Good morning, ladies and gentlemen, and welcome to Baxter International's third quarter 2026 earnings conference call. Your lines will remain in a listen-only mode until the question and answer segments of today's call. At that time, if you have a question, you will need to press star 1 on your touchtone phone. If anyone should require assistance during the conference, please press star, then 0 on your touchtone phone. As a reminder, this call is being recorded by Baxter and is copyrighted material. Mr. Moran, you may begin. Good morning and welcome. Today we'll discuss Baxter's third quarter results along with our updated financial outlook for the full year 2026.

This morning, a press release was issued with our preliminary earnings results and updated outlook. The press release and investor presentation are available on the investor section of the Baxter website. Joining me today are Andrew Hider, President and Chief Executive Officer, and John Rogers, Executive Vice President and Chief Financial Officer. During the call, we will be making forward-looking statements, including... Comments regarding our updated financial outlook for the full year 2026 and the anticipated drivers of the fourth quarter The anticipated impact of various regulatory, operational, and quality matters, including ones related to our infusion pump platform and ongoing supply challenges And commentary regarding the global macroeconomic environment, including tariff impacts and the broader inflationary pressures forward-looking statements involve risks and uncertainties which could cause our actual results to differ materially from our current expectations please refer to today's press release the forward-looking statement slide at the beginning of our investor presentation and our SEC filings for more detail in addition please note on the call all of our comments will be on a non-GAAP basis unless they are specifically called out as GAAP Non-GAAP financial measures are used to help investors understand Baxter's ongoing business performance. GAAP to non-GAAP reconciliations can be found in the schedules attached to our press release and our earnings presentation. On the call, we will reference organic growth, which excludes the impact of foreign exchange, MSA revenues from Vantiv, and impacts associated with business acquisitions or divestitures. Unless otherwise noted, all financial results on today's call reflect continuing operations and exclude Baxter's former kidney care business, which is reported as discontinued operations. Finally, Andrew, John, and I will take questions following the prepared remarks, and we kindly ask that you limit yourself to one question and one brief follow-up so that we can give as many people in the queue an opportunity. With that, I'd like to turn the call over to Andrew.

