Good morning, ladies and gentlemen, and welcome to Baxter International's Second Quarter 2023 Earnings Conference Call. As a reminder, this call is being recorded by Baxter and is copyrighted material. It cannot be recorded or rebroadcast without Baxter's permission. If you have any objections, please disconnect at this time. I would now like to turn the call over to Ms. Clare Trachtman, Vice President, Investor Relations at Baxter International. Ms. Trachtman, you may begin.

Good morning, and welcome to our second quarter 2023 earnings conference call. Joining me today are Joe Almeida, Baxter's Chairman and Chief Executive Officer; and Brian Stevens, Baxter's Interim Chief Financial Officer and Chief Accounting Officer. On the call this morning, we will be discussing Baxter's second quarter 2023 financial results along with our financial outlook for the third quarter and full year 2023. Please note, results in the current period and prior periods have been adjusted to reflect the pending sale of our biopharma solutions or BPS business. While the closing of this transaction is subject to the satisfaction of customary closing conditions, that business is now reported as a discontinued operation. We have posted restated schedules reflecting that presentation for prior periods to our IR website. Additionally, we will be providing a walk to reconcile our prior guidance for the full year 2023 for updated financial outlook for continuing operations and in the aggregate. With that, let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook for the third quarter and full year 2023, new product development including the impact of pending regulatory approvals; the potential impact of our in-flight strategic and pricing actions, business development, regulatory matters, and the macroeconomic environment, including commentary on continuing supply chain challenges and evolving customer capital spending, contain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from current expectations. Please refer to today's press release and our SEC filings for more detail concerning factors that could cause actual results to differ materially. Additionally, on today's call, non-GAAP financial measures will be used to help investors understand Baxter's ongoing business performance. A reconciliation of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in the accompanying investor presentation and in our earnings release issued this morning, which are both available on our website. Now, I'd like to turn the call over to Joe. Joe?

Thank you, Clare. And good morning, everyone. We appreciate you joining today's call. I will begin with an overview of Baxter's second quarter 2023 performance followed by a look at the progress we're making across the strategic actions we announced earlier this year. I will then turn it over to our interim Chief Financial Officer and Chief Accounting Officer, Brian Stevens, who will walk you through our quarterly performance and outlook in more detail. Finally, as always, we will welcome your questions. Second quarter sales rose 3% on a reported basis and 4% on a constant currency basis, both measures exceeding our prior guidance of 1% to 2% and 2% to 3%, respectively. As a reminder, and as Clare noted, we are reporting results of our biopharma solutions or BPS contract manufacturing business as discontinued operations in light of its pending sale, which I will touch on shortly. I would note there was no impact in the quarter on top line growth rates from discontinued operations on either a reported or constant currency basis. Our top line outperformance was driven by solid demand across the portfolio. On the bottom line, second quarter adjusted earnings per share from continuing operations totaled $0.55 and from discontinued operations totaled $0.11. In the aggregate, adjusted earnings per share totaled $0.66 and exceeded our outlook range of $0.59 to $0.61, driven by a combination of top line performance and operational efficiencies. Several factors combined to help bolster both top line and bottom line results. First and foremost, I want to highlight positive demand and greater stability across most corners of the healthcare marketplace. Following the erratic impact of the pandemic and its recurrent surges over the past few years, overall, we are continuing to see sustained recovery in hospital admissions and procedural volumes as well as in alternative sites of care, which are contributing to solid performance across the portfolio. The more stable inflationary environment is also contributing to an improved macroeconomic backdrop, further helping to steady our operational performance. While positive signs are emerging, we remain cognizant of the potential for inflationary disruptions consistent with our approach this year. And in general, we have tried to capture these potential risks in our updated financial outlook. Similar to last quarter, we are also seeing continued improvements in the availability of key electromechanical components. This reflects a combination of overall environmental impacts and steps we have taken to shore up supply within our own integrated supply chain operations while there is still work to do with these factors and actions contributing to enhanced cost management and greater predictability on the supply chain front. As we have previously commented, we continue to see a degree of caution in hospital capital spending, which has impacted our patient support systems or PSS performance. Encouragingly, we saw a significant sequential improvement in the second quarter for orders and are building momentum with the recent launches of our Progressa Plus ICU bed and enhanced features to our segment-leading Centrella bed. Progressa Plus is the latest version of our unique ICU-focused bed which now offers a range of additional features developed to help healthcare professionals address the complex critical needs of ICU patients. Our current expectation is for hospital capital spending to improve in the second half of the year as compared to the first half as hospitals reevaluate their budgets and reprioritize areas of spend. We are building momentum and making significant progress across the transformative strategic actions we announced to kick off 2023. The proposed spin-off of our renal care and acute therapies businesses into an independent publicly traded company, the pending sale of our BPS business and related initiatives, these efforts are already enhancing strategic clarity across the company.

