Good morning, ladies and gentlemen, and welcome to Baxter International's second quarter 2025 earnings call. Your lines will remain in a listen-only mode until the question and answer segment of today's call. At that time, if you have a question, you will need to press star 1 on your touchstone phone. Once again, star and the number 1. If anyone should require assistance during the conference, please press star then 0 on your touchstone phone. And 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. Claire Trachman, Senior Vice President, Chief Investor Relations Officer at Baxter International. Ms. Trachman, you may begin.

Good morning, and welcome to our second quarter 2025 earnings conference call. Joining me today are Brent Kaper, Baxter's Chair and Interim Chief Executive Officer, Joel Grade, Baxter's Executive Vice President and Chief Financial Officer, and Heather Knight, Baxter's Executive Vice President and Chief Operating Officer. On the call this morning, we will be discussing Baxter's second quarter 2025 results, along with our financial outlooks for the third quarter and full year 2025. With that, let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook for the third quarter in full year 2025, the anticipated impact of our strategic actions, the potential impact of various regulatory and operational matters, including matters related to the Novum IQ large volume pump and continuing fluid conservation in the global macroeconomic environment on our results of operations contains 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 in our sec filings for more details concerning factors that could cause actual results to differ materially in addition on today's call non-gap financial measures will be used to help investors understand factors ongoing business performance a reconciliation of certain non-gap financial measures being discussed today, so the comparable gap financial measures is included in the accompanying investor presentation and available in our earnings release issue this morning, both of which are available on our website. As a reminder, continuing operations excludes Baxter's kidney care business, which is now reported as discontinued operations. Now I'd like to turn the call over to Brent. Brent?

Thanks, Claire, and good morning, everyone. Thank you for joining us. As you saw in this morning's release, our second quarter performance for continuing operations met our previously issued guidance on both top and bottom line. Specifically, second quarter sales from continuing operations grew 4% on a reported basis and 1% on an operational basis, with growth coming from all three segments. And on the bottom line, adjusted earnings per share from continuing operations were $0.59, cents, increasing 28% over the prior year. These results did come in at the low end of our guidance ranges, reflecting softness and demand for certain products within the medical products and therapies and pharmaceutical segments. Heather and Joel will walk through more details on these factors during their remarks. Importantly, with the sale of vans have now complete, we have now created a more agile and focused business designed to deliver incremental value. We expect to continue to identify opportunities to further advance our which will be a key focus area for our next CEO Andrew Heider. I'll comment more on Andrew's appointment at the close of the call. We are confident in our strategy and our future opportunities to accelerate innovation growth. We continue to build on the strength of our streamlined profile and to benefit from our portfolio of medically essential.