Thank you, Kevin, and good morning, everyone. Before discussing the quarter, I want to welcome John Rogers to Baxter as our new Chief Financial Officer. John joined us on October 1st and has a strong track record of leading multiple complex organizations through transformation and performance improvement. His deep financial and operational experience aligns well with our strategic priorities, and I look forward to partnering with him as we continue to advance our turnaround. Now I will turn to the quarter. Our third quarter performance provides further evidence that our turnaround is gaining traction. We continue to advance our strategic priorities and delivered results ahead of our expectations. As a result, we have greater confidence in the full year and are raising our outlook for both organic sales growth and adjusted earnings per share. As I said last quarter, I am encouraged by the steady progress we are making We have a lot of work ahead of us to realize the full potential of Baxter. We are focused on executing in the fourth quarter and finishing the year strong while continuing to improve our say-do ratio and deliver more consistent performance. All of these efforts support our objective to create long-term shareholder value. With that, let me turn to a few highlights from the quarter. Third quarter global sales totaled approximately $3 billion, an increase of 5% on both a reported and organic basis. We saw broad base growth with every division contributing in both segments growing across the U.S. and international markets. Advanced surgery, drug compounding, and infusion systems were the largest contributors in the quarter. Adjusted earnings were $0.58 for diluted share. While this exceeded our expectations, it represents an expected year-over-year decline due to the discrete tax benefits recognized in the prior year. And market demand remained generally steady during the quarter, with continued strength in advanced surgery and a healthy order book in Care and Connectivity Solutions, or CCS. We continue to closely monitor the external environment, including macroeconomic uncertainty. We are raising our full-year outlook for organic sales growth to a range of 3% to 4%, from 2% to 3%. We are also raising the bottom end of our outlook for adjusted earnings per diluted share to $2.05 to $2.15, compared with our previous range of $1.95 to $2.15. Throughout the year, we have communicated a consistent framework for 2026, known mechanical headwinds and more difficult comparisons in the first half, followed by improved performance in the second half. Our third quarter results are a meaningful proof point that performance is progressing in line with that framework. Let me now turn to the progress we are making against our three strategic priorities, stabilizing the business, strengthening the balance sheet, and embedding continuous improvement across Baxter. Our first priority, stabilizing the business. For example, in our CCS business, an on-time shipment metric improved 8% year over year. Additionally, our advanced surgery business improved the quality measure by nearly 20% year over year. We are encouraged by this progress, while recognizing there is more work to do to drive greater consistency across our portfolio and manufacturing operations. To that end, we have made the decision to discontinue production of Cephalos foreign products, which are currently manufactured at a Round Lake, Illinois specialty injectable facility. Importantly, this action is not expected to create a market shortage for these products. and by repositioning the facility exclusively for non-SEF production, we will simplify and streamline our operations while supporting supply continuity of the non-SEF portfolio. An additional benefit of this action is that it helps address some of the complexities referenced in the recent FDA warning letter we received related to an inspection conducted at the Round Lake facility earlier this year. Thank you for joining us. Product quality, patient safety, and supply reliability are top priorities and we are committed to addressing the observations and working closely with the FDA throughout the process. Our second strategic priority is strengthening the balance sheet and we have made clear progress in the third quarter. Free cash flow was strong at $448 million in the quarter. and many more. Thank you for watching. Our third strategic priority. Embedding continuous improvement across Baxter. Baxter GPS is becoming increasingly integrated into how we operate, strengthening productivity, execution, discipline, and accountability. Year to date, we have completed more than 700 continuous improvement initiatives across Baxter. These events targeted all value creators. We have more than 200 currently in flight and approximately 350 additional initiatives planned. Let me give you a few recent examples of where our teams are applying Baxter GPS to improve both commercial execution and performance. In frontline care, teams improve blood pressure cuff manufacturing cycle times by more than 10%, expanding production capacity without additional capital investment. In our advanced surgery business, we have held events focused on strengthening inventory management and improving cash conversion. Across our global services teams, Baxter GPS is driving measurable improvements in execution and customer service. Thank you for watching. will come from the accumulation of repeatable improvements that translate into better operating and financial performance over time. Innovation is another important element of our strategy and is essential to sustaining portfolio growth and strengthening Baxter's competitive position. Thank you for joining us. These offerings enhance our portfolio and expand our ability to deliver differentiated solutions to customers. In summary, our third quarter results provide further evidence that Baxter is moving in the right direction. We exceeded our expectations for sales, adjusted earnings, and free cash flow and increased our full year outlook. At the same time, Thank you for joining us. I will now turn the call over to John to provide more detail on our third quarter results, including segment level performance and our updated 2026 guidance. John, over to you.

