Good morning, everyone, and welcome to Baxter International's Second Quarter 2024 Earnings Conference Call. Your lines will remain in a listen-only mode until the question-and-answer segment of today's call. As a reminder, this call is being recorded by Baxter and is protected by copyright. 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, Senior Vice President, Chief Investor Relations Officer at Baxter International. Ms. Trachtman, you may begin.

Good morning, and welcome to our second quarter 2024 earnings conference call. Joining me today are Joe Almeida, Baxter's Chairman and Chief Executive Officer; and Joel Grade, Baxter's Executive Vice President and Chief Financial Officer. On the call this morning, we will be discussing Baxter's second quarter 2024 results, along with our financial outlook for the third quarter and full year 2024. 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 2024, the status and anticipated timing of our ongoing strategic actions, including the proposed Kidney Care separation and the potential impact of our recent pricing actions, regulatory matters and the macroeconomic environment on our results of operations contain forward-looking statements that involve risks and uncertainties, and of course, our actual results could differ materially from our current expectations. Please refer to today's press release and our SEC filings for more detail concerning factors that could cause actual results to differ materially. In addition, on today's call, non-GAAP financial measures will be used to help investors understand Baxter's ongoing business performance. A reconciliation of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in the accompanying investor presentation and also available 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. Thank you for joining us. Our second quarter 2024 results reflect the continued progress and momentum of our ongoing strategic transformation. Our performance in the quarter was strong, reinforcing the benefits of our redesigned operating model fueled by the commitment and hard work of our outstanding Baxter team. I will start the call today with some brief commentary on our strong second quarter performance before turning the call over to Joel to provide more detail on our results as well as our outlook for the rest of the year. Then, as always, we open up to your questions. As you saw in this morning's earnings release, Baxter's second quarter results exceeded our previously issued guidance on both the top- and bottom-line. This performance further enhances our confidence in our ability to continue executing against our strategic priorities and build upon this underlying momentum. As such, we have increased our full year sales outlook and adjusted EPS guidance accordingly. Our second quarter performance provides further evidence that the steps we have taken to date to centralize and streamline our operating model are yielding results. These actions allow for improved visibility both externally and internally to our markets as well as increased accountability for our segment leaders. These benefits, coupled with enhanced operational rigor, have enabled our teams to better identify opportunities to accelerate innovation to drive growth and expand margins. Turning to some of the highlights from the quarter. Second quarter sales from continuing operations grew 3% on a reported basis and 4% at constant currency rates. As a reminder, continuing operations exclude the impact of our BioPharma Solutions business, BPS, which we divested at the close of the third quarter of 2023, in line with our strategic transformation roadmap. Sales growth was broad-based with all four Baxter segments delivering growth above our expectations, reflecting positive demand and improved pricing for products across much of the portfolio. On the bottom line, adjusted earnings per share from continuing operations were $0.68. These results were driven by our top-line performance combined with our continued emphasis on operational efficiency across the company with ongoing contributions from our integrated supply chain network. Our strong operational performance more than offset a negative impact from foreign exchange and a higher-than-expected tax rate in the quarter. Now, looking at performance by segment. Medical Products and Therapies, or MPT, delivered second quarter sales growth of 4% at reported rates and 5% at constant currency rates. Growth was fueled by demand across the segment and results included first US sales of our leading-edge Novum IQ large volume pump with Dose IQ Safety Software. Customer interest is high for the Novum platform, including both large volume and syringe pumps with their ability to advance connectivity and intelligent infusion therapy. These pumps are already live and in use at multiple sites, making a difference for caregivers and the patients they serve. We have a healthy funnel of opportunities and anticipate continued strong steady uptick from Novum across the balance of 2024 and beyond through the upgrades of existing customers and conversions of new customers. Our Pharmaceuticals segment grew 9% at reported rates and 11% at constant currency rates. Performance was driven by double-digit growth in our specialty injectables portfolio, reflecting the recent launches of a range of new differentiated injectables as well as significant growth in our Drug Compounding business. Growth in this segment was partially offset by lower sales of inhaled anesthetics. Healthcare Systems and Technologies, or HST, performance advanced to 1% at both reported and constant rates. Our Care and Connectivity Solutions division delivered mid-single-digit growth, reflecting positive market demand and strong orders, which increased meaningfully both sequentially and year-over-year. Growth in the quarter was partially offset by an expected decline in the Front Line Care division, primarily due to a difficult comparison to the prior-year period and continued softness in the US primary care market. Overall, HST results in the quarter benefited from the operational improvements that we are in the process of implementing to enhance ongoing performance. As we discussed last quarter, we expect to see these efforts continue to yield positive results as 2024 continues and going forward. Finally, Kidney Care was flat year-over-year at reported rates and grew 3% at constant currency rates. Performance continues to be fueled by demand for our acute therapies portfolio plus strong growth for peritoneal dialysis products due to positive volume and pricing globally. Growth was partially offset by an expected decline in sales of in-center hemodialysis products due to select product and market exits. Looking ahead, we remain confident and excited about the future of our company and our potential to continue to accelerate sales growth, expand our margins, and drive innovation that will deliver benefits to our customers, shareholders and many other stakeholder communities. As you all know, we launched our strategic transformation in January of 2023 to recast Baxter as a more simplified, more agile, and more focused company, passionate in its commitment to operational excellence and better positioned to accelerate growth through customer-inspired innovation. Among the elements central to our plan was the separation of the Kidney Care business from Baxter in order to provide both companies with improved strategic clarity and greater flexibility to pursue their unique investment priorities. We are continuing to make steady progress toward the separation, and while the ultimate pathway has not yet been determined, we currently expect the separation will occur in late 2024 or early 2025. With the separation of Kidney Care, we have a unique opportunity to redefine ourselves while also remaining firmly grounded in what has powered our success for nearly a century: our life-sustaining mission, our focus on essential healthcare, our commitment to innovation, and at the heart of it all, our employees, whose unparalleled dedication turns our aspirations into impact. Together, we are united, energized and eager to take Baxter into a future of sustained healthcare leadership. With that, I will pass it over to Joel to provide more detail on our results for the quarter and outlook for the balance of the year.

