Falling off the back of the stage on this thing.
Oh, yeah, I know. I think we're good. All right, we're going to get started here in the last afternoon session of the 45th Annual TD Cowen Healthcare Conference. I'm Josh Jennings from the TD Cowen Medical Device Research Team, and we are lucky to have executives from Baxter joining us this year in Boston. We have Joel Grade, Executive Vice President and Chief Financial Officer, and Clare Trachtman, Senior Vice President and Chief Investor Relations Officer. Joel, Clare, thanks so much for joining us today and spending time in Boston.
Thank you for having us.
Yeah, great to be here.
Absolutely. You know, lots going on at Baxter. It has been going on, and it's going on.
For sure.
You know, one of the big changes is at the top of the top seat, and the CEO search is ongoing. Maybe just help share kind of what you're looking for in the next CEO and what they need to bring to the table that may be different than what Joe did for years.
Yeah, so I guess I'd first of all say a couple of things on that. I mean, obviously, Joe's been around for nine and a half years and certainly had a big impact on the company, led us through a lot of the transformational work. And sort of we, I think, all view this as now, here's our next opportunity as we head into a new Baxter future. And I think what I would say is the following. I think the CEO that we'd be looking for is going to be, I think, reflective of sort of the way we view this company strategically moving forward. And that, to me, that really starts with how do we become an even more innovative company that is consistently rolling out new products, consistently going to market, and in doing so, accelerating our growth.
I think as we sold Vantive, it allows us, from a capital allocation perspective, to really be even more focused on those high-return projects that ultimately drive innovation and growth. I think there's an element of that that we'd certainly love to see from a CEO. I think the, I'll say, operational consistency in terms of how we operate, being a company that becomes more predictable, that becomes more consistent in terms of how we execute and drive operations. I think on a macro level, taking a strategy like this, kind of drive it through the company and really embed it in the DNA, the culture of the organization, would be the way I would say is what we're looking for in a CEO.
I think just from a process standpoint, again, obviously, internal candidates as well as external candidates, I think the board's doing a fulsome review of both.
Okay, great. And you kind of wanted to move into some portfolio management questions. And since the Hillrom acquisition, Baxter sold the BPS business and Vantive. Where is Baxter in terms of completion of major portfolio management moves?
Yeah, so I guess, though, my answer to that is that on a kind of material level, I think we've settled into a place that I think we like. And meaning to say what you should not expect is a certainly large-scale acquisition or large-scale disposition, if you will. That doesn't mean that over time we won't continue to critically think about our portfolio and more tweaks than kind of large-scale moves. Over time, I think we'd love to earn the right to be able to do some fold-in, tuck-in deals that would supplement product areas that are adjacencies and things that could look to accelerate both our margins and our growth in our markets. I think on the pruning side, if you will, I think continue to find opportunities, whether it's in products, whether it's in geographies, certain things where we make sure we're optimizing ourselves.
I think an example would be we've talked a little bit about on our last earnings call, we're looking to exit our solutions business in China. And that's an area that was, I'll call, marginally profitable for us. And those are the types of things that we'll continue to do over time. But I think, again, nothing of a material nature.
Okay. And just on the balance sheet, Baxter paid down $3 billion of debt following the Vantive sale. And I think the plan is to get to roughly three times net debt/EBITDA by the end of 2025. Can you read some of the milestones to get to that target at the end of 2025? Anything we should be looking out for over the course?
Yeah, I would say, first of all, to start with, I feel good about our ability to progress towards that target. So I'll maybe start with that. And I think, obviously, a couple of the key milestones that have already happened is post-separation of Vantive. We had about $3.4 billion of after-tax cash proceeds, $3 billion of which has already been used to pay down debt. We paid down our Delayed Draw Term Loan of $1.8 billion. We paid down $1 billion off our 2026 term loan. And we paid off some commercial paper. So key milestones there. I think the other part of that really, obviously, is the business that as we ultimately generate EBITDA and then free cash flow that until such time as we get to that point, it'll be really primarily focused on paying down debt.
But I don't know that I'd call it necessarily key milestones, but certainly our progress on our forecasted results and our ability to convert our earnings into cash, certainly the key elements of this.