Thanks, Andrew, and good morning, everyone. I'm genuinely excited to join Baxter in this important stage in the company's turnaround. Over the past few weeks, I've been listening and learning through conversations with Andrew, the leadership team, and colleagues across the organization. and I've been particularly impressed by Baxter's essential portfolio, its leading positions across the continuum of care and in particular the dedication of our employees. I've also seen Baxter GPS in action and have been impressed by how deeply it is already embedded in the organisation. At the same time, I do see meaningful opportunities to sharpen execution, accelerate growth, strengthen cash flow generation and consequently create long-term shareholder value. And I'm very much looking forward to working alongside Andrew and the leadership team. With that, I'll walk through the details of Baxter's third quarter financial performance, as well as commentary on our updated outlook for the remainder of 2026. Third quarter 2026 global sales totaled approximately $3 billion and increased 5% on both reported and organic basis. On the bottom line, adjusted earnings were 58 cents per diluted share, a decrease of 16%. This decline reflects an expected higher effective tax rate as the prior year quarter benefited from discrete tax items. Now I'll walk you through our results by reportable segment. Commentary regarding sales growth will be on an organic basis. Sales in our medical products and therapy segment, or MPT, were $2.1 billion and increased 6% in the quarter. Within MPT, sales of our infusion therapies and platforms division totaled $1.8 billion and increased 4%. Growth was driven by infusion systems, drug compounding, and IV solutions. This growth was partially offset by lower sales in injectables. Growth in infusion systems was driven by Spectrum IQ and also included contributions from our portfolio of digital solutions and our administration set portfolio. Demand for our drug compounding services remained strong in the quarter and grew 9%, reflecting the value proposition we provide to customers in this space. We continue to see strong demand for these services in the international markets we serve as health systems look for scaled, quality-focused outsourced solutions. Performance in the quarter also reflects growth in IV solutions, now off the new lower baseline level of demand following clinical practice changes in the market. Sales of injectables declined 3%. primarily reflecting price deflation and the impact of manufacturing challenges at a Round Lake facility. As Andrew noted, we have taken significant steps to strengthen quality systems and operations. As part of these efforts, we are discontinuing production of cephalosporin products at the end of October but will continue to support customers under contract into 2027. These products are expected to contribute approximately 50 million in sales and 30 million in operating income in 2026. Importantly, this action will simplify our operations and support improved performance at the facility. During the quarter, we recorded $39 million in restructuring costs related to these actions. As a reminder, these restructuring costs are excluded from our non-GAAP earnings. Consistent with the first half of the year, we also saw an impact from supply challenges related to a contract manufacturer. Importantly, as Andrew referenced, we saw improvement within the quarter and expect a more limited impact going forward. Sales in advanced surgery totaled $342 million and grew 12%. Results reflect continued strong demand and increased volumes for our global portfolio of haemostats and sealants, strong commercial execution across regions and steady procedure volumes. MPT's adjusted operating margin totaled 20.9% for the quarter, increasing 10 basis points compared to the prior year period. Results reflect increased sales volumes and benefits from previously implemented enterprise cost actions partially offset by a lower contribution from pricing and the impact of mix, including strong growth in drug compounding coupled with lower sales of injectable. In our healthcare systems and technology segment, or HST, sales totaled $806 million and increased 4% in the quarter, Within HST, sales of our care and connectivity solutions, or CCS division, were 498 million and grew 5%. Within CCS, performance was driven by contribution from both global surgical solutions and patient support systems, including continued execution against the US backlog and strength across international markets. To date, we have not observed any change in U.S. hospital capital spending and our order book continues to reflect solid demand. Nonetheless, we continue to closely monitor the environment, including the potential impact of inflation and interest rate pressures on hospital capital investment decisions. Sales of our frontline care, or FLC division, were $308 million and grew 3%. Performance in the quarter reflects continued strength in connected monitoring, driven primarily by strong demand for Connex360. Partially offsetting this growth was the impact of planned global product exits previously discussed. HST adjusted operating margin totaled 17.2% for the quarter, increasing 140 basis points. Results reflect the benefits from previously implemented cost actions and increased sales volume, partially offset by the impact of mix. Finally, other sales which solely represent MSA revenue from farmtiv totaled 68 million. As a reminder, these sales are included in our reported growth but are not reflected in our organic growth. Now moving through the rest of the third quarter P&L. Adjusted growth margins were 38.3%, a decrease of 110 basis points driven by mix of sales and a lower year-over-year contribution from pricing. Adjusted SG&A totaled 637 million or 21.4% of sales, an improvement of 80 basis points. This reflects the benefits from our implemented cost actions. Adjusted R&D spending totaled $118 million, or 4% of sales. Other operating income, which includes TSA income and other VARNTIV-related reimbursements, totaled $48 million in the quarter, in line with the prior year, albeit favourable to our expectations. The favourability was driven by VARNTIV-related expenses and therefore did not contribute to earnings. As we look ahead to a post-TSA environment, we remain focused on reducing the impact of stranded costs and improving our cost structure. Altogether, these factors resulted in an adjusted operating margin of 14.5%, a decrease of 40 basis points. The year-over-year change reflects the impact of mix, including strong growth in drug compounding and global surgical solutions and lower sales in injectables. Results also reflect a low contribution for pricing, partially offset by increased sales volumes. Net interest and other expenses totaled $61 million in the quarter. The adjusted tax rate for the quarter was 18.3%, driven primarily by a mix of earnings across jurisdictions. As a reminder, the prior year period benefited from the release of reserves for withholding taxes and other discrete tax benefits. In total, adjusted earnings for the quarter were 58 cents per diluted share. Before turning to our 2026 outlook, I want to comment on cash flow and liquidity. Third quarter free cash flow totaled $448 million, improving sequentially from the second quarter and bringing our year-to-date total to $705 million. This reflects improved operational performance and disciplined execution across targeted areas of working capital. Results in the quarter also benefited from the timing of certain cash receipts, including the AIPA tariff refund recognized in the prior quarter and proceeds from a legal settlement. We continue to make progress in improving cash flow generation and strengthening our balance sheet. During the quarter, we completed a $600 million cash tender offer, retiring $864 million of debt and further advancing our deleveraging efforts. In connection with the transaction, we recognised a pre-tax gain of approximately £253 million related to the earliest extinguishment of debt. As a reminder, this item is excluded from our non-GAAP earnings. Reducing leverage remains our top near-term capital allocation priority, and the actions we have taken year-to-day, combining with our operating performance and cash flow generation, give us increased confidence in achieving our target of approximately three times net leverage by year-end. Now turning to our updated outlook for the full year 2026. For the full year, we now expect total sales growth to be 4-5% on a reported basis. This reflects current foreign exchange rates, which are expected to contribute approximately 100 basis points to top-line growth for the year. In addition, reported sales are expected to include a headwind of approximately 25 million from MSA revenues from Vantiv, representing approximately 30 basis points of impact on reported growth. Excluding the impact of FX and MSA revenues, we now expect organic sales growth of 3-4% for 2026. This reflects our strong year-to-date performance and our latest expectations as we close out the year. As it relates to the segments, in MPT, we now expect full-year organic sales to grow low to mid-single digits. This reflects stronger year-to-date performance across our businesses, driven by drug compounding and advanced surgery. In HST, we continue to expect full-year organic sales to grow low single digits, supported by anticipated contributions from both the CCS and FLC divisions. Turning to our outlook for other P&L line items and key assumptions. TSA income and other Vantiv-related reimbursements are now expected to range between 165 to 175 million. Higher TSA income and other Vantiv-related reimbursements are expected to be broadly offset by higher Vantiv-related expenses and therefore are not expected to contribute to earnings. We continue to expect full-year adjusted operating margin of 13% to 14%. We now expect our non-operating expenses, which include net interest and other expense, to total between £245 to £255 million, reflecting lower interest expense following debt reduction associated with our recent cash tender offer. and many more. In closing, I'm encouraged by both our third quarter results as well as the continued progress we are seeing across the organisation, including the growing momentum behind Baxter GPS. As we begin to look forward to 2027, we are encouraged by our progress year to date and the actions we have taken to strengthen the business. We will provide a comprehensive outlook for 2027, including detailed guidance, on our fourth quarter earnings call in February. With that, we can now open up the call for Q&A.