Joe mentioned, we are pleased with our second quarter results, which came in ahead of our expectations. Second quarter 2023 global sales included $3.71 billion from continuing operations and $142 million from discontinued operations. Sales in the quarter increased 3% on a reported basis and 4% on a constant currency basis and compared favorably to our guidance. Sales performance in the quarter benefited from better-than-expected sales across nearly every business line with particular outperformance realized in Medication Delivery, Pharmaceuticals, and Patient Support Systems. On a year-over-year basis, we recognized solid growth across much of the portfolio, which was partially offset by a 1% decline in Patient Support Systems, primarily reflecting lower rental revenues and reduced hospital capital spending compared to prior periods. We also generated lower sales in BPS, which is now reported in discontinued operations due to a reduction in revenues from COVID vaccine manufacturing. On the bottom line, adjusted earnings in the aggregate, inclusive of both continuing and discontinued operations, decreased 24% to $0.66 and reflect the impact on our results of the increased cost of materials, labor, and freight we've absorbed due to the significant inflationary environment experienced over the past few years. Adjusted EPS for the quarter came in ahead of expectations of $0.59 to $0.61 per share, primarily driven by sales and operational performance. A lower-than-expected tax rate offset the negative impacts from foreign exchange and losses on equity investments. Now I'll walk through performance by our regional segments and key product categories, starting with sales by operating segment. Sales in the Americas grew 5% compared to the prior year on a constant currency basis. Sales in Europe, the Middle East, and Africa grew 3% on a constant currency basis, and sales in our APAC region increased 4% on a constant currency basis. As we look to the second half of the year, we expect performance in APAC to be negatively impacted by a decline in China sales resulting from the effect of excess mortality on ESRD patient volumes due to the pandemic as well as the impact from the ongoing implementation of value-based procurement initiatives. Moving on to performance by key product category. Global sales for Renal Care were $936 million, increasing 2% on a constant currency basis. Performance in the quarter was driven by mid-single-digit growth in our U.S. PD business, partially offset by lower U.S. in-center HD sales following the exit of a distribution agreement at the end of last year, consistent with our optimization plans for this business. Globally, both PD and in-center HD sales advanced low single digits. Results in the quarter were partially offset by lower sales in China due to factors just mentioned, including government-based procurement initiatives and the lower patient census in the region due to the pandemic. Sales in Medication Delivery of $761 million grew 7% year-over-year at constant currency rates, driven by strength globally for both infusion systems and IV solutions products. We continue to experience healthy demand in the U.S. for our Spectrum LVP pump. As we continue to work to improve the availability of components for Spectrum, we expect sales to ramp in the second half of the year, and we also continue to focus on growing our Novum syringe base. Pharmaceutical sales of $550 million increased 6% on a constant currency basis. Performance in the quarter reflected strength in our U.S. injectables portfolio driven by new product launches, including room temperature formulations and bendamustine as well as increased sales internationally for our hospital compounding portfolio. Total sales for Clinical Nutrition were $243 million, increasing 7% on a constant currency basis. Performance in the quarter was driven by a strong performance internationally, partially offset by declines in the U.S., reflecting a difficult comparison against the prior year period. Sales in Advanced Surgery were $272 million, advancing 4% on a constant currency basis. Growth in the quarter reflects an improvement of surgical procedures globally with particular strength internationally, partially offset by the impact from exiting a distribution agreement in the U.S. as well as select supply constraints that hampered performance in the quarter. Sales in our Acute Therapies business were $180 million, representing growth of 6% on a constant currency basis and representing a return to growth in the U.S. and strength in our APAC region. Sales in our Patient Support Systems business were $359 million, decreasing 1% on a constant currency basis, primarily driven by lower contributions from rental revenues and lower hospital capital spending compared to the prior year period. In the quarter, we realized