Baxter International Q4 2021 Earnings Call Transcript

Quartr
Provided by Quartr
February 17, 2022

There are 11 speakers on the call.

Operator

Good morning, ladies and gentlemen, and welcome to Baxter International's 4th Quarter 2021 Earnings Conference Call. Your lines will remain in a listen only mode until the question and answer segment of today's call. As a reminder, this call is being recorded by Baxter and is copyrighted material. It cannot be recorded or rebroadcast without Baxter's I would now like to turn the call Over to Ms. Claire Trachtman, Vice President, Investor Relations at Baxter International.

Operator

Ms. Trachtman, you may begin.

Speaker 1

Good morning, and welcome to our Q4 2021 earnings conference call. Joining me today are Joe Almeida, Baxter's Chairman and Chief Executive Officer Jay Takaro, Baxter's Chief Financial Officer and Giuseppe Akoli, Baxter's Chief Operating Officer. On the call this morning, we will be discussing Baxter's 4th quarter and full year 2021 financial results, along with our financial outlook for 2022. With that, let me start our prepared remarks by reminding everyone That this presentation, including comments regarding our financial outlook for the Q1 and full year 2022, including impact of COVID and inflationary pressures on this outlook, the recent acquisition of Pilgrim, including anticipated cost synergies and future net leverage targets, new product developments or launches, business development and regulatory matters contain forward looking statements that involve risks and uncertainties. And of course, our actual results could differ materially from our current expectations.

Speaker 1

Please refer to today's press release and our SEC filings for more detail concerning factors that may cause actual results to differ materially. In addition, on today's call, non GAAP financial measures will be used to help investors understand On December 13, 2021, Baxter's 4th quarter and full year 2021 financial results include Hill Rom's financial results for the last 19 days of the quarter ended December 31, 2021. Bellarm's financial results These periods are reported as a new operating segment in addition to Baxter's existing 3 geographic segments. On the call this morning, we will be discussing operational sales growth, which for the Q4 and full year 2021 adjust for the impact of foreign exchange, The December 2021 acquisition of Hillrock and the February 2021 acquisition of the rights to Caelus and Doxil for specified territories outside of the U. S.

Speaker 1

Later in the call, Dave will discuss our guidance for the Q1 and full year 2022. Operational sales growth for have been posted to the Investors section of our website. Now I'd like to turn the call over to Joe.

Speaker 2

Thank you, Claire. Good morning, everyone, and thank you for joining today's As always, I hope that you and your loved ones are healthy and safe. I will start this morning with some perspective on our performance last Steer and future trajectory, Jay will take a closer look at the financials and share our outlook for the Q1 and full year 2022. Then we'll take your questions. As you all know, this is our first earnings call since acquiring Huram, the next Importantly, it also unlocks exciting new possibilities for Connected Care innovation across our product lines with the potential to spark clinical insights, enhance patient outcomes and increase workflow efficiencies.

Speaker 2

In short, it holds the promise of greater value for all of our stakeholders from patients and clinicians to our employees and investors. The deal closed on December 13, so our Q4 and full year 2021 financials reflect 19 days of contribution from Huron. Looking at company wide performance, Baxter delivered 4th quarter 2021, sales growth of 10% on a reported basis, 12% at constant currency and 4% at operational rates. 4th quarter adjusted Earnings per share were $1.04 up 30% year over year. Hill Rom contributed $212,000,000 in sales and $0.08 of adjusted earnings per share in the quarter.

Speaker 2

For full year 2021, sales growth was 10% on a reported basis, 7% on a constant currency basis and 5% on an operational basis. On the bottom line, adjusted earnings The contribution of Huron. Growth for both the quarter year reflect the ongoing Somewhat erratic impact of COVID-nineteen, which negatively affected top line sales for certain businesses, while fueling demand for Others, particularly later in the Q4 as the Omicron variant surged. Our Top line performance for the year continues to demonstrate the diversity and durability of our portfolio, which allowed us to deliver operational sales growth of 5% for the year. Demand across both our legacy Baxter and legacy Hurom businesses is strong.

Speaker 2

During the Q4 and continuing through the start of this year, we have been experiencing a higher than normal rate of backorders Due to certain supply chain limitations and staffing related challenges in our plants resulting from high rates of absenteeism Amidst the rising cases of COVID, we are working expeditiously to address the Situation and anticipate continued improvement in the coming weeks. As we have discussed throughout the year, our cost Structure has been negatively impacted by rising rates of inflation as well as an increasingly challenging Supply chain network, which has at times resulted in expedited shipments and extraordinary steps to procure necessary components. While our teams have worked diligently to offset many of these Our 4th quarter results reflect higher than expected freight costs given the critical and essential nature of our products. We made decisions to expedite product to our customers to ensure we stay true to our mission, which means prioritizing the needs of patients and clinicians who depend on steady access to our life saving products. We will never compromise on this commitment.

