All right, let's get started. Thanks again, for joining us, everybody. Very happy to have with us at our conference, Baxter. From Baxter, we've got Joel Grade, EVP, Chief Financial Officer. We've also got Kevin Moran, a new addition to the Baxter team. Recent-
Mm-hmm
sort of new addition to the Baxter team, in IR. I'm gonna send it over to Kevin for a couple of comments.
Okay
on compliance or-
I'll be quick.
Yeah.
First of all, just one, thanks for having us here. It's been a good conference. Two, just a reminder that we will be making forward-looking statements. For more information, please just visit our IR website or our SEC filings.
Perfect.
That's it.
That's good. I wish I could be as concise as you seem. You know, with that, Joel, you know, one of the obligatory questions for any of the, you know, global multinationals.
Mm-hmm
That we cover is around the conflict in the Middle East, price of oil.
Sure.
In particular, I don't know if it's the easy part of the two questions, but maybe just, have you given some idea of the size of that business? I think it's investors have found it helpful to understand just this, you know, sub-5, sub-2 or how to think about the.
Yeah
business in that region.
Yeah. Thanks, Matt. Again, thanks for your interest in Baxter. I'd call it a sub-2 .
Okay.
We do have some business there, but again, it's small.
Okay. Any operations, manufacturing or other than
No
Obviously people, you know, in
I mean, we have some commercial people there.
Yeah
Obviously. That's. Really it's primarily that and, again, it's sub, you know, sub 2 on the revenue side.
Okay. Well, best to the folks who are in that region. In the last week or so things have changed a bunch. Second part of that is oil, price of energy. I think there was a time, and some of it was maybe justified, and some of it was maybe a bit of a knee-jerk reaction over the past, say, four or five years when energy prices went up, you know, Baxter was gonna get hit. It was kind of the simple, you know, investor street reaction. You know, how has that changed post Vantive? And maybe how should we be thinking about, you know, the way higher energy or resin or transportation costs would be.
Yeah
would be absorbed?
Yeah, maybe I'll start with the punchline. The punchline is that the exposure that we have today relative to what we said at our 2022 investor day.
Mm-hmm
is somewhere less than half.
Okay.
Okay. In other words, at that investor day, I think was said that there was about, you know, for every $10 of movement in a barrel was $25 million of impact. Again, punchline is it's less than half of that.
Okay.
Now, there's. I'll sort of take this from a couple different angles.
Okay.
I think one is what I'm gonna call our exposure to oil in particular, and that's less today. The reason it's less than it was at the time of that investor day is really around our kidney business, in particular our PD business. That business is very much a home delivery business. We had a fairly extensive last mile that we were exposed to at that time. Now that we've actually obviously separated from kidney, we don't have that same exposure. That's really kind of thing one. Again, I'll call that the exposure to oil side. The other is just on the materials side. Again, there are certain materials obviously that are driven by the oil price.
Even in that scenario, you know, whereas in the past with when we had kidney, the material cost was exposed obviously for all that. Today, for part of it, we have MSAs with kidney.
Mm-hmm.
For us, that business, that actually is something we can pass through as part of the MSA price. While we still do have some exposure there, I would say that, you know, a lot of the piece of that is obviously covered by the MSA. Then the other thing I would say is just from a timing perspective, and there's a lot of movement in spots right now, again, just sort of the timing of how that all flows through. You know, we obviously, materials cost get capitalized for us and sold as we roll out those products, and so it's, you know, there's a lag in that even, so.
Sure.
Yeah
a two-turn, like six to nine-month lag or is it?
It's probably on the lower end of that.
Okay.
Yeah.
Six-month lag.
Just to summarize again on the punchline.
Mm-hmm.
Exposure for us is somewhere, you know, a little, you know, less than half of what it was in the last time we've talked about that back in 2022 for our multiple reasons.
Okay. A combination of, you know, this is the good part of being cost plus, I guess in MSA, is that.
Right
that goes through, and then it's a combination of that an d the elimination of the PD home delivery part is what constitutes that half reduction, I guess.
Yeah. Again, we just simply don't have that level of last mile delivery.
Yep
that we had in our particular PD business.
To underscore that point, I've talked to folks who, you know, have this muscle memory idea about Baxter. I mean, Baxter has its strengths and weaknesses and challenges ahead of it, opportunities. You know, there's this association with just, you know, trucks and diesel and things like that. Without the delivery, without that, you know, not only being home delivery, but oftentimes home delivery in, like, places, you know, emerging markets or developing-
Yeah
Markets around the world. A big lift, you know, in the PD delivery side that's now gone away. In terms of, you know, trucks going to hospitals and how much of that is still on your P&L or how much of that are you doing through distributors? How should we think conceptually about your exposure to a bunch of Baxter trucks driving in and out of hospitals?