better-than-expected sales for ICU beds in the U.S., driven by the launch of Progressive Plus. We have experienced positive demand for that new entrant to our smart bed portfolio since its debut. As Joe mentioned, we saw a significant sequential improvement in orders, increasing approximately 30%, driven by demand for our segment-leading hospital beds and care communications products. We currently expect this momentum to continue with orders increasing in the second half of the year compared to the first half. Front Line Care sales in the quarter were $307 million, increasing 9% on a constant currency basis. This growth reflects demand for our intelligent diagnostics, respiratory health, and connected monitoring portfolios. We saw continued improvement in supply availability of electromechanical components during the quarter, which enabled us to address a portion of the backlog associated with the Front Line Care business. While we are pleased to see improvements in our supply constraints, the business continues to have an elevated backlog level, which we will continue to work down over the course of the year as anticipated demand remains strong for this portfolio of products. Global Surgical Solutions sales in the quarter were $77 million, increasing 9% on a constant currency basis. Performance in the quarter was driven by continued geographic expansion and increased hospital access. BPS second quarter sales, which are now reported as discontinued operations, were $142 million, decreasing 7% on a constant currency basis. This decline was in line with expectations due to lower COVID vaccine-related revenues of approximately $27 million compared to the prior year period. Underlying business momentum continues to build with strong growth, excluding the vaccine impact realized in the quarter. Moving to the rest of the P&L. Our adjusted gross margin from continuing operations totaled 40.4%, in line with our expectations and represented a decline of 160 basis points over the prior year. The year-over-year decrease reflects increased costs of goods sold, primarily driven by material and labor inflation, freight, and supply constraints, partially offset by favorable pricing in select areas of the portfolio. The impact of discontinued operations reduced Q2 2023 adjusted gross margins by 40 basis points and Q2 2022 adjusted gross margins by 50 basis points. Adjusted SG&A totaled $844 million or 22.8% as a percentage of sales, a decrease of 40 basis points versus the prior year period. Performance in the quarter benefited from our ongoing transformation initiatives to enhance operational efficiencies, partially offset by higher bonus accruals under our annual employee incentive compensation plans versus the prior year. On an aggregate basis, inclusive of discontinued operations, adjusted SG&A was 22.1% as a percentage of sales in Q2 '23 and 22.4% as a percentage of sales in Q2 '22. Adjusted R&D spending in the quarter totaled $165 million and represented 4.5% as a percentage of sales, an increase of 40 basis points versus the prior year. We have ramped up our R&D efforts, particularly increasing our investments in advancing our connected care technologies. On an aggregate basis, inclusive of discontinued operations, adjusted R&D was 4.3% as a percentage of sales in Q2 '23 and 4.0% as a percentage of sales in Q2 of '22. These factors resulted in an adjusted operating margin of 13.2% and a decrease of 150 basis points versus the prior year. On an aggregate basis, inclusive of discontinued operations, the adjusted operating margin was 14.4% as a percentage of sales in Q2 of '23 and 16.2% as a percentage of sales in Q2 of '22. Operating margin came in ahead of our expectations, primarily driven by top line performance and enhanced execution on our transformational initiatives driving improved operational efficiency. Net interest expense totaled $124 million in the quarter, an increase of $35 million versus the prior year, driven by the impact of increased interest rates on our variable rate debt. Adjusted other nonoperating expense totaled $22 million in the quarter compared to $33 million of income in the prior year period. Results were unfavorable to expectations and driven by losses in both foreign exchange and marketable securities compared to gains in the prior year. The adjusted tax rate in the quarter was 17.8% compared to 20.5% in the prior year period. The year-over-year decrease was primarily driven by changes in geographic earnings mix. With respect to cash flow, in the first half of 2023, we generated free cash flow of $485 million, including discontinued operations compared to $171 million in the prior year period. We expect to remain on track to more than double our free cash flow year-over-year in 2023. As previously mentioned, adjusted earnings from continuing operations totaled $0.55 