Baxter International Inc

NYSE:BAX

[Audio Gap]

I'm pleased to be working with the entire leadership team on these shared goals. We're continuing to move the company forward into a new era, and has recently announced that we closed the sale of Vantiv on January 31, 2025. This significant milestone was the final step of 3 strategic actions outlined in January of 2023 to transform the business. You'll recall these actions included the implementation of a new verticalized operating model. As a director and in my role as interim CEO, I can confirm that this segment-driven approach has created increased focus and execution related benefits, bringing greater clarity and agility to how we pursue opportunities globally. And as part of our transformation efforts, we completed the divestiture of Baxter's non-core biopharma solutions business in 2023.

Since joining Baxter's Board in 2022, I've observed and supported these shifts in the company's strategic direction, and I'm extremely proud of the hard work and dedication of our teams to reach this stage. These actions have positioned Baxter to accelerate innovation for patients and customers and to drive profitable growth for our shareholders.

Later in this call, Joel will provide details on our quarterly and full year performance as well as our outlook for 2025. As you have seen in this morning's release, we finished 2024 on a high note, meeting our fourth quarter guidance for continuing operations on both the top and bottom lines. And we're starting 2025, building on positive momentum.

During this interim period, I'll be working closely with Heather, Joel and the rest of Baxter's strong leadership team to ensure we maintain that momentum. I've been very impressed by what I've experienced in the last few weeks, engaged, talented and highly motivated team that is squarely focused on Baxter's mission to save and sustain lives, a truly collaborative spirit and an intense focus on delivering on our commitments.

This includes initiatives focused on innovation and profitable growth to enhance performance, deliver increased value and to better serve the needs of our patients and customers. To support these efforts and as we've shared earlier this month, we've instituted a new Chief Operating Officer position as a next step in leveraging the potential of our vertical operating model.

We're fortunate to have Heather Knight step into this role as COO. Heather brings extensive experience and a proven track record to this position after a successful tenure as head of our largest segment, medical products and therapies, among other key leadership roles at Baxter and prior large health care companies.

So we leading day-to-day operations across our 3 segments, encompassing global commercial operations, R&D supply chain, medical and regulatory affairs. Her leadership will be critical as we navigate the next phase of growth.

Now I'd like to turn it over to Heather to share her perspective. Heather?

Thank you, Brent, and good morning, everyone. I'm very pleased to be joining today's call. I look forward to building upon what we've achieved to date and helping to launch a new chapter of accelerated performance for the company. As Brent mentioned, over the last 2 years, I've had the privilege of leading medical products and therapies, or MPT, which is back [ through ] the largest segment with over $5 billion in sales and operations spanning the globe.

During this time, I spearheaded numerous vital initiatives with the support of my talented colleagues including the recent successful launch of our Novum IQ infusion pump platform in the United States. As the leader of NPT, I also helped oversee the North Cove recovery efforts following Hurricane Helene. Given the essential nature of the products that are manufactured in North Cove, we spared no expense in our efforts to help address product supply for patients and customers, including importing products from Baxter sites globally.

Thanks to the incredible dedication and resilience of the North Cove and broader Baxter teams, we were able to reach our production on 8 of the site's 10 manufacturing lines in the fourth quarter. Our final 2 manufacturing lines came online in January, and I'm very proud to report that we are now producing at pre-hurricane levels. This is just another critical milestone in our recovery as we continue to work to replenish inventory and support our customers and patients' needs. Additionally, I've served as the lead interface to many of our key customers and have been deeply involved and successfully renegotiating the recent renewals of select U.S. GPO contracts, helping to ensure we continue to meet our customers' needs while also delivering positive movement in pricing.

As COO, I'm excited to build upon my deep knowledge and understanding of our markets and operations to enhance collaboration across our segments and create a more holistic Baxter experience for our customers and the patients they serve. I'm confident that by harnessing our combined strength and expertise, we can unlock significant value and accelerate our efforts to drive customer-inspired innovation for all of our stakeholders. I look forward to partnering with Brent, Joel and the entire Baxter team as we work to achieve our strategic objectives and deliver exceptional results.

I'll now turn it over to Joel to discuss our financial performance in more detail. Joel?

Thanks, Heather, and good morning, everyone. [indiscernible] to joining the call this morning to provide some additional details on Baxter's fourth quarter and full year 2024 financial performance as well as commentary on our financial outlook for 2025.

As Brent mentioned, we are very pleased with our fourth quarter results and how we ended the year. Our results came in ahead of our prior guidance on both the top and bottom lines, driven by better-than-expected sales and solid operational performance. Fourth quarter 2024 global sales from continuing operations of $2.75 billion, increased 1% on a reported basis and 2% on a constant currency basis, and compared favorably to our previous guidance, which called for sales to decline in low single digits.

Our performance in the quarter was broad-based and reflected positive sales across most of our product divisions. As expected, during the fourth quarter, Hurricane Helene that negatively impacted our sales by approximately $110 million or approximately 400 basis points. Although the overall magnitude is less than the previously anticipated approximately $150 million, given the company's swift recovery efforts.