I mean, we do still do some direct delivery in certain categories of products, but, you know. As you've already said, I mean, others of it does go through distribution. You know, I would say what I have outlined here in terms of our total exposure is captured by the fact that that's how our model is set up.
Some distribution, some trucks.
Yeah.
That's super helpful. All right, so maybe so on to sort of like fundamentals. You know, bunch of changes since the advent of, not the least of which you've got a new skipper.
Mm-hmm.
running things at Baxter. Maybe talk a little bit about, you know, the term GPS comes up a bunch, new operating model comes up.
Yeah.
Sometimes we hear these, and as folks who haven't run divisions or corporations or, you know, managed operations for global, you know, what this actually means when the rubber hits the road is hard for us to kind of understand. Maybe explain, you know, what are the underlying benefits of this? Where are you in terms of rolling it out?
Sure.
When will investors maybe start seeing some of the benefits of this?
Yeah. Let me build just a little bit of context around this, and then I'll very quickly get to directly answer your question. I mean, I think one of the things that's important to remember is that from a timing perspective, I think some of these changes that we're talking about here with the new leader, with the new operating model, I think are really at a good jumping off point to some degree for our company. Why do I say that? You know, I say that because back in January of 2023, the company outlined some strategic changes that had to happen post the Hillrom acquisition. That included sale of BPS, that included sale of assets, that included verticalization of the business structure.
I think that resulted just really in three years of a lot of moving parts. You know, some you'd call, you know, possibles, you know, just distracting. Really a focus on those areas as opposed to really trying to, how do we run this business more effectively and consistently? I think now that we're through those things, I think this is where I go back to, "Hey, this is why this timing, I think, works well for us right now." With Andrew coming in, he obviously brings with him a really strong background of, you know, operational and having run a number of businesses, obviously in GE and Danaher, obviously as a CEO at ATS. Focus and sort of continuous improvement focus in it.
Obviously with that comes what you talked about now with GPS and, you know, growth and performance systems. I think this is really around how do we think about just, you know, running the operating model at which our company runs in terms of, you know, the cadence, the ways that we expect, we set goals, we track goals, we set, you know, through KPIs. There's a regular operating cadence in ways that I think is fairly substantially different than happened in the past. On the kind of what's different side as it relates specifically to GPS, it really is around that operating cadence and again, target setting, goal setting, and again, KPI tracking in a much more rigorous way. From an investor perspective, what does that mean?
To me, what that ultimately means, and again, this doesn't happen overnight, but what this does mean over time is that I would expect us to be a much more consistent company that consistently operates in a more efficient, effective way and predictable way. Somebody that is more efficient, effective at our forecasting and our predictability of our own results in the sense that, again, the way these cadences allow us to measure and predict performance in a better way. Ultimately, obviously, you know, I think about it as a cycle that allows us to ultimately expand margins, generate more cash, and then reinvest in innovation and growth. That's kind of a summary of how I think about that.
I'd say the other changes since he's come in, there's been a couple things that I would call out that are important. One is some restructuring changes that have happened that have, I'd say, thinned out management layers that have you know been a part of sort of you know his view of, "Hey, how do we get he and all of us closer to the business, closer to our customers, and obviously in a more streamlined way across the organization?" You know, second part of it is really around just the broader structural elements, and some of this comes into where we talk about stranded costs, but just reducing infrastructure in the areas to ensure that we are, again, a more nimble, agile organization.
Then third, really focused even more so on innovation. I think we've talked about some new product launches. We'll probably get into that in a second. But I expect you should, you know, hear more and more of that from us as we go forward with, again, a more focused, again, better execution and a better ability to continue to reinvest.
Got it. Yeah, I mean, just to, you know, having covered the company for a while, there was a time when there was a lot of cost being taken out of the organization. There was some...
Yeah
... kind of shipshape, you know, program that was put in place. This goes back a bunch of years. I would imagine some of that fruit's already been picked, but this maybe takes that up a level or is this-
Yeah, I think that's a good way to think about it, 'cause like. Again, I wanna, I like to say this to make sure I reinforce a key point here. This is not a, "Hey, we're taking out, trying to SG&A our way to prosperity." That's not what this is about. When you think about the, you know, kidney was 30%+ of our business, and there was an infrastructure in place. I'd say particularly outside the U.S., that business had a 70/30 split OUS/U.S., which is much more OUS than Baxter is. Right now, we're around 55/45, U.S. being the 55. There's just things that, and just one example of things where infrastructure needs to be realigned with the way the business is.