Thanks, Joe, and good morning, everyone. As Joe mentioned, we are pleased with our second quarter results, which came in ahead of our expectations and further reinforce our goal of consistently meeting and exceeding our financial objectives. Second quarter 2024 global sales of $3.8 billion increased 3% on a reported basis and 4% on a constant currency basis, and as mentioned, compared favorably to our previously issued guidance. Outperformance in the quarter benefited from better-than-expected sales in many product categories and particularly in patient support systems, infusion therapies, peritoneal dialysis, and drug compounding. As compared to the prior-year period, sales, excluding Kidney Care, increased approximately 5% on a constant currency basis. On the bottom line, adjusted earnings from continuing operations totaled $0.68 per share, an increase of 24% versus the prior-year period and ahead of our prior guidance of $0.65 to $0.67 per share. Results in the quarter were driven by strong operational performance with continued momentum commercially, partially offset by a negative impact from non-operational items totaling $0.05 per share due to foreign exchange and a higher-than-anticipated tax rate. Now, I'll walk through our results by reportable segments. Commentary regarding sales growth will reflect growth at constant currency rates. Sales in our Medical Products and Therapies, or MPT, segment were $1.3 billion, increasing 5%. Within MPT, second quarter sales from our Infusion Therapies and Technologies division totaled $1 billion and increased 5%. Sales in the quarter benefited from strong growth internationally across the division, particularly for our IV solutions and infusion systems products, which benefited from both volume and pricing gains. Solid demand for nutrition globally also contributed to growth in the quarter. Sales from Advanced Surgery totaled $277 million and grew 4%, reflecting solid growth internationally. For our Healthcare Systems and Technologies, or HST, segment, sales in the quarter were $748 million and increased 1%, coming in ahead of our expectations. Within the HST segment, sales in our Care and Connectivity Solutions, or CCS, division were $452 million, growing 4%. Performance rebounded in the quarter, driven by significant growth in orders, both sequentially and year-over-year for our CCS products. As Joe mentioned, the actions we are taking to enhance our operational rigor and improve execution are yielding results. These factors contributed to orders growth across our CCS division of more than 40% compared to the prior year and over 60% sequentially. Results in the quarter included upgrades to both existing customers and competitive gains within our patient support systems business. We are very encouraged by the growth of orders in the US this quarter, which will be phased in over the course of the second half of this year and into 2025. Overall, we believe the initiatives we are implementing to improve commercial execution will continue to lead to improved performance, both in the second half of this year and beyond. Front Line Care sales in the quarter were $296 million, declining 4%, in line with our expectations and represented a double-digit improvement sequentially. Growth in the quarter continued to be impacted by a difficult comparison to the prior year as backlog reductions positively contributed to growth in the prior-year period. Performance in the quarter was also impacted by ongoing softness in the primary care market, which negatively impacted growth in both our connected monitoring and intelligence diagnostics product portfolios. The timing and release of government orders in the US also impacted growth in the quarter. We expect this division to return to growth in the second half of the year as growth for products in other settings such as cardiology and acute is anticipated to more than offset the continued softness in primary care and lower government orders. The anniversary of the prior-year impact from the backlog reduction will also benefit performance in the second half of the year. Moving on to Pharmaceuticals. Sales in this segment were $602 million, increasing 11%. Performance in the quarter reflects double-digit growth in our US injectables portfolio, driven by new product launches as well as strong demand for services from our Drug Compounding portfolio internationally, which has benefited from supply constraints for certain customers that are expected to ease in the second half of the year. Performance in the quarter was partially offset by lower sales in inhaled anesthetics globally. Sales in the quarter for our Kidney Care segment totaled $1.1 billion, increasing 3%. Within Kidney Care, global sales for Chronic Therapies were $917 million, increasing 1%. Strong PD growth in the quarter was partially offset by the expected negative impact from certain product and market exits in our in-center HD business as well as lower sales in China due to government procurement initiatives. We estimate that these items negatively impacted sales by just over $50 million in the quarter. Sales in our Acute Therapies business were $201 million, representing growth of 9%, driven by strong demand and competitive conversions in the United States. Other sales, which represent sales not allocated to a segment and primarily include sales of products and services provided directly to certain of our manufacturing facilities, were $22 million and declined 5% during the quarter. Now, moving on to the rest of the P&L. Our adjusted gross margin totaled 41.2% and represented an increase of 80 basis points over the prior year. The year-over-year improvement in gross margin primarily reflects the strong operational efficiencies we are realizing within our integrated supply chain network, resulting from execution of the margin improvement programs we are implementing and the anniversary of the negative margin impacts from inflationary pressures that drove higher cost of goods sold in the prior-year period. Pricing initiatives in select markets also positively contributed to margin improvement in the quarter. Product mix and foreign exchange