For the full year, Baxter reported sales from considered operations at $10.6 billion, increasing 3% on both the reported and constant currency basis. Hurricane Helene negatively impacted growth for the full year by just over 100 basis points. On the bottom line, fourth quarter adjusted earnings per share from continuing operations were $0.58, and came in ahead of our prior guidance of $0.50 to $0.53 per share, driven by the favorable half-life results and solid operational performance.

In addition, our tax rate came in favorable to our conation, which offset a negative impact from foreign exchange. On a year-over-year basis, adjusted earnings per share from continuing operations declined 11% in the quarter, primarily due to the negative impact of Hurricane Helene on our results.

For the full year, adjusted earnings per share from continuing operations totaled $1.89 per share and increased 11% over the prior year, reflecting solid underlying operational performance and a benefit from nonoperational items, including lower interest expense and tax rate.

Now I'll walk through our results for our reportable segments. Commentary regarding sales growth will reflect growth at constant currency rates. Sales in our Medical Products and Therapies, or MPT segment were $1.3 billion, increasing 1% in the quarter and coming in favorable to expectations.

Full year 2024 sales totaled $5.2 billion, advancing 5% and ahead of the prior guidance of 2% to 3% growth. Adjusting for the impact of William sales growth in the quarter would have been approximately 9% and approximately 7% for the full year. Within NPT, fourth quarter sales from our infusion therapies and Technologies division totaled $1.0 billion and decreased 1%.

Sales in the quarter benefited from significant growth for our U.S. infusion systems portfolio as the rollout of our Nova IQ pub platform continues to build momentum with orders coming in from both new and existing customers. Nutrition sales in the quarter advanced double digits globally reflecting the strength in the U.S. as we continue to build out our alternate site portfolio. Finally, as anticipated, IV Solutions declined in the quarter due to the impact of Hurricane Helene. Q4 sales of Advanced Surgery totaled $292 million and grew 6% globally. Results in the quarter reflected solid demand and positive pricing for our portfolio of [indiscernible] and sealant across the globe. MPT's adjusted operating margin for the quarter was 15.5%, coming in better than expected due to the sales outperformance.

Margins declined year-over-year, primarily reflecting the impact of the hurricane. In Healthcare [indiscernible], or HST, sales in the quarter were in line with expectations and totaled $784 million decreasing 1%. Full year 2024 sales totaled $3 billion and declined 2%. Within the HFC segment, sales in the quarter for our Care and Connectivity Solutions, or CCS division were $504 million, advancing 3% globally. Performance in the quarter was driven by 9% growth in the U.S. for CCS due to continued momentum in our Patient Support Systems or PSS business. which once again delivered strong growth and reflected a benefit from competitive wins in both our men's Search and ICU product lines as well as upgrades for existing customers.

Total U.S. capital orders for CCS rose 9% in the quarter and increased 15% for the full year. We are exiting leader with a healthy backlog and strong funnel [indiscernible] to build a positive momentum over the course of 2025. Performance for this division was partially offset by weaker sales outside the U.S., reflecting a difficult comparison to the prior year period, we saw growth of 12% as well as softness in both China and France in the current year. Frontline Care sales in the quarter were $280 million and declined 8%. Consistent with commentary over the course of this year, performance in the quarter was impacted by the backlog reductions, which positively contributed to sales in the prior year period. Results in the quarter also reflected the impact of certain market exits and supply constraints, which collectively impacted sales by approximately $15 million in the quarter. We expect the supply constraints that impacted the fourth quarter to be largely resolved for most products in the first quarter of 2025.

We believe that performance for this division will also benefit from stabilization in the primary care market over the course of 2025 as well as the launch of central products in the second half of this year that are expected to contribute to positive performance for FLC in 2025 and beyond. HSE fourth quarter adjusted operating margins of 18.5% increased sequentially, continuing the trend of sequential margin improvements.

Margins declined year-over-year, primarily reflecting higher investments. Moving on to our Pharmaceutical segment. Sales in the quarter came in favorable to expectations and totaled $643 million, increasing 8%. Full year 2024 sales were $2.4 billion, advancing at 7%. Fourth quarter sales with an injectable and anesthesia of $383 million, grew 8%. Performance in the quarter reflected mid-teens growth in our specialty injectables portfolio, an anticipated rebound from the third quarter, which was impacted by the timing of some orders.

Growth was driven by strong demand for U.S. premixed products and the continued rollout of new products as well as the benefit from targeted sales and marketing initiatives that have been implemented. As expected, lower sales of inhaled anesthesia, which declined mid-single digits, slightly tempered overall performance for the injectables and anesthesia. Within drug compounding, continued demand for services resulted in strong growth of 9% for the quarter.

Pharmaceutical adjusted operating margins were 15.9% for the quarter increasing 600 basis points sequentially. Adjusted operating margins decreased 370 basis points compared to the prior year, reflecting the impact from the MSA entered into following the BPS sales and increased operating expenses to support the new and upcoming launches. The pharmaceuticals team remains focused on expanding margins through improved mix, stabilizing the anesthesia business, driving cost improvements, compounding business and executing our margin improvement initiatives in the integrated supply chain. Other sales, which represent sales not allocated to those segments and primarily include sales and products and services provided directly to certain of our manufacturing facilities were $12 million in the quarter and totaled $67 million for full year 2024.