and declined 25% versus the prior year. Adjusted earnings, including discontinued operations of $0.66 per diluted share declined 24% versus the prior year period, reflecting the increased cost of raw materials, freight and labor, as well as the impact of higher interest rates on variable rate debt, foreign exchange headwinds and higher bonus accruals. With respect to our original guidance, earnings favorability was driven by better-than-expected sales and SG&A savings as the benefit from the lower tax rate offset the negative impacts from foreign exchange and losses on marketable securities. Let me conclude my comments by discussing our outlook for the third quarter and full year 2023, including some key assumptions underpinning the guidance. As mentioned, we are pleased with the operational performance to date and the positive momentum we have seen through the first half of the year. While we continue to work to mitigate the macroeconomic challenges that have impacted our results to date, the latest signs are reassuring. Our business fundamentals remain solid and demand for the portfolio is broad-based. Taking into account our positive second quarter results, I'll now walk through our updated guidance. Our current expectation is that the pending sale of BPS is likely to close towards the end of the third quarter. However, as the ultimate timing of completion is uncertain, we are providing adjusted operating margin and EPS guidance for the full year 2023 that contemplates two scenarios: one where the deal does not close in 2023 and another that assumes it closes at the end of the third quarter. For the full year 2023, Baxter now expects total sales growth from continuing operations of 1% to 2% on a reported basis and approximately 2% on a constant currency basis. We now expect foreign exchange to be a 50 basis point headwind to reported results on a full-year basis. Assuming that BPS were to remain a part of Baxter through year-end 2023, our outlook for sales growth in the aggregate, including discontinued operations, would be the same as continuing operations growth on both a reported and constant currency basis. If BPS were to remain a part of Baxter through year-end, we will continue to expect full-year adjusted operating margin in the aggregate, including discontinued operations, of 15.5% to 16%. On a continuing operations basis, we expect full-year adjusted operating margin of 14.1% to 14.6% and which would not be significantly impacted by the timing of the pending BPS closure. If the pending BPS transaction does not close by year-end, we would expect to incur interest expense of approximately $500 million for fiscal 2023. However, if the BPS transaction closes by the end of September, as currently anticipated, we would expect a reduction of interest expense of approximately $40 million, which would result in a benefit to continuing operations in the fourth quarter. We now anticipate a full-year adjusted tax rate of 20.5% to 21% on both an aggregate and continuing operations basis. Given current foreign exchange rates, we expect to absorb a negative earnings impact of $0.05 to $0.07 per share in the second half of the year relative to prior expectations. Lastly, we expect a diluted average share count of 508 million shares. Under this scenario, where BPS remains a part of Baxter through year-end 2023, we now expect 2023 adjusted earnings on an aggregate basis, including discontinued operations, to total $2.92 to $3 per diluted share, which includes adjusted earnings from continuing operations of $2.49 to $2.57 and adjusted earnings from discontinued operations of $0.43. If the pending BPS sale were to close at the end of the third quarter as currently anticipated, we would expect full-year adjusted earnings in the aggregate, including discontinued operations of $2.87 to $2.95 per diluted share, adjusted earnings from continuing operations of $2.54 to $2.62 and adjusted earnings from discontinued operations of $0.33. This outlook excludes estimated fourth-quarter adjusted earnings attributed to BPS consistent with the assumed September 30 closing date and includes a benefit of approximately $0.05, primarily due to reduced interest expense after giving effect to the anticipated debt repayment plan associated with the closing of the pending BPS sale. Specific to the third quarter of 2023, we expect global sales growth from continuing operations of approximately 2% on a reported basis and 1% on a constant currency basis. We expect adjusted earnings from continuing operations, excluding special items, of $0.65 to $0.67 per diluted share. We expect adjusted earnings of $0.13 per diluted share from discontinued operations. Taking this into account, we would expect adjusted earnings in aggregate of $0.78 to $0.80 per diluted share. With that, we can now open up the call for Q&A.