It's not just a, "Hey, we're just trying to take cost out to drive profitability." It's really trying to set up our business to make decisions to be better for our customers and more focused in that way. I think that's really a key.
Got it. Some, you know, we think about portfolio management all the time, but some geographic, you know, portfolio of geographies sort of management, the decisions that you're making, it sounds like.
Yeah
as well. Okay, fair enough. Let's talk about maybe, you know, some of the strong performance exiting as you wrapped up sort of last year, and sort of, you know, some of the things that were working, and kind of came in ahead of plan, Advanced Surgery and HST. Maybe, you know, I know we all know kind of where you've set guidance, which is, you know, call it for stability, and, you know, we'd like to say there's some conservatism in there. But it's not overly ambitious here with this stage of the, you know, new management, new program, kind of all the things that you just talked about. What's happening at those businesses that's working and how durable and sustainable is that this year? This is Advanced Surgery and HST.
Yeah. Maybe I'll start with that. I mean, I think, look, our Advanced Surgery business really continues to produce a set of very differentiated products that, I think are extremely, you know, well-received. There's really good global demand for those products. You know, I think surgeons see those products as, again, unique and differentiated in the industry. Again, that business continues. Again, it had a really good year last year, but it's had a series of good years, and I anticipate that as a continued strong area and a margin-accretive business for us. But I think, CCS is the other one, as you've called out here. Look, we've had a continued strong order book in that business.
I think one of the questions we often get is, you know, have we seen, you know, hesitancy from a capital spend standpoint from the industry broadly, and we really haven't. That's one of those things that we just continue obviously, we're certainly have a close eye out for it, but not something that we've seen, and our order book remains strong there. I think, you know, again, we had a little bit of what I'd call an anomaly in the fourth quarter in the sense that we had a lot more business shift outside the U.S., and particularly to our emerging market countries than the U.S. Again, I look at that as a quarter, you know, bit of a lumpy business at times versus the long-term trending.
Feel good about that space. You know, I think if I just run down a couple of other businesses.
Sure.
I think you know in the Front Line Care business, that was also a business in this year that kind of returned to a growth state. You know I think the primary care markets we had predicted this coming into 2025, that there'd be some stabilization in the primary care markets, and we saw that. I think that was an area that we see as again a continued area of sort of building strength. For us, obviously, both the parts of HST in general had a decent year, and again, we continue to expect that heading into 2026. You know, I think about our HST business. Again, I think, you know, one of the areas that has been again some of the impact on our guidance, if you want to call it that, and sort of what's gone the opposite direction there.
Yeah
Is really around two parts. One, you know, we've said now that we don't expect to be selling Novum pumps through 2026. We certainly remain committed to that and continuing to do good work to get that back to market as soon as possible. That has been a, I'll say a detriment from a guidance standpoint.
We also last in the fourth quarter, we basically said that, you know, once we have some clarity around that, there'd be an expectation of some different customer behaviors, and that we didn't see as much of that in Q4, so we've carried some of that risk into 2026, as well. Then from a solutions perspective, you know, I think one of the things we've tried to be really clear on is the fact that we do have a new baseline of essentially of demand for our solutions products that was, you know, somewhere in the 10%-15% range relative to pre-hurricane. Those are some of the, I'd say, things going in the opposite direction.
In pharma, in the pharmaceutical business, you know, certainly on the positive side from a growth perspective, our drug compounding continues to be a very strong growth area. Do I expect that to be at 18% heading into next year? Like, no, I don't. But that is a business that continues, you know, to grow well. And it's while it's margin dilutive, it is our shortest cash cycle in our business. On the flip side of that, we have continued to have some challenges in the injectables and anesthesia space. You know, some of that is, I'll call, market-driven, some of it is on us. We've talked about the fact that, you know, there were some operational challenges that we identified in that business.
We think we're making good progress on that, and we do expect that to improve as we head into, particularly in the second half of 2026. Some of the things, the IV push and some of the protocols that came out of the hurricane, are still having some level of challenge in that space.
Okay. A bit of a reset in IV solutions, which, I think for some part of last year, there was some hope that those would sort of reverse back to historical trends and now are sort of.
Yeah
Saying that this is where we are.