Before moving on to the rest of the P&L results, I wanted to make some comments regarding our continuing operations as reported going forward. I mentioned last quarter, due to the change of moving Kidney Care business results to discontinued operations, corporate costs that have previously been allocated to the Kidney Care segment that would not convey with the Kidney Care business in the sale are now reported in unallocated corporate costs.

As we previously commented, we plan to offset a large portion of these expenses in 2025 through income to be received from Vantiv under the transition services agreements, or TSAs, as well as cost containment initiatives the company is already in the process of undertaking. Our goal remains to fully offset the impact of stranded costs and the loss of TSA income by the end of 2027. Fourth quarter adjusted gross margin from continuing operations was 44.5%, coming in favorable to expectations and reflecting a sequential improvement of 80 basis points.

On a year-over-year basis, adjusted gross margins declined slightly by 10 basis points driven primarily by the impact of Hurricane Helene, higher spend within [indiscernible] manufacturing plants to support product growth as well as the impact of the manufacturing supply agreement following the sale of PS.

Positive contributors to margin in the quarter were ongoing benefits from our margin improvement programs within our integrated supply chain network as well as favorable product mix and printing initiatives in select markets. Adjusted gross margin from continuing operations for the year totaled 43.5%.

Fourth quarter adjusted SG&A from contingent operations totaled $679 million or 24.7% as a percentage of sales, an increase of 190 basis points from the prior year period as we continue to make select investments to support our growth objectives and new product launches. This increase also included approximately $30 million of select discrete items that are not expected to repeat, including increased employee health care expenses due to high-cost medical claims incurred during the quarter, fees associated with our tax optimization program and phasing of stock compensation expenses. These higher expenses were offset by benefits from lower stranded costs. Full year 2024 adjusted SG&A totaled $2.66 billion and represented 25% of sales. Adjusted R&D spending from continuing operations in the quarter totaled $131 million and represented 4.8% as a percentage of sales, an increase of 10 basis points compared to the prior year period, and reflects our continued investments in advancing new products across the portfolio and bringing innovation to patients across our 2024 full year adjusted R&D totaled $510 million or 4.8% as a percent of sales.

[indiscernible] compared to the prior year, adjusted operating margins from continued operations decreased 190 basis points, driven by the factors I just discussed as well as the unfavorable impact from foreign exchange. Full year 2024, adjusted operating margin from continuing operations was approximately $1.5 billion or 13.9% of sales. Net interest expense from continuing operations totaled $90 million in the quarter, an increase of $18 million versus the prior year period, reflecting lower interest income.

For the full year, net interest expense totaled $341 million, decreasing $98 million and reflecting the benefit of our debt repayment initiatives. Adjusted other nonoperating income totaled $4 million in the quarter compared to income of $10 million in the prior year period. For the full year, adjusted other nonoperating income that continue operations tax rate was 17.5%, both the full year and fourth quarter tax rates reflect the benefit of initiatives we have undertaken to optimize our global tax rate.

And as previously mentioned, adjusted earnings from continuing operations were $0.58 per share for the quarter and decreased 11% versus the prior year. Positive contributions to earnings included improved commercial performance from new product launches and positive pricing. In the quarter, these drivers were offset by the negative impact of Hurricane Helene, which we estimate impacted our results by approximately $0.10 per share and an unfavorable impact from foreign exchange and interest expense of approximately $0.06 per share.

Full year 2024 adjusted earnings per share from continuing operations totaled $1.89 per share, an increase of 11% as compared to the prior year period. Let me conclude my remarks by discussing our outlook for the full year of 2025 and the first quarter of 2025, including some key assumptions underpinning the guidance. All guidance provided excludes the impact of Kidney Care discontinued operations. For full year 2025, Baxter expects total sales growth of 5% to 6% on a reported basis. This guidance includes an approximate 200 basis point negative impact from foreign exchange based on current rates as well as approximately $345 million of anticipated MSA revenues from Vantive

Operationally, Baxter expects sales to grow 4% to 5%. This guidance excludes the impact of foreign exchange, MSA revenues and the planned exit of IP solutions from China as the company continues to focus on driving profitable growth. The negative impact from exiting the IV solutions business in China is approximately 50 basis points to growth. Operational sales guidance for the full year by reportable segment is as follows: For MPT, we expect sales to increase approximately 5%, driven by continued momentum in our Mogam LVP launch, the benefit of positive pricing in the U.S. and other underlying business from Baxter.

This guidance excludes the impact of exiting the ID solutions market in China, which is estimated to impact sales growth by 120 basis points. Sales in our HFC segment are expected to increase approximately 3%, and is expected to be balanced across both CCS and FLC. We expect pharmaceuticals to increase approximately 5% to 6% and driven by mid-single-digit growth in both Specialty Injectables and drug compounding.

Now I'll turn to our outlook for other P&L line items. As previously shared, we expect full year adjusted operating margin from continuing operations to total approximately 16.5% and includes TSA income of approximately $125 million. We expect our nonoperating expenses, which include net interest expense and other income and expense. So total between $250 million to $270 million. On a continued operations basis, we anticipate a full year tax rate of approximately 19.5%.