We will now begin the question-and-answer session. I would like to remind participants that this call is being recorded, and a digital replay will be available on the Baxter International website for 60 days. Your first question comes from the line of Robbie Marcus from JPMorgan.

Congrats on a good quarter. Joe, maybe to start, it looks like the recovery is progressing nicely, beat and raised, but it's a bit complicated with discontinued and continuing operations. So would love to get a sense of how did the pro forma, the combined company do in the quarter on margins? And so we can compare it apples-to-apples. What's the expectation for the back half of the year and your confidence in regaining the margins?

Thank you, Robbie. Good morning. I ask Brian Stevens to address this. We will make sure that everything you guys need to know is clarified as we had a very solid quarter, and I want to make sure that the information is clearly understood, and then we can talk about the other things that drove our success this quarter.

Thanks very much, Robbie, for the question. As you mentioned, due to the signing of our agreement to sell BPS, which right now we expect is going to close likely in about 2 months at the end of September, although that's subject to customer closing conditions, as you can imagine. This has triggered discontinued operations reporting. One thing I did want to highlight is that at the end of our investor presentation, we have gone back and recasted recent quarters to show our adjusted results on a discontinued operations basis to provide some visibility apples-to-apples going forward. One thing to point out though that what that does is while it takes out the contribution from BPS in the comparable periods, that recasting does not reflect the benefits that we expect to get going forward from interest expense savings. If you look at EPS for the full year, while we expect about a $0.43 impact from discontinued operations after you factor in the interest savings and things like that, we really think the headwind on an annual run rate basis is probably closer in the range of $0.15 to $0.18. So specific to your question, as far as where our operating margins landed, we reported on a discontinued operation basis, adjusted operating margins of about 13.2%. Including the full company, we came in for the quarter at 14.4%, which was a little bit above where we were expected to land. On a full-year basis for the entire company as if we own BPS for the full year, we would expect our adjusted operating margin to come in at 15.5% to 16%, which is consistent with the prior guide that we gave last quarter. Now you'll note that this guide implies a 300 basis point margin expansion in the second half of the year. There are really three main drivers of that. The first driver is sales growth. As you know, our sales tend to be very back-end loaded in the second half of the year, which gives us greater absorption against our fixed cost base. And that is the largest driver of the sequential operating margin improvement that we see, and we continue to be on track for the second component really relates to our integrated supply chain. As you recall, we had adverse manufacturing variances coming into the year that rolled out during the first part of the year as the related inventory was sold. Additionally, many of the margin improvement initiatives that our integrated supply chain and manufacturing teams have been working on have been overshadowed by the high levels of inflation. As we've seen inflation start to stabilize in recent periods, we're now expecting in the back half of the year, the benefits from the savings from those initiatives are now starting to drop to the bottom line with expanded margins. Finally, we're seeing benefits from cost savings. As you'll recall, we had some significant cost savings initiatives earlier this year in connection with our reorganization to a new operating model. These cost savings already benefited and contributed to our beat this quarter, which, as you saw, we came in $0.05 above the top end of our guidance range for EPS on an overall company basis, and then even more of those cost savings initiatives are going to flow through in the second half. So really good traction we're seeing, and we're confident about where we're landing on the operating margin side.

Great. That's really helpful. And maybe as a follow-up, your competitor recently got approval for their infusion pump platform in the U.S. I know you've resubmitted for the large volume pump in early June. I was just wondering if there's any update there or any comments you could provide?

We believe we have successfully resolved the open issue that was primarily the subject of the FDA's last additional information request. Additionally, we have proactively implemented software changes that we had planned in consultation with the FDA. We have regular communications with the FDA during the review. We are committed to resolving any questions or issues that come up during the process and through learning in connection with the recent launch of Novo LVP in Canada and related regulatory issues. So we are working on software upgrades to our current version of the Canadian pump. As we work through this in the next few months, we work alongside the FDA to tell them what's going on. And we are cautiously optimistic that the updates to the product are implemented before in Canada, enabling us to communicate with the FDA properly. We are in constant communications with them. I also want to add that our SIGMA Spectrum pump is doing extremely well. We are augmenting the supply chain of that pump to ensure that it continues to be available. We need that pump to be available. We have hundreds of thousands of these pumps on the market, and by doing that, we're able to give continuity to hospitals that own that today. As a matter of fact, growth has been great. This year, we have upped our forecast twice since the beginning of the year as the supply chain has become better, and we are making sure that in the next 12 months, that pump will be backward integrated into the new gateway system that Novum uses in hospitals. So we have really alternatives for everything. I tell you, we've been gaining market share steadily year-over-year. We look forward to having normal LVP in the U.S. market in just a little while for our syringe pump, which has done extremely well, and we are exceeding our expectations for this year.

And your next question comes from the line of Larry Biegelsen from Wells Fargo.

Congrats on a nice quarter here. Joe or Brian, I wanted to ask about the guidance. You put up a nice 4% growth number in the second quarter, but I believe in the third quarter you're guiding to about 1%. And Joe, you talked about improving trends, so maybe discuss what you're assuming in the second half and why growth might be lower in the second half than what we've seen here in the second quarter? And I had one follow-up.

