Baxter International Inc. (BAX) Earnings Call Transcript & Summary

Great. Thanks, everyone, for joining us this morning. I'm Vijay Kumar, the life science diagnostics and med device analyst at Evercore. A pleasure to have with us Baxter. We have Joel Grade, EVP and CFO. And from Investor Relations, we have Kevin Moran. Before we get started, I think, Kevin, some disclosures from your side.

Yes. Appreciate it, Vijay. Thanks a lot for having us here today. Just a quick reminder that we will be making forward-looking statements today that are subject to risks and uncertainties. And if you need more information, please visit our IR website or consult our SEC filings. Back to you.

Great. Joel, well, thank you for the time this morning. I think in a few -- it's been an interesting past 18 months, right? A lot of changes. And I just feel like when I go back 12 months ago, we started with so much optimism, right? We were on mid-singles. Stock was doing fine. And then we had a couple of one-off items, timing issues, along with management change. But probably Andrew coming on was the bigger one for us. Just talk to us on -- from your perspective, what does Andrew bring? What has it been like working with him?

Yes. Yes, sure. First of all, thanks again for having us as well, and I appreciate everyone's interest in Baxter. Look, I'd say a couple of things. Andrew obviously brings with him a strong operational background. His background certainly from companies like GE, like Danaher, obviously, from his experience as CEO at ATS. I think Baxter is in need of a continuous improvement mindset in terms of how we operate, how we continue to be, I would say, predictable. And I think he's somebody who brings that to us, that tone from the top will be really important. He said there's really 3 things he's focused on in his early days. One is really stabilizing some of the businesses that need to be stabilized. Certainly, a lot of that sits in ITT and pharma. He's talked about deleveraging our balance sheet. We need to continue to really focus on that deleveraging point. And then again, this continuous improvement mindset that says, how are we going to become more consistent, more predictable in terms of how we operate. And I think he brings a very clear view of an operating model to this company that I think will be very important to facilitate that. So really excited to have him on board. I think he's the right guy for this company at this time, and we're really excited to have him.

Just maybe a related question, Joel. Does Baxter's culture need to be fixed, right? And if so, like how is Andrew going to change this bring about this change?

Well, fixed is probably a strong word. I mean I think this is a company that has -- part of the culture of the company is around this idea of saving sustained lives. And I think there is a really strong purpose-driven element. Again, we are an iconic brand. We have a strong presence in the hospital settings. And again, there are a lot of extremely medically relevant products. So I don't know if culture is the right word. What I do think we need to do a better job of, and we've talked about this even before Andrew's arrival. We need to be more consistent in terms of how we execute our business. That allows for a number of things, obviously. Number one, it allows us to be, again, a more effective and efficient company, but that ultimately leads to margin expansion, which leads to better cash flows, which leads to better ability to reinvest in our business. And I think the -- and I think this, again, the ability to have more consistent outcomes as an organization is really important. So I look at it more do we need to continue to get better at executing? Yes. But do I -- and I think that's what Andrew brings to the table in terms of that tone at the top. And so again, if you call that culture, I guess I consider it just how do we get better at that.

Understood. Maybe taking stepping back, right, where we started the conversation, we started the year in mid-singles. And I feel like we really did well in Q1. We did well. And then things start changing. Maybe just do a quick review for us on what changed, what drove the consecutive guide downs.

