Baxter at Bank of America 2025 Healthcare Conference: Strategic Shifts and Growth

On Tuesday, 13 May 2025, Baxter International Inc. (NYSE:BAX) presented a cautiously optimistic outlook at the Bank of America 2025 Healthcare Conference. The company’s leadership discussed its strategic transformation following the sale of its kidney care business, focusing on operational simplification, debt reduction, and improved capital allocation. Despite some concerns about Q2 guidance, Baxter remains confident in its growth prospects and margin expansion.

Key Takeaways

• Baxter reported a 5% revenue growth in Q1, with underlying growth at 3.5%.
• The company is targeting a net debt to EBITDA leverage of three times by year-end.
• Saudi Arabia’s investment in a Michigan IV fluid facility was met with skepticism.
• Tariffs remain a challenge, but mitigation strategies are in place.
• Baxter’s CEO search is progressing, with a focus on innovation and operational excellence.

Financial Results

• Q1 Revenue Growth: Achieved a 5% increase, with 150 basis points from one-time factors.
• HST Division Performance: CCS grew 7%, and PSS US grew 14%.
• Tariff Impact: Anticipates $60-70 million in tariffs for 2025, with successful offset strategies.
• Margin Guidance: Increased to 16.5% operating margin for the year.
• R&D Investment: Increased investment, emphasizing innovation.

Operational Updates

• CEO Search: Ongoing, with a focus on candidates who can drive innovation.
• IV Solutions and GPO Contracts: Multi-year contracts secure two-thirds of business from competition.
• IV Fluid Conservation: Post-hurricane conservation measures impact demand; allocations to be removed in May.
• Tariff Strategies: Potential reduction in China tariffs could offer a $15 million benefit.

Future Outlook

• Growth Strategy: Emphasis on new product development and fold-in acquisitions.
• Margin Expansion: Aims for long-term operating margins of over 19%.
• Inflation Mitigation: GPO agreements allow for price adjustments to counter inflation.

Q&A Highlights

• IV Fluid Production: Baxter’s existing GPO contracts and experience are seen as competitive advantages.
• HST Growth Drivers: Strong performance from CCS and PSS US.
• Inventory Management: Hospitals are considering higher inventory levels post-shortage.
• Tariff Impact: While potential tariff removals could benefit, they won’t drastically change the 2025 outlook.

In conclusion, Baxter’s strategic focus on innovation, operational excellence, and financial discipline positions it well for sustainable growth. For a detailed account, please refer to the full transcript.

Full transcript - Bank of America 2025 Healthcare Conference:

Macle, Analyst, BofA: The Macle device analyst at BofA, and we have Joe Grate, EVP and CFO, and Claire Trackman, who everybody knows too. And then I guess head of investor relations, right? The official Yeah, sure. Guess just to start out, there was some news this morning about Saudi investing $5,800,000,000 in Michigan for a high capacity IV fluid facility. And so just wanted to, you know, bring that up first and kind of get your take on that.

Joe Grate, EVP and CFO, Baxter: I’d say take number one is good luck with economics on that, number one. You know, I guess, number two, you know, I look at this is something obviously gonna take a number of years to build. Lot to learn there is is, I guess, the way I’d say it. I mean, obviously, you know, the we’ve had competitors that have actually tried to build plants that’s I mean, up to ten years ago, I’d say, that are still trying to get figured out. So, again, more to more to come, obviously.

We’ll have to understand more about what that looks like as it evolves. But at this point, that’s really not else nothing else to say, I would say, other than, again, that’s a that’s a tough economic thing because I can tell you when you’re the at the price that you sell IV bags at, that level of investment is hard to get your head around. Yep.

Claire Trackman, Head of Investor Relations, Baxter: The only other thing I would mention too is obviously, as you’re aware, we did just resign our GPO contracts that are multiyear contracts in length. So they would, you know, obviously, there’s limitability for anyone to come in kind of within the next three to five years and two thirds of the business. And, our next one’s up for renewal in obviously negotiations in 2026 for implementation in 2027. Again, from the time it takes, just looking at previous investments in and IV capacity, it’s at least a three year before they’re even up and running and likely longer. It’s probably even closer to a five year, three to five years where they’re on.

