Baxter at Goldman Sachs Conference: Strategic Growth Amid Challenges

On Tuesday, 10 June 2025, Baxter International Inc. (NYSE:BAX) presented at the Goldman Sachs 46th Annual Global Healthcare Conference, offering insights into its strategic direction and financial outlook. The company reported strong Q1 2024 performance, driven by its Hospital Supply & Therapies and Medication Delivery & Pharmaceuticals segments, but also acknowledged challenges ahead, including lower-than-expected Q2 guidance due to hospital conservation and distributor restocking.

Key Takeaways

• Baxter exceeded Q1 expectations, with over 5% growth in key segments.
• Q2 guidance projects 1% to 2% growth, impacted by hospital conservation efforts.
• The ongoing CEO search aims to find a leader to drive 4-5% organic growth and innovation.
• Baxter plans to reach a 3x net debt to EBITDA ratio by year-end, enabling share buybacks.
• The company is committed to margin expansion, with a target of 16% to 16.5% operating margin for 2024.

Financial Results

• Q1 2024 Performance: Baxter reported over 5% growth, with Hospital Supply & Therapies seeing balanced performance and Medication Delivery & Pharmaceuticals benefiting from strong pump sales and distributor restocking.
• Q2 2024 Guidance: Revenue growth is expected to slow to 1% to 2%, primarily due to hospital conservation efforts.
• Full Year 2024 Guidance: Despite a cautious Q2 outlook, Baxter reaffirmed its annual guidance, supported by GPO pricing benefits contributing to a 100 basis point improvement.
• Margin Outlook: The company aims for a 16% to 16.5% operating margin this year.

Operational Updates

• IV Solutions: Sales are impacted by hospital conservation, but improvement is expected as sales teams re-engage with hospitals.
• NOVUM Launch: Baxter’s NOVUM launch is progressing well, with market share gains doubling to 2% annually.
• Nutrition Business: Growth in the alternative site space is driving mid-single-digit growth in the nutrition segment.
• Anesthesia Business: After previous challenges, the anesthesia business is stabilizing with expectations of improvement.
• Tariffs: China accounts for about half of the $60-70 million tariff impact, with mitigation efforts in place.

Future Outlook

• 2025 Growth Target: Baxter maintains its 4-5% organic growth target.
• Capital Allocation: Achieving a 3x net debt to EBITDA ratio by year-end is a priority, paving the way for share buybacks and potential tuck-in acquisitions.
• Margin Expansion: The company is focused on expanding margins, with no structural impediments to reaching high-teen margins.

Q&A Highlights

• Impact of Conservation: Hospital conservation efforts are expected to diminish as supply normalizes.
• Guidance Philosophy: Baxter aims to set realistic guidance, prioritizing achievable targets over aggressive forecasts.
• TSA Dynamics: TSA income and expenses related to the Vantiv separation are affecting gross margins, but operating margins provide a clearer profitability view.

For a deeper understanding of Baxter’s strategic plans and financial projections, refer to the full conference call transcript.

Full transcript - Goldman Sachs 46th Annual Global Healthcare Conference:

Unidentified speaker, Interviewer: All right. Good morning, everyone. Very happy to start our I think our next session, which features management from Baxter, Joel Grade, Executive Vice President and Chief Financial Officer and Claire Trackman, Senior Vice President and Chief Investor Relations Officer. As I’ve said in all these sessions, happy to open up to questions from those participating in the audience. And if you do have a question, please just raise your hand, and we’ll get a mic over to you so people on the webcast can hear that interaction.

Maybe we’ll start with I think we’ve done a lot a lot of questions about CEO search. Maybe give give us an update on how that’s progressing and any clarity that you’re able to provide with respect to timelines.

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: Yeah. So of all, good morning, everyone. Thanks for your interest in Baxter. Yeah, David. I nothing really new to report other than I would say we’re continuing to make good progress on the search.

I think the board’s doing a very diligent process in balancing both being expeditious from a timing standpoint, but also making sure they’re taking the right amount of time to get the to get the right person. And so I nothing really new to report other than, again, I feel comfortable with the progress they’re making, and and I look forward to reporting something when we can report.