Yes. I mean I think a couple of things. Obviously, one of the things you may have left out as part of the 18-month interesting time was a hurricane that hit. And so that certainly impacted a number of things. I guess what I would say to you is the following. I think there was -- there's 3 areas that are really kind of have driven the change in the outlook for the company. Number one was really obviously our pump. Certainly, at the time early in the year, there was not an anticipation in the way Novum would play out. That business is actually growing quite well. And in fact, our pump sales were high. And so I think that's one of the areas that was impacting. The second was really around fluid conservation. Obviously, we came out of the hurricane at the end of 2024 and really ramped up production back into 2025. You'll remember that we initially had our customers on an allocation through basically the end of May. We had then said, well, we had renegotiated our GPO agreements and there are certain volume commitments that we then gave customers I'll say, a grace period. And because of the fact that we're on allocation, we're ramping production back up. But I think there is a continued expectation that we would see a further, I'll call it, lessening of what at the time we call it fluid conservation. I think we've arrived at a place where we've said, look, I think our -- we are essentially at somewhat of a new normal in terms of that. There's certain public data out there that says, hey, there's -- people are some 10% to 15% off of where they were prior to the -- prior to the hurricane. And I think that has certainly been another impact in terms of our overall guidance. And then the third really is around our pharmaceutical business, particularly our injectables in the U.S. I think there's been some market softness in that area as it relates to both the IV protocols, say, coming out of some of the impacts of the conservation, but then also, I would say that if there's one area that's been affected a little bit by some of the uncertainty in the medical space, it's this. I think there's -- our value add is really our premix products in the pharmaceutical space. And in some cases, we have had customers that would go and buy vials and do premix on their own that it appears cheaper, if you will, even though we certainly believe the total cost of ownership view of our premix products is beneficial. And I certainly think that's over the long term. I mean we've done this for many years. But those are really the main areas that I think have been impactful. And then maybe just one last point. The change in our guidance that happened as we headed into the fourth quarter was really related to how we think about the, I'll say, the range of outcomes that could happen from a customer behavior standpoint as it relates to our NOVUM pump. There's really 3 things that could happen. Thing one is customers could just -- they can continue safely using the pump based on protocols that we have laid out for them to do so. Thing two, they could actually exchange for Spectrum pumps, and we do have a portfolio of pumps and Spectrum is certainly a well-recognized and well-used pump. And then third is they could actually return -- they maybe have been previously spectrum users that they would have bought -- no of them, they just did return those products. And some of that uncertainty is what led us to take our guidance, the lower end of our guidance down further in the fourth quarter.

Got you. And I want to hit on all these points, but maybe starting with the Q4. I know 3Q ex the MSA PSA revenues, you guys did close to, I think, 1% operational, right, organic. I guess, how do you go from the plus 1 or plus 1 and change to minus 2 in Q4, right, that sequential because 3Q had the full impact of pharma, Novum, like what worsens in Q4?

So again, it really goes back to -- as of the end of Q3, what we essentially said is that we didn't anticipate selling further NOVUM for the remainder of the year. That was our low end of our guidance as of Q3. And that's unchanged essentially. What is different is that this point that I just made around sort of the different options around behaviors that could happen and the ability for them either to switch out or potentially return products.

Got you.

And so that's really the primary driver of that difference. And I would say to some degree, we essentially lowered our full year guidance from a pharma standpoint, basically related to the injectables portfolio. So those are really the 2 drivers that impacted the guidance in the fourth quarter.

Got you. And based on, I guess, customer behavior so far, what's been customer behavior? Are they returning their products or swapping to the spectrum or continuing to use safely? Because I would think like changing these pumps, it's not easy for customers, right? I mean you've got to change your, I guess, back in IT integration, et cetera.

Yes. I would say a few things to that. Number one, we have had really solid demand from a Spectrum perspective. So I think, again, the good news, just as a reminder to folks, our Spectrum pump, even when we first launched Novum, again, we think about our pump as a portfolio. So we actually never sunset Spectrum. We actually had always had that as a choice. And some customers actually actively chose Spectrum as a pump. And so that was something we really always -- we had continued to produce and continue to have available to customers. And so now with some of the issues that have occurred with Novum, again, the demand for Spectrum has remained solid. And so in fact, we've ramped up production in order to ensure that we're able to meet the demand for Spectrum. And I guess the thing I would say is it is a sticky business in the sense that customers get used to certain protocols and certain ways of handling. The thing I would remind you of, though, is that our pumps and our sets -- excuse me, our tubes and our sets are actually consistent between Novum and Spectrum. So that's one of the advantages is to kind of keeping in the family, so to speak, is we still get the sales from all the ancillary devices. And it's not as much of a kind of a protocol change for our customers. So in fact, our Spectrum is actually in over 1,500 institutions in the U.S. and Canada today. And so it's a widely used product and one that I think in general, customers are quite used to.