We expect our diluted share count to average approximately 55 million shares for the year, which does not contemplate any share repurchases. Based on all these factors, we now anticipate full year adjusted earnings on a continuing operations basis, of $2.45 to $2.55 per diluted share. This outlook includes an estimated negative impact of approximately $0.03 per share from foreign exchange based on current rates. A couple of other quick comments I'd like to make regarding our outlook for 2025. First, I'd point out that our current guidance includes a slight impact from tariffs enacted in China, but does not reflect any impact from potential tariffs that are contemplated for Mexico and Canada, given the fluidity of the situation and potential for further delays implementation and possible exemptions. Second, in 2024, [indiscernible] has previously been allocated to kidney care that did not convey with the discontinued operations presentation were reported in unallocated corporate costs.

Starting in 2025, these costs will be allocated to the 3 segments, along with related TSA income. Specifics in the first quarter of 2025, we expect continued operational sales growth of approximately 3% to 4% on a reported basis. and approximately 4% on an operational basis. For the first quarter, foreign exchange is expected to negatively impact the top line by more than 200 basis points and MSA revenues are expected to total approximately $60 million.

The China ID Solutions exit is expected to impact top line growth by approximately 60 basis points in the first quarter. On a continuing operations basis, we expect adjusted earnings per share of $0.47 to $0.50 per share. This guidance reflects the impact of closing Vantive on January 31 and which negatively impacted earnings per share by approximately $0.04 in the quarter as compared to the closing of the sale on December 31 had we been able to close on that date.

With that, we can now open up the call for Q&A.

[Operator Instructions] I would like to remind the 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. Your first question comes from the line of Robbie Marcus with JPMorgan. .

Two for me. First, Joel, how should we think about, with all the moving pieces on the top and bottom line, the cadence for 2025?

Sure. Robbie, thanks for the question. So I'll start off with sales line. And as you know, we normally have some ramp in our business over the course of the year, but there's a couple of things I'd call up this year. specifically. First and foremost is, if the -- I'd say, the first quarter, we're taking a somewhat more conservative approach in the sense that we're still recovering from the hurricane.

And so we've given ourselves a little bit I'd say services to see how that all plays out. I'd say despite what should be a relatively easier comp with HST, certainly, there's going to be an [indiscernible] asset built into the first quarter from a conservatism standpoint. I would say the other thing I would call out over the course of the year is that in the fourth quarter, we do anticipate that being a larger quarter in the sense that obviously, we're comparing up against the impact of lean.

So those are a couple of things that I'd probably call out from a cadence perspective on the top. From an earnings perspective of OI, I think the main thing I'd call out there exactly is that we do anticipate continue to ramp over the course of the year, mostly driven by the impact of our spare cost work that will be kicking in and continued improvements over the course of the year. And so obviously, that's what we've already started to do, but obviously, that will continue to build over the course of the year. And so therefore, we expect some brings perspective for that reason.

Great. Maybe a quick follow-up. The HST business, especially Front Line Care, was still negative growth this quarter. What's the latest you're seeing there? The confidence you could turn it around in 2025 in your level of visibility to it? .

Yes. So I'd say a couple of things there. I mean, first of all, we are anticipating a stabilization of the primary care markets. And we certainly have some of that are starting to see that even as we head into the first quarter. So I think that obviously had a substantial decline in 2024. And so from that perspective, I think the [indiscernible] market is an important piece of this. Yes. Certainly, we do anniversary some difficult costs over the course of the year, for example, things like conveners some of the things that we're -- again, so the stimulus [indiscernible], just some of the spending things in the backlog, we're up against in '24 versus '23. We don't have those to the extent that we did, obviously, as we enter to '25. So I think that's another important piece of this.

And then I think some of the things that we called out in the prepared remarks, around some of the supply constraints. I think that's -- we're looking to resolve that, I think by Q1 of this year. And so I think, generally speaking, some of the impacts that we had last year, we won't be up against in the same way this year. And in addition to that, in a little bit of a longer-term perspective, we need to some interesting new product launches that are coming out with that will impact us. certainly more later in the year than 26. That side to the reason we feel confident in that. And I know you asked about FLC, but just from the perspective of CCS as well. One of the other differences this year versus last year was, as you probably ended in the last year with an order book that actually have quite a bit of softness in it. It has an impact in the early part of the year last year. As we've talked about in the second half of this year, our order book in CCS has remained quite strong, particularly PSS. And so we hand it to this year with certainly a lot out [indiscernible] in that business as well. So I think the combination of those things Robin give us a perspective on why we think there's a good opportunity for some recovery this year on the [indiscernible] overall.

Your next question comes from the line of David Roman with Goldman Sachs. .

Heather, congratulations on the new role. I'm looking forward to working with you.

In this capacity and [indiscernible], thank you and the finance team for the extensive financial information here at super helpful as we look at the company post Vantive. I guess my first question. In the past several years for Baxter have been characterized by exogenous events like Hurricane Helene, elevated inflationary pressures.