I want to recognize our exceptional Baxter colleagues globally united by our mission to save and sustain lives i'm grateful for their dedication to our company and our stakeholders now i'd like to turn it over to heather and joel who will share details on individual segment results financial performance and updated guidance heather thanks brent and welcome everyone i'm pleased to be here with you this morning to discuss our second quarter results i'm going to walk through our sales performance in the quarter and then we'll hand it over to Joel to walk through performance across the rest of the P&L, along with our updated financial outlook for the third quarter and full year 2025. Before I begin the sales discussion, I want to provide a reminder that results discussed on today's call will reference operational growth, which excludes the impact of foreign exchange, MSA revenues from Bantiv, and the planned exit of ivy solutions from china second quarter 2025 global sales from continuing operations totaled 2.8 billion dollars and increased four percent on a reported basis and one percent on an operational basis performance in the quarter reflected strength in drug compounding advanced surgery and care and connectivity solutions which offset declines in injectables and anesthesia infusion therapies and technologies, and frontline care. Now I'll walk through our results by reportable segments. Commentary regarding sales growth will reflect growth on an operational basis. Sales in our medical products and therapies, or NPT, segment were $1.3 billion and increased 1% in the quarter. Performance in the quarter reflected strong demand for advanced surgery products, offset by softness in Infusion Therapies and Technologies, or ITT. Within MPT, second quarter sales from our ITT division totaled $1 billion and declined 1%, primarily reflecting the previously discussed impact of hospital IV fluid conservation efforts and slightly lower U.S. patient admissions than previously anticipated. As noted in the press release, we have removed allocations for all IV solutions manufactured at North Coast and are working closely with our customers regarding current practices. While we have started to see a slight improvement with hospitals reducing fluid conservation efforts, our current outlook built in potential downside risks, the conservation efforts don't materially improve in the second half of the year, and U.S. patient admission levels remain consistent with the second quarter. We continue to believe that hospitals will return to historic practices over time. The fundamentals of the business remain strong, and we continue to recapture business from existing customers and take on new customers following the recovery of North Coast. We are committed to maintaining the broadest and most comprehensive IV Solutions portfolio offerings in the market, which strongly resonates with our customers. Notably, last week, Visian announced the expansion of its reserve program to include Baxter IV fluids through a strategic partnership to help ensure reliable access to these critical products during times of supply disruption. The Baxter program provides participating healthcare organizations with dedicated, on-demand inventory warehoused here in the U.S. Strengthened infusion systems from the rollout of our Novum LVP infusion platform helped offset the impact from fluid conservation efforts. I do want to pause here and acknowledge a decision we made a couple of weeks ago. To address feedback that has been identified through our ongoing quality procedures and in careful consideration of customer insights we communicated to our customers that we have decided to voluntarily and temporarily pause shipments and planned installations of the Novum LVP during this temporary ship and install pause our customers have been working with us as we incorporate their feedback into our process we are focused on supporting our existing customers continued use of the device as they implement recommended actions from the recent Novum LVP corrections. We remain confident in the Novum IQ infusion platform and its support of safe and connected infusion therapy while recognizing that real-world implementation always provides opportunities to learn, adapt, and improve. While we are unable to currently commit to an exact timing for resuming shipment and installation for Nova MyQ LVPs, our goal is to resume both as soon as possible this year depending on the progress we make with the related corrections and feedback from our customers. We are handling this situation with our mission in mind and with the utmost priority speed and care. We will continue to work in partnership with our customers and in alignment with regulatory agencies. Sales in advanced surgery totaled $296 million and grew 5% globally. Results in the quarter reflected solid demand for our portfolio of hemostats and sealants, strong commercial execution across geographies, and steady procedure volumes. In Healthcare Systems and Technologies, or HST, sales in the quarter were above expectations and totaled $767 million, increasing 2%. Growth in the quarter reflected continued strong sales in the Care and Connectivity Solutions, or CCS, division, increasing 4% to $474 million, with a noted improvement and internationally where sales rose 7%. U.S. CCS sales increased 3% in the quarter, driven by strength in care communications and surgical solutions. Total U.S. capital orders for CCS declined in the second quarter, primarily due to a difficult comparison to the prior year period where U.S. capital orders rose 40%, which included a large contract win. To date, we have not observed a slowdown in U.S. hospital capital spending. However, given the broader macroeconomic uncertainty, we continue to closely monitor the situation. Frontline care sales in the quarter were $293 million and declined 1% compared to the prior year, but increased mid-single digits sequentially. Performance in the quarter reflected a high single-digit decline internationally, driven by softness in select markets outside the U.S. Moving on to our pharmaceutical segment, sales in the quarter totaled $612 million, increasing 1%. Second quarter sales within injectables and anesthesia were $332 million and declined 4%. Performance in the quarter reflected a 1% decline in our injectables portfolio, driven in part by a difficult comparison to the prior year period due to the timing of a U.S. government order. We have also experienced some softness in demand for select premixed products within our U.S. injectables portfolio. We attribute a portion of the softness in demand to follow-on impacts related to the hurricane which caused some hospitals to evaluate IV infusion protocols including utilizing IV push in lieu of premix products in certain situations our commercial teams are working with customers to reinforce the clinical benefit and value proposition of premix injectables while also continuing to execute on our new product launches lower sales of inhaled anesthesia continued to away on performance and declined low double digits in the quarter globally. Drug compounding grew 7% and reflected strong demand for our services outside the U.S. And other sales which represent sales not allocated to a segment and primarily include sales of products and services provided directly through certain manufacturing facilities were $13 million in the quarter. During the quarter, MSA revenue from Vantip totaled $98 million. As a reminder, these sales are included in our reported growth, however, are not reflected in our operational growth for the quarter. Now I'll pass it to Joel, who will discuss performance down the rest of the P&L, along with our updated financial outlook. Joel?