partially offset margin expansion in the quarter. Adjusted SG&A totaled $873 million, or $22.9 million as a percentage of sales, an increase of 10 basis points from the prior-year period as we are making select investments to support our growth objectives and new product launches. SG&A leverage is expected to continue to improve as sales ramp over the course of the year. Adjusted R&D spend in the quarter totaled $175 million and represented 4.6% as a percentage of sales, an increase of 10 basis points compared to the prior-year period and reflects our continued investments in advancing new products across the portfolio and bringing innovation to patients across our segments. These factors resulted in an adjusted operating margin of 13.7%, an increase of 50 basis points versus the prior year, driven by the factors above, which more than offset a negative impact on operating margins of approximately 70 basis points due to foreign exchange. Net interest expense totaled $85 million in the quarter, a decrease of $39 million versus the prior-year period, driven by debt repayments in the fourth quarter of 2023 associated with the proceeds of our BPS divestiture. We plan to continue to repay debt in 2024, consistent with our stated capital allocation priorities. During July, Baxter finalized a bank finance bridge loan in the form of a delayed draw term loan, or DTTL, in lieu of public bond financing with a total size of $2.05 billion. The DTTL provides certainty of ability to fund debt maturities coming due in the fourth quarter in the event we haven't completed the Kidney Care separation by that time. We expect to utilize proceeds from the separation to repay the loan if outstanding. We felt this was a better option as compared to bond financing given the more temporary nature of the cash need and the high cost of issuing new term debt in current markets. Adjusted other non-operating income totaled $20 million in the quarter compared to an expense of $22 million in the prior-year period, which included losses on both foreign exchange and marketable securities. The adjusted tax rate for the quarter of 23.9% came in higher than expectations and increased as compared to the prior-year tax rate of 17.8%. The year-over-year increase is primarily driven by the geographic mix of earnings, decreased utilization of foreign tax credits in the current year period and a non-recurring foreign tax incentive in the prior-year period. And as previously mentioned, adjusted earnings from continuing operations totaled $0.68 per share and increased 24% versus the prior year, primarily driven by improved commercial performance and a reduction in interest expense, offset by the impact of foreign exchange and a higher tax rate. Let me conclude my remarks by discussing our outlook for the third quarter and full year 2024, including some key assumptions underpinning the guidance. For full year 2024, Baxter now expects total sales growth of approximately 3% on both reported and constant currency basis, which is an increase from prior guidance of 2% to 3% on a constant currency basis. This increase reflects the outperformance we realized in the second quarter and continued momentum for our businesses. Constant-currency sales guidance for the full year by reportable segment is as follows: For MPT, we now expect sales growth of approximately 5%. This is an increase from the prior guidance of 4% to 5% and reflects the outperformance year-to-date and continued momentum for our Novum platform. Sales in our Healthcare Systems and Technologies segment are expected to be approximately flat to the prior year, consistent with prior guidance. This guidance reflects improved performance in the second half of the year, but also assumes the installation of some CCS orders is phased to 2025. In addition, our guidance assumes Front Line Care performance also improves in the second half of the year, but that both primary care and government orders decline in 2024, neither of which we believe represent market share losses. We expect both the primary care market and orders from the government will improve in 2025. We now expect Pharmaceuticals sales growth of approximately 7%, which compares favorably to prior guidance of 6% to 7% and reflects the strong start to the year and continued momentum for our new product launches as well as increased contributions from Drug Compounding. The contribution from Drug Compounding is expected to meaningfully slow in the second half of the year as supply constraints for certain hospital customers ease and the business focuses on driving more profitable growth. Collectively, sales for these three remaining Baxter segments are now expected to increase approximately 4% in 2024 and exit the second half of the year at the higher end of our prior expectation of 4% to 5%. For Kidney Care, we now expect sales growth of 1% to 2% as compared to 2023. This also compares favorably to prior guidance and reflects the underlying momentum of this business. Now, turning to our outlook for other P&L line items. We continue to expect adjusted operating margin to increase by more than 50 basis points in 2024. We expect our non-operating expenses, which include net interest expense and other income and expense to total approximately $330 million in aggregate during 2024. We now anticipate a full year adjusted tax rate of approximately 23%. We expect our diluted share count to average 511 million shares for the year. Based on all these factors, we now anticipate full year adjusted earnings, excluding special items, of $2.93 to $3.01 per diluted share, which also compares favorably to prior guidance of $2.88 to $2.98 per diluted share and reflects the outperformance we realized in the second quarter and expect for the remainder of the year and includes an incremental headwind from non-operational items totaling approximately $0.02 per share. Specific to the third quarter of 2024, we expect global sales growth of 3% to 4% on a reported basis and 4% to 5% on a constant currency basis. And we expect adjusted earnings, excluding special items, of $0.77 to $0.79 per diluted share. With that, we can now open up the call for Q&A.