Unidentified speaker, Interviewer: And I think the only other question to ask is, like, on the fourth quarter call, when Brent participated, I think he made a comment that was really what we’re looking for is consistent, reliable, strong performance. I think maybe that’s at least close enough to I think what his outline was for what some of the objectives were with respect to the search. Any thoughts on like just the profile of individual that you’re seeking or or maybe any further interpretation of those comments that you made on the call?

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: You know, I would say this. I mean, I think it really comes down to a few things. I mean, obviously, as we’ve talked about as a company, we’re looking to accelerate growth over what we have had historically. We talked about this four to 5% growth target, and that obviously is gonna come in part from from innovation and from the opportunity to drive r and d investment in those areas that are gonna drive growth. So I think that’s certainly part of the profile as well.

I think you you talk about, you know, execution. This is we have an opportunity as a company to become even more streamlined and operationally effective and consistent in terms of how we perform. So I think there’s there’s that element of the profile. I I do think that part of our growth story over time is also gonna be, again, in a fold and tuck in way, inorganic opportunities that supplement our existing portfolio. And and I would think all wrapped up in someone who really can drive culture and the elements of all that through really into the DNA of the organization.

Unidentified speaker, Interviewer: And I I wanna jump into the business in in a But if I kind of reflect on the past couple years at Baxter, a lot of the focus has been, for lack of a better way to put it, cleaning up the balance sheet, streamlining the business. You had the BPS sale. You had the Vantiv sale. And you haven’t really had an opportunity to sort of lay out what post Vantiv Baxter is going to look like. And admittedly, this will probably change when or evolve as a new CEO comes into the picture.

But like how would you kind of just quickly frame, like, the identity of the company now post Vantiv, post BPS, post paying down debt? Like like, are we to reset foundation? And then, you know, give us a flavor of where we are just in the overall strategic evolution.

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: I’d say a few things. Number one, I would say the words, looking to be more agile and nimble would be one word. I think the, again, I wouldn’t go all the way to simple, but simplified based on the again, there is a lot of complexity that that brought into our company having a lot of the intertwined manufacturing, a lot of things. And so the the other part I’d add is the verticalization of the business. And, again, back to this nimble and agile point, now really allows a very clean set of verticals in the organization.

I think that’s one thing. I think the thing is more innovation. I think over the last number of years, obviously, since the transformative acquisition we did, but then also the work that was done, again, you said it, BPS, verticalization, sale of Antiv, and some of the supply chain challenges we had, the the innovation levels were not necessarily that what we would like to aspire to be. And so I think as a company today, really focusing on our capital allocation efforts, focusing on those things and driving innovation and, again, accelerated growth, expansion of margins, generating more cash that then gets reinvested back into the business as well as a balanced return to our shareholders.

Unidentified speaker, Interviewer: Okay. Maybe using that as kind of context here to talk about the business, one came in better than I think most had expected, including relative to your guidance. Maybe just sort of help us understand the underlying trends that materialized throughout the quarter that supported the five plus percent

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: growth. Yeah. I’d say there’s a couple of things. I mean, one of the one of the good news stories that I haven’t had a chance to say for a while is it was it was really led by HST. Know, we had obviously, there were some some good favorable comps, but also some positives from from an order book standpoint and CCS in particular.

Again, that business grew at a 7% rate, and our frontline care grew five. So we had a very balanced view across our HST portfolio. That was nice to see. MPT was really driven by a few things. Certainly, continued progress from NOVUM.

We’ve had strong growth in our pump sales, and so that continues to be a driver. We also had a, I guess, a larger than expected restocking from distribute you know, from our distributors, which is probably a little bit of where we came in ahead of where people expected. There was some offset to that, though, based on some of the, you know, conservation that’s happening that that had happened in the first quarter, and we expect to continue to some degree in the second quarter and, of course, throughout the you know, some degree throughout the year. But those are, again, some of the key drivers, MPT as well as, again, strong advanced surgeries, strong nutrition. And then from a pharma perspective, we had injectables was strong outside The US, but not so much in The US, and our compounding business was softer.

But those are a few puts and takes. Overall, it was, again, it was a strong quarter. We came as I like to say, we came out hot, and that I think overall, some some positive trends there. Yes.