Thank you. We will now begin the question and answer session. If you have a question, please press star followed by the number one on your touchtone phone. If you wish to remove yourself from the queue, press star one again. If you're using a speakerphone, please lift the handset to ask your question. So that we may be respectful of everyone's time, please limit your comments to one question with one brief follow-up question if necessary. We appreciate everyone's consideration as we would like to provide as many of you as possible the opportunity to ask a question. We will pause for a moment while the list is being compiled. I would like to remind participants that this call is being recorded and a digital replay will be available on the Baxter International website for 60 days at www.baxter.com. Your first question from the line of Travis Steed with Bank of America. Your question, please.

Hey, thanks for the question. I wanted to ask about the warning letter and the product discontinuation. I heard 50 million revenue and 30 million off income in 26. Maybe just help us understand more what's going on there. Why the decision to discontinue the product? And does this make it harder to grow EPS in 27 versus 26 and take into account all the puts and takes on the model? I think it's like a 2% headwind by our math on 27 on EPS.

Good morning, Travis. Let me walk through this and kind of outline the decision here. Look, this reflects our ongoing evaluation of our portfolio and manufacturing operations. And by doing this process, by walking through this, we're repositioning our Round Lake exclusively for a non-sec production. And this will simplify operations and really support greater supply resiliency. and as we look at the remaining portfolio, it enables us to continue to drive that portfolio for the future. Additional benefit is that as we look at this, by reducing this complexity, it does help address some of the issues referenced in the warning letter. So while we do see certainly some areas that the team is looking to offset with the reduction of the SAF production line, It is an area that is allowing us and enabling us to streamline our approach, our process, and will enable us to really reduce complexity at this specific facility.