Got you. Would you say, I guess, one of the scenarios where customers swapping to like non-Baxter homes. Are we seeing that? Or how would you characterize that scenario relative to the [ T3? ]

Yes. Well, again, I would say, in general, and this is where, again, I've been -- we've been encouraged by the level of demand for Spectrum. And I think we -- look, we're still very focused and excited about the Novum platform. But again, in the meantime, we're certainly -- we're continuing to enhance Spectrum. And again, the demand level for Spectrum has been really good.

Got you. Got you. I guess sticking on to and pumps. What was -- like can you quantify what the total headwind to revenues in fiscal '25 were? I think you mentioned pumps are now like low single-digit percentage of company revenues. Is that exiting this year? Or is that for full year '25?

Yes. In general, our pump sales actually are a little bit less than 2% of our total sales in general. And so that was true while we introduced Novum and the entire portfolio of pumps. And so it's a -- and again, I think the thing that's important to remember, and again, why I continue to emphasize spectrum as important is that the pumps themselves actually tend to be overall margin dilutive for us. But the -- what goes with them is actually really important. And that's why, again, I think the idea that we have a portfolio of pumps, the idea that our customers like our -- again, in general, really like our Spectrum pumps does allow us to continue to sell those areas that are margin accretive as part of our business.

Got you. And what's been the total impact of fiscal '25? When you look at the guidance change versus the initial 4% to 5%, how much of that change was because of the Novum?

We haven't specifically quantified that, Vijay.

Okay. Okay. I guess another sort of a different way of asking that question is, what is your share in the pump market rate, whether it's the U.S. or global, however you want to characterize it, right? And how much share has Bax lost because of Novum?

Yes. Again, we haven't -- I don't know we've been very specific around that. I mean I think we have generally said our shares in the high 20s. But I think the -- and again, keep in mind, our fluids are a lot higher than that, obviously. But that's -- our pump share has generally been in that area. And I could broadly suggest to you again that whether it's a Novum pump or it's a Spectrum pump, it's a pump. And so I think the thing that we did say earlier is that with Novum with Spectrum, we've taken about a percentage point in share. We had said that with Novum, we would expect to take a couple of points of share. And so I think it's fair to say that the share gain is less potentially without Novum. But having said that, again, I think the -- again, we've got a strong portfolio. We have good demand for our pumps. And like I said, overall, I think it's an area of strength.

Based on comment, Joel, is it fair to say that let's assume there was no known for all of '26, and we just had spectrum, should Baxter still be gaining that 50 to 100 bps of share gains in pumps under that scenario?

Yes. Again, I think it's -- I'll say the -- we haven't gone and actually guided that. I think I'd like to wait until we have a further -- whether it's at our investor conference coming up to give you a better perspective on it.

Got you. But the historical facts are Spectrum drove share gains and you continue to gain share as of 2Q.

Spectrum, here's 2 facts that are true. Prior to Novum coming out, our Spectrum pump was taking a point of share per year. Fact number two is that we've had a number of very nice competitive wins with Spectrum as well. And so I think those -- so both of those things are true. And I think overall, feel good about our portfolio of pumps.

Got you. And the high 20s pump share, is that a U.S. number? I'm assuming that's a U.S. number. Okay. On the Novum, has Baxter identified the root cause? Any sense on when these issues might be resolved?

Yes. We haven't guided that. What we have said is that we anticipate that they will continue through 2025. We have not given further guidance beyond that. Obviously, we're certainly continuing with urgency to work with our customers, to work with regulators to ultimately come to a resolution to our voluntary ship hold. But at this point, we have not guided to that and look forward to doing so.

Got you. Is this -- I guess, this was not just a software update, right? We had some hardware components that had to be updated as well.

Yes. I think just broadly, and I'm not going to get into super technical stuff here, but it was broadly a risk of under infusion at a time when -- if the pump had been in kind of a standby mode for a time period. And so continuing to work to resolve those issues, again -- and again, I want to be clear, there are a number of customers that are able to safely use our pump, and there are certain protocols that we put out in order to do that. But obviously, it's a ship hold at the moment, and we'll continue to work through those.

Got you. What's been the margin impact of the Novum [indiscernible] Obviously, there's been some incremental cost to resolve the issue. There's some way to triangulate on what the impact was?