So, yeah.

Macle, Analyst, BofA: Super helpful. Maybe just to kind of start out, you you kind of think about Baxter’s a little bit at this transition period, you know,

Joe Grate, EVP and CFO, Baxter: just had

Macle, Analyst, BofA: basically the transformation, portfolio transformation, CEO change, where do you see Baxter at kinda now? Kinda where’s the kind of the benefits of the last transformation gonna show up kind of going forward?

Joe Grate, EVP and CFO, Baxter: Yeah. So I’d say in a number of different areas, I would start with what I always pegged as the real strategic reason or actually this for selling kidney to begin with. And that really starts with our capital allocation. That business when it was within our company, number one was about half the return on invested capital that the entire company was. It was very capital intensive, required a lot

Macle, Analyst, BofA: of cash

Joe Grate, EVP and CFO, Baxter: that ultimately went to projects that didn’t generate the returns that we would like them to have. And so the ability to prioritize and focus investments for both companies, but specifically now for Baxter in terms of those areas that are actually gonna drive higher growth, higher returns is is certainly one of the really key elements of that. And and you’ve heard us talking about that really as kinda come out of this. I’d say the second part is just what I’m gonna refer to as general simplification of our company. I’m certainly not gonna go all the way to us being simple.

But the reality of it is is that there was a lot of things that were very intertwined between the kidney business and particularly our solutions business that that kind of disentanglement allows for a lot cleaner view on our three vertical segments that have a very much clear kind of end to end. And so again, our ability to execute more efficiently. And I’ll give you just an example of where that what does that look like? You know, our distribution network with kidney was there’s a big part of that business that was actually home deliveries. So the last mile was very expensive.

It was also very complicated, and we had, you know, up to let’s call it close to 50 distribution centers in The United States. The post Baxter world in that is gonna require substantially less distribution centers, allowing us to have, again, less roofs, therefore less expense, better management of our ability to move inventory around, etcetera, etcetera. So I’d say the simplification part is really the second one. And then I would just say, you know, third again, as we now head into a world where it actually allowed us to pay down a large part of the debt that remained on our balance sheet, By the end of this year, we’re targeting three times net debt to EBITDA leverage. That now allows us then to really refocus our kind of, I’ll call them, you know, capital allocation at a macro level that that both focuses on our organic investments, again, R and D spend, but also the opportunity over time for a fold and tuck in M and A deals.

The ability to restart a buyback program that both gives us, you know, a one time opportunity to kind of, I guess I’ll say recapture some of the dilution that occurred over the last few years where we haven’t bought stock back, but also have a regular program in place. And so that’s really the third part that allows us to really reset that. So, you know, more innovative, faster growth, more nimble, and really to actually have a really effective capital

Macle, Analyst, BofA: where do things stand on the CEO search?

Joe Grate, EVP and CFO, Baxter: Continued good progress. You know, I think our board is running a very, know, again, I’ll say thoughtful, diligent, but also expedient process. I’d say it’s progressing well. It is, but we’re gonna ultimately, have a lot of high degree of confidence we’re ultimately gonna get the right person for

Macle, Analyst, BofA: the job. What’s what’s the the board kinda characteristics the board’s looking for? How are they evaluating kinda internal versus external candidates in terms of kinda big picture?

Joe Grate, EVP and CFO, Baxter: Yeah. I think like if I had to summarize the characteristic they’re looking for, it’s somebody that can drive a culture of innovation, a culture of operational excellence into the organization. So I think ultimately, that’s, you know, consistent with how we just think about the company going forward. And I would say it’s a balanced perspective between considering candidates internally and from the outside.

Macle, Analyst, BofA: Okay. Did wanna kinda move towards the Q1 results that you just reported. There was, you know, 5% growth in the quarter. You called out 150 basis points of kind of one time thing. So, you know, three and a underlying, you know, how did the quarter shape up versus expectations?

How are you thinking about the pull forward from Q2? Maybe remind us exactly what that was and why it was pulled forward and confidence that it was really pulled forward.

Joe Grate, EVP and CFO, Baxter: Yeah, so couple of things. So number one, I think there’s a number of things that went really well in the first quarter. I’m gonna start with HST. I haven’t had the opportunity to do that that often, so I’m going to today. That business actually had a strong first quarter.