Okay, and I don't know if there's anything on 27, but I also wanted to ask about M&A. It seems like they're talking about M&A a little bit. I'm just curious if you could kind of outline Thank you for joining us.

We reiterated our approach to be approximately 3x by year end, which was our target and alignment, which enables us to move to that next stage. When we look, and I outlined this in my preparatory remarks, but as a reminder, when we look at the criteria, and our disciplined approach for M&A. It's gonna be under four areas. First, the strategic rationales. So oftentimes we're looking for technology, we're looking for geographic expansion, we're looking for areas that we can penetrate and bring the full breadth of Baxter. Number two, The specific market areas to enable our ability to drive expansion and we're going to look at areas that we view over a long period of time are going to continue to align with the future of Baxter. Number three, how we're going to integrate and operate the asset. So what do I mean by that? We look at management teams. We look at the ability to deploy Baxter leaders in. We look at GPS enablement and how we can support the business to outperform, to drive expansion in its market. And then lastly, and this gets to really the heart of the question, is around financial return. And of course, we're going to look at things like ROIC. We're going to look at how earnings are going to perform over the period of time. and Margin Profile and other things also like recurrent revenue. And so there are many areas we look at for potential additions. You know, I did also reference around how we view tuck-ins for this next phase. And that means that we like our position in many areas and tuck-ins could be a natural progression. Additionally, our funnels are growing. We have a mantra, ABC, always be cultivating. And our teams are cultivating key targets. And just to wrap this a little bit in a bow, we've also looked at our business and said, there's three major buckets. There's the invest and grow and areas we want to continue to support on growth, both organically and inorganically. For example... We like the cardiac monitoring space. We like the advanced surgery space. We like key areas across our portfolio that are going to enable us to really drive and support that longer term growth profile. And then there's a sustain and then there's also some areas we want to fix and improve. and so this is, I would say, an evolution of our approach and process and, you know, it's back to our say-do ratio. We need to get to the approximately 3x times and once we do that, we can really start to look at the next phase in this journey.

All right, thanks a lot.

Your next question from the line of Larry Beagleson of Wells Fargo. Your question, please.

Good morning. Thanks for taking the question. Congrats on another nice quarter here, Andrew. So, John, you officially joined Baxter just a few weeks ago. Where do you see the biggest opportunities at Baxter? And it sounds like you played a big role in the initiatives to improve margins, cash flow, et cetera. as your prior company. You run a similar playbook here at Baxter. And lastly, just talk about your approach to guidance. And I'll leave it at that. Thanks.