Yes. Again, we haven't guided that. I mean the one thing I would say is, again, part of our -- the guidance we've given as part of our fourth quarter is reflective of what I would say are the impacts of some of that. And again, because if you think about a customer return is a negative revenue, if you will. And so again, as we think about the guidance that we have given for Q4 and obviously, for the full year, that's those type of items are factored into that guidance.

That's one. I mean, since you brought up margins for Q4, like historically, Q4 tends to be pretty strong for you guys, we see 100 to 200 basis points sequential step-up. I think this year, the guidance implies flat to down maybe slightly. Is that like the 200 basis points of normal seasonality we should have seen? Is that all because of these one timing cost in nature, if you will? Or what is behind that Q4 margin assumption?

Yes. I would say a couple of things there. It's -- one are some of the things that you've suggested, but also there's -- some of it's also mix. I think when we think about our -- like, for example, in our Pharmaceutical business, obviously, an improvement or growth in our U.S. injectables is margin accretive. Meanwhile, obviously, our growth in things like compounding is not. And so now the compounding business is important to us because it's our -- it's actually -- it's our shortest cash cycle in the entire company. And so it actually is cash generating. But it is -- but from a margin perspective, when that is growing at a rate faster than injectables, for example, it is -- it takes -- that's part of what contributes to that as well.

Understood. Maybe switching gears to the concept of hospital fluid conservation rate. I think you made some helpful comments about how Baxter was laxed with customers, gave them some leeway on volume commitments. Where are we now on, I guess, that process? Are you now going back to customers and saying, look, if you don't stick to these volume commitments, you'll have to pay a different price based on the contracts? Or are you implementing those?

We are having those conversations as we speak. I think -- and again, just to reiterate again, I think we've said that we see ourselves kind of at a new normal, if you will, from a baseline perspective that we will ultimately grow from. But yes, we are having active dialogues with our customers around because the grace period is over, so to speak, on that. And again, whether it's -- we'd obviously prefer the volume commitments that absolutely that's a part of our business that particularly drives absorption in our manufacturing operations. But yes, those volume commitments are not met, then there's pricing implications to that.

Shouldn't sequentially fluid business to be better in Q4 because now we're holding customers to those volume commitments. And hey, if we don't, then the pricing changes, right, wouldn't that mathematically 3Q versus Q4 and the fluids be better in Q4?

Again, we guided based on what we think is the -- our best estimates of all those in the fourth quarter. And again, as you can imagine, those aren't necessarily easy conversations.

Understood. Understood. Maybe a different way of asking this question is someone pushes back saying, look, this is actual share loss with the IV fluids right? Like what kind of data sources can we look at and say, look, this isn't a share loss for Baxter in IV fluids?

Yes. Well, again, I think to be really clear on what I've said is I haven't -- I actually haven't used those words. What I -- the words I've used are we -- there is a change in practice that we believe is the more prominent impact there. At the time we renegotiated the GPO agreements, and again, this is not new news. We had actually -- we took some price in our GPO contract renegotiations. And so in some cases, there was -- again, I'll say relatively minimal, but there was some share loss at the time we renegotiated the GPO agreements. And that is independent from anything related to the fluid conservation. So again, as this thing has evolved, and again, there's public information available that talks about the fact that there are just different practices. And I think -- and you'll also recall back in 2017, we did have -- there was a hurricane that hit Hurricane Maria that hit a plant of ours solutions plant in Puerto Rico. It was 2 years plus of a timing when that -- when some of that actually, I'll call, gradually recovered. And so I think there is some historical view of some of this happening in that way. But I -- the conversations with customers directly, again, other public sources that have had some of those conversations as well, it seems clear that there is some protocol that's changed.

Understood. And since you brought up the 2017 analysis, based on that experience, are there any leading indicators that you can look at to and say, hey, over the course of 2 years, customer behavior should change or should normalize. And when does that happen?

Yes. I mean, again, it's one example. So I guess I hesitate a little bit to use that as other than something a bit analogous. But I -- look, I think our teams are continuing to work with our customers to just educate them and remind them of both the clinical benefits of the solutions versus Gatorade for oral hydration, for example, and obviously, as well as the commitments we talked about from a GPO agreement perspective. I don't know that there's necessarily. Again, we stay very close to our customers. And so I think that's going to just be kind of an ongoing everyday focus, if you will, to continue to drive some of that behavior in a different way. I don't know there's any really bright leading indicators there.

