the MSAs that are [indiscernible] I'll call the net impact of stranded costs that haven't yet been addressed in 2025 and about a 60 basis point impact of dilution from MSA revenues that are obviously generating lower margin low single digit margin from a gross profit perspective.

So, Vijay, that really is the bridge. And so that takes you from the 13.9% to the 16.5%. So hopefully that gives you some perspective. On that. Can you repeat your second question?

No, that was extremely helpful, Joel. My second one was on if I look at the performance in the quarter, it looks like the bead was this was just more than the headwinds from Hurricane Helene coming in slightly better than expectations, right? Can you quantify what the headwind from Helene was in the quarter in what drove the B ex the hurricane impact? It looks like pumps was very strong. So maybe some commentary around pump performance.

Yes. I'll start, Greg. It was the I'll pass it over to Heather to talk a little bit about the performance of the IV and pumps in the quarter. So obviously, the headwinds from Helene the tax was about 100 Basis points in the quarter.

Yes, about $110,000,000 on the top line and $0.1 on the bottom line. [indiscernible] And then but obviously, the great news on that is that we actually we had we over performed in terms of the recovery time in terms of offsetting some of that. So I don't know maybe Heather I'll give you over to you to talk a little bit about some of that. Sure.

Hi, Jay.

Good morning.

I think from you.

So we did better in Q4 with the swift recovery of our North Coast site, thanks to the great work of our team. So about $45,000,000 Baxter.

On IV Solutions as a result of the swift recovery that we had out of that location. So did see strength across our infusion therapies business and the infusion pump in particular in the fourth quarter. So I'll say we're very happy with the launch of Novum IQ and where we are. The teams are doing a great job driving the new platform. If you recall Baxter placed a pretty big bet to internally develop a brand new to market and novel infusion platform both with the hardware, software and digital platform and we're seeing it pay off. So our infusion business grew 50% last year in 2024 and we're expecting another great year this year in 2025. And it's not only important because we get the revenue from the hardware and software, but also because we get to pull through very consistent revenue over the life of that pump. So share capture competitive gains are really important and customer satisfaction right now is very high. Both on the implementation of the pump as well as the EMR integration. With the new platform. And this was developed in collaboration with our the benefit of that. We took multiple points of market share last year in 2024 and we're expecting to see more of same more competitive gains in 2025.

And then we have some new complementary digital suites that are now launching that will be a great [indiscernible] that we released. So I'll tell you, I'm pretty excited about where we are in this new chat the new pace momentum, that we're building around the Novum platform and IVs are stable. We've gone the GPO re sign and are in line with our expectations, if not slightly better.

Than we expected. So we're expecting a great rebound in 2025 and so certainly really appreciate our customer support during the recovery of Hurricane Helene and hats off to the Baxter team for the [indiscernible] Thanks for the question today. [indiscernible] [indiscernible] Yes, I'd just like to recognize Heather and her team and really all the folks who work on North Cove Recovery. It's hard to explain it in a in a financial setting, but the work to deal with a disaster situation to work through that effectively, bring the plant back up and really look after the community at the same time. It's just world class response by the folks who are involved. And that's personally want to thank them all.

Especially Heather. Thank you.

Thank you.

Very helpful answers. Thanks, Vijay. Thanks Vijay.

Your next question comes from the line of Travis Steed with Bank of America Securities. Please go ahead. Hey, thanks. I'll follow-up a question on the sailing side and obviously great job on the fast recovery. I think it went better than most expected. It was thinking about how you think about the book of sailing business kind of before and after the hurricane, you see customers add a second source? And how you're kind of thinking about the share of that And then I had a follow-up question on free cash flow. Yes. Thanks for the question, Travis.

So as I mentioned to Vijay, I mean, our expectations are in line or even slightly better. I think because of the FlexPath recovery that we had quite honestly, out of North Cove. So we're not seeing as many customers take on a second source, particularly because as we've mentioned, we're back to pre hurricane levels at this point. So these new U. S. GPO contracts in particular started on January 1. And February 1. So now that we fully were recovered, most customers are still committed.