Morning, Larry. In terms of what I'm going to be focused on in the coming weeks and months, I think first and foremost, coming up to speed with the business, really understanding the business. You know, obviously, as you said, I have a med tech background, but this is very much a new product set for me. So I want to spend a lot of time with the business, with the management teams out there in the field, really getting up to speed and understanding what makes this business tick. I think in terms of the areas of focus that you've touched upon, some of those already, Thank you very much. I think thirdly, thinking about how we go about sharpening our capital allocation policy, as the Q3 results demonstrate and Andrew's just talked about, we're really starting now to generate free cash flow and the balance sheet is starting to de-gear very nicely. Andrew's already mentioned of course the opportunity for M&A and that of course sits alongside other opportunities to reinvest back into our business to drive our organic growth whether that be R&D or investment in our manufacturing sites as well of course as the possibility for opportunistic share buybacks so one thing that Andrew and I will be working on over the coming weeks and months is how we hone our capital allocation policy and of course there'll be more to come in that regard. So those would be the sort of the key areas I suspect I'll focus on over the coming weeks and months. In terms of the approach to guidance, the question you asked about, as we said on the call, we're not going to set out our guidance for 2027 today. We'll leave that to the usual timing of our Q4 earnings in February. That said, of course, there are a number of moving parts or dynamics I'm sure you should consider. First of course is inflationary pressures and we do see those stepping up in 27 to a degree due to the cap and roll that we've talked about previously but we've actually done a great job in 2026 in offsetting those and we have line of sight to further saving opportunities in 27 so we're looking to mitigate the impact of those inflationary pressures. We then have tariffs, of course. We won't get the same refund benefit in 27 that we saw in 26. And we're still, of course, awaiting clarity on Section 232. We should get that sometime in the fourth quarter. So we'll have to see the net impacts of tariffs going into 2027. We also expect the TSA services related to Vantiv to conclude by the end of January 2027 and the consequent headwind that that delivers will depend on how quickly we can take out the stranded costs over the course of the year. Of course some costs will be very much marginal costs and they'll come out immediately. There'll be other costs which are more fixed in nature and they will take a little bit longer to come out so we'll have to work through that detail. We're also going to expect an impact from planned product exits, particularly in our FLC portfolio that we've mentioned previously. And we talked on the call today about the CEF products, and we said that contributed 50 million of top line and 30 million of operating income in 2026. To the earlier question, I wouldn't necessarily flow all of that through. There will be some mitigating factors with how we roll through inventory and some alternative products that we can offset there. But that will be overall a net headwind. and we've also called out the sales mix and I talked about that's an area that I really want to focus on as we continue to evaluate the underlying trajectory of the various businesses like drug compounding and injectables. So look, I'm three weeks into the role. Obviously I understand why there's going to be a lot of focus on 2027 right now but I'm going to need a little bit of time just to thoroughly evaluate all these different moving dynamics and we will of course come back to this in much more detail when we set out our detailed guidance at our Q4 earnings call in February of 27. All right, thank you for the comprehensive answer and good luck in the new role.

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

Hi Andrew, good morning and thank you for taking my question. John, congrats and welcome. Andrew, maybe my first one for you on is the implied guidance here for Q4 around mid-singlish similar to 3Q? If that's the case, and you had three straight quarters of mid-singles top-line performance, how do you think about the sustainability of that 5%? What gets better? What gets worse for fiscal 27?

Hey, Vijay, this is Kevin. So I think it's important context to think about all year we've been talking about this step up in margins in the second half of the year relative to the first. And we've had a clear framework. Cycling through some of the headwinds in the first half of the year, like the higher cost inventory, that's behind us. Seeing the benefits from the cost actions taken earlier in the year. We saw a partial impact in Q2. We saw a full quarters impact in Q3. And then higher sales and getting some operating leverage from that. And you can see that in our Q3 results. And so hopefully a nice proof point to that kind of framework we've been talking about all year. As we think about Q4, Thank you so much for joining us. you know advanced surgery and drug compounding you know perhaps not at the same magnitude they've been growing really well here lately but expect continued growth in that in those businesses so I'd say a very consistent story as we look ahead to Q4 on a top line perspective and I would say it's the same story on operating margin as well you know Thank you for joining us. Thank you for joining us. Thank you so much for having me. IV Solutions, this new baseline, we're annualizing the impact of the Novum ship and installation hold. Again, advanced surgery and drug compounding, their comps are going to get increasingly difficult going forward. We've referenced some product exits are going to have some impact on the top line, but we will come back in February with a comprehensive view on what we expect 2027 to be. But right now, I'd say we're focused on the continued execution in Q4.

Understood. That's helpful, Kevin. And John, one quick one for you. Thanks for laying out all the moving pieces and margins. By my math, between TSA inflation tariffs and SEP discontinuation almost feels like it's a couple of hundred basis points margin headwinds in 27. I'm just curious on, I'll be thinking about margin headwinds for 27 the right way, the magnitude of impact. Thank you.

Yeah, look, I set out in my response previously that there are clearly some margin headwinds. There are also some margin tailwinds, and we've got good visibility of cost-saving opportunities in the business. I've been very impressed, actually, with the level of detail and the rigor and the discipline that the organization is already deploying in driving efficiencies through the business. So in any situation, there are puts and takes, and that is the case for 2027. Thank you.

Your next question from the line of Patrick Wood of UBS. Your question, please. Beautiful.