I guess with the conservation efforts, right, I know we saw a headwind in '25 relative to '24. But have you bottomed out? And I guess where I'm going with this is, should '26 see a further headwind? Or should '26 be stable relative to '25? And I'm not asking for specific numbers, like directionally, what should we think like is that a plus or a minus?

I guess, again, without providing a guidance on that, I do think the -- this is -- we are at our sort of our new normal base. And whatever happens as we move forward is going to be continue to just build out, if you will, off of that base.

I guess maybe another way of asking like Q4 assumptions on your IV fluid, are we assuming Q4 to step down relative to 3Q? Or are we assuming we've stabilized on this IV fluid conservation efforts?

I would say earlier in the way I would phrase it is the following. Earlier in the year, we had anticipated a higher level of recovery than has existed ultimately and what we factored into our guidance. I don't look at it as though it's necessarily getting worse.

Okay. Okay. So Q4 is sort of similar to 3Q?

But it was, again, ultimately below earlier in the year expectation.

Sure. Sure. And then on Premix, is it fair to say much of the Premix issue -- like this is because of the pump issue, right, because of the under infusion, and that's what's driven lower Premix sales? Or is there anything outside of that that's impacted Premix sales?

Yes. I think it's a meaningful part of it. I also think, again, as I referenced a little bit earlier, there is a -- again, I'll say somewhat -- there's somewhat of a shift in that we've always sold Premix products as a value-added product. Now if you look at it on, I guess, I'll call it a unit-by-unit basis is it's more expensive to buy a premix than it is something where you can buy the vials individually and mix them at the IDN or the hospital level. However, again, we've always believed this, and this has been a business we've had for a long time that our Premix value add is actually a total cost of ownership, ultimately cheaper. But I do think there's been some market softness in the sense that customers have bought vials individually versus the -- some of the premix that we're seeing in addition to what you just talked about we're seeing. Again, we do ultimately think that's transitory, but that's some of what we're seeing.

Okay. I guess on the educational side of things, what is Baxter doing to help customers understand the ROI of using Premix?

Yes. That's the work that our sales and marketing teams are doing every day because it's -- certainly, that is a -- again, it's a classic total cost of ownership return conversation to your point. And so certainly acting with urgency to continue to do that. But the one area I'd say that we've seen a little bit of softness as a result of uncertainty. On another note, one of the questions that we often get is, hey, what are some of the -- are there other signs of some of that softness in the hospital space? And the truth of the matter is that the question we get the most is on the capital side. I know this is different than asking, but just since we're talking a little bit about that type of a market thing, we actually haven't -- it's interesting. We've certainly been, I'll say, looking for it, watching for it, but the signs of softness from capital spend, we haven't seen at this point. And part of that, we've had strong growth in our CCS business in HST. We've had a solid order book all year. In the last quarter, we talked about the fact we had some nice competitive wins. And in fact, our order book was up 30% year-over-year. And so we -- that's one of the other areas that we get asked a lot about, again, a little bit of softness in the pharma side, but we have not seen that in the kind of a hesitancy, if you will, from a capital standpoint.

Understood. Understood. And then maybe a last Premix question, if you will. The Q4 assumption versus 3Q, are we assuming Q4 trends to be similar to 3Q? Or are we assuming -- does the guide assume Q4 to, I guess, further decelerate from 3Q for Premix?

I guess what I would say to you is that our pharmaceutical -- we took down our total year guidance from a pharma standpoint. And so I guess you can back into the math on that.

Got you. I guess on the pharma side, like there is -- one is we had the Premix rate. But the other thing is competitive environment and pricing on the generic side. Like how has that changed at all? Like I know U.S., that's the number we look at U.S. has declined, I think, 5 of the last 7 years. How do you characterize the current competitive environment? And is it stable, worsening? Or are we still seeing big price declines?