And is three times kind of the longer-term target as well? How do you think about that?
Yeah, look, it's obviously something that I think is a target level that allows our company to be both solidly in the middle of kind of investment-grade lane from a ratings perspective and at the same time allows for a very balanced capital allocation as a company, meaning the ability to invest in our business in the way that we should be investing in our business and the ability to return value to shareholders. We've certainly committed to a dividend. Obviously, we downsized it some related to the sale of Vantive, and we look forward to reinstating our buyback program and as part of, again, a comprehensive and balanced capital allocation program, and so I think three times leverage allows us to do that, to not let our balance sheet be lazy, so to speak, but at the same time comfortably in an investment-grade space.
Just thinking about your earlier comments just on maybe some tuck-ins, I mean, have you guys kind of put a ceiling just in terms of size of an M&A transaction that would be fitting within the strategy? Or is that, again, too detailed?
You know, I guess my view of the world on that is, and again, this is just a broad range, but I look at that as $250 million-$1 billion deals, I think, is probably a reasonable view of what I'd consider a fold-in, tuck-in space.
Sure. The tariff question has come up. Baxter's a global business. But just wanted to see if there's any major changes or issues arising just from some of the formal announcements earlier this week with Canada and Mexico and China tariff issuances.
Yeah, yeah, I heard about some of that and actually, if I answer this question, then you ask me five minutes from now, we might have a different answer. But in all seriousness, I'll maybe start with Canada and China. Those are areas for us that actually I call have very, very small exposure for us in terms of both from a sales standpoint. China, again, we've only got a couple% at the most of our sales across all of China. And mainland China's even less than that. Our manufacturing exposure in China and Canada is small. And so I kind of look at those areas as, again, really just almost a completely insignificant risk. From a Mexico standpoint, we do have two plants from HST in Mexico. But again, having said that, as an organization broadly, it's fairly modest exposure.
One of the things Baxter's done a good job of just broadly is where we sell or where we manufacture in a lot of cases. Even when we talk about the Canadian exposure, we have a fairly high share in that country, and the majority of everything we do there is manufactured in Canada. I know there's been some talk about tariffs even in the EU at some point, but back to this point I'm making, a significant amount of what is sold in the EU is actually manufactured in the EU, and likewise, we have a lot of our U.S. business is manufactured in the United States, and so I guess I would just say broadly, certainly it's an impact, again, from a company perspective, again, it's not a highly material impact for us, but certainly something to keep an eye on.
Obviously, look, it's still pretty early to tell. We've decided purposely not to come out with some quantification of this just based on what seems to be kind of an ongoing.
Moving target.
Yeah.
Got it.
Movement there. And we'll see where it goes.
Great. And I know there's been a plan to host a Capital Markets Day and Investor Day. And the CEO search is going to kind of determine that conversation, that process will determine when it happens. But I think previously the expectation was maybe management would issue longer-term targets post the Vantive sale. But it might be tough with this new CEO until they get their arms around.
Exactly. I mean, I think that we had had previously plans to do it, but in light of kind of the search for the CEO, I think that we're just kind of pausing, and we'll give Canada the chance to get familiar with the business and then determine when the Capital Markets Day, we will do one. Just the timing, obviously, is highly dependent on whether it's an internal candidate, external candidate, and where we go from there then.
Understandable. She'll be thinking 2026, maybe just as hard to know.
Yeah, I mean, ideally, but I'm not going to put a time frame on it right now.
I think the one thing I would just encourage, though, all y'all to think about on that is we've talked about this 4%-5% growth rate as something that I'd consider a really solid sort of baseline in terms of how to think about our company. And obviously, we certainly look to do things that would hopefully, over time, be able to accelerate that. But I think it's really that 4%-5% is something that, as you're thinking about long-term targets, I think it's a reasonable way to baseline our company. And then we've also said that with the 16.5% that we talked about for 2025, over time, that would be something we would continue to look to continue to expand as well. So just I know that's not official long-term guidance of any sort, but those are kind of things I would.
Yeah, and the free cash flow, we've targeted the free cash flow as well, 80% free cash flow conversion. So yeah.