Sure. I'll start, and then Joe can add anything. Thanks very much for the question. As you saw in the current quarter, we're really excited about our growth. We came in at 4% on a constant currency basis, which reflected really strong contributions and performance from our MPT business, which was around 7%; our pharma business, which was around 6%, reflecting some of the recent launches we've had in the U.S., including room temperature formulations. Our Front Line Care business came in around 9% as it worked down some of the backlog, and we saw strong demand for intelligent diagnostics and respiratory health. Finally, we started to see some traction in PSS in recent periods, which, as we talked about before, have seen some softness in capital orders that appears to be stabilizing, and we're seeing good traction going into the second half of the year as our order volume has picked up, although that business is still facing some headwinds from lower rental revenues following COVID where demand for rental beds was high. So really, the story for the sequential deceleration in our growth going into the third quarter, where we're expecting it to slow down a bit to around 1%, is really driven most significantly by the headwinds facing our PD business in China. As we mentioned, within that business, we have excess mortality that has reduced our patient census counts following the pandemic impact, as well as the ongoing implementation of volume-based procurement initiatives. So I think net-net for that Kidney Care business, which includes renal as well as acute, we're seeing about a 250 basis points impact from some of those headwinds. Additionally, there are some discrete items that happened in the prior year period that we've highlighted currently or previously that we're going to be lapping, which is driving down our sequential growth a little bit. But I think overall, we've still been able to offset those headwinds with strong performance across the rest of our portfolio.

Augmenting the concerns we had at the beginning of the year regarding capital, we've seen those alleviating, and I have to say that the launch of Progressive Plus has been a tremendous success. We've seen good momentum, a very strong update in quotations and also conversion from quotations to POs and delivery. As a matter of fact, we're starting to see competitive conversions, which means we're taking market share from competitors. This has been a good track record for the company, especially when we launch new products. With a strong team in place, we are able to execute our plan above and beyond the performance we see from Linecare and our medication delivery business in the U.S. So just a little bit more color on Brian's comments about our excitement around the business.

Just one quick follow-up for me. Obviously, the Pfizer injectable plant damage definitely got a lot of media coverage in the last couple of weeks. It seems like it was more just a warehouse that was negatively impacted. Do you see any potential benefit from that? Or is it your understanding it was more the warehouse, not the manufacturing that was impacted?

Larry, I'm not going to comment on Pfizer's status. They have to answer their own questions. I can tell you that, with the portfolio that they sell, we have a little bit of competitive products that we can ramp up in the second half of the year. It will depend a lot on how much inventory is in the chain. But I'd say probably a little bit north of $10 million is one opportunity that we have, maybe a little bit more than that or a little less. It depends on what's in the chain. It depends how this is going to be there. One important thing is Baxter will be there for the patients when they need it. And if the customer needs will be there to serve them with the products that we have.

Larry, just to clarify that we have not included any upside in the guidance that we provided. Obviously, we're continuing to evaluate the situation. As Joe mentioned, we do believe there is some overlap. And so the team is working on how we can address and fill those gaps in the marketplace to ensure the customers receive those products.

Your next question comes from the line of Danielle Antalffy from UBS.

I know we just have updated 2023 guidance and it's tough to talk about 2024 at this point given all the moving parts here. But I would love to get some thoughts, maybe at a qualitative or high level. As we look ahead to 2024, in the RemainCo piece of the business, ex renal, what the key growth drivers will be? Obviously, hopefully, Novo is one of them. But beyond that, Joe or Brian or Clare, if you can talk about sort of the next 12 months, what you see as the key growth drivers beyond what we've discussed that we should be focusing on here for the business?

I want to highlight what we call HST, which is our former Huron business; HST I think there is a great opportunity still in the frontline care. Front Line Care is really driving high single-digit growth, and I think that will continue. I think the recovery and potential gain of market share in beds is a good possibility for us looking at the performance of our new bed launch today. Another key growth driver is Advanced Surgery. We have a new product coming out, and the demand is high. The product is superior based on side-by-side testing we've seen to competitors. I'm not claiming anything on the label, but I can say that in testing, it looks like the product has performance that pleases customers through the speed and completeness of the hemostasis products. This is the first product of Baxter's that is a passive hemostat. We don't have a test hemostat. We're now constrained just by the capacity of the company to make the products, but we are working the supply chain to add a second supplier, which is going to come online hopefully in 2024, and demand is really good, so that’s a good driver. In our pharmaceutical business, we have new launches. Our new management in pharmaceuticals has really improved our ability to launch products and get the time to market for sales. So we have some really good things happening. And clearly, we would like to count on Nova. We're going to do everything we can to get that on the market. But as a backup to that, we have a very solid platform with Spectrum that continues to take market share, and this new syringe pump really makes it easier for us to penetrate hospitals that otherwise were never available to us before. Overall, I think Baxter, as we execute these changes, the sale of BPS and the spin-off of Renal, aims to create a company that is smaller, driven by innovation, and capable of truly impacting the lives of our patients.