Thank you. We will now begin the question-and-answer session. Our first question comes from Robbie Marcus of JPMorgan. Your question, please?

Great. Thanks for taking the questions, and congrats on a nice quarter. Two from me. Wanted to start with the revised guidance. And it looks like it's pretty much going higher from the second quarter beat and then third quarter upside versus the Street. So, you gave a lot of detail, but I was hoping you could just walk us through the underlying drivers and did I get the raise and impact correct? Thanks.

Hi, good morning, Robbie. It's Joel. Thank you for your questions. Yes, I believe the new guidance is based on the strong performance in Q2. We had a solid operational quarter, which has positively influenced the rest of the year. Overall, our businesses continue to show strong momentum. When considering this from a sales perspective, HST has shown a steady recovery throughout the year. We've also increased guidance for MPT and Pharma from a sales standpoint. All these businesses are expected to keep improving in terms of sales, which is a crucial driver for our top line. From a margin perspective, we anticipate ongoing positive progress from pricing and ISC. Our margin improvement initiatives are also contributing to the bottom line's performance. However, there are some offsets to consider from an operating margin perspective, such as ongoing investments in sales and marketing, R&D, and new product launches. Additionally, we have an MSA in Pharma related to BPS sales that affects us. Lastly, we're facing headwinds from foreign exchange and tax rates. In summary, we see continued momentum in sales and margin expansion, balanced by these offsets I mentioned.

Thanks. And maybe just a quick follow-up here. The HST had a tough first quarter. It looks like it improved sequentially in the second quarter. Front Line Care still negative year-over-year. Maybe just speak to the underlying trends you're seeing in the two businesses there and your confidence in a reacceleration and return to positive growth in the second half of the year? Thanks.