Thanks, guys. Welcome, John. Two quick and dirty ones up front. The generic injectables business, obviously, there's a lot going on there in general. You know, one of your peers also has a warning letter. Some of us remember what happened in the 20 teens with drug shortages. And given it's such a high margin business, you know general outlook there for you guys you know obviously one of your peers is going to be capacity constrained is there a tailwind from that or are you restricted anything around there would be amazing for question one and then just quickly question two sorry if I missed it you mentioned the contract manufacturer effect any rough sizing of that and whether that situation has been resolved going forward sorry if I missed it

Look, I'll walk through a couple items. First, by going to the non-SEF production, it really does allow us and enables us to simplify our operations. And I mentioned a little bit earlier, but it supports greater supply resiliency. And therefore, by making this decision, and these are never easy decisions, it aligns well with really the future of that site, that organization, and we do view it gives us capability. Thank you for joining us. Thank you, Andrew. Thank you.

Your next question from the line of Joanne Wunsch of Citi. Your question, please.

Good morning. Thank you for taking the question, and John, welcome. Can we pause on the advanced surgery group? Can you hear me okay?

You went out there for a second, and if you could repeat the question, that'd be great.

I was just getting through the welcome to John part. Okay, here we go. Advanced surgery. Double digit growth on the quarter, nice acceleration, doesn't appear to be an easy comp per se. What can we understand what's driving that, the consistency of it, and anything to call out in terms of a one-time item in there to be aware of? Thank you.

Yeah, so look, you know, let's start with the fundament. We're pleased with the progress. And this team has been really focused around driving execution in our core markets. And so just so we piece this apart, we've continued. So the market's growing first, and that's a positive for our business. And it's a strong growth area. But it's still in the call it single digits, call it low to mid single digits. Number two, we've really aligned this team on how we can expand on a global scale. So we've seen some regions actually drive stronger growth on a global scale. Number three, there's been, and this is not a small piece, there's been a competitor that's had a challenge with supply. And because of our performance on our operation, we've been able to really maximize this impact. Thank you so much for joining us. Year over year is going to be a more challenging comp, but the team is ready to continue to drive this business. We just view that the single piece of the supply challenge on a competitor is going to be something we're going to stay very close to.

Your next question from the line of Robert Marcus of JP Morgan. Your question, please.

Hi, this is Lily on for Robbie. Thanks so much for taking the question. Following up on margins, I'm hoping you can talk a bit more about what you're seeing on the macro side. You called out greater inflationary pressure in 2027. So what's the latest in terms of what you're seeing on cost pressures from oil, freight, et cetera, since you last updated us on the 2Q call and what's baked into guidance in terms of pressures and your ability to offset them?

Yeah, I'll pick that one up, Lily, and maybe Kevin will add to it. Look, as we said, you know, there are clearly inflationary pressures going into 2027 and arguably a slight step up that we've seen from 2026 due to the flow through of costs from inventory. But the key ones, you know, are actually, you know, the In order of impact, things like salary inflation, electronics and materials costs. And then a distant third is things like utilities and energy and plastics and transportation and metals and packaging. So there are definitely inflationary costs coming through, and they're probably slightly more pronounced than they would ordinarily be. but that said we've done a great job in 2026 of offsetting those with efficiency savings we've got a good pipeline of savings programs going into 2027 and I've always operated with a philosophy of whatever inflationary pressures the business is facing You have to look for an equal and opposite efficiency savings to neutralise those inflationary pressures. So that's certainly something that we will be aiming to do through 2027. But we'll set this out in a lot more detail, of course, when we give our detailed guidance in February in terms of the puts and takes. But that's the way that we're thinking about it organisationally. if that helps.

And just to add on a little bit to this, as a reminder, our exposure to fuel and oil is much less with the divestiture of our kidney care business. And to John's point, we've taken a very proactive approach and our teams are aligned around mitigating cost actions, driving engagement with suppliers, looking at efficiencies in the business. And so overall, again, pleased with the progress. We've got more work to do here.

Your next question from the line of Rick Wise with Stiefel. Your question, please.

Good morning. I think we cut off Lily there. Just to start, John, you highlighted your focus on improving cost structures. I was hoping you would expand on that comment, but also touch on The lower price contribution comment. Maybe I missed it. What was it? And how do we think about the impact of price and thus, you know, on mix going forward?