The transition with the Hill-Rom deal and the strategic actions you've taken with BPS and Vantive. Can you help us think about the direction of the company from here and how you're thinking about strategic priorities and maybe at the same time, give us a flavor for how that fits into the profile and characteristics if you go through the CEO search?

Absolutely. I'll start and then Brett can add and he'd like to on the other piece of that. And obviously, you're right, there certainly has been a lot going on here at Baxter. But what I would say, first of all, we this company has done an amazing job of working through these transformational efforts here over the last couple of years, and it really sets us up in a good place for this company moving forward. And so how do I think about priorities for the company. And again, certainly, we'll roll more on the Capital Markets Day sometime after the new CEO has been named. But we're start -- I would say, it starts with customer inspired innovation. These are things that we and the company want to make sure that we are driving innovative products and opportunities and obviously inspired by our customers.

We're certainly going to have a focus on targeted markets. I would say it's one of the kind of the growth of the growers. How do we find those opportunities where we can actually invest our capital in place that's ultimately going to drive growth for the organization. I'd say, the third thing really, I think about it is how do we optimize the structure of our company.

Obviously, with the sale of the kidney business optimizing both our cost structure for the standard strip cost perspective, but also optimizing our supply chain, and some of the things that allow us to take advantage of some of the, I'll call them, more simple supply chain opportunity without having to have our home deliveries in the kidney business.

So that's the third thing. I'd say Forbes is really around this concept of commercial excellence and how do we drive consistent execution as a company as again, a key focus the last I'd say is really around disciplined capital allocation. Those things that allow us to both focus on driving growth both organically and again, in a folded tuck-in way inorganically but then also balanced with returning value to shareholders. And so I would call those things really out is how to think about our company moving forward. And again, I'll turn it over to Brent in terms of just how does that really fit into the process the CEO search. Brent?

Well, I'd just add, in this transition period, certainly, I'm looking for stability, predictable, consistent, strong results. And by Joel, I give tremendous credit to this organization for all the things they have worked through many of them very complex projects, time consuming, et cetera. So directionally starting to move the organization to more of an emphasis on growth both through innovation and through commercial execution is in the short term moves we can make that accelerate progress in the company.

And as far as CEO search and how we're looking at that at the Board level, that work is already underway. And as you can imagine, there's a pretty good profile of Baxter Baxter's portfolio where we are at this point in time. So the experience that we're looking for would be appropriate with the company's situation and opportunities in front of us.

So the candidates need to have that experience and a vision that can lead the company forward to its next chapter. And having been here and now been on the Board and just working with this management team, I just think there is phenomenal opportunity here because so much heavy lifting has been done over the last few years to streamline and to put this new vertical organization in place, which I think is a real winner, honestly, it's a great opportunity.

And maybe just a quick follow-up on the financial side. Joel, can you walk us through the post-Vantiv sales capital structure of the company?

And so maybe update us on target leverage ratios and the time frame to achieve that?

Yes, absolutely. So maybe I'll start with the leverage ratio. Certainly, what we've talked about we're continue to be committed to is a turn leverage ratio around 3x, net debt to EBITDA. And I think that is a level that give us -- gives us opportunity to both balance strategic investments in the company and as well again return value to shareholders. in a way that I think balances out our capital structure. We anticipate that we're able to achieve that term and leverage by the end of 2025, will certainly happen sometime in the later part of the second half of the year. Feel good about that. Obviously, since the deal closed was there, we paid down $3 billion of debt. The first part of this was taking out our delayed drop or loan that we had taken out earlier in 2024. And then we also paid off a portion of about $1 billion with 2026 term load. That was actually our highest compound debt. So I guess I would say between that work and our continued efforts in terms of driving free cash flow out of the organization. I feel comfortable with the fact that we're heading towards that target, that will allow us to get really to adjust our capital allocation priorities from what's mostly paying down debt to those areas that it would allow us to get to invest continued investments in driving organic growth, continued opportunities for fold-in tuck-in opportunities will that make sense. And the opportunity to restart a buyback program. certainly, initially, the offset option dilution, and I would say, opportunistically from there.

Your next question comes from the line of Matt Miksic with Barclays.

Congrats on [indiscernible] it's busy, busy year. So I wanted to follow up on some of the comments you've made on new product investments and product pipeline. If you could talk a little bit about which business lines those -- which you'd highlight and then maybe timing as to when we might start to see some of the benefits of these investments? And then I have 1 follow-up. .

Sure. So really, let me start with effect is it's really across our portfolio where we actually have really some innovation happening in certainly, I would start with other business [indiscernible] Obviously, the [indiscernible] pump has been a resounding success as a differentiated product that, again, has got a great customer response the launch has gone extremely well. Obviously, we got a partial year of that growth last year in 2024. We'll have a full year of that growth heading forward here in 2025. So certainly, [indiscernible] one is obviously a huge key part of our innovation is, again, really a great success story. Certainly, in pharma, one of the things that you've heard from us talk about is the -- our need and our opportunity to continue to accelerate with new product launches in Pharma. This past year, we've launched nearly [indiscernible], and we anticipate another double-digit year heading into 2025. That is something you should expect from us to continue to do it. While there's not necessarily 1 large molecule that you can tie something to that level of activity is something that we are committed to and we have a great pipeline of opportunities ahead of us. I would tell you that the effect of that, you see the growth that we've had in our pharma business, and so you're seeing the impact of some of that that's already happened, and we anticipate, as we head into next year, we have another solid year from pharma in terms of their innovation as well. From an HSD perspective...

