Good morning, ladies and gentlemen, and welcome to the Baxter International second quarter 2021 earnings conference call. Your lines will remain in a listen-only mode until the question and answer segment of today's call. At that time, if you have a question, you'll need to press star, then the one key on your touch-tone phone. If anyone should require assistance during the conference, please press star, then zero on your touch-tone phone. As a reminder, this call is being recorded by Baxter and is copyrighted material. It cannot be re-recorded or rebroadcast without Baxter's permission. If you have any objections, please disconnect at this time. I would now like to turn the call over to Ms. Clare Trachtman, Vice President of Investor Relations at Baxter International. Ms. Trachtman, you may begin. Good morning, and welcome to our second quarter 2021 earnings conference call. Joining me today are Joe Almeida, Baxter's Chairman and Chief Executive Officer, and Jay Saccaro, Baxter's Chief Financial Officer. On the call this morning, we will be discussing Baxter's second quarter 2021 financial results and full year 2021 financial outlook. With that, let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook for the third quarter and full year 2021, new product developments, business development, and regulatory matters, contain forward-looking statements that involve risks and uncertainties. Of course, our actual results could differ materially from our current expectations. Please refer to today's press release and our SEC filings for more details concerning factors that could cause actual results to differ materially. In addition, on today's call, non-GAAP financial measures will be used to help investors understand Baxter's ongoing business performance. A reconciliation of the non-GAAP financial measures being discussed today to the comparable GAAP financial measures is included in our earnings release issued this morning and available on our website. Now I'd like to turn the call over to Joe. Joe? Thank you, Clare. Good morning, everyone, and thank you for joining us. I will begin with a review of Baxter's second quarter results and also share a few words about our upcoming investor conference. Jay will then provide a deeper dive on our financial performance and outlook. We will wrap up with Q&A. Baxter delivered second quarter sales growth of 14% as reported, 9% on a constant currency basis, and 8% operationally. Growth was driven primarily by the ongoing global recovery from the COVID-19 pandemic, resulting in favorable performance comparisons for a number of our businesses versus the prior year, as the pandemic affected patient treatment dynamics and demand mix in the prior year. On the bottom line, second quarter adjusted earnings per share were $0.80, up 25% year-over-year and exceeding our original guidance. All three of our geographic segments contributed to the positive quarterly performance. The Americas and EMEA achieved high single-digit growth, and APAC achieved low double-digit growth, all at constant currency rates. While we are clearly experiencing recovery from the pandemic across all 3 of our geographies, the situation on the ground varies considerably by market. As always, we salute the healthcare workers who continue to face enormous challenges every day on the front lines of care. I also want to express my personal gratitude to all the Baxter employees who tirelessly support these clinicians and caregivers while helping to ensure we address the needs of patients across our vast life-sustaining portfolio. Turning to our performance by business, five of our seven product categories achieved growth on a constant currency basis. Performance was led by BioPharma Solutions and Advanced Surgery, which delivered 49% and 48% constant currency growth respectively. Growth in BPS was fueled by contracts to assist in the manufacture of COVID-19 vaccines. Advanced Surgery growth reflects a favorable comparison to the prior year, spurred by improving surgical volumes as pandemic recovery advances globally. As you saw in this morning's press release, we are building on our momentum in Advanced Surgery with the acquisition of PERCLOT Polysaccharide Hemostatic System. PERCLOT marks our entry into the global hemostatic powder segment, which will allow us to serve surgeons and their patients with an even broader range of options to control intraoperative bleeding across active and passive solutions. Our Medication Delivery business grew 12% at constant currency rates, also benefiting from a favorable comparison driven by improving rates of admissions at hospitals as compared to the prior year. Looking ahead, Medication Delivery is continuing to position for the U.S. launch of our Novum IQ infusion platform, including Dose IQ safety software in our IQ Enterprise digital connectivity suite. Following up on our recent FDA resubmission, we're now in the process of responding to an additional information request from the agency. We continue to expect to launch Novum IQ in the U.S. before the end of the year. Our Clinical Nutrition category advanced single digits at constant currency rates, reflecting ongoing strength in the U.S. Pharmaceuticals also grew at single digits constant currency. Adjusting for the recent Caelyx and Doxil acquisition, pharmaceuticals was flat year-over-year. Although we expect competitive pressures to continue in this marketplace, we remain focused on launching molecules with differentiated presentations and/or complex formulations. We have several projected launches of new generic injectables in the coming years that will help to fuel growth in this business and mitigate some of the competitive pressures we are