That's helpful. Thanks. I wanted to talk about the MPT business and North Cove, remarkable recovery process from Hurricane Helene. Production's back to pre-hurricane levels. Some customers you've relayed almost uniformly committed to supply from Baxter despite potentially having taken on another supplier. But maybe just address those dynamics and your comments about the recovery process still hold and there won't be a permanent impact to the IV solutions business.
Yeah, sure. So I think number one, just as always, get a chance to do the shout-out to the team in terms of how that recovery process has gone. I think there was understandably a lot of anxiety around what that might look like over the long term. Our plant at this point is now actually back up to 100% of its capacity. And so that is just a huge tribute to a lot of work that was done. And I'm not sure there are a lot of companies that could have pulled that off in this way. So just maybe start with a shout-out there. I think in terms of kind of where we are from a customer and a production standpoint, I'd say a couple of things. Number one, maybe I hit a punchline.
We don't anticipate a long-term share loss as a result of this impact that happened. Certainly, in the immediate term that followed, there certainly was replacements that needed to happen. But I could tell you, Art, I think we have come out of this. At the time, we said, "Hey, this could be our finest hour when all this happened." And I think we came out of it in a way that our customers have been very, very pleased with the way we reacted to this. And so the confidence I have in their level of commitment to us as a company in that product space, again, over the long term, I think we feel really good about. A couple of other things I'd say. Certainly, there was some conservation that happened along the way. And obviously, I think is still to some degree building back.
I think when I talk about being at 100% production right now, we're essentially selling every case we produce, every bag we produce. What we're still doing, though, is working to continue to reestablish what customers may have had on hand that is at the moment less than what they may have on hand today, and so I think that process of somewhat building back some of those stocks is something that is continuing to happen. Certainly, I think we see that continuing over the first half of the year, and we head into the second half of the year, I think, getting back to a little bit more normalized state as it relates to that, and then entering the fourth quarter with, obviously, an ability to have a pretty reasonably strong comparison to the impact that we had in the fourth quarter of 2024.
Great. Great. And just on, excuse me, GPO contracts, you've shared that two major U.S. contracts starting January 1 and February 1 reflected favorable commitment levels to Baxter and some positive pricing momentum. Maybe can you quantify the pricing comment and maybe a sense of magnitude and timing of the positive price premium?
Yeah. So what we've talked about on that is that we anticipate around 100 basis points on an enterprise level from a pricing perspective. And as a result of this work on the GPOs, that is, I'd say, primarily kicking in, if you will, around February 1 for the majority of that impact. But the negotiation itself, these are now complete. This is another really important part of the work. And again, if you think about the work that was done, this happened during the aftermath of a hurricane. And so there was, again, a lot of, I think there's some anxiety around what that would look like. We came through that very well, I think. And again, we're now past that point. And again, that pricing should start to kick in February 1st.
Are there any upcoming GPO contract renewals of note this year that could impact pricing positively?
So yeah, so not this year. So two out of the main three were negotiated in 2024 for this 2025 impact. The third one of significance will be negotiated in 2026 to have a 2027 impact. Outside of that, I think what we continue to believe is we'll have, I'll call, modestly positive pricing in our normal years. So say 2026, for example. But the third GPO won't happen for a couple of years yet.
And maybe leading into the margin improvement trajectory, pricing's a nice driver. But especially in 2025, it can help to get you guys to that 16.5% target. But maybe how big of a component is pricing in terms of driving that margin uplift versus some of the core business dynamics and operational efficiency programs that you guys are working on?
Yeah. I mean, I think I'd call out a few things that are important components to this. Certainly, pricing is a significant one. But there's a few others I'd call out. Number one is the continued impact of some of our new product launches that we've had across the organization. For example, our Novum pump does come at a price premium to Spectrum. So there's an element to that. The new product introductions across pharma are areas that ultimately are driving positive margin impact. So sort of kind of categorizing it as generally new product introductions. The second is around what I'm going to call mix. So we had had a headwind in 2024 from a business mix perspective that we actually anticipate being a contributor to margins in 2025 and beyond, by the way.