Thanks, Heather, and good morning, everyone. I'll start my remarks today with some additional commentary regarding the P&L profile. Turning to our updated outlook for the second quarter adjusted gross margins from continuing operations for 40.7%, a decrease of 170 basis points compared to the prior yield. This reflected the impact from the Vantiv MSA lower manufacturing volume following the completion in SG&A and from continuing operations totaled $639 million, 170 basis points from the prior year period. Results of the quarter reflect continued investments in sales and marketing efforts related to certain employee benefits related to benefits from the reclassification of functional and continued discipline expense management focused on mitigating the strain of cost. Adjusted R&D spending from continuing operations in the quarter totaled $134 million and 4.8% as a percentage of sales, consistent with the prior year period. We continue to make targeted investments focused on advancing our new product portfolio, with $52 million of the quarters paid it, and reflected increased levels of support for Vantage. As previously discussed, the associated expenses related to this income, including an adjusted operating margin at 15.1% on a continuing operations basis. Operating margin in the quarter reflects the lower gross margin due to the factors just mentioned. Offsets by continued focus on TPTs and reflecting positive pricing in the quarter. Partially offset related to reduced associated with demand softness due to the factors with TSA income increased sequentially and totaled 15.4% and 60 basis points reflecting increased investments. TSA income, partially 5% for the quarter, in 200 basis, increased investments by TSA income. TSA operations sold $58 million in the quarter, a decrease of $28 million reflecting lower interest expense following the paydown of existing debt with proceeds from the sale advantage, including the recent repayment of an outstanding recorded in the quarter. The continuing operations adjusted tax rate for the quarter with 16.7%. 400 basis points strategic use continued to optimize our global structure following the sale of kidney care. Adjusted earnings from 59 cents increased 28% per million dollars. We generated 77 million dollars. We are intensely focused on improving our cash flow generation objective. We are taking several actions with a key focus area being on our inventory management. by discussing our 2025 outlook for the full year and the third quarter, including some key assumptions underpinning the guidance. Back to expected, this reflects current, which are expected to contribute approximately 50 basis points, 320 million MSA revenues, so I'd like to take a moment to update it out. While we never went to low, we have implemented a voluntary and temporary shift and implementation hold pending our review of the related corrections. Our current expectation is that fluid conservation levels will begin to lessen over and into 2026. We need to work closely with our customers and have stabilized. We are committed to accelerating sales, prospect sales, reflecting the impact of the fact that the HST segment is experiencing in HST, but we'll continue to closely monitor the capital environment for any changes to hospital, pharmaceuticals, to income the softness rate. The teams are executing on the new product launches and working with customers to reduce the injection of injectables. This will drive improvements over time. Turning to our outlook, I wanted to provide our latest thoughts regarding assumptions around the impact from tariffs. Reduction from our prior estimates of $60 to $70 million. We should need to evaluate adjustments to our supply chain network, and targeted pricing do not reflect the cash-related costs for TSA income between 15% and the associated between 210 on a continuing operations basis, 18% to 18.5%. on a continuing operations basis, to $2.42 per share, and $0.55. We expect a continuing operations sales growth of approximately 6% to 7% on a reported basis, approximately 100, and MSA revenues are on a continuing operations of $0.58.