experiencing. Performance in Renal Care was comparable to the prior year at constant rates, with growth in the U.S. offset by a decline across international markets. On a global basis, the market continues to be dampened by the impact of the pandemic, which has contributed to a higher mortality rate for patients with kidney disease, combined with a slowing of new patient diagnosis. As we said last quarter, we expect the recovery of this market to continue returning to its pre-COVID-19 dynamics over the next one to two years. In this quarter, we saw a return to positive year-over-year PD patient growth globally, including mid-single-digit PD patient growth in the U.S. The pandemic has highlighted the vital importance of the home dialysis therapy option, and as a leader and recognized innovator in this space, it has never been more urgent to support education, awareness, and access. Our Global Safer at Home campaign, which has been underway for more than a year, is dedicated to helping clinicians, patients, and other stakeholders learn more about the benefits of home care, particularly amid pandemic conditions. Lastly, performance in Acute Therapies declined mid-single digits at constant currency rates year-over-year. This decline was expected given the extremely challenging comparison following last year's historic surge in demand for Continuous Renal Replacement Therapy in light of the pandemic. We remain excited by the prospects for further advanced treatment options in the CRRT market. In fact, Q2 marked the launch of PrisMax 2, the latest version of our next-gen platform for CRRT and organ support with embedded TrueVue digital health technology. From an ESG perspective, earlier this month, we announced our 2030 corporate responsibility commitment, which will help drive Baxter's environmental, social, and governance efforts over the next decade and beyond. This work is integral to how we advance our mission to save and sustain lives and serve all of our stakeholders, from patients and clinicians to our communities and investors. Our 2030 commitment is built around three overarching objectives. Empower our patients, protect our planet, and champion our people and communities. Full details can be found in our 2020 corporate responsibility report, now posted on baxter.com. Briefly looking ahead, we continue operating in an environment of some uncertainty. We fully anticipate the broader trend of pandemic recovery to sustain, but geographic disparities and emerging variants could slow or undermine the pace. Also, just like our healthcare peers and countless other companies, Baxter is subject to the impact of inflation and the rising cost of freight, fuel, and other raw materials and commodities. We will continue to look for opportunities to offset the impact from these incremental expenses. As I wrap up, I want to highlight that our 2021 investor conference will be held on Monday, September 20 in Deerfield, Illinois. At the conference, we plan to focus on our key strategic objectives to enhance growth and drive innovation. In addition, as a critical part of our ongoing business transformation, Jim Borzi, Senior Vice President and Chief Supply Chain Officer, will outline the next phase of our manufacturing supply chain journey, which is expected to enhance our operational effectiveness and drive margin improvement. Now, I'll pass it to Jay, who will share a closer look at our results and our outlook for the balance of the year. Thanks, Joe. Good morning, everyone. As Joe mentioned, we're pleased with our strong second quarter performance. Second quarter 2021 global sales of $3.1 billion advanced 14% on a reported basis, 9% on a constant currency basis, and 8% on an operational basis. Sales growth this quarter reflects the ongoing recovery in hospital and surgical volumes, along with the benefit from COVID-19 vaccines. We estimate these factors contributed just over 450 basis points of sales growth in the quarter. OUS sales of Caelyx/Doxil totaled approximately $30 million in the quarter. On the bottom line, adjusted earnings increased 25% to $0.80 per share, exceeding our guidance range, driven by disciplined operational execution and a lower-than-expected tax rate. Now I'll walk through performance by our regional segments and key product categories. Starting with our three regional segments, sales in the Americas increased 8% on both a constant currency and operational basis. Sales in Europe, Middle East, and Africa grew 8% on a constant currency basis and 5% on an operational basis. Sales in our Asia Pac region advanced 10% on a constant currency basis and 9% operationally. Moving on to performance by key product category, note that for this quarter, constant currency growth is equal to operational sales growth for all global businesses except for our pharmaceuticals business, for which we will provide both constant currency and operational growth adjusted for the acquisition of rights in select territories outside the U.S. to Caelyx and Doxil. Global sales for Renal Care were $964 million, or flat on a constant currency basis. Performance in the quarter was driven by our PD business, where we observed both a sequential and year-over-year improvement in global patient volumes. This was partially offset by declining international sales of in-center HD dialyzers, reflecting the impact from the pandemic as well as competitive dynamics. We continue to monitor the impact of excess mortality among ESRD patients and delays in new patient diagnoses resulting from the pandemic. Our expectation remains that PD patient volumes will continue to ramp over the course of the year, although the pace may vary by market. In particular, we are monitoring