Hi, Robbie, good morning. We believe that many of the operational issues are being addressed and are mostly behind us. We are still working on them and will continue to do so throughout 2024. The plant transfer issue is being managed and is in really good shape right now. I also want to highlight that our sales force is performing exceptionally well after a significant revamp. We are seeing positive trends in capital, which has led to one of our strongest order quarters ever in the second quarter. This pertains to our CCS business, including beds and nurse call systems. On the other hand, Front Line Care has a different dynamic related to the primary care market, which is experiencing significant shifts in 2024 with large players entering and exiting. We believe our market share is still slightly increasing and remains high, with expectations that this business will return to normal by the end of the year, alongside government orders, which have been quite low. The most notable factor has been the comparison to last year's performance. Overall, I think HST has made a turnaround. We are observing intriguing dynamics in the market, with our product offerings making gains and maintaining stable market share, which may lead to growth in Q3 and Q4.

Travis Steed of Bank of America Securities is on the line with a question. Please state your question.

Hey, thanks for taking the question. I wanted to ask about the KidneyCare separation. I think that was new that you added early 2025, so I wanted to ask about that. And does your thinking change at all on spend versus sell? And also noticed an impairment charge on that business. So, wasn't sure if there's anything to kind of read into that impairment charge this quarter.

Thank you for the question, Travis. Regarding the timing, we are making progress and moving forward with both the sale and spin processes to maximize shareholder value for all our stakeholders. We are in a solid position, though the timing has shifted slightly as we continue through the year. Our goal remains to complete this by the end of 2024, but it may extend into early 2025, which is reflected in our guidance. Concerning goodwill, we now have bidders who have assigned a value to it as we assess it against the value of the books. This has led to a negative impact on goodwill. However, if a sale occurs, we expect to recognize a gain from it, which highlights a timing issue. It’s a normal part of the process to reassess our goodwill, especially now that we have a clearer market value.

Great. Thanks a lot. I wanted to ask a follow-up on the margins. So, first of all, the second half total company, you got a couple of hundred basis points second half margin ramp. So, I wanted to ask about the confidence and kind of what's driving that. But also if you think about the segment margins, in the first half of the year, all the margin expansion for the total company was more on the renal side and the core of Baxter business down year-over-year. I wanted to kind of think about how we get confidence that ex the RenalCo longer-term, like the RemainCo Baxter business is going to be expanding margins kind of the 50 basis points or so a year that you've kind of set out in the past?

Sure. Let me begin by discussing the key factors affecting our margin outlook before addressing the second part of your question. Our margin drivers stem from several areas. Firstly, our revenue growth and the upcoming new product launches are both short-term and long-term contributors to margin expansion. We also see potential for increased pricing, primarily outside the U.S. this year, but we anticipate some opportunities domestically next year as certain contracts take effect. Additionally, we are consistently implementing pricing adjustments. Our ISC is another area where we can boost margins, thanks to margin improvement programs and increased efficiencies from our investments in automation. These are the primary drivers behind our confidence in our ability to enhance margins moving forward. Regarding the ex-Kidney perspective, as we transition to a vertical structure, we have been refining our allocation processes. This ongoing refinement has an impact on both the Kidney sector and the margins outside of it. Furthermore, as I mentioned earlier, we are committed to investing in R&D and new product launches, which will ultimately foster growth and positively affect our operating margins. Did that address your question?

Yeah, thanks a lot. I appreciate that.

David Roman of Goldman Sachs is on the line with a question. Please state your question.

Thank you, and good morning, everybody. I wanted just to start on the revenue outlook for the balance of the year, and recognizing the comment on exiting the year at the higher end of the 4% to 5% on the core Baxter business. But as you look at the sort of guidance that you've provided for Q3 and the balance of the year, I think that implies revenue growth in Q4 below 1%. Can you maybe just help us understand the drivers of the phasing of revenue for the balance of the year? And then, I have one follow-up on the strategic capital allocation side.

Sure. Thanks for the question. The main reason for the changes in the fourth quarter is related to the product mix, particularly influenced by compounding in Pharma. This has been a significant contributor to the positive results. Additionally, other areas of the business are also starting to slow down in the latter half of the year, especially in the fourth quarter. I would say this is one of the main factors affecting the transition from the third quarter and the changes observed in the fourth quarter.