Thank you, Heather. As we look to the future, I want to share my thoughts on the recent news that Andrew Heider will join Baxter in the coming weeks as our next CEO. Comprehensive and thorough search has sought a range of experience in the candidates, including a track record of value creation, innovation, and the ability to drive quality and operational excellence. We determined that Andrew is the right leader for Baxter's next chapter to build on a rich history and nearly a century of leadership. I've had the opportunity to spend time with Andrew during the process and since the announcement, and I've directly observed his character, deep respect for the Baxter brand, and passion about our team, our culture, and our mission to save and sustain. Andrew is a highly experienced public company CEO with a strong operation. He will bring a fresh perspective and new ideas to the table from his 25 years of cross-industry. He has consistently demonstrated an ability to advance innovation, deliver commercial success. I can tell you that Andrew is very eager to join the Baxter team to make an impact and to meet many of you. I want to thank all of Baxter's 38,000 employees, our patients, cousins. It's been my great honor to serve as interim CEO for Baxter these last several months, and I'm pleased to continue to serve the company as chair of the board of directors following Andrew's official. With that, we'll begin our question and answer session for the call.

Thank you. We will now begin the question and answer session. If you have a question, please press star 1 on your touchtone phone. Once again, star 1. If you wish to remove yourself from the queue, press star 1 again. And if you are using a speakerphone, please lift the handset to ask your question. So that we may be respectful of everyone's time, please limit your comments to one question with one follow-up question if necessary. We appreciate everyone's patience and would like to provide as many of you as possible the opportunity to ask a question. And we'll pause just a moment while the list is being compiled. 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 at www.baxter.com. And our first question comes from Robbie Marcus at J.P. Morgan. Robbie, your question, please.

Great. Good morning. And thanks for taking the questions. Two for me, maybe first on NOVA. And maybe you could help us understand exactly how much weakness in the quarter was related to this, both on sales and on the operating margin line. And it sounds like you have a voluntary temporary pause. How do you get comfort in the implied guidance for the rest of the year if it's a temporary pause? What happens to the guide if it turns out to be something more durable than that?

Hi, Robbie. This is Heather. Good morning. and thanks for the question so there was no impact in the second quarter from Novum as I said in the prepared remarks we just made this decision voluntarily a couple weeks ago and just want to reinforce that we remain confident in the Novum platform there are significant advantages with this pump over others on the market and our customer receptivity to this platform even in light of some of these field actions has been positive but with patient safety and quality really at the forefront of everything that we do as a company, this decision aligns with our mission focus as an organization. So I think, you know, highlighting that it's important to recognize that infusion pumps are one of the most widely used electromechanical devices in the healthcare setting, and you're solving for millions of permutations around infusion therapy. And this is relevant because when we assess the various care settings the patient conditions the thousands of drug combinations fluid dynamics human factors all of that creates complexity so the field actions that we have out there pertain to a very small subset of clinical use cases and particular workflows that we've identified and we're working closely with our customers and importantly leveraging data that we have from our connected ecosystem to understand where those are happening and working with our customers where we see those instances. So our decision to voluntarily institute the ship and implementation hold was really because we're working transparently with our customers and we wanted to stop and pause and take their feedback and make sure that we're working through the interim mitigations with them. We don't need to have a permanent fix in place to release the ship hold. We're working through those interim mitigations as we speak uh and that timeline of just those mitigations and corrections we want to get this right and our focus is on doing this the right way like we always do here at baxter so we've uh we've set expectations and timelines at this point that we're communicating that we feel like we can meet uh and that's being done in close concert with the mitigations and corrections that we're we're putting in place working with our customers but as i said again in the remarks we're moving with care and speed and urgency and the goal is to start shipping as soon as possible you know targeting by the end of the year with our process of review and you know certainly we'll keep you posted on that front but I want to reinforce that we believe that this is transient in nature and I want you to know like I'm still really excited about Novum our continued ability to convert competitive accounts and we've signed a number of new contracts recently and you our customers are looking forward to the Novum platform and the advantages that it offers. There's a lot of commercial momentum on capital and MPT including Spectrum and Novum and I think it really positions us well for when this hold is released.