To their remaining compliance and minimum committed volumes that they've given to So we're pleased with the response and our customers sticking with Baxter. During this time, we know the fourth quarter wasn't easy for them, but we proved them the resiliency that we have and the investments quite honestly that we've made over the last few years and our global network and activating that during Helene certainly helped and released some of pressure. So we think that that's pretty unique to Baxter Baxter the hundreds of millions that we've invested in our platform and IV solutions due to the critical nature that they play in healthcare. So, again, in line or slightly better and working closely with our customers to make sure that they can resume normal clinical practice as they've had and patients can get the critical solutions that they need.

Great. That's helpful. And then I did want to ask on free cash flow generation. I know there's lot of adjustments this quarter. How should we think about some of these adjustments going forward?

Do you think you can kind of get back to kind of 80% free cash flow conversion? I don't think you gave a guidance for free cash flow next year, But curious how you're thinking about that. And then the frontline care write down, any more color on that? I know there's a kind of a change in the growth expectations for that business long term.

Yes. Thanks, Travis. So on free cash flow, the way I would think about that is that we have talked about the fact that we want to have an 80% conversion of net earnings to free cash flow. And I expect that to be generally speaking what we'll do in the course the year with one caveat to that and that is in the first quarter we're anticipating some negative impacts from think about it this way, it's it's two things from a working capital perspective. Number one, some of the expenses we incurred in Q4 related to Hurricane Aleena are actually going to be paid in Q1.

And then secondly, there's going to be some level of restock from an inventory perspective that's going to have a negative drag on cash. So I would think about that number for this year as somewhere more like in the low 70s But that is mostly impacted by the first quarter and I anticipate much more normal cash conversion in the second three quarters of the year and obviously going forward with hopefully continue to improve that. As we go forward.

Regarding the write down with ProMind Care, the way I was looking at Travis is we do a once a year review of our goodwill and other tangibles as it relates to those assets. And 2024 was obviously an impactful year. From an FLC perspective. So I guess I'd characterize it more as impact in twenty twenty four on the model then I would any type of overarching concern about the growth prospects look for. [indiscernible] Your next question comes from the line Laurence Digelson with Wells Fargo. Please go ahead.

Good morning. Thanks for taking the questions and congrats on the nice finish to the year here. Brent, I was hoping to ask you two questions. First, David earlier in the call talked about the challenges Baxter's had over recent years. How do you think about the pros and cons of an external versus in internal candidate for CEO bringing in fresh perspective versus someone who kind of already knows Baxter? Baxter I have one Well, I mean, that's the big question I guess. And the Board is very focused on that because there are pros and cons to either solution. Obviously, an internal candidate knows all the details of the business, how it runs, how it operates. An external one can bring a fresh perspective, but they have to ramp up quickly to try to catch that same level of knowledge, which takes a while.

Especially in a complex business. So I can just tell you that it is a full board activity. The board is very focused on this and though they would like to move as quickly as possible is the general sense is it's more important to get the right fit for the company at this point in time than it is to necessarily be [indiscernible] So I hope that gives you a little flavor for it. It.

That does. Thank you. And secondly, Brent, how did you evaluate the the guidance as Interim CEO and how do you think about the process for the permanent CEO to reevaluate it? You know that Just to be candid, right, the investors typically think a new CEO will come in and want to put his or her stamp on the guidance, may want to change investment priorities and things like that. So how did you think about that?

For taking the question.

How do I think it's coming in as an interim you mean?

Well, yes, I mean, is there a risk the new CEO comes in and says, hey, we need to invest more and changes the guidance?

Yes. Well, I think we've seen at a Board level seen the three year look at the business and have [indiscernible] where are the details and what and the drivers and being on board now and in the business, Phil feel good. I feel like there are solid plans in place. Of course, when you have another person at the helm, and I'm interim leader, so my focus is really on executing the plans that are in place. Another person may put a different filter on it, but there are The general situation around our markets and our offerings are known very well in the business. [indiscernible] Anything anyone coming in would be building on that. I guess that's I can assume. It's kind of a hard question to answer because it depends I think the one thing I would just give Brett the opportunity to ease talked about it. I would just reiterate the fact that this is a great opportunity for someone to come in and Brent has a perspective on that and maybe you can share that as well. But I think as we talked about some of the key strategic initiatives that done over these last three years, again, there's really a a couple of years, there's a really nice opportunity for some of the coming here and take a company that really I think is actually set up well for success.