Obviously they had some favorable comparisons, but they also had a couple of things going for it. Number one, the CCS business actually had a 7% growth in the quarter. PSS US had 14% growth. And so our capital orders, whether we talked about a strong order book as we headed into the latter part of the end of last year and into this year, we saw the results of that. And that continues to remain strong, I think in a really solid place.

Balanced with that, our FLC grew 5%. So again, we had a nice balance between the two. And I think you see some stabilization in the primary care markets. So those are all positives. The NOVA pump continues the demand for NOVA continues remain strong.

And the MPT side, which also grew 6%, was, again, continued source of strong growth there. What you’re referring to as a pull forward was some of our distributors on the MPT side actually, I would say, you know, started to restock themselves. And so that was something that they happened a little earlier than anticipated. And so that was some of the impact that you’re referring to in Q1. And those things all offset, I’d say some of the softness you saw with some of the conservation as well as a bit of softness in particular in compounding on the pharma side.

That’s a little bit of a summary. The one thing I would point out though, is that even as you refer to the pull forward, again, primarily related to MPT distributor restocking. The first half of the year remains very consistent with how we had anticipated it playing out. So while there’s a bit of a pull forward there and we’ve had some questions that our q two guides, I’m sure you’ll get to that h one is something that is very consistent with how we anticipated it playing out. Yeah.

Macle, Analyst, BofA: Do have anything to add? No.

Claire Trackman, Head of Investor Relations, Baxter: Think that’s part that was exactly right.

Joe Grate, EVP and CFO, Baxter: Yeah.

Macle, Analyst, BofA: And yeah, the follow-up is I think the Q2 guide kind of surprised some people because you know, three and a half this quarter guiding to one to two in Q2. What was the kind of the big reason for that one to two in Q2 and like, and how much of that’s conservatism kind of bolt on and?

Joe Grate, EVP and CFO, Baxter: Yeah, I mean, I would say a couple of things there. I mean, number one, Q2 was always anticipated to be our lowest quarter. And particularly as we anticipated some of the conservation from fluids actually kicking in there. And we, so we’ve got that, some of that built into this forecast. I would say we also, you know, I think it took a, I would say degree of conservatism as it relates to HST.

We continue to feel good about that, but obviously as we sort of built that into the continued full year guidance for them and as well as in the second quarter, we need to be conservative as it relates to that. And then finally, the pull forward piece, again, that certainly did impact as we just talked about the second quarter relative to the first. But again, just to reiterate, H1 is consistent with how we anticipated.

Claire Trackman, Head of Investor Relations, Baxter: Yeah. I mean, I think from a comp perspective too, it’s your point, Q2 of last year was our highest growth for the year. So we knew, like, coming into that Q1, obviously, HST, was a little bit lower. So there’s that comp issue as well. So I think going back to this first half is really, as we looked at it, it basically was in line, with where we were at.

And I think that we knew there would have to be a distributor build because of what happened in the, fourth quarter with Hurricane Helene, and distributors obviously depleted their inventory. So the timing of that did shift, but in general, one of the things we did was held that conservation in the second quarter, as we talked about on our earnings call. We do expect to remove the allocations this month. So that is our plan is to remove the allocations, which we do think will likely lead to some accelerated purchases. We just did not build any of that in.

We kind of just said, let’s hold to the conservation level we saw in the first quarter. Let’s remain that. We did, as you heard Heather say on the call, we expect it to wane over the course of the year. But actually, we’re keeping that conservation, you know, a level of conservation throughout the year somewhat in line with what we saw during Hurricane Maria. So we’re kinda taking, obviously, the lessons learned from Hurricane Maria and knowing that it does take some time for those, I’d say practices to return to their normal levels.

Just

Macle, Analyst, BofA: want to make sure it’s clear to everybody too. Just maybe explain like the IV, there was a shortage with the hurricane back last year. And so hospitals have changed practices. They’re using less IV solution and now that IV is coming back, it’s not like they’re going to go back to old practices right away. And so I think that’s with the conservation that you’re talking about here.