Got it. And then maybe just a follow-up, if you look at kind of the increases in discretionary spending on the SG&A and R&D side, could you maybe go into a little bit more detail about the internal capital allocation priorities? Where those incremental dollars in SG&A and R&D are being deployed? And maybe any early look you can give us into some of the either product launches or geographic expansion initiatives that may come out the other side of these investments?

Good morning, David. How are you?

Hello, Joe. Thank you. Nice to talk to you.

Adding to Joel's previous answer regarding compounding, we had a customer in Australia who implemented maintenance in their hospitals, and we captured a significant portion of that volume. As a result, you're seeing their volume decrease in the third and fourth quarters, which we anticipated. When applying the squeeze method in the fourth quarter, the outcome is primarily influenced by a specific event in the first and second quarters. Regarding capital allocation, excluding Kidney Care, our strategy is focused on innovation. The key innovation driver for the company is in infusion technology, leading us to invest in new categories of pumps and additional software. We expect to roll out intelligence software in 2025 that will integrate with the pump. Furthermore, we have five significant product launches planned within the next year for HST that require adequate funding to address gaps in research, development, regulatory affairs, and commercial launch. Our capital allocation is directed toward products that yield higher margins and contribute more significantly to the company, alongside necessary expenditures. We have conducted extensive internal research to identify the primary drivers of shareholder value to accomplish this.

Very helpful. Thank you for taking the questions.

Larry Biegelsen of Wells Fargo is on the line with a question. Please state your question.

Good morning. Thanks for taking the question, and congrats on the nice quarter here. Joel, I was hoping you could just give us a refresher on the key assumptions for Kidney Care sale or spin. The tax basis, how might it look different from the BPS sale? Just the margins for KidneyCare, first half was 10.9%, which is much higher than in prior year. So, when we're trying to estimate the dilution, what should we think about for margins and the stranded cost assumptions and use of proceeds would be helpful. Any color on that? Thanks for taking the question.

Sure, thanks for the question. Let me start with the margin perspective. Our first quarter with Kidney had some significant one-time impacts that resulted in a margin that was unusually high. Moving forward, think of Kidney as having a high single-digit to low double-digit margin profile. The inflated margin in Q1 is important to consider. Regarding stranded costs, we haven’t provided specific guidance on this yet, but it is one of my key initiatives to minimize its dilutive impact. You will hear more about this as we progress, but we are already working on plans to address it proactively. Our overarching goal is to maximize shareholder value, so we will pursue the best strategies to achieve that. In evaluating our options, there are certain benefits to a sale, such as increased cash upfront and favorable valuations, but there are multiple factors to consider. Lastly, on the tax aspect, it is part of the overall economics of our decisions. There have been many questions about tax leakage, but ultimately, it’s about the net tax proceeds and maximizing shareholder value.

All right. I'll leave it at that. Thanks for taking the question, guys.

Thank you.

Vijay Kumar of Evercore ISI is on the line with the question. Please state your question.

Hey, guys, thanks for taking my question. Joel, I just want to go back on the fourth quarter, you implied sort of 1% organic. And if I heard you correctly, is the only thing that's changing is Drug Compounding. So, should the exit rates for MPT, HST, KidneyCo they should all be in that sort of annual range rate in the low- to mid-singles for MPT, HST, KidneyCo in the 1% to 2%, and only thing that changes for Q4 is Drug Compounding, is that correct?

It's mainly driven by Drug Compounding, with some influence from Kidney. Our exit rate for the year, excluding Kidney, is projected to be in the 4% to 5% range. So, primarily, it's about compounding, along with a slight slowdown in Kidney.

The Kidney segment is mainly influenced by value-based procurement in that area of the business. As we wait to see whether it will be included, we assess our forecast, and the most significant effect on the Kidney segment will come from value-based procurement. Additionally, the challenges associated with Drug Compounding have dampened the positive growth and outcomes in the other parts of Baxter's operations.

Understood, Joe. And maybe, Joe, a bigger-picture question for you. If I just go back last 18 months, there's been a lot of moving parts, challenges, a lot of questions raised on, is Baxter losing share. When I look at your order commentary within HS&T in some of the performance in core business, it looks like we're back to 4%-plus. When we look at the sort of the forward trajectory here, right, the implied exit rate, is that 4%-plus organic sustainable? Any one-offs we should be aware of? I know this year we had China VBP and some product exits. Any other noise factors that we need to be aware of as you look at the outlook and your comments on share losses?