Some of the recovery of HST as we head into 2025 is margin-accretive from a mix perspective. The transition of some of the, again, last year in 2024, we had a fairly big dichotomy between our growth in injectables in pharma and compounding. Our anticipation this upcoming year, we talked about 5%-6% growth in pharma, balanced between those areas. That's a positive mix impact from injectables. Things like our Advanced Surgery in MPT has had some good growth. We anticipate that to continue and, again, margin-accretive. So mix is another component of this as well. The third thing I would call out is our ISC. We continue to have our margin improvement programs in ISC that are impactful of both absorption of increase in cost, but also, as the name suggests, improvement of our margin programs there as well.
And I think finally I would just say is that we, from a G&A perspective, look to continue to gain leverage on our growth. So as we continue to grow, and notice I didn't say SG&A, there's going to be continued investments in sales and marketing and certainly in R&D as well. But from a G&A perspective, some of the work we're doing on stranded cost and those type of cost impacts over the course of the year will continue to drive leverage and margin improvement as well.
Awesome. The recovery of the HST franchise has become a focal point, but you guys have called it out and talked about some recent stabilization within the primary care market. There were some challenges last year, just declines in construction and shift away from retail primary care, but maybe help us understand what your view is of the stability in the primary care channel, and are you seeing this new growth or is it just headwinds subsiding a little bit or you're abating the headwinds off of a softer comp?
Yeah. I never consider this my most strategic comment, but it is a headwind subsiding where we have some better comparisons versus some of the significant headwinds we had in 2024 that we're not anticipating in the same way in 2025. And I want to be clear, this doesn't, while we do see some level of recovery in the primary care market, we're not projecting some substantial growth vector change in that way. And again, stability, yes. But again, this is really, as much as anything, a recovery against some of the things that we saw in 2024 that we are not anticipating as significantly in 2025. The other thing I would just maybe add as an end to that part of your question, as part of HST overall, the other part, though, I would continue to call out as a positive is in the CCS part of that business.
We've talked about now for a while in the last number of months about the size of the order book and some of the impacts that we've seen there, and in fact, in our U.S. PSS business, we had, at the latter part of the year, some double-digit growth in that area. That was an area you'll also recall was challenged in the beginning of 2024. We certainly see some of that continued momentum heading into 2025, and so I think when you combine some of that positive work, particularly, again, in U.S. PSS and some of the recovery we talked about in FLC, we are looking to see some recovery in that business this year, and to be candid, we're off to a decent start here, start the year.
Great. And you mentioned Connected Care Solutions, and just wanted to maybe get a better handle on the recent evolution and where you are now currently in terms of realizing the vision tied to the combination of Hillrom and Baxter during that acquisition process.
Yeah, well, I would say so for CCS, part of, again, some of the challenges we had in the early part of last year were really around, again, there's a couple of operational things we called out. But I would just say in general, there's been a lot of work done to improve the mechanisms and the visibility to the way our orders come in and ultimately translate into sales. I think you'll recall we headed into last January in 2024 with a very, I'll call, meager-sized book of orders that actually came in very late in Q1. This year, again, some of the improvements that have been made in terms of how we drive outcomes in that business, how we, again, focus on competitive wins. This has been part of the incentive change that we've made with some of our sales teams in that space as well.
But driving competitive wins, focusing on really having, again, specificity and visibility to the order book itself, but also then the timing of when they ultimately translate into revenues. That's just kind of what I'll call operational sales work that's significantly improved over the course of the year. And you can see some of the results of that as we head into this. We have had some challenges OUS that we've worked through, particularly in countries like France and in China to some degree with some anticipated government stimulus payments that have been slower than expected to come through. But again, we do expect that to stabilize over time as well.
Okay. You also mentioned Novum IQ earlier, one of your answers, and that launch has gone well as your team has described. Real strong growth in 2024. Maybe just help us think through whether that growth was driven by replacements versus winning share or a combination of both, and same continued momentum into 2025, I think, is expectation.