Unidentified speaker, Interviewer: But then you popped the balloon here with this Q2 guidance. So like what happened here? It’s like you had a good Q1. Everyone took a few weeks off. So you guided 1% to 2% for Q2.

Like what help us understand the guidance for Q2.

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: Yeah. of all, wouldn’t go all the way to pop the balloon. But what I would say is that the if you actually look at H1 and H2 for the year, we came in a little better in q one than we anticipated based on, as I mentioned, the distributor restocking, which we had actually projected internally within in q two more than it was. And so I think but if you look at the half of the year and the half of the year, it’s pretty consistent with what we had anticipated happening. So that’s that’s one thing I would say.

Number two, part of the impact in the second quarter that we’re seeing and and by the way, the second quarter is always gonna be our softest quarter, and the reasons were primarily driven by some of the conservation that we’re seeing in MPT, and we anticipated some of that happening. And then the thing really is just, I guess, I you know, again, I’ll say a little bit of conservatism around the results from from HST, and that sort of factors into the quarter but also some of the guidance for the year. I think it’s I think you’d probably forgive us for being a little conservative on on that front, but, yeah, we haven’t seen impacts from a capital spend at this point, but, again, factoring a little bit of conservatism in the

Unidentified speaker, Interviewer: So it wasn’t like you came off the first quarter, and then in in May, you saw the business or April, excuse me, you saw the business really deteriorate, and you wanted to reflect that in the outlook?

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: Not not at all. And, again, I would just to get go back to the point earlier. It’s it’s an h one, h two thing. And, again, some of the conservation that we anticipated seeing in q two, we have seen, and we do expect that. And one of the other things I would just keep in mind is that we had we had continued to have hospitals on allocation really through, for the most part, through the May.

And so, we’ve only recently released that allocation. And so I I would say, it’s still a little bit to be determined how that’s gonna play out because, obviously, prior to that, a hospital would only be able to order up to their allocation. If they tried ordering more, they couldn’t. So that’s now been released in full. And, again, we’re gonna see how that kinda plays out, but we haven’t we haven’t necessarily contemplated anything on you know, upside wise related to that.

Unidentified speaker, Interviewer: And and how do you kind of contrast conservation efforts with now having full supply? Like, why wouldn’t hospitals say, hey. We’ve survived this long. Let’s just keep doing what we’re doing.

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: Yeah. I mean, I’ll start, and then Claire could chime in. I think the way I would phrase that is there’s they they get out of regular habits and get into new habits, and it takes some time to get back to old habits. And then think, you know, back even in 2017, 2018 when Hurricane Maria hit, it it, you know, it took the better part of a year for hospitals to get back to kinda what would be a normal buying pattern. Now that’s a generalization.

Obviously, every system’s a little bit different, but I would say, generally speaking, that’s probably why. And in fact, they’re just some of the things that they got used to doing. There’s just it take a little bit of time to evolve back to their normal patterns. Anything you’d add?

Claire Trackman, Senior Vice President and Chief Investor Relations Officer, Baxter: Yeah. The only thing I would add is that of the things we can do too now that we’re off allocation is have our sales reps and medical affairs work with the hospitals because some of the methods that they were using for oral oral rehydration are actually going to end up being more expensive than using an IV bag. But when you’re on allocation, we’re not gonna have those discussions. And so now that gives us the opportunity to kind of go back, have those discussions, remind them that we now have adequate supply. So I think that’s piece number one.

And, you know, well, obviously, these are volume based commitments. So if they don’t order up to their volume, they don’t really earn the same price that what they think they’re getting at. So that’s just those conversations will now start happening. And so I think to Joel’s point, you know, unfortunately, we have had experience with this before. We know it does take time to get back there, but our reps will be out there having those discussions now.

I think the key is, for the second quarter, kind of to circle back to where you’re at, one, Joel referenced this, but q two was going to always be our most difficult comp as well. We had the highest growth q two of last year, so it was going to be. The key is, as he said, the first half is in line with what we thought. And we basically pulled through that same level of conservation, and we have access to that because we get end user data. So that’s what we’re looking at when we do this is on the end user data.