Yes. I actually don't think that, that is something that's really meaningfully changed because if you think about the -- that business in general, it's a constant kind of ebb and flow in the sense that new products are introduced, they then get pricing pressure. And over time, those margins fall for competitive reasons, which is why you then continue to introduce new products. And so I don't know that, that dynamic has really changed. I think the -- I think what you've seen is a little bit of this dynamic I outlined that has impacted some of the product launches, and I'll say the positive impact of product launches has been a bit diluted based on some of the things we've talked about. But the dynamic itself in terms of -- there's always a lot of competition in that space for price. And again, it's the reason you always have a continuous stream of products being introduced to offset some of that. I don't know that, that's changed.

Understood. And on the topic of new product introductions, is the number of products that Baxter has launched in either '25 or when you look at '26 pipeline, is that more than enough to offset some of these competitive headwinds?

Well, it's certainly -- are you talking pharma specifically?

Pharma.

Okay. Yes, I -- look, it's certainly going to be a key part of how we grow in that business going forward. And so I think -- and that's really the case every year. I think as you've heard us talk about always there's -- and again, just as a reminder to people, there tends to sometimes be a question of like, gosh, how big are these things. We're not a big pharma, so to speak, we're in these giant launches. It's the reason there's a volume of launches is because they're kind of, for lack of a better analogy, base hits versus home runs. And so that is a continued part of our growth strategy in U.S. injectables undoubtedly.

Understood. And maybe a last question on pharma. Can you quantify what is the size of Premix versus injectables at this point in time?

Yes, we haven't done that today.

Okay. Understood. I guess switching gears to -- you mentioned orders up 30% year-to-date. But also some of it isn't that like easy comps? I think '24 was a tough year for Baxter. What is -- I guess, when I look at the 30% orders, it feels like the outlook for capital should be really strong. And I know that business has done low to mid-singles when you look at the Hillrom piece year-to-date. Is that like -- what's the visibility of this order book, right? Does it give you your 6 months visibility, 12 months?

Yes. So let me -- there's a couple of points you raised. I want to break down a few things in that question. Some of the 2024 comps, the later part of the year, we actually had pretty strong comps in CCS, in particular in the U.S. Our FLC, because again, if you remember, our HST is basically part of the Front Line Care, part of CCS. The Front Line Care piece has certainly had easier comps year-over-year for most of the year. And the reality of it is, is what you're seeing in the Front Line Care business is what I consider a stabilization of that business. Primary care markets have stabilized. It's not -- again, it had some modest growth. But I would say, generally, 2025 is a year of stabilizing Front Line Care. And we anticipate, again, some level of, I'll say, returning to more of a growth in that area in 2026. For CCS, that business had a very poor first quarter in 2024, but then actually continued to grow at a, I'll say, an incrementally accelerated rate over the course of the year. And so our year-over-year in that business has actually continued to be pretty solid. And so now your visibility question, one of the areas of, I'll say, substantial improvement we've made in that business is exactly this visibility. And so we have a pretty clear perspective and line of sight to orders, the amount of orders that actually translate into revenue, which is actually very high. And some degree, the timing of those orders. Now depending if it's a CCS or PSS, GSS, it could be a 3-month time period. It could be in more of a 9-month time period, depending on the type of products. But we do have a clear view of that. And so as a leading indicator for us, we actually have a pretty good line of sight to what that looks like as we head into next year. And so when you hear us talk about things like, hey, we have -- we've had a pretty robust pipeline over the course of the year, and we expect that to continue. And again, we've had some nice competitive wins, particularly in the U.S. It's been a little slower outside the U.S. in that business, but our U.S. business has been good.

That's great. And then when you think about pipeline and innovation, what are you excited about '26? If you can just give us pluses and minuses?

Yes. Well, I think, first of all, what we announced even in this last quarter, our Connex 360 is the next-generation monitor. It has some really, again, interesting features around cyber protection, around just certain aspects of that, that are really truly next generation from that standpoint. And while it's relatively -- it's just being launched in Q4, so it's a minimal impact in 2025. But again, we are excited about the impact of it as part of our growth in '26. I think the -- one of the things that look forward to continuing to talk about some of the new opportunities we have for product launches coming up. I'm not ready to do that just yet, but we'll have, again, other things we're looking forward to talk to you about. And I would say, in general, part of what I think you'll see from us, we had a number of years where we had a lot of stuff going on that was important. from a strategic perspective, including divestitures, including really restructuring of the company that was -- but that somewhat distracted some of the innovation work. And I think you'll see -- continue to see more of that coming from us. And again, to remind people, these are more face hits than grand slams, but they are important and there's some exciting innovations we have come out.