COVID resurgences in Asia Pac and parts of Europe. Sales in Medication Delivery of $697 million increased 12% on a constant currency basis. Strong global growth in this business reflects the recovery in the pace of hospital admissions in many markets following the height of the pandemic last year. We estimate that in the second quarter, the rate of U.S. hospital admissions was down approximately 7% as compared to pre-COVID-19 levels, a market improvement from the second quarter of 2020, which saw U.S. admissions down approximately 20%. Pharmaceutical sales of $546 million advanced 5% on a constant currency basis and were flat to prior year on an operational basis. Performance in the quarter benefited from the recovery in surgical procedures and hospital admissions, demand for our international pharmacy compounding business, and the contribution from OUS sales of Caelyx/Doxil. This growth was partially offset by declines in our U.S. generic injectables portfolio, which faced a headwind from prior year sales of select injectable drugs used to treat critical COVID-19 patients, as well as increased competitive activity for certain molecules. Moving to Clinical Nutrition, total sales were $237 million, increasing 3% on a constant currency basis. Performance in the quarter was driven primarily by growth in the U.S., partially offset by lower international sales of vitamins resulting from supply constraints. Sales in Advanced Surgery were $256 million, increasing 48% on a constant currency basis. Within the quarter, we estimate surgical procedures were at or slightly above pre-COVID levels, contributing to strength in the quarter. Sales in our Acute Therapies business were $188 million, declining 4% on a constant currency basis, reflecting the challenging year-over-year comparison due to surging product demand this time last year related to the COVID pandemic. As Joe mentioned, we anticipate that COVID-related demand for CRRT will moderate this year, but will improve over time through the launch of new products and increased awareness of the therapy. BioPharma Solutions sales in the quarter were $183 million, representing growth 49% on a constant currency basis, reflecting incremental sales related to the manufacturing of COVID-19 vaccines. Moving through the rest of the P&L, our adjusted gross margin of 42.6% increased by 100 basis points over the prior year, reflecting operational improvements in manufacturing and a favorable product mix as the impact from COVID recedes. Adjusted SG&A of $649 million increased 12% on a reported basis, reflecting the impact from foreign exchange, the improvement in sales, and resulting increase in commissions and increased promotional spend in support of new product launches. Adjusted R&D spending in the quarter of $139 million increased 18% on a reported basis, driven by the impact of foreign exchange and investments in our new product pipeline. Both adjusted SG&A and R&D spending reflect a somewhat more normalized level of spend as certain expense categories were depressed last year as a result of the pandemic, particularly those related to employee bonus accruals. Adjusted operating margin in the quarter was 17.2%, an increase of 120 basis points versus the prior year. Net interest expense totaled $34 million in the quarter, and other non-operating income contributed $2 million in the quarter. The adjusted tax rate in the quarter was 17.8%, an increase over the prior year driven by lower stock-based compensation award deductions as compared to the prior year period. The tax rate was favorable to our expectations, driven by a favorable change in earnings mix. As previously mentioned, adjusted earnings of $0.80 per diluted share exceeded our guidance of $0.72-$0.75 per share. Within the second quarter, we repurchased approximately $300 million, or 3.7 million shares of common stock. Year-to date, we have repurchased $600 million or 7.3 million shares of common stock, which has been partially offset by option-related dilution. On a net basis, our outstanding share count has declined by approximately 5 million shares through the second quarter. In addition, during the second quarter, we announced a 14% increase in the company's quarterly cash dividend rate. The strength of our financial position has fueled our ability to increase our quarterly dividend rate on an annual basis for the sixth consecutive year. We continue to follow a strategic approach to capital allocation that is balanced between inorganic and organic initiatives, with the objective of accelerating growth and expanding margins, driving innovation, and returning value to our shareholders. With respect to cash flow, in the first half of 2021, we've generated $854 million of operating cash flow and $525 million in free cash flow. Let me conclude my comments by discussing our outlook for the third quarter and full year 2021. For full year 2021, we expect global sales growth of approximately 8% on a reported basis, 5%-6% on a constant currency basis, and 4%-5% on an operational basis. This assumes a benefit of approximately 100 basis points to both reported and constant currency revenue growth for the acquisition of Caelyx and Doxil, as well as approximately 250 basis points of positive top-line impact from foreign exchange on reported growth. Our expectation remains that on a full-year basis, hospital admission rates will stay below pre-COVID-19 levels, with rates improving throughout the year and exiting down low single digits. Based on surgical procedure data in the U.S. to date, we now expect surgical procedures will continue to be at 100% of pre-COVID levels for the remainder of the year. Moving down the P&L, we continue to expect adjusted