And maybe if I could add to that a little bit, Joe. Another item that we're really excited about is the recent launch of our Progressive Plus ICU bed. We're seeing really good demand from that even though it's in the early stages. We're also excited about some of the new features that we just launched for our Centrella bed platform as well. The other major focus for us in terms of driving growth going forward is really the impact of the new operating model that we're transitioning to. Earlier this year, we started the process of shifting from a regional and focused organization to a vertical-focused organization where we have leaders of our new segments that are really like many CEOs that own the entire business from top to bottom, including the supply chain aspect. We expect that the transition to our new segment reporting will occur in the second half of the year. We're really excited to share some of the financial performance using this new structure with all of you at that time. As part of this transition, our new segment leaders are very much focused on developing portfolios of initiatives aimed at really growing the business going forward.

Your next question comes from the line of Patrick Wood from Morgan Stanley.

I'm just curious in renal, if we make the adjustment, obviously, in HD for the distribution agreement, how you’re seeing the relative performance of PD versus HD, and if you’re seeing any kind of a shift there? Or if you’re seeing comparatively similar trends in patient flow across those two verticals. I'm very curious there.

Our PD business, with the exception of China, which we mentioned previously, where we discussed the two factors affecting it: the VBP and the mortality due to COVID. If you isolate that, the rest of the business is starting to recover from COVID. We're starting to see patient growth in some geographies with mid-single-digit growth, some others with low single digits, but coming up from negative growth last year. So we're starting to see that going well. We also took other initiatives to augment that business. We see HD as a portfolio rotation for us. We're looking at where to position ourselves and to ensure that this business is accretive to Baxter. We are in full-fledged optimization mode. We are looking at our dialyzer business. We're evaluating our HD monitors to ensure that we compete effectively. We want to make sure that this segment is profitable and growing. We're starting to see optimism with the exception of China's growth and the recapture of the PD market. Remember, this is a business that we project long term to be a mid-single-digit growth business in terms of patient volume, so we want to ensure that, as the situation stabilizes in China, we are prepared to continue to grow in that market.

Your next question comes from the line of Travis Steed from Bank of America Securities.

I wanted to follow up, Joe, on Nova. It sounds like you have to upgrade the Canada pump first, and that takes a few months. After that's finished, then you can move it and work with the FDA. I just want to ensure I understand the nuances from your earlier response.

Yes. Travis, the pump in Canada is already on the market. The U.S. version, Nova, is not approved yet. To your point, we had some software updates we are implementing, and we have some plans to work with Health Canada to ensure they're okay with our advancements before moving forward. We also have additional changes planned in the next couple of months to ensure that all updates and potential improvements are in place before we work with the FDA. Our application has those changes factored in, but we want to ensure proper execution. I want to affirm that we don’t speak on behalf of the FDA or Health Canada. We work with both agencies, addressing their concerns as needed. I'm very confident in the technology, and we’re cautiously optimistic about securing this approval.

Perfect. And the other question I had was the CFO update. Any color on the type of person you're looking for or progress you're making with that search?

Well, first of all, we have Brian doing a great job as our interim CFO. He's always been a great contributor to Baxter. During this quarter, our teams achieved a tremendous amount of work providing you all with discontinued operations and the reconciliation. We are in the process, continuing to interview internal and external candidates, and we hope to be in a position in the next 30 to 45, or possibly even 60 days, to finalize our decision.

I'd like to remind everyone that NOVUM is an entirely new and innovative platform with some of the most advanced safety features out there. We will look at this and obviously work with the FDA on it. We cannot speak on behalf of the FDA. However, the NOVUM syringe is already demonstrating great performance in the market. We'll be addressing the concerns raised by Health Canada and as often occurs with the launch of a new platform, issues may arise that we are actively working to resolve.

This is not a legacy pump, which has been in the market for decades; it is a brand-new pump, as Claire indicated. It’s complex technology, and we have the competency at Baxter to address these issues. I’m very confident in the technology, and we're cautiously optimistic about achieving this approval.

Your next question comes from the line of Vijay Kumar from Evercore ISI.