Let me start from the end of your question. VBP is a factor in Kidney Care but has less impact on the rest of Baxter, particularly because our presence in China is different. Kidney Care represents the majority of our profitability in China, so we can set that aside for now. VBP outside of Kidney Care is not a significant issue at this time. Moving to share, we faced a challenging first quarter for HST, primarily due to self-inflicted execution issues, which we have resolved. We performed well in PSS, with a significant increase in orders, and we are confident moving into Q3 and Q4, anticipating potential share gains thanks to our offerings and the integration of Baxter's resources. Our strong offerings support our mission to save and sustain lives, which is becoming clearer to hospital customers and IDNs, leading to increased interest in Baxter. In terms of market share, we expect Baxter to continue gaining over 1%, and the Novum pump could achieve up to 2% of market share points annually, with more opportunities ahead. We've successfully converted several large, important accounts from competitors with our Novum pump. We are competing strongly in the market and have had successes, as reflected in our guidance for Q3 and Q4. However, Q4 is expected to be impacted primarily by negative sales growth in Kidney Care and a reduction in compounded sales.

Fantastic. Thanks guys, and congrats on the execution.

Thank you.

Danielle Antalffy of UBS is on the line with a question. Please state your question.

Good morning, everyone. Thank you for taking my question. Congratulations on a strong quarter. Joe and Joel, I have a high-level question regarding the restructuring you've been undergoing over the past few quarters. Joe, where do you believe you stand now? Have you fully turned the corner? This quarter has been impressive both relatively and absolutely. So, how did you achieve this turnaround? Are there still areas for improvement in execution that you foresee moving forward, or are we set for more consistent improvement from here? I'll leave it at that. Thanks again.

Thank you, Danielle. Listen, one of the things I want to underscore has been Baxter's capability bringing together a life-saving portfolio of products. And we have made significant progress in the last two years in our enterprise accounts and how Baxter-connected products now are starting to show to our customers and how interested they are. So, I feel that commercial execution not by segment or division only, but as a company has been very successful as of late, and we're starting to see that coming around. Second thing is now moving down from the sales into the ISC, we have turned the corner. Our colleagues in supply chain and our presidents of the segments have worked very, very closely and have devised and are implementing and executing really good plans in terms of cost optimization. And we can see that in our margins, start to turn the corner and we have made great changes to accomplish that. Going down one level, SG&A is all about what Joel spoke about, is our stranded cost associated with other efficiencies, primarily in G&A. This is where the recipe is for the next 12 to 24 months is to optimize Baxter shared services organization even further and there's great opportunity there as well as contain and offset the stranded costs, so we can show progressively in the next year, two, three, consistent improvements in operating income margins.

Matt Miksic of Barclays is on the line with a question. Please state your question.

Hey, thanks so much, and congrats on a really strong quarter here. I wanted to just touch on a couple of things that I don't know where framed out yet in the call. One was just, where you are in terms of the pricing resets that you've talked about a fair amount? And then, also just any sense that you can get from the patient support side of the business or call it the capital equipment side of the business that maybe speaks to overall demand in the market that you're seeing around investment in infrastructure and capacity as that's come up a few times this earnings cycle? And again, congrats, and thanks so much for taking the questions.

Thank you. As we had previously disclosed, we have negotiated two very large GPO agreements and conversations now have moved to the IDN level. As expected, customers are being thoughtful and thorough about evaluating their options. We believe now with the Novum launch and our ability to provide product, our supply chain resilience, by the way, is second to none. We have proven that over the years and that resonates with our customers tremendously. The association of that and the ability to have a large-volume parenteral pump as well as a syringe pump on a novel platform on the market makes a huge difference. So, I feel optimistic that we're going to close those negotiations in the next four months and be able to move on into 2025 with these things behind us. And by the way, pricing has been a contributor to Baxter, in Q2 2024, was about 100 basis points and expect to be roughly 100 basis points for the full year.

From a capital perspective, regarding investments in capacity and other areas, I view this as an opportunity to reassess our overall network, especially as we approach our future after the separation. It's important to reevaluate our operations once this separation occurs, as it will significantly influence our approach to our network, manufacturing, and distribution. Moving forward, as we consider our capital expenditures, we now have the flexibility to allocate resources in a way that allows both companies to prioritize their key objectives. This is how we plan to assess our capital investments and infrastructure in the future.