Claire Trackman, Head of Investor Relations, Baxter: We had to incur. So when the hurricane happened, obviously Baxter is a key supplier for IV Solutions, in The United States, and it’s our largest facility. And so we actually had to encourage our hospital customers some kind of some efforts to conserve fluids. And one of the things, one of the methods they can use is oral rehydration, which in essence involves taking Gatorade. And so that’s something we’ll look at as well, because once we go off allocation, we can actually go to our customers and just educate them that, at times the cost of that Gatorade bottle is actually more expensive, actually a lot more expensive than just the IV bag.

But you’re not necessarily seeing that. And because we were on allocation, we didn’t want to go to the customers encouraging that because we wanted to ensure that we had healthy supply to go back to them prior to obviously engaging with that. So once we go off this month, we will start those discussions with them on that. Now that we’re back to, and again, as we talked about, our North Cove facility is back to pre hurricane production. So we’re back fully, operational there and kind of, you know, obviously we’ll be in a position to remove those allocations here shortly.

Macle, Analyst, BofA: And when you saw the last hurricane, I think it was Helene, not Helene, How long did it take customers to kind of get back to normal?

Claire Trackman, Head of Investor Relations, Baxter: Great question. It was about a year. It was about a year that it took for customers to get back to that. So I think, and I don’t know if you recall, but we actually, you go back and look at it, we had assumed that it would come back a little quicker, but it did take some time to, but then after about a year, we were back to just normal practices after that.

Macle, Analyst, BofA: And then one question that comes up a lot is how are you sure like its utilization and conservation and not share loss at this point?

Claire Trackman, Head of Investor Relations, Baxter: Yeah. So what I would say on that is one, we do obviously track our end user data. So we get it. And so we either sell direct to a hospital or they will go through the distributors. And the distributors give us the tracing data.

And one of the things though that did happen, obviously after the hurricane, was we actually tried to pull all the inventory back in so that we could better manage it, from an allocation perspective. Excuse me. So we knew that distributors would need to rebuild those inventory levels. And so that’s what we’re seeing. It’s just this natural rebuild, but we do have, the end user data.

Now, the one thing I do want to go back to is, and this is where it can get a little confusing, I’m gonna try not to. But as we went through our GPO renegotiations that we just talked about earlier, we did assume that we would see some share shifts as a result of that. Nothing to do with the hurricane, but more just in general, obviously given, we were, this is a long term agreement, we were taking some price increases. Those, as we’ve talked about, were in line with what we were thinking. And actually, I think we ended up better than what we had thought we would be from a pricing perspective on that.

Macle, Analyst, BofA: That’s helpful. I guess there’s some sense that the restock that you saw in Q1 might actually continue, right? Like if there’s the ability for this to actually go better than expected in Q2 again?

Claire Trackman, Head of Investor Relations, Baxter: Yeah, well, one of the things we did see was the hospitals. So some hospitals operate more on just a just in time type inventory. Some hospitals actually do keep a level of safety stock. Those hospitals fared much better. So we have had outreach from hospitals looking at potentially keeping and holding more inventory.

That’s not built into our forecast right now, but that’s something we will look at as we go over the course of the year as well.

Joe Grate, EVP and CFO, Baxter: Yeah. And I think that ties a little bit directly to the allocation piece that Claire talked about earlier is as we called out in our call that actually we’re gonna release our really full, no more allocations essentially in the month of May. And so I think that we’ll see a little bit how that’s gonna play out once our allocation

Claire Trackman, Head of Investor Relations, Baxter: That’s a great point because they can only order up to like basically a % of their historical practices. So they don’t have ability to actually build any inventory at

Macle, Analyst, BofA: this point.

Claire Trackman, Head of Investor Relations, Baxter: So they are limited and capped on what they can do.

Macle, Analyst, BofA: So they’ll get a letter and say, Hey, you’re available to order it.

Claire Trackman, Head of Investor Relations, Baxter: Exactly. Allocation’s been removed and then they can say 120%. So their order can go through at like 120 or whatever they wanna order at.

Macle, Analyst, BofA: Okay, helpful. Maybe switching gears to tariffs. You guys did a good job offsetting it. I think that was a surprise to some of us. So good job at that, the 60 to $70,000,000 in 2025.