Understood. And maybe switching gears to margins and free cash. Like I know year-on-year comparison is it gets messed up with the stranded costs but I think the clean base we were all looking at for fiscal '24, excluding stranded costs, was 16.3% relative to those levels were down 150 basis points in '25. Can you just give us a bridge on what were the moving pieces? How much of this is China exit or tariffs or you have MSA PSA margin dilution and obviously, the guidance change?

Yes. I mean the way I would broadly think about this is that on the positive side, again, we did guide to pricing that we -- based on the renegotiated the GPO contracts as well as some OUS pricing we took that we anticipated 100-plus -- 100 basis points of enterprise side that we anticipated, and we're on track with that. So that's been the positive piece of the margin. On the other side of that, I mean, you've actually kind of called out a couple of them. But certainly, the biggest impact has been just from a volume perspective and from our solutions business in particular, and some of the absorption or lack thereof that's flowed through. And really, the other pieces of it, though, are related to tariffs. That's been -- we've been pretty consistent how we've talked about that all year. I think we got to a place that said, hey, there's about a $40 million net impact from tariffs. And I think that's basically where we'll end up on that. We also said there was a dilutive impact of about 40 basis points from the MSA margin dilution. And if you recall, there's about a 40 basis point impact from what I'm going to call unmitigated stranded costs, meaning in 2025, there is work -- we've done some good cost out work and we've had TSA income. But we guided in the beginning of the year that said, hey, there's about 40 basis points of stranded costs that we're not going to be impacting that year. And so when you consider sort of again, the volume piece, tariffs, the MSA dilution and the TSA impact, that's really the main offsets to the pricing benefit that we had.

That's helpful. And as we look at '26, right, can you just give us the plus and minuses? Is tariffs still a headwind for you guys next year? The volume piece, the volume piece, depending on your revenue assumptions, like we'll keep the volume leverage aside. But when you look at the other pieces, right, can any of these turn in '26?

Well, I think -- so again, I'm going to save the kind of the guidance piece. I know you didn't specifically ask that, but I'm going to -- we'll give guidance at a later time on 2026. Just maybe a couple of reminders. The tariff impact is obviously, this past year is about, I don't know, I'd say roughly a half a year impact where next year, we will -- there will obviously be some -- it will be more of a full year impact. And then the other part of it, I guess, I would just say is, obviously, from a kind of a below-the-line impact, we issued. We did issue some new debt that will result in some additional interest costs as well as the -- obviously, we had a very favorable tax benefit in Q3 and guided to a 15% tax rate this past year. That's -- again, there's going to be likely some headwind as it relates to that as well.

That's helpful. That's helpful. And then maybe the last one on free cash conversion, Joel. I mean you guys used to be really good at 80%, 90%. It's really lagged a couple of years now. Why, I guess, can '26 improve? What should '26 be? When can we get back to 80% conversion for Baxter?

Yes. So again, that is ultimately, and I'll say, aspirationally where we should be as a company. I do expect some improvement in 2026. Again, we had positive free cash flow in Q3. Our Q4 typically is our largest cash quarter. And obviously, there's a couple of headwinds that we won't be facing as we head into 2026 related to payments related to Hurricane Helene in the early part of the year and some payments as well to -- as part of the Vantive settlement. But when you couple that with some things where we are -- we have a lot of work being focused on improving working capital. Our inventories this year were impacted significantly by pumps as well as by solutions, but focused a lot on -- and made some investments in inventory planners to really help ensure that our demand and our inventory production levels are lined up to become more efficient that way. And certainly, a strong focus on commercial terms on both the receivables and payables side in addition to really good collaborative work between our shared services teams and our commercial organizations on ours.

Great. With that, we're out of time, Joel. Thank you for your time.

Great. Thanks. Really appreciate it, everybody.