Rick Wise of Stifel is on the line with a question. Please state your question.

Hi, good morning to you both. Joe, could you provide more details on your comments about Novum? How is the rollout progressing? You mentioned strong customer interest and a robust backlog of orders. Will adoption and growth ramp up in the second half of this year and into 2025? Is that the correct perspective? Are you receiving more orders than you anticipated last quarter, or is it about what you expected?

Rick, good morning. We found, as a matter of fact, we have sales of Novum in the second quarter, which we did not expect to have, but we're a little faster in having the product ready for the market. What we've seen is great interest. It plays well for our ability to compete. As you know, Spectrum is a great product, but it does not have a syringe pump. And having a syringe pump makes a huge difference. So, we're very happy with the momentum that we're getting in Novum. We'll been showing that to very large hospital systems and small as well. Our team is very hard at work and we feel confident in the technology. So, we have the ability to take market share. I think that is an important thing. This is about providing our patients and our customers with the best technology on the market, not a re-engineered technology from many, many years ago.

Rick, I have a question for you. You and Joe have repeatedly expressed optimism about the improvements in Front Line Care. Could you elaborate on the turnaround? Will things potentially improve for patient care and government? Also, you mentioned a transition to cardiology and acute care. What steps do you need to take to achieve that, and how soon might we see a positive impact? Thank you both.

You're welcome. So, let me provide some details about Front Line Care. Primary care is one aspect of that business, and we also have divisions like cardiology and monitoring that are performing very well. We have no problems in the acute care area. Let's focus on the primary care physician offices. We believe this market has two key aspects. First, we had a backlog in 2023 that we are now catching up on by shipping, selling, and fulfilling outstanding orders. Second, there has been a reduction in customer churn due to some large primary care groups leaving the market. However, the demand remains strong. We are the number one player, gaining a slight share with over 80% of the market share. We expect this demand to come back because it is substantial. The changes in the market along with what we experienced last year are leading us to catch up on the backlog. Government orders, on the other hand, will need to happen eventually as the government will need to purchase the necessary products. We are a major supplier for the government, and I am confident that the issues we encountered in 2024 regarding the drop in primary care will improve in 2025. The business is on solid ground with good technology. Additionally, we plan to launch new technology in mid-2025 to compete in monitoring, and we are excited about the upcoming launches of our MedSurg monitoring products. These technology introductions will support Front Line Care in 2025, alongside the recovery from the 2024 situation and the anticipated resumption of government orders.

That's a great overview. Thanks, Joe.

Pito Chickering of Deutsche Bank is on the line with our final question. Please state your question.

Hey, good morning, guys. Nice quarter and thanks for fitting in here. Looking at the infusion pumps, what do you think the market is growing sort of in 2024? And are you guys picking up or losing share this year? And with all the RFPs out for '25 and beyond, do you guys see yourselves as market share gainers or market share maintainers? And then, on the strong pricing gains for infusion that you talked about, as we think about pricing in 2025, should we see an acceleration of this pricing for next year?

Pito, can you repeat the last part of your question on the pricing, please?

Yes, to follow up on David's question about the fourth quarter revenues, we are finishing the year with a growth rate of just under 1%, as the compounding is slowing due to the challenges faced by competitors. How should we approach modeling revenue growth for the fourth quarter, and what should we anticipate in terms of headwinds and tailwinds for 2025 revenues?

I think the key point here is that we expect to see ongoing improvements in HST. This business has accelerated throughout the year, and we anticipate a strong exit rate that will carry into 2025. As for the Pharma side, compounding will have an impact, which may slow down growth. We haven't provided specific guidance on the compounding business, but it is experiencing a slowdown due to various customer factors, as Joe mentioned. From an MPT perspective, we believe we have strong momentum as we move into 2025, particularly coming out of 2024. To summarize, despite some pressure from the Kidney and compounding segments, we are looking at a 4% to 5% growth rate excluding Kidney as we finish the year and head into next year. This momentum is encouraging, especially with the ex-Kidney business, and that's what we are excited about as we approach 2025.

Pito, just reinforcing and underscoring, our exit rate is 4% to 5%. We feel comfortable with that. That's what Baxter is taking into 2025 and we tend to think that our business and innovation can drive even further going into '26 and '27.

Great. Thanks so much.

Thank you.

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