Now that we’ve had some news on China and the rates going down, you know, how do you think about the impact of the China trade negotiations over the last weekend?

Joe Grate, EVP and CFO, Baxter: Yeah, I can start and Claire can chime in there. Mean, so one of the things we talked about was that our that China was actually about half of our exposure. And so it it initially, when we started talking about tariffs before all this went in, we said it was a fairly minor part of our ecosystem than the tariff obviously escalated to where it escalated to and then all of a sudden became basically half our issue. And so so certainly it’s one of those things. Again, it’s a ninety, you know, it’s ninety days.

We’ll see kind of how this thing plays out. But but it does it does have a, you know, I’d say a relatively disproportionate impact in a positive way in the event that that does does shift permanently. We’ll see how it goes. But, certainly, like I it’s about half hour half hour issue at this point.

Macle, Analyst, BofA: Yeah. So if you do the the math, let’s you know, if $35,000,000 is China and adjust for the rates, a, you know, 15 plus million dollar benefit just that alone this year. How do you think about the ability to let some of that flow through versus reinvest in some of the offsets that you had?

Joe Grate, EVP and CFO, Baxter: Yeah. I mean, you recall in the last, certainly for our last call, moved the range. We got a 16.5% OI. We moved that down to 16 again. So there’s certainly maybe, you know, some element of moving within that range as a result of that.

But at the same time, I think also part of the work that we were doing to offset potential tariffs was really tied to also the work that we’re doing on cost savings related to the stranded costs that we had that obviously were left for the kidney care. So I think, I’d say it’s some combination of that would be the way I would like to think about that. And I think that there’s still work we need to do to eliminate costs, again, unrelated to the tariff that obviously factors into that as well, but there’s probably some of both.

Macle, Analyst, BofA: Okay. And how are you thinking about the pharma tariffs at this point?

Joe Grate, EVP and CFO, Baxter: So, again, I’ll start here. Would say, number one, again, it’s still a little bit to be determined, but I would say we feel pretty good about how we’re set up for those, you know, for a couple of different reasons. You know, one, the majority, you know, a large part I’ll say of our what this constitutes pharma in our world, is actually manufactured, in The United States or in Puerto Rico. And generally speaking, kind of manufactured where it’s sold. There is some element of it that obviously is not.

And I think the what we’re doing kind of in the spirit of, well, what can we do about it? The same way that we’ve thought about some of the other opportunities for the what we need to do for tariff impacts. Thinking about what opportunities we may have from a pricing standpoint. Pretty targeted, but the pricing standpoint in that way. A thing about supply chain opportunities where direct shipments versus shipping, you know, freight lanes that may go through a country that has tariffs, figuring out how to be able to move if there are opportunities to move production or move product into our country or into maybe from, again, from Costa Rica to Puerto Rico, for example.

So those are the kind of proactive things, obviously, in addition to certainly working with our industry association on that. But again, generally speaking, I think we’re decently positioned for it. But to be clear, we have not factored in tariff impact from pharma into any of the conversations we’ve had. Is there anything you’d add?

Claire Trackman, Head of Investor Relations, Baxter: Two things I wanted to add. One, to circle back to, I was thinking about, you know, the savings that we would have this year. Partly, I did wanna make it clear though, because referenced, Joel referenced earlier about innovation, like of things that we’re like, innovation is very critical for us. We recognize that as the lifeblood to drive, accelerated growth. So we have not, lowered our R and D investments at all.

If anything, we actually increased them, this year. So that was not one of the offsets we looked at. We actually still held the guidance range with actually meaningfully increasing our R and D relative to what we had originally expected there. So, and then, you know, on the pharma tariff, I mean, I think you, you know, pretty much, we feel pretty well positioned with that. The reality is that with the timing of it, the impact in 2025 would likely be pretty immaterial just from a perspective of when they actually would get implemented to when the inventory would roll and things like that.

So we wouldn’t expect a significant impact in 2025, but it is something we’ll have to continue to look for, for 2026. But given, just so everyone understands, I think we hear pharmaceuticals. Our pharmaceuticals are typically, you know, obviously generic pharmaceuticals. And so it is slightly different. Most of those, our specialty injectables, business is, manufactured a lot.