Yeah and Robbie if I could just add your guidance question. Essentially the 2026 guidance assumes we're actually not shipping 25, I'm sorry I said 26. 25 guidance assumes that we're actually not shipping another normal pump essentially the rest of the year the low end of that so the low end of the guidance assumes to be clear on that your question is what you know what else could wrong we actually is capturing the downside risk maybe just to tag along on that so uh it sounds like the the upper end of the range does assume um that there is a resumption.

So, Joel, maybe you could bridge the lower DPS guide and what's happening down the P&L. It sounds like there's some other margin weakness in the business. And then as we follow that into 2026, I know after the Vantiv deal, there were some preliminary thoughts on 2026. What's the updated thought and how do you want the street to take into account here. Thanks a lot.

Yeah. Thanks, Robbie. I'd say a couple things. First of all, the Guide for 25 contemplates really primarily the impact of both what we talked about here, but also the amount of volume running through our media. And so therefore, which we're talking about for the second piece is mix. You know, as we talked about some of the products, you know, we talked injectables and pharma to their stuff. We're actually, I would say, ahead of schedule of UPO pricing. I'd say as we head into 2026, you know, Robbie, the way I would look at this, and obviously given, you know, we do, I guess, 25 are going to be, again, volume matters a lot in this company when you don't have it, along with margin improvement programs. What that is from a margin...

Appreciate it. Thanks.

Thanks, Robbie. And David Roman with Goldman Sachs is on the line with a question. David, please state your question.

Thank you. Good morning, everybody. I wanted just to start with the broader evolution of business trends throughout the quarter. As we reflect on the May earnings call and the dynamics you introduced then, as well as some of the public disclosures throughout the quarter, it does sound like business trends did worsen materially as you progressed through the quarter. So can you maybe help us understand how things evolved and to what extent the exit rate in the business is reflected in the 1% or did you exit the quarter at a growth rate below that? Then I have a P&L follow-up.

Yeah, David, I'll start and then have Joel chime in. So thanks for the question. This is Heather. So, you know, we were very purposeful in the guidance that we set. And I know originally maybe folks thought it was conservative, but we knew particularly coming out of the hurricane, that the first half would be a bit choppy. So it played out in IV solutions, I would say, largely as we expected in the half. We had a strong first half. Again, with our speed and urgency, we delivered every timeline coming out of North Cove that we had set. And our goal was to get the channel restocked as urgently and quickly as possible. And we saw that in Q1. And then in Q2, kind of the subsequent bleed down of that inventory across the channel. At the end user level, we really saw conservation pretty consistent through the half. So I would say IV solutions, you know, largely played out as we expected. A bit of the surprise in the quarter was U.S. injectables and pharma. So we saw an elevated amount of IV push in the quarter that was a bit of a surprise. You You know, we expected a bit more recovery of that, quite honestly, and have now contemplated that in the guidance that's been set. So we felt like at this point it was prudent to be a little bit more reserved, and I would say measured in our approach for the second half, just based on the utilization and consumption backdrop that we're seeing across the market and the current macroeconomic environment. You know, we put what I would call a realistic level-loaded assumption, assuming what we saw in Q2 remains for the rest of the year. Again, I think this is temporary. We fully expect that customers will resume normal practices, and we've started to see that already, but we're taking just a more prudent approach at this point. I'll let Joel comment on any other comments.

Yeah, no, I think I would just reinforce to get the point that, you know, we certainly we had we had been very clear and purposeful on suggesting the second quarter is going to be our toughest comparison. And as we headed into the year, you know, the one to two, I know a lot of people, I think, thought that was, I don't know, we didn't see it that way. Obviously, I think, you know, came in, as Heather said, very helpful.