Let me pick up on the question on cost structures and then I'll hand over to Kevin to comment on price. Look, I think on cost structures, as I said, there's already a tremendous amount of really good work going on in the business driving Thank you very much. That said, I did highlight in my opening remarks that there remains a lot of complexity in this organisation. There remains a lot of processes that are not standardised. It's not unusual. In fact, pretty much every business I've ever come into, of course, of our scale and size, naturally has this embedded complexity and has... Thank you very much. and again you know even with our finance function you know if you look at our overall cost base across finance and across IT it definitely if you benchmark that it definitely shows opportunities to drive out more efficiencies going forward so so one of the key things I said that I'm going to be focused on is how do we continue the great work that's already underway but build a very much sustainable pipeline of efficiency savings not just in the next 12 months but looking forward over the next three years and I believe It's only days yet. I've been in the organization for three weeks, but I believe there is the opportunity to do that.

And Rick, with respect to pricing, so the commentary was when you think about operating income dollars year over year, there was less contribution from pricing and it's really a prior year story. So if you recall last year, we saw the benefit from two of our GPO renewals. So this mostly impacted the NPT and so this year it's really kind of the absence of that outsized benefit when you think about the year over year. This was an expected headwind when we entered the year. We called it out last quarter and we again saw that in Q3.

And just as a follow-up question, infusion systems obviously contributed to growth this quarter. Injectables, as we've heard, remained a drag. How much of the pump improvement reflects spectrum demand versus easier comps perhaps? What's going on there and what milestones remain now before Novum LVB can get to market? Thank you.

Yeah, and I guess I'll kind of work backwards on this. We're making, we're continuing to make good progress with Novum LVP and we're working closely with the regulatory authorities in this process. And when there's an update, we'll certainly provide it. As far as our pump portfolio, with our Spectrum LVP as well as our Novum syringe. And now it's communicating through our IQX software platform. We've continued to evolve and really align around innovation in this space with peer view as well as other areas. We're feeling good about our offerings and our value proposition. And even earlier this week, I had a chance to sit down with a customer and walk through our pump portfolio, where it sits in their ability to drive high care, how they look at efficiencies and our ability to support that. And so we're pleased with where we sit. Again, we've got opportunity for the future and we're going to continue to focus on making progress. Thanks so much, Andrew.

Your next question from the line of Jason Bedford of Raymond James and Associates. Your question, please.

Good morning and congrats on the progress. I don't mean to put you on the spot with this question, but one of your MedTech peers announced an agreement with the administration to cut onshore production in exchange for tariff relief. And I'm just wondering, is this something you're looking into?

Good morning. As far as tariffs go, we continue to look at opportunities that we can, I would say, maximize or minimize the impact. We have certainly opportunities. This year, we saw a bit of a benefit here. We're going to continue to look at that as an opportunity. As you know, we've got a strong footprint in the U.S. We've got strong demand in the U.S. No headline discussion as of now. That said, we're continuing to look at areas that we can minimize overall tariff impact on the business.

Okay, thanks. And just maybe just as a quick follow-up, is there any way to frame the impact of the supply chain challenges in the pharma business this year and Sounds like it's getting better, but specifically I'm wondering how much of an offset it could be relative to the discontinuation of the SEP products.

So we're not outlining that in totality. That said, you're picking up on one of the areas of focus is certainly with our SEF business and that product set going away. And it was a conscious, proactive decision of discontinuing that product. There are offsets that we're looking at. One of them is the continued support of the product that we talked about with the contract manufacturer. There's also other products that we're enabling and working with customers on within that space that will support the ability for them to have the capability in their patient care sites of care. And so while we're not outlining the offsets today, we're going to continue to show that as we go into next year.

There are no further questions at this time. I will now turn the call back to Mr. Hider for closing remarks.

Thanks, Operator, and thank you for your questions today. As I've shared, we are encouraged by the progress we're making. While we have more work ahead, execution is improving. We are delivering against our priorities, and we're building a stronger Baxter. Thank you, and have a great day.

ladies and gentlemen this concludes today's conference call with Baxter International thank you for participating