Speaker 2

We are realistic about the supply chain challenges that continue to test global industry as a whole and we are laser focused on addressing them successfully now and going forward. We are in the process of implementing new measures in procurement and logistics, including evaluating opportunities to pass through certain costs in Selected geographies that will enhance performance and deliver value to all stakeholders, both in the near term and long run. We're focused on making sound choices to promote our long term success As a viable growing enterprise, we're building off our solid foundation and remain focused on executing against our multiyear transformation. This transformation has bolstered our operational efficiency and giving us the tools to navigate through these challenging times with the resilience and tenacity this team has demonstrated over the course of the last 2 years. Beyond this, the acquisition of Hurom introduced Crucial growth drivers across multiple fronts.

Speaker 2

The integration process is moving forward productively. We are already identifying opportunities for geographic Expansion as well as synergies to drive meaningful cost reduction and margin expansion. And we are advancing Connected Care across our newly expanded capabilities. As always, we continue to evaluate our portfolio for insured businesses We operate are aligned with our long term strategic objective to accelerate top line growth and expand margins. This commitment was clearly demonstrated with the Hurom acquisition, which augmented and strengthened our underlying portfolio.

Speaker 2

As part of this ongoing process, to the extent we identify areas that do not align with our long term objectives, We will look to exit or divest these businesses while also continuing to identify new opportunities to enhance Future performance. We recognize that innovation is at the core of any successful enterprise and we are focused On introducing new products to address the evolving needs of our customers and patients. Some of these include the anticipated U. S. Launch Our Novum IQ SmartPump this year as well as our TrueView connected digital solutions for our PrisMAX 2 Continuous renal replacement therapy technology, which is in early stage launch right now In the U.

Speaker 2

S. And Europe, Middle East and Africa, obviously, we assess our performance across multiple dimensions Just as we must continually strengthen our performance as a thriving and resilient enterprise, Our mission also demands our continued leadership as a corporate system. 2021 marked the launch of our 2,030 corporate Possibility and commitment comprising 10 key goals for the next decade and beyond focused on 3 key action areas: Empower our patients, protect our planet and champion our people and communities. We have also taken significant steps in the past year to advance our activating change today or ACT initiative to advance It's entirely to the commitment of our employees worldwide. This outstanding team has achieved so much in several years From building our transformation to stepping up tirelessly in the face of COVID-nineteen, now it stands prepared Our new chapter of momentum and growth.

Speaker 2

With these teams proven track record, I'm confident in our ability to deliver On the opportunities we have worked so hard to create, we will be sharing much more about our strategic trajectory at our investor conference later this year. Now I will turn it over to Jay to share a closer look at our performance and outlook.

Speaker 3

Thanks, Joe, and good morning, everyone. As Joe mentioned, we're pleased with our 4th quarter results, particularly in light of ongoing pandemic and global supply chain disruptions that we experienced during the quarter. Q4 of 2021 global sales of $3,500,000,000 advanced 10% on a reported basis, 12% on a constant currency basis and 4% operationally, sales came in at the high end of our guidance range, which is in line with commentary we shared in early January and underscores the essential nature and durability of our portfolio. Sales growth this quarter reflects the benefits of revenues associated with the manufacturing of COVID vaccines, strength in medication delivery, renal care, OUS sales of Caelig's Doxil, which totaled approximately $35,000,000 in the quarter and a contribution of $212,000,000 from Hill Rom. On the bottom line, adjusted earnings increased 30% to $1.04 per share.

Speaker 3

Results in the quarter reflected a contribution of $0.08 per share from Hill Rom, inclusive of incremental interest expenses related to the transaction, As well as unplanned foreign exchange losses totaling $0.04 and higher than expected freight costs of $0.05 As Joe mentioned, we incurred significant expedited freight costs late in the quarter as cases of COVID-nineteen surged. Now, I walk through performance by our regional segments and key product categories, starting with sales by operating segment. Sales in the Americas increased 5% on both the constant currency and operational basis. Sales in Europe, Middle East and Africa grew 5 on a constant currency basis and 1% operationally. And sales in our APAC region advanced 6% on a constant currency basis And 5% on an operational basis.

Speaker 3

As Claire mentioned, Hill Rom's financial results are reported as a new operating segment in addition to Baxter's existing 3 geographic segments. Moving on to performance by key product category, note that This quarter, constant currency growth is equal to operational sales growth to all global businesses except for our Pharmaceuticals business for which we will provide both constant currency and operational growth adjusting for the acquisition of rights in select territories outside the U. S. For Caelus Basel. Global sales for Renal Care were $1,000,000,000 increasing 4% on a constant currency basis.