We do a lot of that in, Round Lake, Illinois. So we do have a good facility there for a lot of our antibiotics and anti infectives within Round Lake, Illinois. I mean, we will have to look at things with respect to it, but we feel pretty well positioned with that.

Joe Grate, EVP and CFO, Baxter: Actually, just, I had one thing. Claire, you’ve often made an interesting point on also the fact that we, the majority of our business in that area is premix.

Claire Trackman, Head of Investor Relations, Baxter: Yeah.

Joe Grate, EVP and CFO, Baxter: And many of those products are actually premixed, if you will, for lack of a better word, in getting in this country. We don’t do nearly as much of vials that actually come from outside The US. So I guess that’s just one other aspect of our business that why we say, hey, we’re fairly well positioned for that. That’s just one of the parts that I would add.

Macle, Analyst, BofA: Yep. On margins, this year, raised the guidance, so 16.5% this year. How should we think about the cadence of Q2, like front half, second half and margins? Anything to kind of call out for us to be aware of puts and takes? Know there’s lot of moving parts with TSAs and MSAs and tariffs, and know this picture street models kind of get in the right place from a cadence perspective this year.

Joe Grate, EVP and CFO, Baxter: Yeah, I’ll start it again. Claire can certainly chime in. A couple of things just to remember. And again, I know this wasn’t your question, I’m gonna say something here and I’ll get back to your point. I mean, obviously remember the one thing in Q4, we do have the easier comparison, if you will, with what happened in North COVID.

So there’s a lot of this kind of general impact out of that that happens in Q4. From a margin standpoint though, you know, I think there’s a couple of things. I mean, one, we called out the fact that our MSAs are coming a little bit lower than we’d anticipated, which obviously the MSAs themselves have a dilutive effect on gross margin. And so there’s a little less effect on that. But on the flip side of it, our TSAs are actually coming in somewhat higher than we had anticipated.

And the way that manifests itself in our, you know, is that we do obviously get the TSA income revenue, but it doesn’t sit, some of the expenses sit in a number of different lines of our company. Some of those sit in our SG and A, some of them actually sit in our COGS. And so because of the fact that we are providing more services, we get more TSA income, but it doesn’t always directly offset. And so some of where you’re seeing from a gross margin impact is actually somewhat impacted by this phenomenon as it relates to the TSA income. So couple of just key points here.

I mean, I think, you know, generally speaking, we do anticipate our margins to continue to pick up over the course of the year, that the second part, the second remaining part of the year is higher than it was in Q1. Other things you might have

Claire Trackman, Head of Investor Relations, Baxter: Yeah, I mean, I think from a gross margin perspective, what I would say is I would expect the first half and second half to be fairly similar to each other because the impact of the tariffs and obviously something we’ll look at. But that impact of the tariffs will be primarily felt in the second half of the year. So it would lower that. Now, we would expect, though, our OpEx to come down. So it have nice leverage in the back half, which will drive a lot of that operating margin expansion.

So every quarter, we should see that sequential step up in operating margin going forward.

Joe Grate, EVP and CFO, Baxter: And some of that is leverage on growth. I’m sorry to interrupt. Some of that’s leverage on growth and some of it’s also some of the programs, the cost reduction programs that we’ve had in place related to the stranded costs. We talked about, we anticipate that obviously taking it over the course of the year.

Macle, Analyst, BofA: So Q1, Q2 margins above Q1, Q3 about Q2, but kind

Joe Grate, EVP and CFO, Baxter: of like the We’re

about,

Claire Trackman, Head of Investor Relations, Baxter: yep, ending the year at the highest, yeah.

Macle, Analyst, BofA: And it seems to be a kind of a positive sign for the go forward margin expansion of this company, you know, kind of longer term. How you’re still thinking about the opportunity to kind of keep on the margin progress here, you know, I don’t how much that’s driven by stranded costs versus other cost savings initiatives kind of as you move forward kind of post 2025.