And maybe just to follow up on on the P&L, as we look at the TSA income interplay with stranded costs. Can you maybe help us think about the timelines of working down stranded costs and the process by which the TSAs roll off, and how do you avoid a gap there whereby the TSA roll off is faster than your ability to work down stranded costs?

Yeah, thanks, David. So a couple things I would say. First of all, we are on track with our progress towards mitigating our stranded costs, so let me start with that. And one of the things we said during this year is we anticipated about a 40-day point impact negatively from, you know, unsolved, stranded costs, I'll call it. We're on track with that for what we anticipated for 2025. We're also on what I would consider on track to be, as we talked about, we're going to have them all removed. I just remind you that the TSAs, think about those generally as about a 24-month. And so, think about that for the most part, while those 24-month time, for whatever the reason, the TSA falls off and…

…appreciate all the perspective.

Thanks, David. Thanks, David. And Travis Steed with B of A Securities is on the line with a question. Travis, please state your question.

Hey, guys. Thanks for the question. First, the $100 million guide reduction on revenue this year, how much of that is Spectrum versus ivy solutions versus pharma and then on the spectrum i guess that's like a 200 million dollar product annualized so maybe you're assuming 50 million of that comes out just what are you assuming on spectrum fill-in versus uh you know kind of spectrum loss there you know what thanks for the question travis i i don't know we're gonna we've given specific guides around the numbers themselves but here's what i would say again just to reiterate uh we're assuming in the low end of our guidance that we're not going to ship Novum.

We are assuming in the low end of our guidance that we assume that we're going to ship some spectrum although some of that is going to be replacing Novum and there'll be a credit involved etc etc. So I would say that's the sort of the best way to think about that. The other part of it again conservation piece so fluid conservation for the low end of our guide but uh again yeah i'll just add one more

bit of color i mean i've personally been working with a lot of our top customers and they have minimum committed volumes and compliance with baxter um you know and they fully expect that they will either get back to those minimum committed volumes or we will get priced in the process so you know the contracts are pretty clear and we'll be working with our customers directly as they resume practices, but again, that gives me confidence that this is temporary in nature and, you know, we factored in what should be a relatively modest forecast at this point.

I guess, you know, the second question is kind of... Yeah, I think the second question is more on the long-term. You guys have kind of talked about 4% to 5% revenue growth, clearly not there this year.

Kind of what needs to go right to get back to that is, you know, the new CEO coming in, kind of an opportunity to kind of reevaluate kind of a long-term growth model and can you kind of get back to kind of heighten with the gdps growth next year yeah i'll take a stab at a few things you know that that i've personally been focused on and let joel add some color i mean baxter you know we're really starting to hit a momentum and innovation and new product launches and we're going to start to see that we're starting to see some in 25 moving into 2026 in a more aggressive cadence over the LRP. So innovation is something I'm definitely focused on and excited about. You know, some of these headwinds definitely will start to abate, I think, as we move into 2026. And we've got a number of transformational programs that we're focused on. And we'll be working with Andrew on, you know, reshaping the organization and the company for growth, driving both top and bottom line contribution. So I think there's a lot to like about where we're headed as an organization. And as we've talked about, we completed a lot of the strategic transformation items over the last few years that I think sets us up well to get through some of these temporary headwinds and then just execute like crazy. Joel?