Speaker 3

Performance in the quarter was Driven by global growth in both our HD and PD businesses. PD benefited from year over year improvement in global patient volumes despite persistent pressures From increased mortality rates in ESRD patients, delays in new patient diagnoses and market wide staffing shortages, Patient growth improved sequentially throughout the year with Q4 representing the highest patient growth in 2021. Renal Care sales in the quarter also benefited from mid single digit growth in our HD business, primarily driven by increased international sales of dialyzers. We expect that higher mortality rates and delays in new patient diagnoses resulting from the pandemic will continue to somewhat dampen the rate of new patient Business reflects continued recovery in the pace of hospital admissions compared to pre COVID levels as well as increased demand for large volume infusion pumps and small volume parenterals. For the year, we estimate that U.

Speaker 3

S. Hospital admissions were down mid single digits compared to pre COVID levels. Pharmaceutical sales of $604,000,000 advanced 8% on a constant currency basis and 2% operationally. Performance in the quarter was driven by demand for our international pharmacy compounding business, growth in anesthesia as our international market Continued to recover from COVID-nineteen and the contribution from OUS sales of Calyxtaxel. This growth was partially offset by declines in our U.

Speaker 3

S. Generic injectables portfolio business related to lower surgical procedures and increased competitive activity for certain molecules. Moving to Clinical Nutrition total sales were $249,000,000 increasing 4% on a constant currency basis. Performance in the quarter was driven by the benefit of new product launches within our broad multi chamber product offering. Sales in Advanced Surgery were $255,000,000 or flat on a constant currency basis.

Speaker 3

Within the quarter, we saw Strong growth in some of our international businesses, but this was offset by performance in the U. S. As surgical procedures, Particularly in the second half of December came in below our expectations due to the impact from pandemic along with staffing shortages. Sales in our acute therapies business were $202,000,000 declined 7% on a constant currency basis, reflecting a challenging year over year comparison. Despite this, performance in the quarter did exceed our expectations as we continue to see elevated demand for CRRT given the rise in COVID cases associated with new variants.

Speaker 3

Biopharma Solutions sales in the quarter were $145,000,000 representing growth 31% on a constant currency basis were reflecting incremental sales related to the manufacturing of COVID vaccines, which totaled approximately $50,000,000 in the quarter. While our results only improved Hill Rom's financial results for the final 19 days of the quarter, For transparency and completeness, we're providing some sales commentary for Hillron's full quarter ended December 31, which would have represented their Q1 of fiscal year 2022. Unaudited Hill Run sales for the full quarter were 724,000,000 Sales in the quarter reflect a difficult comparison from prior year period following the exit of the International Surgical OEM Business as well as significant supply constraints, which impacted Hill Rom's ability to ship products within the quarter. Moving to the rest of the P and L, our adjusted gross margin of 44.3% increased by 2 90 basis points over the prior year, reflecting the favorable product mix, operational improvements in manufacturing and the contribution from Hill Rom to our financial results. Adjusted SG and A of $710,000,000 increased 14% as compared to the prior year and represented 20.2% as a percentage of sales.

Speaker 3

Adjusted R and D spending in the quarter of $133,000,000 increased 1% versus the prior year and represented 3.8% as a percent of sales. Adjusted SG and A and R and D spend both include the incremental contribution from Telwom. In addition, adjusted SG and A under our annual employee incentive compensation plan. Adjusted operating margin in the quarter was 20.3%, an increase of 2 60 basis points versus the prior year reflecting the factors I just mentioned. Adjusted net interest expense totaled $44,000,000 in the quarter, An increase of $6,000,000 versus prior year, driven by higher outstanding debt balances related to the financing of the Hill Rom acquisition.

Speaker 3

Other non operating expense totaled $21,000,000 in the quarter compared to $5,000,000 in the prior year period. Q4 2021 reflects unplanned expenses related to foreign exchange losses from our subsidiary in Turkey as a result of the devaluation of the Turkish lira as well as and unrealized loss on an equity investment. The adjusted tax rate in the quarter was 18.5% above our expectations driven primarily by the mix of earnings in the quarter. The tax rate in the quarter also reflects the inclusion of Hill Rom's income, which carries a higher And as previously mentioned, adjusted earnings of $1.04 per share advanced 30% versus the prior year period. Turning to full year 2021, sales of 12.8 On the bottom line, adjusted earnings increased 17 percent to $3.61 per diluted share.