Yes, that's super helpful. The one other comment I wanted to make is maybe a follow-up on Robbie's on HSD is just the environment for sort of capital and some of the patient support devices and other things that you're selling [indiscernible] and beds, et cetera, that you're selling in hospitals. Just maybe a general comment on that environment, demand cycles, sector trends, anything that can help us gauge where that business is going. .

Yes, absolutely. Thanks for the question. Yes. So I would say, generally speaking, the capital environment is quite good. I think as we talked about this year, our capital orders, particularly in PSS in the U.S., especially in the second half of the year have actually been very consistent. And year-over-year, we had about a 15% growth in those orders, which obviously -- there is a timing element in terms of when the orders turn into cash, that turn the sales. But we certainly had in this next year with some good momentum. We expect to continue to build on that momentum as we have in 2025. So I don't think, generally speaking, the capital environment is quite good. both from the, I'd say, the monitoring -- the patient monitoring devices as well as from a bed's perspective. Obviously, the continued success with our Progressive Plus model as well. So I think overall, the environment is healthy. We're encouraged by some of the competitive wins that we've had in those areas. As I said, we're anticipating some new products coming out at better for us as we particular to that area, you have to place in 2026.

And maybe, Joel, this is Brent just had a comment here. I believe, from what I've seen, there's been a significant improvement in the commercial organization in the U.S., particularly in those categories. And so I think we're seeing the benefit of upgrades made in that area and real rigor around the commercial processes there. So a credit to those [indiscernible]

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

Joel, maybe my first question was on the margins here. I know the optics, these are apples-to-oranges comparison rate. But the year-on-year, it does look -- margins were up 150 basis points. So if you can just break the down rate. What is TSA? How much of this was stranded costs, which were there in fiscal '24 and that's going away what is the pricing element here with the China have fluid exit, is that a headwind or a tailwind to margins?

Okay. Yes. Thanks for the question, Vijay. Let me start with the -- I guess, I think the easiest way to bridge our what ended the year at our $13.9 million to our target that we've talked about and guided to 16.5%. I think the way to think about that is that if you take the $13.9 million. And you add about 40 basis points for the 2024 impact of Helene. And then you add about 220 basis points of what would be the stranded cost impact. And then you take about 100 basis points of what we call operational improvements as we head into 2025, those are things like in pricing, particularly in the U.S. in our MPC business. Those are things like our product mix. One of the things that we talked about is the improvement of our injectables portfolio, the higher growth in our van surgery the improvement in HST, all those are mix elements that add to the -- are positive there.

Yes. We talked about some of the leverage from -- that we get from volume growth. And so I think -- and again, obviously, some of the things we talked about, new product launches. That's really gets to 100 points of benefit. And obviously, we're reinvesting some of that, but that's a key element of it. And then there's 2 elements of the stranded cost and the MSAs that are in the opposite direction. So there's 40 basis points I'll call the next impact of stranded costs that haven't been addressed in 2025 and about a 60 basis point impact of dilution from MSA revenues that are obviously generate a lower margin -- low single-digit margin from a gross profit perspective. So that really is the bridge. And so that takes you from the $13.9 million to $16.5 million. So hopefully, that gives you some perspective on that. Can you repeat your second question?

No, that was extremely helpful, Joel. My second one was on -- if I look at the performance in the quarter, it looks like the beat was -- this was just more than the headwinds from hurricane coming in slightly better than expectations rate. Can you quantify what the headwind from Helene was in the quarter? And what drove the big ex the hurricane impact? It looks like pumps was very strong, so maybe some commentary around pump performance. .

Yes. Well, I'll start with the quarter then I'll give -- I'll pass it to Heather and talk a little bit about the performance of [indiscernible] [indiscernible] in the quarter. So obviously, the headwinds from Helene, the [indiscernible] was at 100 basis points in the quarter...

Yes, about $110 million on the top line and $0.10 on the bottom line. .

Yes. And then -- but obviously, the great news on that

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is base solutions as a result of the swift recovery that we had out of that location. So did see strength across our infusion therapies business and the infusion pump platform. in particular in the fourth quarter. So I'll say we're very happy with the launch of Nova IQ and where we are. The teams are doing a great job driving this new platform if you recall, Baxter placed a pretty big bet to internally develop a brand new to market and novel infusion pump platform, both with the hardware, software and digital platform, and we're seeing it pay off. So our infusion business grew 50% last year in 2024, and we're expecting another great year this year. in 2025. And it's not only important because we get the revenue from the hardware and software, but also because we get to pull through very consistent revenue over the life of that pump. So share capture, competitive gains are really important. And customer satisfaction right now is very high. both on the implementation of the pump as well as the EMR integration with the new platform.