So we see that, and we basically said, we’re not gonna assume it gets any better in the second quarter as to what we saw, but we won’t have that benefit of the inventory rebuild at the distributor level. So now that we’re off allocation, we think we’ll see a gradual improvement going forward. So I think that’s the key. Like we just we said, it’s going to take some time. Eventually, it will get back, and we’ll start the education.

But let’s not assume that all of a sudden, it all of a sudden, we lose this and hospitals go back to historical practices.

Unidentified speaker, Interviewer: Okay. Then to kind of wrap this together on IVs, where does pricing fall into all this? Are you seeing the benefit of the GPO price rolls? Like how long does it take to go from like winning the GPO contract to the IDN level to the hospital level? And to what extent did price contribute in Q1?

And how should we reflect that through the balance of the year?

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: Yes. I mean we are seeing that benefit, although it started in Q1. It started, I’d say, more in February than it did through it wasn’t right in the exactly in the beginning of the year. And so I would say that, to some extent, that phased in, if you will, in the first quarter. We do anticipate seeing a full benefit of that as we’d anticipated.

You recall last year, we called out as an enterprise about 100 basis points of improvement from a pricing standpoint. That was primarily driven by the GPOs. And again, that’s on track again but phased in starting in February of this first quarter.

Unidentified speaker, Interviewer: Okay. So we just see a full impact starting in Q2? Or Yes. So the 100 basis points is for the full year where you saw less than that in Q1? Yes.

Correct. Okay. So that would so the I was just by the way, again, look at the Q1 to Q2 or even half to half, that that does imply some volume worsening.

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: But, yeah, again, but anticipated volume worsening was somewhat what we anticipated at the Consumer.

Claire Trackman, Senior Vice President and Chief Investor Relations Officer, Baxter: It’s really the IVs. I mean it’s basically just conservation, not offset by the rebuild at the inventory. So that’s the volume. So you’re exactly right. There is a volume impact.

Unidentified speaker, Interviewer: Okay. And I guess a lot I don’t wanna belabor Q2 too much, but just on the philosophy of guidance, one of the things that they go back and reflect on Brent’s comments from the fourth quarter call about consistent, durable, reliable performance, how how are you thinking about just the philosophy of setting guidance both on a quarterly and annual basis now?

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: Well, I think in general, certainly, the two some of the best words in the English language, beat and raise, is something that’s always been part of the philosophy that I’ve that I’ve had and that we’ve had. And I think the I think the reality of it is is that we’re gonna have some fluctuations on a quarterly basis. I think we obviously set our annual guidance to a point we feel confident in both on our top line, and, obviously, we had, you know, an adjustment on the the bottom line from the 16 to the 16.5. But but certainly, in all those areas, again, in a place that we despite some quarterly fluctuations, again, we feel confident in our our guidance for the year.

Unidentified speaker, Interviewer: And then if I just kind of take a step back and look at the 2025 outlook of four to 5%, that does include two quarters where you have pretty easy comparisons, 1Q on HST and 4Q on the IB business within MPT. So how do we kind of think about the normalized growth rate versus the comp benefit growth rate of the business?

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: I’d say a couple of things. We also, though, recall, as we just talked about, have conservative conservation element in there that’s that’s obviously a headwind. And so, I mean, I think there’s always gonna be I look at this. There’s always puts and takes in in a given year. We certainly view ourselves as as this this four to 5% is a good way to think about our company as in terms of annual growth.

And I think the that’ll that’ll play out the as we anticipate this year. And as we’ve talked about going forward, that somewhere is a good basis to think about the organic view of our company from

Unidentified speaker, Interviewer: a different perspective. And what maybe we could go into some of the individual segments that I think, if you look at MPT, you talked about NOVUM, you talked about nutrition, You talked about advanced surgery. I mean, the IV dynamics, I think we understand. Any other product lines or businesses you wanna highlight within MPT? And then we’ll talk then we’ll go to HST.

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: Think that’s the main stuff. Maybe the only thing I would add is just a couple builds on a couple of those points. And, again, from a Novan perspective, you know, we certainly again, that that launch has gone really well. The product is performing really well. We are in an upgrade cycle that is causing, you know, lots of customers to be able to have conversations about those things, and then we’ve had a lot of opportunities for both competitive wins and, obviously, you know, changing out the spectrum, but both.