Speaker 3

On a full year basis, we generated operating cash We remain focused on strategically redeploying capital to advance our performance and position Baxter for future success. We returned approximately $1,100,000,000 to shareholders through dividends and share repurchases and deployed over $12,000,000,000 inorganic investments to fuel growth, including our acquisition of Hill Rom. With the acquisition now closed, our capital allocation priority Will be to aggressively delever through the next 2 years to reach our net leverage target of 2.75 times by year 2 post close. Let me conclude my comments by discussing our outlook for the Q1 and full year 2022, including some key assumptions around phasing for the year. We currently anticipate that many of the factors that impacted our 4th quarter results, including increased inflationary pressures, Supply chain disruptions, staffing challenges across our manufacturing network and ongoing impact of the pandemic We'll continue to weigh our performance with the anticipated impact expected to be most pronounced in the Q1.

Speaker 3

We're working expeditiously to address order backlogs and anticipate a strong ramp in sales into the Q2 and the remainder of 2022, driven by new product launches and easing of COVID-nineteen dynamics globally, in addition to opportunities to pass through certain costs in select geographies. We anticipate these actions coupled with the improving sales performance will result in meaningful margin expansion and earnings growth for the first half of twenty twenty two. Given these dynamics for the Q1 of 'twenty two, we expect global sales growth of 24% to 25% on a reported basis, 27% to 28% on a constant currency basis and low single digit revenue growth on an operational basis. And we expect adjusted earnings excluding special items of $0.79 to $0.82 per diluted share. For full year 2022, We expect global sales growth of 24% to 25% on a reported basis, 26% to 27% on a constant currency basis and approximately 4% on an operational basis.

Speaker 2

Moving down to P and L,

Speaker 3

we expect adjusted operating margin for the year of as we expect performance to significantly improve throughout the year. For the year, we expect an adjusted tax rate of approximately 19% and expect diluted average share count to stay consistent with 508,000,000 shares exiting 2021. Based on these factors, we expect 2022 adjusted earnings excluding special items of 4.25 to $4.35 per diluted share. With that, we can now open the call up to Q and A.

Operator

Thank you. We will now begin the question and answer session. We may be respectful of everyone's time. Please limit your comments to one question with one follow-up question if necessary. We appreciate everyone's patience and would like to provide as many of you as possible the opportunity to ask a question.

Operator

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. Our first question comes from Robbie Marcus of JPMorgan. Your question please.

Speaker 4

Thanks. Good morning, everyone.

Speaker 3

Good morning, Robbie. Good morning.

Speaker 4

Maybe to start, if I use the low teens accretion you've Talked about for Hill Rom, it gets me to somewhere around 7% EPS growth for Base Baxter, which is below the LRP. So maybe first start off with what's driving it? You touched on supply chain And then I'll just ask the second question front as well. The Q1 is coming in a good clip below where the sell side is sitting coming into today. What gives you the confidence That supply chain issues will resolve in the 2nd quarter and you can see that acceleration and the drivers for the big discrepancy.

Speaker 4

Thanks.

Speaker 3

Sure. Ravi, there are a few impacts that we're seeing in 2022 relative to previous LRT expectations. The good news from my perspective is a lot of these issues are short term in nature, many of them related to the omicron variant some of the challenges that's created in our manufacturing facilities and supply chain. So if you think about it, over the last 6 weeks, we've seen Increases in our expectations around expedited freight, we've seen some increases in related to supply chain labor costs in part related to absenteeism in the plants. We've also seen a bit more inflation.

Speaker 3

And then finally, we've had a back order situation that really is some of the highest levels of back orders, both on the Baxter side and the Hill Run side that we've ever seen. And so from my standpoint, we have weathered a very challenging short term environment. Some of that featured in our Q4 results, but it clearly impacts our Q1 and as a result, The full expectations for 2022. And so what's interesting is we are seeing improvements in absentee levels at our plants. We are also seeing supply chain situation improve as we speak.

Speaker 3

So all of these things we believe are short term in nature, But they definitely impact the Q1 and then also the Q2 from a margin standpoint before we get back to a trajectory which is much more normal and much more in line with our expectations in the 3rd Q4. I think as we take a step back, Look, we acknowledge there's some disruption in the short term, but really, really like the durability of the business along with the pathway we have Going forward over the course of this year and then the future years. So really that and then as it relates to Q1, the issues are most pronounced and really centered On Q1, we won't resolve the back order issues until the until at some point in Q2. Furthermore, we won't get out of an expedited freight for a few more months here. So that's really why Q1 is where it is.

Speaker 3

And then we start to see improvements as we move forward.

Speaker 1

We can take our next question.

Operator

Vijay Kumar of Evercore ISI is on the line with the question. Please state your question.