And this was developed in collaboration with our customers. So again, we're starting to see -- the benefit of that, we took multiple points of market share last year in 2024, and we're expecting to see more of the same, more competitive gains in 2025. And then we have some new complementary digital suites that are now launching that will be a great complement to this launch midyear in 2024 that we released. So I'll tell you, I'm pretty excited about where we are in this new chapter, the new pace momentum that we're building around the Nova platform and IVs are stable. We've gone through the GPO reside and are in line with our expectations, if not slightly better. that we expected. So we're expecting a great rebound in 2025 and certainly really appreciate our customer support during the recovery of hurricane Helene and hats off to the Baxter team for the fast recovery. So thanks for the question today.

Yes, this is Brett. Just to add on -- Yes, I'd just like to recognize Heather and her team and really all the folks who worked on North Cove recovery, it's hard to explain it in in a financial setting, but the work to deal with the disaster situation to work through that effectively bring the plant back up and really look after the community at the same time. It's just world-class response by the folks who are involved. And that's personally want to thank them all, especially Heather.

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

I'll follow up a question on the tailing side. And obviously, a great job on the fast recovery, I think it went better than most expected. But I was just thinking about how you think about the bookselling business kind of before and after the hurricane you see customers add a second source and how you're kind of thinking about the share of that? And then I have a follow-up question on free cash flow.

Yes. Thanks for the question, Travis. So as I mentioned to Vijay, I mean, our expectations are in line or even better. I think because of the Flex fast recovery that we had, quite honestly, out of North Cove. So we're not seeing as many customers take on a second source, particularly because as we've mentioned, we're back to pre-hurricane levels at this point. So these new U.S. GPO contracts, in particular, started on January 1. And and February 1. So now that we've fully recovered most customers are still committed to their remaining compliance and minimum committed volumes that they've given to Baxter. So we're pleased with the response on our customers sticking with Baxter.

During this time, we know the fourth quarter wasn't easy for them, but we proved to them the resiliency that we have in the investments, quite honestly, that we've made over the last few years and our global network and activating that during the lean certainly helped and relieve some of the pressure. So think that, that's pretty unique to Baxter and the hundreds of millions that we've invested in our platform and IV solutions due to the critical nature that they play in health care. So again, in line or slightly better and working closely with our customers to make sure that they can resume normal clinical practice as they've had and patients can get the critical solutions that they need.

Great. That's helpful. And then I did want to ask on free cash flow generation. I know there was a lot of adjustments this quarter. How should we think about some of these adjustments going forward? When do you think you can kind of get back to kind of 80% free cash flow conversion? I don't think you gave a guidance for free cash flow next year. But curious how you're thinking about that. And then the frontline care write-down. Any more color on that on other if that's kind of a change in the growth expectations for that business long term?

Yes. Thanks, Travis. So free cash flow, the way I would think about that is that we have talked about the fact that we want to have an 80% conversion of net earnings, free cash flow and I expect that to be, generally speaking, what we'll do in the course of the year with caveat to that. And that is in the first quarter, we're anticipating some negative impacts from -- think about it this way, it's two things from a working capital perspective. Number one is some of the expenses we incurred in Q4 related to Hurricane Helene are actually to be [indiscernible]. And then secondly, there is going to be some level of restock from an inventory perspective, that could have a negative drag on cash. So I would think about that number for this year is somewhere more like -- but that is mostly impacted by the first quarter and I anticipate a much more normal cash conversion in the third 3 quarters of the year. And obviously, going forward, we'll hopefully continue to improve that. as we go forward.

Regarding the write-down from [indiscernible], the other way I would look at to add [indiscernible], we do a lot to year review of the our goodwill and other tables as it relates to those assets. And 2024 was obviously an impactful here from an FMC perspective. So I guess I'd characterize it more as impact to 2024 on the model that with any type of overarching concern about the growth prospects going forward.

Your next question comes from the line of Lawrence Biegelsen with Wells Fargo.

Congrats on a nice finish to the year here. Brent, I was hoping to ask you 2 questions. First, David earlier in the call, talked about the challenges Baxter has had in recent years. How do you think about the pros and cons of an external versus internal candidate for CEO, bringing in a fresh perspective versus someone who kind of already knows Baxter. I have 1 follow-up for you. .

Well, I mean that's the big question, I guess. And the Board is very focused on that because there are pros and cons to either solution. Obviously, an internal candidate knows all the details of the business, how it runs, how it operates, an external one can bring a fresh perspective, but they have to ramp up quickly to try to catch that same level of knowledge, which takes a while, especially in a complex business. So I can just tell you that it is a full board activity. The Board is very focused on this. And though they would like to move as quickly as possible the general sense is it's more important to get the right fit for the company at this point in time than it is to necessarily be quick. So I hope that gives you a little flavor for it.

That does. And secondly, Brent, how did you evaluate the guidance as interim CEO? And how do you think about the process for the permanent CEO to reevaluate it. You know that just to be candid, right, you know the investors typically think a new CEO will come in and want to put his or her stamp on the guidance, may want to change investment priorities and things like that. So how did you think about that? .

How do I think it coming in as an interim you mean?

Well, yes, I mean is there a risk the new CEO comes in and says, "Hey, we need to invest more and changes the guidance. .