And I think, you know, we’ve talked about the fact that we our share gains with Novum, we believe, have doubled from where we were in the past. We’re adding about 1% a year, and then we think that’s healthy. It’s at about 2% a year in terms of that. So that’s one point I’d make. On the on the nutrition piece, one of the areas that we’ve had some success in now is in the alternative space.

And I think this is one of those things where we’ve had some focus on and investments in the ASC space, and nutrition has been one of those areas we’ve had some some nice success. So that mid single digit growth you’re seeing there is is in part due to our presence and our penetration into that space. And I guess the other thing I would just say, the demand in our advanced surgery, particularly OUS, but in general, has been quite strong. And so I think the all really across those areas, I mean, we’ve had some good performance. And so that’s maybe the one couple of adds I just make to that point for MPT.

Unidentified speaker, Interviewer: Okay. And then within HST, mean, this is a business that actually has a of lot of parts to it, but I think very frequently we, speak for myself maybe, think about it as you got beds in CCS and you got Welshall and stuff in FLC. But I think there’s probably more moving parts to that franchise. And maybe help us think about how things are progressing within maybe a little bit more detail under the hood within those subsegments.

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: As we even entered this year and we gave our kind of guidance by segment, one of the things we talked about is the fact that we anticipated a more balanced view between our injectables and anesthesia and the compounding business. And so from a mix perspective, there’s, I would say, some conscious view on on having some of that be a little more leveled out versus last year where compounding was in the in the teens in terms from a growth standpoint. I will say this. Again, it is a lower margin business, but it’s a fairly large business, and so there is a fair amount of absorption that happens from a from a leverage and fixed cost standpoint there. And so but I I will agree to your point.

It’s something we are look to to balance out some. I anticipate we it was softer in the first quarter than it will likely be the rest of the year. We do anticipate that leveling out some. The other thing I would just say too is from an anesthesia standpoint, I know you didn’t ask this, but just to add to that. Again, that’s a business that we’ve had some, certainly, some tailoring or some headwinds on over the last couple of years.

That business is starting to stabilize, and it’s again, it’s also a good margin profile in that business. We do anticipate that continuing to get better.

Unidentified speaker, Interviewer: Okay. It’s very helpful. Maybe let’s turn over to the P and L here and if we remiss not to touch on tariffs. A lot has changed since you issued guidance, and it continues to be an evolving dynamic. But how should we maybe just remind us within the 60,000,000 to $70,000,000 Like, I think, how big was China as a percentage of that, and what’s the impact of this recent de escalation?

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: Yeah. I mean, China was actually ended up being about half of it. And and the the the interesting part of that is that when what what seems like forever ago, we started the tariff conversation. Our original commentary was that China is not a really significant part of our business, and we had anticipated at that time as more in Canada, Mexico, and, obviously, a lot’s evolved since then. The the reality of it is then China became a larger issue for us just because of the sheer magnitude of the tariff.

The net effect of the 60 to 70 we’ve talked about is really the net effect of of tariff risk and in addition to offset by some of the things we’re doing both from a supply chain standpoint and, you know, I’ll call it, targeted pricing standpoint to offset that. And so, yes, there was this kind of a ninety day, you know, if you will, hold pattern on what’s happening with with, you know, the whole thing with China. We’re holding where we are right now in the 60 to 70 because, obviously, as the tariffs go down, some of the mitigation activities go down as it related to that specific business. But I would just say this. This thing’s constantly evolving.

We’re we’re, you know, comfortable where we are as of today, and we’ve got, you know, five minutes from now, something else might change. I’m not sure. But but we’re gonna continue to adapt. And and the good news is a lot of the things that we are doing in terms of reevaluating our shipping lanes, reevaluating some of the things that, you know, are both kinda short and medium term opportunities, something we’re certainly continuing to be focused on and as this thing evolves.

Unidentified speaker, Interviewer: So maybe we’d talk about the overall margin, the 16% to 16.5%. I think we all understand why the adjustment from the approximately 16.5% that you had issued previously. But as I look at Q1, there’s a pretty big ramp from your Q1 gross and operating margin to meet the full year targets. What are some of the drivers on both gross margin and then operating margin that gets you from where you started the year to average out to where your guidance now sits?