And so I don't know [indiscernible] about that. I mean, the organization, as you know, has been consumed with a lot of project. We're very tough detailed work working through these separations. It's been And there is a real energy in the organization to turn now to growth and innovation. And so you can feel it. You really can. And that is a real opportunity here. [indiscernible] There are good leaders ready to move it forward. And I think whoever comes into the role, that is the key piece to drive is that profitable [indiscernible] From the base that's been done now because a lot of cleanup has been done.

All right. Very helpful. Thank you for taking the questions. Thank you.

The next question comes from the line of Daniel Antalffy with UBS. Please go ahead.

Hey, good morning, everyone. Thank you so much for taking the question. And Heather, excited to work with you.

Just a quick question, actually, Larry's question is a good segue into Brent and Joel and Heather. Just as we look to 2025 and sort of some of the pipeline drivers specific to 2025 and maybe 2026. I know you guys talked about like 10 product launches in pharma, for example. But any color you can give on sizing these and what we as an analyst and investor can look forward to over the next twelve to twenty four months? And that's all. Thanks so much.

Sure. I'll start and others can chime in as as they like. So I guess what I'll start with what I call a few that kind key drivers as we think about our guidance in 2025 and the year ahead of us. Number one, we continue to have strong growth in NPT. I think, obviously, as we mentioned a little bit earlier, the full year of the NOVUM launches again, we're really excited about that. Our band surgery, we anticipate to build big single digit growth [indiscernible] Our political nutrition business, which actually an interesting notice and started its penetration into the ASC space. So we've seen some nice growth there and anticipate that continuing into the next year as well as the impact of GPO pricing. That's a strong element in that business. We talked a little bit earlier about the recovery of HST. And the continued momentum on the capital side of the particular PSS in The U. S. As well as stabilization is a of FLC. [indiscernible] innovations of new product launches and the mix improvement there of injectables relative to compounding, I'd say even stabilization on the anesthesia side.

I think the so again, I think it's not really top line. And then the drivers of the line I talked about here again, so the GPO pricing, the new product launches, the mix, continued improvements in our IFC, and our supply chain with our margin improvement programs and volume leverage. And then over the course of the year, continued impact from driving out some of the stranded costs. That we've talked about here. So I think those are really the things to look forward to. And then from a new product launch perspective, just in general, again, a renewed focus on that, an accelerated focus there that so that's something practical in the ways that I talked about in '25. But also sets up for some impact beyond that.

I'll chime in. Yes, I'm looking forward to working with you too. This is Heather. So some things that I'm excited about, I mean the pump platform I mentioned, is something that we will continue to build on and we have additional launches to support NovaMyQ and a gateway now that can work a across our entire portfolio. So really excited about that and a connected ecosystem in the hospital, which is going to help clinical decision support and more personalized patient care. I mean, that's something that was the original thesis of the Hill Rom acquisition and we're starting to really see good pilots and momentum with our customers on that.

HST is going to be introducing some new products. They've got launched coming out throughout 2025 and early twenty twenty six. We're still seeing great momentum on PROGRESSA plus and PFS, so that continues to pay good dividends. And taking market share there. And then pharma is hitting a really exciting cadence New product launches getting into more complex molecules 10 to 12 launches a year that are really going to help buoy in Joel mentioned, the margins in that business are really focused on that. And when they hit this innovation cycle that they're on right now. So those are some of the things that I'm personally excited about. And then he mentioned alternate site. We made investments two years ago in alternate site in The United States and we are starting to see dividends paid there in the nutrition portfolio when some small tuck ins, licensing and distribution deals that we did MPT and those are starting to bear fruit. So that momentum in The U. S. Will continue. So those are just a few things that I'm personally excited about. So when I talk about a new rhythm, a new pace and momentum, that's building, we're definitely starting to see that across the portfolio and those investments that we made bearing fruit now moving into 2025 and 2020 Thanks for the question.

Yes.

Thanks, Heather.

This is Brent.

I'd just add to that. I sort of referred to it, but really starting right now, we're putting the emphasis on accelerating time to market, innovation development So that is an area, very strong focus right now is how to speed up that whole innovation cycle and get product solutions to market faster. So that will be ongoing work. Thanks for your time.

Thank you, Ladies and gentlemen, those are all the questions the time allows us to take. Therefore, that concludes today's question and