Yeah, Travis, I think a couple things I would say. I mean, you're sort of what gets you back to a four to five. I mean, I think a few things there. I mean, number one, clearly, as Heather's already said, certainly, again, the volumes that we're seeing from a fluid perspective, again, these are key components of that, but clearly, we're not anticipating that remaining in the place. You know, you asked about pharma a little bit. I think, you know, some of the, you know, pharma focus on injectables, the new product launches in pharma, and again, really new product launches across the business itself, elements of that. You know, the second half of this year, from a farmer standpoint, we do anticipate compounding actually having a fair amount of, again, pretty strong second half of the year. So from a growth standpoint, we anticipate that kicking in as well. And so I think, you know, I would just say those are things that, you know, and as Heather said, part of the work that we're doing today in terms of driving innovation really focusing on processes around new product interactions the product life cycle management some of those things uh we're really excited about and as we think about the efficiency some of the transformation program that really are looking into the business okay great thanks for the long answer thanks travis

and vj kumar with evercore isi is on the line with the question vj please state your question Hi, guys.

Thanks for taking my question. Maybe my first one for Heather on NPT. You know, IV fluids are off allocation. Like, why are hospitals still conserving fluids? And I think the FDA letter noted two deaths. You know, historically, when we've had recalls, like, sometimes it's taking years. Any thoughts around, you know, how you would create these current issues with no one in terms of severity, whether this is something more severe, could take years, or is more temporal, if you will?

Yeah, I'll start, Vijay, and good morning. Thanks for the question. So, you know, the change in MPT, I think, as we've stated here throughout the call, is really driven by a more, you know, modest approach to fluid conservation. And hospitals are still conserving because I think, as you know, nothing changes fast in health care. And so we're working directly with our customers as they start to resume normal practices. But if you think about it, we've communicated this. We were in force majeure really through the end of May. So we've been working over the last coming weeks just with our customers on getting back to their minimum committed volumes, helping with our medical affairs and commercial teams and resume normal practices. is, and again, ensuring competence around supply. So the Vizient partnership and program, you know, is one of the first that we've launched, just emphasizing and reinforcing that we have good supply in the U.S. and confidence that they can resume normal practices. And then, you know, regarding Novum, as I communicated earlier, you know, this was something that we did voluntarily and temporarily just to start to work with our customers this is the field actions that we're addressing are on a very small subset of clinical use cases and particular workflows that we've identified and we saw through our quality listening systems customer feedback and honestly our own infusion data so we're working through that you know we do not have to have permanent fixes in place we're working transparently with the regulators on this but I would say that this is very different than maybe what you've seen historically with competitors. So we did this on our own to just take a pause and listen to our customers and look internally about the work that we needed to do. And as Joel said, and as we've reflected in the guidance right now, we're assuming that we don't ship any novums for the rest of 2025, but our goal is to resume shipping as soon as possible and before the end of the year. So So we're hopeful to beat that, but at this point, we thought that it was prudent to take that in for the second half of the year.

That's helpful. And maybe, Joel, one for you on operating margins down 80 basis points versus supply guidance. You know, it's possible for you to give us a bridge, right? I think the fiscal 24 jump off of 16 and a half. I know we have a number of moving parts between TSA, MSA, stranded costs. There are some tariff assumptions, et cetera. If you don't mind building a bridge on the 60 and a half jump off versus 50 and a half.

Yeah. So I would say there's a couple of key puts and takes of that. I'll just address the tariff point for a second. Again, we did actually lower our assumption of the net impact of tariffs, and so on the positive side that is something that actually we are suggesting that you know our prior it was 60 to 70 million with a 65 million dollar kind of midpoint if you want to call it that uh we talked about the fact that we're we're actually going to lower that we're lowering that given what we know today and not including pharmaceutical tariffs but that's a 40 million dollar impact so that that on the positive side million dollar net you know positive impact i I think, and again, as I mentioned earlier, something that we continue to, we're on track with, and we've had a positive impact of this. The main impact, you know, really and truly is a volume impact. You know, as we, as volume declines particularly, and that's one of the really main drivers of this. And then the other one really is mix. Again, I think the, you know, by pharma in this case, this is something that is, if you will, in the operating income percentage. and so I think Maine puts some things there on the EPS part again as we've indicated it's you know the tax rates lower down but those are the main drivers.

Thank you.