Congrats! It’s a good print here. My first question is regarding your product side. Joe, I believe you mentioned a 30% orders growth. How does that translate to revenue growth for your PSS segment? With U.S. pharma up double digits, are we seeing pricing being stable in the U.S. at this point?

Vijay, we'll take one thing at a time. We are seeing the order growth between Q1 and Q2 for PSS, and that has encouraged us. We were looking to cross the threshold of growth. Remember, this growth now was slightly negative. This quarter exceeded our expectations, and we are looking at sequential growth in this product line.

Yes. Here's what I would say. We saw around 30% sequential improvement across all of PSS, which obviously includes both our furniture and care communications products. In the third quarter, Hill-Rom had their year-end, so we do face a bit of a challenging comparison from overall sales dollar in the third quarter. However, the order rates are improving, and we expect that second-half orders will surpass those in the first half. Key is that both the Progressive Plus and the Centrella are seeing positive momentum, which will be further augmented through features in our Connected Care for the HST business.

Regarding pricing pressure in U.S. pharma, we continue to face that challenge. However, what Baxter is doing is launching new products categorized as specialty generics, which includes our premixes like we did with Norepinephrine. The execution for those launches has been phenomenal, and those products carry significant gross margin. As we keep facing price pressure on more generic molecules, we're able to offset that through our successful product launches, and we are making substantial progress against price erosion.

Within our U.S. injectables business, this business is really growing double digits, low double digits, driven by the success of these launches. We can fully offset the price erosion, which will persist, but we will continue to balance that with our new product launches.

As we look at the back half of the year, we’re expecting a 200-basis-point step-up in margins. Much of that will be due to volume leverage on higher revenues. We also expect around 70 basis points improvement from supply chain cost actions. We should consider those cost actions as structural, aiming to flow through next year.

We have time for one more question. Our final question comes from the line of Matt Miksic from Barclays.

I'd love to ask just a couple of broad questions, if I could. The first, the perception may be that one of your competitors got approval, while you have not yet approved your new pump; the perception is that this may disadvantage Baxter in the near term. I know you've just stepped through a little bit of this, but I'd love to get your sense of the competitive dynamics on the pump front. How do you expect those to look from now until you're able to introduce your next-gen platform? Then I have a follow-up.

I'll allow Joe to weigh in on this, Matt. But, again, NOVUM is a completely new innovative platform. We also have the Sigma Spectrum or version 9, and we have been successfully selling that. We're ramping up production of that. To Joe's point, we're going to make it backward-compatible with our gateway so that it will have all the features and integrate within the hospital EMR similar to what NOVUM was meant to do.

We have a pump on the market, and we have been converting market share. In fact, we've just converted accounts from a competitor due to the merits of Spectrum itself. While we have greater opportunity with NOVUM because of its safety features and integration, we continue to sell well with our current platform and that is also going to make it more user-friendly by being backward integrated into our new gateway, developed by Baxter for our adapting platform, making integration easier between the syringe and the SIGMA spectrum.

That's super helpful. My other question is on growth. We understand the sale of biopharma and a deleveraging opportunity that provided a positive change year-over-year in capital structure. Regarding the Hill-Rom business and the growth trends, we often get asked about what that business can grow. Is that current growth rate reflective of what you believe the business can achieve? Do you think there’s room to lift that business in the back half and into 2024? Any color there?

Yes, Matt. You're exactly right. In the first half of the year, the Hill-Rom business was up low single digits. We expect that to accelerate to mid-single digits in the back half of the year, consistent with our expectations. This growth is driven by factors including improvements in Front Line Care, as well as new product launches within the PSS business. We believe this mid-single-digit underlying run rate is what we will continue to see going forward.

Not only do we have product launches in PSS, but our success in cardiology, which while smaller, is still significant in our Front Line Care. Also, we have more new products in store for 2024. I believe this business growth is above the Baxter weighted average growth rate, augmenting our overall growth. The acquisition of Hill-Rom was intended to prompt that differentiation in growth rates, helping us reach mid-single digits for our businesses. Based on the portfolio moves we are making, we are progressing toward achieving that goal. Last year was heavily affected by supply chain issues, but we are making significant progress, creating business resiliency. I see PSS having great opportunities, and don't discount our surgical business, which also presents significant growth potential in the future.

Congrats on the quarter.

Ladies and gentlemen, this concludes today's conference call with Baxter International. Thank you for participating.