Joe Grate, EVP and CFO, Baxter: Yeah, really all those things. I mean, I think about number one, to say it clearly, do have a continued opportunity to expand our margins. And as we think about the growth of this company, it’s both growing, accelerating our growth on top, but also doing so in a way that continues to expand margins. So I would think about that in a number of different categories. I would think about it, number one, you just kind of said it that we anticipate continued leverage as our cost structure continues to, again, set based on the stranded cost work we’re doing, both the cost takeout itself, but also the leverage on the, what we’ll call the fixed portion of our cost continues to get better, which will drive operating margin.

We continue to focus on mix. You know, it’s one of the things we talk about a lot in our company is our mix of products, mix of business, our mix of categories. As HST continues to evolve, advanced surgery, as our injectables, these different areas of our business that are actually positive from a mix perspective. You’ll also recall, you know, we’ve exited IV Solutions in China, for Those are examples of things where we are thoughtfully and strategically exiting lower margin businesses that will ultimately, again, drive a positive. Our ISC, we continue to have opportunities within our supply chain related to margin improvement programs, things where we ultimately continue to implement these programs that impact our overall margins.

And then as you said, you know, the stranded costs work. Again, we, you know, our TSA income obviously will remain for a while, but then as we go along, we’re also continuing to do work that works already in flight on some of the cost reduction measures that ultimately, you know, reset our cost structure. And again, Claire made a really important point, I just wanna reinforce it. It is not, these programs I’m talking about are not in any way incongruent with our desire to actually to drive R and D costs and drive innovation. We will remain, we will continue to invest, we will continue to drive innovation.

And based on the work that we need to do to eliminate stranded costs, we’ll continue to do that as well.

Macle, Analyst, BofA: Still a path back to kind of the 19 plus percent operating margins for this business?

Joe Grate, EVP and CFO, Baxter: Yeah, you know, the way I’ve always tried to frame this question up, I’ve been asked any number of ways on this is that, there something structural about our company that would not allow us to get back to that place my overtime? And my answer is there’s not. There’s not something that would prevent us from doing that. So

Macle, Analyst, BofA: What if we move back into an inflationary environment at a point where you have secondary inflation? Like how is Baxter better positioned at this point to mitigate inflation versus kind of where it was before?

Joe Grate, EVP and CFO, Baxter: Yeah. I think one of the biggest things is as part of the renegotiation of the GPO agreements, unlike where we were back in 2022, where we really didn’t have a lot of ability to move, we do have actually clauses and indices in the contracts that actually allow us to take, again, if certain costs go up higher, we have the ability to pass some of those costs along, as well as just, I’ll call a broader range of opportunities within general cost increases on a year over year basis to take price.

Claire Trackman, Head of Investor Relations, Baxter: I the business is significantly streamlined as well post Vantiv. Vantiv had a heavy logistical. Mhmm. And so that added a lot of cost during that time period as well. So, you know, not having that infrastructure definitely positions us better.

Joe Grate, EVP and CFO, Baxter: Yeah. It’s actually interesting. So from a fuel perspective, one tiny fuel costs would go up that part of the business at a much bigger impact. I remember doing that math.

Claire Trackman, Head of Investor Relations, Baxter: Yeah. Me too.

Joe Grate, EVP and CFO, Baxter: Every day. Yeah.

Macle, Analyst, BofA: And before we end here, just wanted to ask on the four to 5% revenue growth, kind of the building blocks there. Like some people are sometimes kind of surprised that Baxter’s a four to 5% growth company and you’ve been putting it up. So I want to just get the kind of the durability of the top line here in your mind and we’ll end.

Joe Grate, EVP and CFO, Baxter: Well, think it starts with what you’ve heard from us about new product development. I think one of the things that you’re gonna hear more and more from us is a consistent opportunity to grow and develop new products. And I think, again, on these categories and in these markets that are actually growing at a faster rate. And then I would just say, and on top of that is, again, as we talked about the capital allocation earlier over time, and this is really, know, the four to five is really the base, but being able to actually work in holding tuck in acquisitions as part of our growth strategy in those areas where we think it’s better to build versus buy in space like that. Not large transformational deals, old and tuck in opportunities that really supplement that.

So I think there’s, again, I feel very confident about our path.

Macle, Analyst, BofA: Great. Thanks a lot. I think we’re out of time. Alright. Thank you.

You. Thank you.

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