All right thanks Vijay and Lawrence Beigelson with Wells Fargo is on the line with the question. Lawrence please state your question.

Good morning thanks for fitting me in but just one for Joel one for Brent. So Joel just the gross margin was a little lighter in Q2 than we expected. Just talk about how we should think about the gross margin the rest of this year. And Brent, just more color on what attracted the board to Andrew. He looks like a strong candidate, but he doesn't have direct device experience. So what were the skills and experiences that the board thought were most applicable to Baxter? How long do you think it'll take for him to get his arms around the business and provide an update to investors on his goals and priorities?

And just lastly, the press release said his start date is uh could be earlier than september 3rd um any update on when he's starting thank you yeah why don't i start uh your question regarding gross margin i think the thing i would probably encourage you to do is to actually think about this on a operating margin perspective and i guess i'll tell you why uh there's a couple you know as we've talked about in the past there's some reclassifications going back and forth between SG&A and our COGS lines. Also, the TSA revenues, which again, some of those sit in COGS. And so there's a lot of noise, I'm going to call it, between our gross margin and our SG&A lines. So there's really, truly that impact on the low end, I think the, you know, I already kind of commented on the tariff piece being a positive, but that low end of the OI range really does assume that our fluid conservation does not come back and that, obviously, the impact from not shipping Novum. Those really are the main, you know, you've got the, again, the positive from pricing, the positive from the, you know, the TSA. between those two items and we, you know, have a say to think about that at an OI level because of the noise I just outlined between those other two lines. Great job.

Yeah, and thanks for the question. We feel very good about Andrew coming in based on his experience and his background. And, of course, I've sure looked at his record with ATS value creation and what he brought to that company. And you probably saw that prior to that, he was with Danaher for a number of years. So he's very steeped in the operating system and is a very disciplined operator. And prior to that was with GE. So these are all strong operating environments. And he brings that, I think, that mentality and experience with him. And as you hear from talking to us, Baxter is a big organization, a manufacturing organization with a lot of operational complexities. So that operational discipline and the skill set, I think, is a big advantage, and I think he can bring a lot to the company. He's also a very energetic and passionate leader and moves at a quick pace. So I think to your question about how long to come up to speed, I think he'll be a quick study. That's my assessment of his personality. He's a sharp guy. He's quick. and I think it'll be a quick ramp. And we're fortunate to have a great management team surrounding him who will be helping him come up to speed very deep in the healthcare environment, tapping into that. And, you know, I think he'll also bring some fresh ideas to the company and that's part of the benefit. We expect to be able to announce a date relatively soon. It should be- All right, thanks Lawrence.

And our final question today comes from the line of matt mixick with barclays matt please state your question thanks so much for putting me in um it just we've covered a lot here just to i think last that you sort of thinking about i think you're like 10 hospital still still engaged in those programs uh so maybe some color on what your current assumptions now assume and then the other just was on um uh just like how how how one time or transitory or i think there was a government contract you know

that impacted karma how much of that is kind of lumpy and how much of that is sort of more just just uh just a little bit slower demand that you're breaking into the to the rest of the year thanks so much yeah i can start that thanks for the question so you know we've assumed at the low end of our guidance regarding IV conservation that, you know, we maintain about minus 20 percent regarding IV conservation. So, again, you know, we expect based on feedback from customers that hopefully we do better than that, but we're taking, as I said, a very modest and prudent approach. At this point, just based on the utilization backdrop and assuming, you know, minimal improvement really throughout the year. That's regarding IV conservation versus the minus 10 that we had stated before. And then the pharma government order, you know, we've taken that out just based on, you know, some of the recent trends with government ordering. And there was an order last year, and we're assuming that that order does not repeat this year.

Okay.

Thanks so much. Thank you. All right. Thanks, Matt. And ladies and gentlemen, that is the end of our Q&A session and this also concludes today's conference call with Baxter International. Thank you for participating.

Thank you.