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: Yes. So I mean, really, a few things. I mean, one, we’d already talked about the pricing. There’s kind of a partial impact, if you will, in in q one relative to the GPO pricing. I’d say another thing is really related to the impacts of our our TSA income and stranded cost implications.

You’ll recall in q four of last year, there was a large stranded cost number that was included as part of the 13.9 that we ended the year at. As we now head into this year, we’ve obviously we’ve talked about the fact that our our TSA income, which, again, is is ramping. And, again, the the deal closed January 31, and so, so some of those same effects were in q one of the stranded cost. But, obviously, now the TSA income and some of the cost mitigation activities are starting to kick in. So that that’s also certainly, you know, a sizable part of that as we as we go into the year.

And and just generally, you know, there’s some seasonality to our business where our our margin profile as as volume goes up, we do get more leverage out of that. And so our year does increase that way. So I think obviously, I think, you know, we we feel like we’re in a pretty good place there, but those are a key a few of the key drivers there. Is there anything

Claire Trackman, Senior Vice President and Chief Investor Relations Officer, Baxter: you can add Exactly. Yes. I think the key is the cost initiatives ramp over the course of the year. We normally our margin progression normally just improves every quarter just as our sales volume, and we get better leverage. So I’d say those the two big drivers.

Unidentified speaker, Interviewer: And were there any hangover effects on the gross margin line in Q1 from North Cove in Q4, whether that was, I don’t know, capitalized inventory or under or any dynamics in Q1 that were sort of in the P and L in Q1 but a reflection of things that happened in prior periods? So on gross margin or Yes. Gross margin.

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: I mean there’s probably there’s probably a little bit of that. And again, as I mentioned, pricing didn’t kick in in Q1. The other thing I would just remind you of, though, is on the gross margin line in general, our TSA income, the way the accounting works for this is that our TSA expenses, some sit in COGS, some sit in SG and A, and the income itself sits on a separate line, if you will, over and above our operating income line. And so as we’ve as we’ve talked about the fact that our TSA income is going up from where we had originally anticipated, that’s not just a hey. That sounds like a good news story.

That also means the expenses are going up that are being covered by the TSA income. And so, therefore, some of those end up sitting in the gross margin line, again, as a again, where the TSA income sits below. So that’s that’s some of the a little bit of what you’re seeing as a dilutive effect on the gross margin well.

Claire Trackman, Senior Vice President and Chief Investor Relations Officer, Baxter: Yes. Think in particular, in the first quarter, we had some higher planning and logistics costs that impacted COGS, which impacted our gross margin then. And so obviously, TSA income was higher than we had anticipated, so it was just an offset, but it did impact that gross margin line because of those planning and logistics costs. The planning

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: and forecasting piece was was part of the what hit the COGS line, and that was related to North Cove in terms of that.

Unidentified speaker, Interviewer: Yeah. So those are l okay. Yeah. And then if I look at your guidance for Q2 and revenue dollars, like actually, it looks pretty similar to Q4 of last year when and you did have a gross margin in the 44% to 45% range. Like why wouldn’t you get back to that level?

Claire Trackman, Senior Vice President and Chief Investor Relations Officer, Baxter: I think we just included the tariff. The tariff we would have, but we reflected the impact of the tariff.

Unidentified speaker, Interviewer: Do you start to see tariffs impact you in q two of this

Claire Trackman, Senior Vice President and Chief Investor Relations Officer, Baxter: ’2 this year?

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: Yeah. Yeah. Think someone

Claire Trackman, Senior Vice President and Chief Investor Relations Officer, Baxter: We should slightly. It’s more of a half of the year, but, no, not as much tariff in the second quarter.

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: But, again, the gross margin impact, though, is is a couple different things. On the positive side, there’s the pricing. On the other side of it, the MSA income

Claire Trackman, Senior Vice President and Chief Investor Relations Officer, Baxter: Yeah.

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: Has a dilutive effect on our gross margin.

Unidentified speaker, Interviewer: That’s like 10% gross margin. Yeah.