Yes. Well, I think we've seen at a Board level seeing the 3-year look at the business and have aware of the details and what and the drivers and being on board now and in the business feel feel good. I feel like there is all it plans in place. Of course, when you have another person at the helm, and I'm an interim leader.

So my focus is really on executing the plans that are in place. Another person may put a different filter on it, but the general situation around our markets and our offerings are known very well in the business. So anything -- anyone coming in would be building on that. I guess that's I can assume. It's kind of a hard question to answer because it depends I think the one thing I would just give out the opportunity that he's talked about it. I would just reiterate the fact that this is a great opportunity for someone to come in. And again, Brent has a perspective on that, and maybe you could share that as well. But I I think as we talked about some of the key strategic initiatives that I've done over these last 3 years, again, there's really the last couple of years, there's a really nice opportunity for some of it coming here and take a company that really, I think it has actually set up all for success.

And so I don't know Yes, my comment a little bit about that. I mean the organization, as you know, has been consumed with a lot of projects. We're a very tough detailed work working through these separations as pins. And there is a real energy in the organization to turn now to growth and innovation. And so you can feel it. You really can. And that is a real opportunity here. there are good leaders ready to move it forward. And I think whoever comes into the role, that is the key piece to drive is that profitable growth. from the base that's been down now because a lot of cleanup has been done.

The next question comes from the line of Danielle Antalffy with UBS.

Thank you so much for taking the question. And Heather, excited to work with you. Just a quick question. Actually, Larry's question is a good segue into Brent and Joel and Heather. Just as we look to 2025 and sort of some of the pipeline drivers specific to 2025 and maybe even 2026, I know you guys talked about like 10 product launches in pharma, for example.

But any color you can give on sizing these and what we as analysts and investors can look forward to over the next 12 to 24 months. And that's all.

Sure. I'll start, and others can chime in as they like. So I guess what I'll start with what I'd call a few of the kind of key drivers as we think about our guidance in 20, 25 a year ahead of us. Number one, we continue to have strong growth in MPT. I think obviously, as we mentioned a little earlier, the full year of the [indiscernible] launches to get. We're really excited about that. Our [indiscernible] surgery, we're anticipating continued mid-single-digit growth there. Our Clinical Nutrition business, which actually kind of an interesting notice, has started just to penetration to the ASC space. So we've seen some nice growth there and anticipate that continuing by the end of next year as well as the impact of GPO pricing. That's a strong element in that business.

We talked a little earlier about the recovery of HFC and the continued momentum on the capital side in particular, PFS of the U.S. as well as the stabilization of FLC. We [indiscernible] pharma is sort of the key of the innovations of new product launches and the mix improvement there of injectables relative to compounding, I'd say, even stabilization on the anesthesia side. I think the -- so I think that's really at the top line.

And then the drivers of [indiscernible] that I talked about the area, some of the GPO pricing, the new product launches the mix continued improvements [indiscernible] our supply chain with our margin improvement programs and value leverage. And then over the course of the year, continued impact from driving out some of the training costs, that we've talked about here. So I think those are really the things to look forward to [indiscernible] from a new product launch with respect to just in general again, a renewed focus on that an accelerated focus there that show some impact in the ways that I talked about the '25 but also sets up for some impact beyond that. [indiscernible] add to that.

I'll chime in. Yes, I'm looking forward to working with you, too. This is Heather. So some things that I'm excited about, I mean, the pump platform, as I mentioned, is something that we will continue to build on, and we have additional launches to support Novo IQ and a gateway now that can work across our entire portfolio. So really excited about that in a connected ecosystem in the hospital, which is going to help clinical decision support and more personalized patient care. I mean that's something that was the original thesis of the Hill-Rom acquisition, and we're starting to really see good pilots and momentum with our customers on that. HST is going to be introducing some new products. They got launches coming out throughout 2025 and early '26. We're still seeing great momentum on Progressive Plus and PSF, so that continues to pay good dividends and taking market share there.

And then pharma is hitting a really exciting cadence of new product launches getting into more complex molecules, 10 to 12 launches a year that are really going to help buoy and as Joel mentioned, the margins of that business. They're really focused on that. And when they hit this innovation cycle that they're on right now. So those are some of the things that I'm personally excited about. And then he mentioned alternate site. We made investments 2 years ago an alternate site in the United States. And we are starting to see dividends paid there in the nutrition portfolio and some small tuck-in licensing and distribution deals that we did in MPT, and those are starting to bear fruit. So that momentum in the U.S. will continue. So those are just a few things that I'm personally excited about.

So when I talked about a new rhythm, a new pace and momentum this building, we're definitely starting to see that across the portfolio and those investments that we made bearing fruit now moving into '25 and '26. Thanks for the question.

Yes. Thanks, Heather. This is Brent. I'd just add to that, I sort of referred to it, but really starting right now, we're putting the emphasis on accelerating time to market, innovation development. So that is an area, a very strong focus right now is how to speed up that whole innovation cycle and get product solutions to market faster. So that will be ongoing work.

Ladies and gentlemen, those are all the questions that time allows us to take. Therefore, that concludes today's question-and-answer session and today's conference call. We thank you for your participation. You may now disconnect. .