Speaker 5

Good morning, Joe and Jay. Thanks for taking my question. Maybe one on the revenue guidance here. Perhaps, Urok, Jay, I'm not sure if I'm doing the math right. The implied Hill Rom revenues, it seems to be perhaps Down year on year, because if I look at your operational growth for Standalone Baxford and then look at the implied Hillbrough, are there any Can you just one remind us, has any assumptions changed on these two businesses for Hill Rom was 5 plus Baxter clearly guided to 4 plus.

Speaker 5

Are there any COVID headwinds, tailwinds we need to be aware of and I'm doing this year on year

Speaker 2

Sure. Good question, Vijay. The Hill Rom business, our

Speaker 3

expectation is mid single digit constant currency growth. As I said in my prepared remarks, Faster is approximately 4% operational growth. With the real sand, it's not a demand related item. It really is related to back orders in the 1st and second quarter. And as I say, we hope to resolve those throughout the year.

Speaker 3

So the battery side, we're talking about approximately 4. Philbrum is mid single digit constant currency And then the reported growth, I think that there's some rounding going on, on both the Baxter side and the overall reported revenue growth side That leads you to the numbers that you're looking at. But as we look at it, we see Hill Rom in the mid single digits.

Speaker 5

And my follow-up, sorry, are there any COVID headwinds? And I think When the deal was announced, a lot of questions around the strategic rationale and now one of your peers just did a Connected Care or Care or communications deal. So maybe elaborate perhaps for Joe on this strategic rationale, Connected Care. How big of a deal is this year as we look at the next 3 to 5 years?

Speaker 2

Vijay, good morning. We are Working on those opportunities and we'll have more on that when we speak to our investors at Investor Day. But let me give you 3 different The first one is a short term opportunity that we have is our home, peritoneal dialysis and well We're showing remote monitoring, bringing them together is a very short term opportunity that we have, will give us Insight into fluid overload and also the workflow of permanent PD patients And allows us to do Bluetooth enabled vitals and analytics integrated with the share source, reducing then the potential burden for patients And more proactive and accurate management efficient. This is the very short term. The Volt system, the Volt alarm systems mid 1 to 2 years bringing together delivery of visualization of alarms from the Baxter infusion pumps, CRT devices in Starling is Our monitoring platform to vote, bringing them together, improves the workflow in MedSurg, for instance, ICU, pharmacy and other parts of the hospital, Just some benefits would be alarm fatigue reduction, transition from reaction to proactive, so you can see things ahead of time, Creates a much better environment for the nursing staff who will be focused on what actually matters versus alarm overload.

Speaker 2

So we think that is a good opportunity bringing together both of platforms. Both is a very important part Of the platform that Hurom has. And then on the long term, we're going to close the loop food management system, which is how do you actually monitor from a series of inputs, including all the way to the urine output So the infusion pumps output and alarms and types of trucks, bringing our monitoring together and all the information that comes out of the smart beds, How do we create an environment that reduces significant load to the clinician and alarms to the clinician when problems are really arising In preventing eventually preventing some of the better outcomes to happen. So those are just three examples of things that we are working on And there's much more and we had a significant amount of workshops, actually one specific with a significant amount of ideas. So I'm very excited about that.

Speaker 2

And maybe hi Vijay, this

Speaker 6

is Jussan. Maybe I would ask a couple of other or probably another angle to that, that is The site of care, there is a lot that we can do adding 2,000,000 connected devices or connectable devices In the field of the 2 companies together, so there is a lot that we can do in the acute environment, but there is a lot that we can do in the home care environment. Touched based on the Voalte and Care communication. Think about the PD patients now at home. With hypertension, we can monitor them In a better way, we can communicate to them.

Speaker 6

We can add more critical vinyl signs A collection together with the Xycla and we can involve with both families, we can involve the family in the treatment of the patient, which is very, very

Speaker 7

Yes, that's helpful.

Speaker 3

BJ, just to close out on your question, we have roughly year over year, dollars 50,000,000 worth of headwind in our DTS business related to vaccines. And then as we look at admissions and procedures, We expect those to normalize throughout the year, but in the Q1, they are down a bit, low, perhaps low mid single digit Impacts in the Q1 of the year, so down approximately 4% as we see it today. Now from a COVID impact standpoint, I'm not speaking to the back order situation and the situation that we've seen in the plans. That's I'm viewing that separately. It's more of a supply chain related issue, but from a demand standpoint, those are the key items impacting sales in 2022.

Speaker 8

Understood. Thanks guys. Thank you.

Operator

Tito Chickering of Deutsche Bank is online with a question. Please ask your question.