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: And and so with the 310,000,000 or so ish, that that actually has a dilutive effect on margins as do, again, this this the the TSA expenses that are that are going through So that’s there’s there’s a number of those lines.

Unidentified speaker, Interviewer: So you would say operating margin is a better a better vehicle to sort of value overall profitability.

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: Is because TSA income all sits in this other

Unidentified speaker, Interviewer: In that other line. Okay. So so we kinda just, like, wrap this together. Q one, you had basically three months of full stranded costs, only two months of TSA income. So there was a mismatch there between your costs Yes.

And the TSA income, which which which depressed margins. And I don’t know if the costs are ratably a a a but over the course of the quarter, but that did have a significant impact. As you roll into Q2, you kinda have more it’s matched TSA income and and and Stranded costs. But your stranded costs should start going down.

Claire Trackman, Senior Vice President and Chief Investor Relations Officer, Baxter: Yes.

Unidentified speaker, Interviewer: And your TSA income should go up at least on a quarterly basis, sequentially.

Claire Trackman, Senior Vice President and Chief Investor Relations Officer, Baxter: TSA income kind of remains flat ish over the course of the year, but our stranded costs come down.

Unidentified speaker, Interviewer: That’s the key. Two months to three months, so it should go up.

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: Right. So it’s go up relative to q one. Like, our TSA income would go

Claire Trackman, Senior Vice President and Chief Investor Relations Officer, Baxter: up relative to q one. It might stay a little bit same just because we had elevated expenses to support Vantiv in the in the it’s all dependent on what Vantiv needs from us. So, like, that is the key. It’s all dependent on what Vantiv needs for us. So, yes, to Joel’s point, it it likely will go up when you have the full three months, and it could be even higher if Vantiv requires more services for us.

Unidentified speaker, Interviewer: And you charge them a markup?

Claire Trackman, Senior Vice President and Chief Investor Relations Officer, Baxter: A slight markup. Slight. Okay. Yeah.

Unidentified speaker, Interviewer: Got it. And then as we cut you know, obviously, you know, the tariff dynamic did throw off what seemed to be a pretty linear opportunity to expand your margins here. But still, 16% to 16.5% versus 13.9% represents significant improvement year over year. But I’ve asked you in the past, like, do you think normalized margins for this business can be in the high teens? Like is that still an achievable number?

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: Yeah. I think I I always like to rephrase that question slightly, and the answer is yeah. The question is, is there something structural that would prevent us from getting to that point over time? And the answer is there’s not. I think this is let’s say, it’s something you know, I’m not putting a time time frame on that, but but as a company, certainly, we we are committed to continue to expand our margins, and I don’t think there’s there’s not something structural that would prevent

And I I just wanna say one thing you already added. I think it is very constructive to look at us on a operating margin basis this year with some of that noise in between the the lines on the TSA income. So just to reiterate that point.

Unidentified speaker, Interviewer: Okay. Very helpful. And then maybe we’ll just kind of close with the balance sheet and use of cash. The you obviously paying down debt was a priority post Avanta sale. Kind of where are we in sort of like your leverage ratio?

And when do you think you’ll be in a point where you can start buying back stock beyond offsetting the dilutive impact of options? Sure.

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: Yes. So I we are on target to hit our three times net debt to EBITDA by the end of this year. And so I’m I’m very much looking forward to that too so I can I have to tell you, I’m just focused on paying down debt? We have this opportunity once we achieve that target leverage to reinstate a buyback program that includes both the offsetting dilution, but as well as, again, a a consistent buyback program over the years. And then and I think the other part of that then is that as we talked about the opportunity for fold in tuck in M and A, again, I’m to be very clear, it is not large M and A deals.

It is fold in tuck in opportunities that supplement our product categories and that allow us to accelerate our growth rates. But those are the types of things we look forward to doing in addition to the organic R and D investments and things we’ve talked about as a company.

Unidentified speaker, Interviewer: Excellent. Well, I think with that, we are out of time. Joel and Claire, thank you for for your participation. We look forward to seeing you late later today.

Joel Grade, Executive Vice President and Chief Financial Officer, Baxter: Alright. Thanks, everyone. Appreciate it.

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