That's right. This is kind of where we are.
Yeah.
We remain a market leader in that space. It's a really good business for us. We're very, you know, positive on the long term of that business. You said it well.
Okay.
That's kind of where we are right now.
On the pump side, the sort of business planning or guidance assumption that you're not gonna sell any pumps this year, is that sort of because you see something that's going to happen towards the end of the year that will enable you to sell pumps next year? Or is that, you know, in the absence of visibility and some kind of certainty, you know, that's, you know, we're just gonna go with that assumption until we know different?
Well, let me just say something slightly different.
Okay.
We will sell pumps this year.
Uh.
We will sell Spectrum pumps.
Right. I meant Novum.
Yeah, I know. I just wanna make sure that was really clear. We, on the Novum side specifically, you know, I would say it's more that we don't yet have complete clarity on, you know, again, working with customers, working with regulators, and again, having really good dialogue all along the way. We still have a lot of customers who are using our Novum product safely based on the protocols we've set. I'd say just given that lack of complete certainty, we've chosen to talk about it in that way. Obviously, you know, look, love that to be an opportunity to speak, but I'm certainly not calling that.
Sure. Of course.
I do just want to emphasize again, this pump portfolio we have, our Spectrum. There's a very solid demand for our Spectrum pumps, and we're selling them well. We've got inventory and production that match the demand for those products. That's been a workhorse pump for us, you know, prior to Novum, even while we launched Novum. Again, the demand remains strong for that, so our pump sales continue to be solid there.
Okay. Just to make you mention Front Line Care, but. I mean, I think, again, investor perception has been, you know, Hillrom has, you know, the Hillrom businesses have struggled kind of consistently. I think, I mean, you know, it seems like, HST has actually had a pretty good year, last year. It was really Front Line Care that's now kinda joined the pack of being on the right side of growth and picking up momentum again, which
I think that's right, Matt. I mean, I think if you look last year in general, we had a solid year, I'll call it, in our HST businesses. I think the thing, which obviously were the former Hillrom. I guess what I would say to that too is, that is an area that is really front and center around innovation. A couple of the things that we've recently talked about specifically regarding our Connex 360.
Yep. That's a great segue.
Yeah.
New products.
Yeah. It's a next generation monitoring device. Again, lots of, you know, good, nice features within, you know, the monitoring itself, but also, you know, cyber and again, you know, easy uploads for updates and things. It's a very state-of-the-art product, and we're really excited about that. On the CCS side, our stretcher, Dynamo, we're really launching into that space. Again, this is a product developed with customers in a way that really, again, this is where we like to talk about customer-centric innovation. Something we're really excited about. Expect that to come to market in the relatively near future and expect to see some of those benefits in the second half of the year as well.
Okay. Maybe just on margins, we're gonna have to make it quick 'cause we're running down on time. I mean, I'll just say, you know, returning to below three times leverage is an important goal right now. Then it's sort of like we'll talk about use of cash after is a fair way to characterize the cash flow strategy here.
Yeah.
What are some of the sort of like, you know, puts and takes on margins, in a nutshell, if you would describe this year, over last year?
Yeah, I'd say there are a couple of the puts and takes on margins on the one hand, we capitalized a lot of our inventory costs that were higher last year because, again, particularly on our solutions business, we expected an improved recovery on the demand. As we capitalize those, we head into 2026, and as we sell those products, obviously we're still selling what I'd call a higher cost inventory, but we're doing that really until the second half of the year. That's one just kind of mathematical thing that I would think about.
You know, in the first half of the year, we also had a tariff impact that, you know, again, we didn't have it in the first half of 2025 that we're having now in the first half of 2026. So those are, you know, on the downside. Again, as we think about some of the areas of improvement, number one, some of the work that we've done to restructure, we talked about, we expect to see some of those benefits heading into the second half of the year. The fact that we now have leveled out our staffing in our warehouse and our manufacturing facilities relative to demand ultimately will flow through our capitalized inventory and show improvement in the second half of the year, as well.
Some of the new product launches we talked about will allow us to begin to improve in the second half of the year. There's just a few of these key areas. Again, we talked about from a pharmaceutical standpoint, some of the operational challenges that we had and we identified in Q4. We do anticipate those improvements to happen. Of course, there's a few one-time items in the fourth quarter that we don't expect to recur.
Okay.
as we head into 2026.
Super helpful. Well, thank you, Joel. Thank you, Kevin. Goo d to see you both. Appreciate you joining.
Thanks, Matt. Appreciate everyone's interest.