Speaker 7

Hey, good morning guys. Thanks for taking my questions. The first one is actually a bridge. Can you help us sort of bridge the midpoint of the 1Q guidance of $0.81 versus last year's $0.76 What's the contribution from Hill Rom within the from Hill Rom within the Q1 guidance. I was trying to understand the cost and backlog pressures on sort of core Baxter.

Speaker 7

And can you quantify the backlog you're

Speaker 3

Sure. From an EPS standpoint, There is definitely a good contribution from Chill Run as we look at it year over year. And if you think about 2021, Q1 actual $0.76 but really between some price impact, Some inflationary impacts in freight, we're talking about roughly $0.15 of a negative impact. And what we would normally expect to see on the Baxter side is really substantial organic volume growth to offset that. We see some of that, but it's not sufficient enough to really carry the day in terms of driving the normalized levels of earnings growth in power that we expect from the business.

Speaker 3

So we're not seeing that organic volume pickup in part because of this supply chain situation, which As I said, it should normalize throughout the year. And then Hill Rom is north of $0.10 in terms of contribution in the quarter, Which is something that is it's a great add. The business is impacted as well though by some of these supply chain issues. And so Hill Run's growth

Speaker 7

Great. And then a follow-up question. You talked about passing on some of the inflationary costs Two customers in some geographies, can you expand on which product lines and geographies you can pass through those costs? And as you think about sort of global revenues, Any ballpark, sort of what percentage of those can be passed through and sort of what pricing you guys can get on that?

Speaker 2

Peter, this is something that we comment very little. Our pricing is a strategy that the company has. We have pricing built into our contracts. What we're looking at here is an exceptional amount of extra cost. The company As to carry on the expedite freight, the ability to get components in the door, inflation in labor as well as the components that are coming in.

Speaker 2

So we will selectively decide where we're putting those costs those price increases. They will come in different forms, But we're not going to specifically speak about geography. We know that we have put them in our plan and we'll be executing

Operator

Larry Biegelsen of Wells Fargo is on the line with the question. Please state your question.

Speaker 9

Good morning. Thanks for taking the question, guys. Just first I know with my queue, Joe, I heard your comments upfront about expecting approval this year

Speaker 6

in the U. S, I

Speaker 9

believe. I think at JPMorgan earlier this year, you talked about some cybersecurity issues that you were, I think, refiling on Or submitting additional information on. Could you please update us on the timing, a little bit more detail on the timing there on NovomyQ and your confidence in approval this year? And I have one follow-up.

Speaker 2

Larry, good morning. We want to file This last set of documentations, which you know the FDA will have 31 days to provide a response to us, Okay. So this is not the beginning of the application, this is the end. So to that end, we want to make sure we have some new Set of eyes, looked at the whole application, it looks really good, but there were areas that we think we could do better. Cybersecurity is one of them that we want to be always This is when it comes to that.

Speaker 2

So we went back and made some adjustments and improvements and that took time. So we will be filing with the FDA hopefully soon and we're expecting that To be 31 days after that, we'll have the answer on our large volume parenteral LVP pump. And following that, we're going to apply the same 31 days at the end of it for the syringe pump and related software There will be our enterprise software as well as software that controls the pumps the way they work with the networks. So that's pretty straightforward. We are doing the best we can to get the best chance to get this product I don't speak on behalf of the FDA, I never do.

Speaker 2

I don't have any control on the internal process. One thing that we can control is the quality of the That we have and to that end, we want to make sure that we increase our probability to be as high as possible before it goes into those 31 days.

Speaker 9

Thanks for that, Joe. And one other thing you talked about in your prepared remarks was about evaluating the portfolio and potentially exiting or divesting, I think, Non core businesses, how long will that process take and when do you think we'll hear more about it? Thanks for taking the questions.

Speaker 2

Larry, when we started transformation of Baxter, we had 3 very specific areas I would say 4, not 3, 4. First is to bring the company into profitability state. They'll put us with close to our peers and transform the company's ability to generate free cash flow. The second Most importantly, the culture of the company bring the right talent to get the culture going. The third was innovation, and we just Talking about getting a pump with the FDA that was unthinkable when I first got here because we did not have any internal programs any devices within the company other than fuel that we acquired through Gambril.

Speaker 2

And the 4th piece was the one that we haven't touched much. We did some Starting acquisitions and then we thought about how do we transform the portfolio of the company, change the CAGR, the direction, the innovation, Go where the puck is going. That was the acquisition of Hill Rom brings that part into Baxter. Conversely, We do have a couple areas that we don't believe are the right businesses for Baxter to own. And to that end, we are in the middle of analysis and we should have more in that area either by May or a little later than that How we're going to adjust our portfolio.