It is. And it is also both. Back to your point on, are these replacements with existing customers or these competitive wins? I think the launch itself is something as a company we're really proud of and has actually gone really well. And the product's been extremely well received. The demand level's high. We're certainly in a replacement cycle for pumps. And so there's a lot of people selling pumps right now. And we're certainly one of them participating in that. We expect that replacement cycle to continue here for the next year, year and a half to two years. But I think the key part, back to your original ask, is this is something that as we sold our Spectrum pumps, we were taking share at a rate of about a point a year. We actually believe now that with Novum, we've actually doubled that.
We're taking a couple points of share a year here. And the great thing for us is we got about a half a year out of that growth last year. And obviously, we'll now get a full year of it here in 2025. So feel good about that momentum. And then, of course, the good news of that is the pumps themselves are not necessarily margin accretive by themselves, but the sets and the other things that go with that has been something we've seen a lot of success in as well. And feeling really good about where we stand there.
The Novum IQ platform is going to continue to evolve. Maybe walk us through that and how that can add kind of additional layer of growth for the franchise?
Yeah. And before I go there, I also wanted to say with Novum IQ, a lot of the digital capabilities that we have with that platform really then leverage kind of you were asking earlier about the thesis behind HST and Baxter. And that's what we're able to do with Novum particularly is really leverage these digital capabilities across the portfolio and across both our HST, across our pharmaceuticals, and across kind of MPT. So that's the promise. And that was unlocked really with the Novum Gateway. In terms of the platform, so we have the syringe and the LVP. Those have been launched in the U.S. and in Canada. And we'll be focused on a PCA pump, which will kind of be on that same Novum. And then we're also looking at an ambulatory pump as well.
Then beyond that, we'll look to which markets outside the U.S. and Canada that will further expand. Kind of looking at targeted geographic expansion for the Novum platform going forward.
Any just help thinking about the growth in 2025 off of a tough comp? I mean, it sounds like momentum's continuing. You're going to outpace the market. A couple points maybe.
Yeah. I mean, I think that we're expecting, again, solid growth out of our infusion systems business in 2025. I think to Joel's point, we have the benefit of having now a full year launch of Novum there. But I think it will definitely be a contributor. We've called for MPT to grow approximately 5% this year, and that does reflect some of Joel's comments earlier, just some conservatism earlier in the year as we think of conservation kind of potentially impacting some IV utilization. But then the ramp of Novum really in the first half of the year and then through the remainder of 2025.
Great. And Advanced Surgery was touched on earlier, but just to build on that, mid-single digit growth this year in 2025, maybe to help us think about volume versus pricing and is volume really tracking the surgical procedure volumes or are there some competitive dynamics that are helping or maybe turning into a headwind, mild headwind, or how are the competitive dynamics shaping up, I should say?
Yeah. I'll start. And then Clare can add anything she wants to add to this too. I think, first of all, back to your kind of pricing and volume quote, one of the things that actually was a driver of growth in that area in 2024 was some OUS pricing, in particular in that space. That actually was one of the key drivers of our margin growth and pricing impact in 2024. And so I think when you combine that with the fact that, again, we also continue to experience volume growth really across the global portfolio. So there's good demand for that product both in and outside of the U.S. And we're expecting that momentum to continue in terms of, and again, in terms of surgical procedures and, again, sort of some of the key kind of drivers behind that. Again, it's been favorable.
Obviously, we've had some new and interesting products as part of that as well.
Yeah. Nope. That's exactly right.
Maybe just a last touch on that last part of your answer, just maybe the pipeline and Advanced Surgery, how is that going to contribute to sustained mid-single digit growth or even driving it a little bit higher?
So certainly, we look at Advanced Surgery broadly as one of those areas where when we talk about mixed improvements, it's an area that, again, has some growth potential and obviously at a higher margin. And I think over the longer term, the pipeline for that certainly has both organic and potentially inorganic opportunities. And so when you talk about some of the fold-in, tuck-in type opportunities that are getting some adjacencies along the areas that could even further accelerate that, we certainly do see that as one of those areas that from an overall focus on growth standpoint, we could have, again, in both cases, helping accelerate that.
Outstanding. Joel, Clare, thanks so much for.
Thank you.
Letting us host a fireside chat and thanks so much for covering so much ground. Appreciate it.
Absolutely. Yeah.
Thanks, everyone. Appreciate it.