Speaker 2

What we want to do is always look at the portfolio in a way that can increase the CAGR of the markets we serve, Increase the profitability of the company and remove businesses that have been sometimes legacy businesses. They are sitting here With probably not the right capital allocation and bring that to people who can bring that capital allocation to them, Free enough and cash flow for Baxter to invest in what really we want to invest, which is In our Connected Care Digital Health, then double down on parts of Huron, they're doing so well. Thank

Speaker 3

you.

Operator

Joshua Jennings of Cowen is On the line with the question, please state your question.

Speaker 8

Hi, good morning. Thanks for taking the questions. I wanted to just ask, it sounds like from your commentary, Joe, Jay, Claire that there are potential revenue synergies with this combination. I was wondering if there are any sales synergies baked into 2022 guidance and then just when We have communicated fully the level of sales revenue synergies. And then the follow-up is just any change to the outlook in The potential for the combined business to accelerate organic revenue growth as we move through 2022 and some of the challenges that are Present throughout the med device industry and into 2023 and beyond.

Speaker 8

Thanks for taking the questions. Sure.

Speaker 3

As far as revenue synergies go, we have included none in our numbers for 2022. So there's no revenue synergies. Now having said that, we're incredibly excited and Joe highlighted some of his work and I'll let Giuseppe talk in a second about some of the progress that we're making because we're really excited about the opportunity for revenue synergies long term. And I think as we learn more about the Hill Rom business, and then we also see how The Baxter business has weathered a very volatile environment. I think we're very confident about our long term ability to drive growth across this combined platform.

Speaker 3

So Giuseppe, why don't you talk about some of the revenue synergy ideas and some of the excitement we're generating there? Sure, Ajay. So

Speaker 6

the teams, both the regional teams and the GPU teams work diligently on understanding which are The themes and the drivers of sales synergies, and we see a few of them very, very early. First one, Geo expansion and channel optimization. It is clear that Baxter presence outside of U. S. Is much Stronger than legacy Huron presence and that will end up to good sales synergies there.

Speaker 6

Now there are also synergies in Connected Care, analytics and services. There are synergies in strengthening our position in alternate care And synergies in strengthening our position at home as well. Don't forget that before the Hiram acquisition, home for Baxter was mainly Now we have new therapies like respirators, like monitoring cardiology monitoring, We can register, of course, that are very, very interesting to us. So we have a more comprehensive offer as well at home. So just to recap, Geographic expansion, connected care, ultimate care and home are the main drivers of synergies.

Speaker 3

We will have the opportunity to share more about this at the upcoming Investor Day, including some quantification of revenue potential And some refreshment of the financial long term outlook for the combined company.

Speaker 8

Great. Thank you.

Operator

Matt Mitcic of Credit Suisse is on the line with the question. Please state your question.

Speaker 10

Hi, thanks so much for taking the question. I just have one follow-up on this, the topic of synergies, if I could, and then on supply chain And staffing, so appreciate the color on the revenue synergies you were just describing. Can you maybe talk a little bit about what you've seen so far in terms of the cost side, logistics and Operations integration that has begun and both on the positive side and any risks you're building into your Outlook in terms of the synergies as you bring these organizations together here in the near term?

Speaker 2

So on the cost We previously shared $250,000,000

Speaker 3

in expectations by year 3 as part of really focusing on Certain G and A areas and procurement opportunities and so on. And what I will tell you is, we are very comfortable with that number. And as we learn more, We're getting increasingly comfortable. There have been no negative surprises as we think about the cost synergy opportunity. So this one has been very much according to plan.

Speaker 3

I think we've been really pleased with the talent that we've seen at Hill Rom, the So there's a lot of great opportunity there and thoughts that we can leverage. But as far as the cost synergy goes, It's right in line with where we hoped it would be, if not trending even more positive.

Speaker 10

That's great. And then on supply chain, I know it's been a couple of questions, but you made a comment and I think some other Companies presenting Q4 earnings and talking about outlook have made similar comments about this idea of improvements in the back half. And we've been talking about supply chain and input costs for over a year now, I think. And I guess the visibility of just the mistake in the ground and saying we do These things to improve both in terms of staffing and inflationary costs and backlog and things like that. Can you maybe just To give some sense as to your confidence in that visibility, it would be appreciated.

Speaker 2

Matt, I will start, I want Jay to actually also supplement my answer. I see this in 2 different buckets. I see the short term or the COVID impact and then what is the long lasting effect Of having those inflationary costs. So the first is labor availability by Omicron was significant. It didn't take much.

Speaker 2

You could read the news and how it affects the country and the curve and acceleration of that infection Took a lot of people from our plants. They were either infected or had contacted people

Speaker 3

who in fact were Very

Speaker 2

much in number one parallel in the company's patient safety and quality as well as employee safety. So we did not allow people it comes to work and we follow the guidelines of the CDC, to that end, we end up with significant disruptions that caused all these We have rates that we had to actually incur, which came actually towards the end of Q4 as we will never let patients out of products As soon as we found out we start flying products despite effects, some of the parts in the valley of ships that were going in because The greater escalation of that. That problem of the labor availability and absentee is starting to subside. We have significant efforts in place And we're starting to see our plants filling up with people and the situation will be resolved. Also, Part and parcel to that was the fact that you have to attract employees to your plant and there is an inflationary cost to the labor cost of the company.

Speaker 2

And that is the one that we also are upping our salaries and making sure that we retain people. Those costs of inflation will go No, Quanta for a long time. You don't reverse salary increases. What you do actually is create more cost reductions and And automation to offset that in our supply chain has a pretty healthy cost reduction program in 2022 and beyond to offset this inflationary cost. The component availability is nothing new.

Speaker 2

We've been signaling that for a long time. We're working very hard to get to our components by an advanced by large loss and things like that we're managing debts And that is in Baxter being managed and we just according to IRAM, we had they had similar issues. We are resolving those along the way and we believe the alleviation of our bad quarter and backlog will happen throughout 2022. One last point I want to add is that the demand is very strong for our products from 2 different things. 1 is the omicron variant itself, But also a lot of consumption of product that happened in shelves that empty.

Speaker 2

So you're probably going to have replenishment of those products going out throughout the year. So we don't see demand at this moment, from our vantage point, abating. So we have some short term capacity issues that we're taking care By adding shifts and adding other things that we alleviate that. So we're doing everything we can always with the first thing in mind to serve the patient. 2nd is to do it in a cost effective manner.

Speaker 2

So I think we have managed this to the best of our ability and done pretty well based on our Footprint and the size of our company going into 2022, we will alleviate these pressures throughout the year And that is not an immediate solve in the component issue. It's going to go throughout Q2 and continues to improve throughout Q3 and Q4 and we want to make sure that our cost reduction, we just verified that, is very healthy. As a matter of I would say our cost reduction program for 2023 is the largest the company ever had in terms of integrated supply chain.

Operator

Joanne Wuensch of Citi is on the line with the question. Please state your question.

Speaker 1

Good morning and thank you for taking the In your 2022 guidance, could you share with us what your COVID vaccine revenue is? Sure. Joanne, it's about $100,000,000 a little north of $100,000,000 is what COVID is that's seeing revenue is this year. Okay. And then also, historically, you've given us your thoughts on hospital census and returns to sort of I'm not sure what we're calling normal anymore, but could you sort of give us a backdrop of how you thought about that in putting together the guidance?

Speaker 1

Sure.

Speaker 3

We have a we're down roughly 4% on surgical procedures and admissions. And then we have That improving throughout the year to be perhaps slightly below towards the end of the year and on a full year basis Relative to 2019 normalized levels, we're not banking on significant new variant. So that's an important assumption that underlies our guidance. And we're not banking on that variable from a revenue side and also from a supply chain disruptions Got it. We don't have any line of sight that that's going to be a phenomenon that we have to deal with and we certainly hope we won't have to deal with that Through the remainder of 2022.

Speaker 3

So really, the story is down 4%, a lot of that relates to omicron and then it improves throughout the balance of the year.

Speaker 1

Yes. And that's specific to surgical procedures, Joanne. So again, down kind of that mid single digit, low to mid single digits in the Q1 and improving throughout the rest With respect to admission, we kind of had a plan versus kind of those pre COVID levels down kind of in that low single digits, really kind of We have time for one more question.

Operator

Matt Taylor of UBS is on the line with a question. Please state your question.

Speaker 5

Hi. Thank you for taking the question. I just wanted to clarify on the Novum pump. It doesn't sound like you baked in any revenue for that in the guidance. Just wanted to clarify that.

Speaker 5

And then previously, when you gave guidance in Q4 of 'twenty, I think it was about a 1% contribution. That how you're still thinking about it once it gets launched or any other thoughts you could provide there?

Speaker 3

So we've included guidance We've included in our guidance revenues for Novum and really prominently in the second half of the year that reflects The launch of the product, as always, if that changes, we're happy to adjust that moving forward. As far as specific volumes, I don't know that I would get into too much detail on specific amounts. But to the extent that the pump is deferred, we've been able to offset that either with sales of Spectrum or other product sales. So it's definitely underlying in our guidance.

Speaker 8

Thank you, Jay. Thanks, Matt.

Operator

Ladies and gentlemen, this concludes today's conference call with Baxter International. Thank you for participating.

Remove Ads
Powered by Quartr
Earnings Conference Call
Baxter International Q4 2021
00:00 / 00:00
Remove Ads