operating margin to expand between 40 basis points - 60 basis points. For the year, we expect an adjusted tax rate of approximately 17.5% and a full-year diluted average share count of approximately 510 million shares. Based on these factors, we now expect 2021 adjusted earnings, excluding special items, of $3.49-$3.55 per diluted share. Specific to the third quarter of 2021, we expect global sales growth of approximately 9% on a reported basis, approximately 7% on a constant currency basis, and approximately 6% on an operational basis. We expect adjusted earnings, excluding special items, of $0.93-$0.95 per diluted share. With that, we can now open the call up for Q&A. Thank you. We will now begin the question-and-answer session. If you have a question, please press the star, then number one on your touch-tone phone. If you wish to remove yourself from the queue, please press the pound key. If you are 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 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. 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 the line of Bob Hopkins with Bank of America Securities. Oh, thank you, and good morning. Can you hear me okay? Yes, we can, Bob. Good morning. Great. Good morning. Yeah, I just have two questions, and I'll just state them up front in the interest of time. I guess first maybe for Jay, I was just wondering if you could flesh out the Renal Care performance in the quarter a little bit more. What happened internationally, and how quickly you think Renal Care could get back to better growth rates? That's question number one. Then, follow-up or question number two is more strategic for Joe. Joe, I realize you won't talk about market speculation, but I do think it'd be helpful for investors to hear maybe a little bit of an update on your thoughts on M&A generally, and maybe talk about what the circumstances would have to be for you to pursue a larger deal. How important it is that M&A improve the company's growth rate, things of that nature. I just think an update there would be much appreciated. Those are my two questions, and thank you very much. Great. I'll address the renal question first from a Q2 performance standpoint, then turn it over to Joe for the second question. Overall, as you mentioned, the U.S. had a solid performance in renal, growing 4%. We ended up PD was a little bit in excess of that 5%, with the HD business slightly below that. Internationally, you're right. We had a decline in the quarter, which we do not expect to continue. There were a couple of drivers of that. One is we've talked historically about patient census challenges, that being a headwind that we're facing and contending with this year, which has kind of disrupted the normal, orderly cadence of patient growth that we see internationally. That was pronounced in the second quarter. Our PD business actually slightly declined, 1% decline in the quarter. We do expect that to return starting in the third quarter and the fourth quarter. Frankly, we've seen in certain markets delays in procedures of establishing new PD patients, like for example, in Japan, along with this patient census issue. All of these things came together to impact the growth rate in the quarter. Like I say, in the second half of the year, we do expect to see an acceleration and feel solid about that. In the HD business, we did have some pricing competition on dialyzers. We see that from time to time. The HD business declined mid-single digits, and we will expect that to normalize in the second half of the year. While the Renal Care business has been a fairly consistent performer for us internationally, and if you look at that over a series of multiple quarters, I think you can gain some confidence in the second half of the year we'll grow that business internationally roughly 3%. I'll turn it over to Joe to address the other question. Thank you, Jay. Let me give you how I think about M&A to answer your question, Bob. First is size being a secondary conversation. First is strategically fit for the company. We look at the areas of growth for the future. We look what is going to make a difference in the healthcare in 5 - 10 years. Where does Baxter is going? It's not where the puck is, where the puck is going. Sometimes we're getting attached to growth rates and things of where things are. We've got to look where things are going. Baxter is doing a lot in connected health, and we need to make sure that we have the ability to deploy capital in that area, as well as adjacencies. Going into areas of no correlation to Baxter to create a new leg of the stool presents a much more challenging environment for the company in terms of M&A. Not impossible to do it, but it's something that is more difficult. Second is how do we see returns? The returns are always the same. We look at internal rate of returns to be above our cost of capital, about a few hundred basis points, as well as we look at ROIC very similarly on the five-year base post the deal. We look also at the ability for the company to generate cash flow and our ability to bring the company integrated into Baxter, which I feel confident that we, through our digital transformation, have a much better ability of bringing companies in than a few years ago. The third and last one is that not every deal is created the same, and we examine multiple opportunities at all times. The company has a significant amount of cash, and if it doesn't go against deals, it goes back to the shareholders in terms of buybacks, as we have done. As you saw, we just did some buyback this quarter, and for the year, we are around $600 million. This is how I think about M&A. Next question. Great. Thank you very much. Thanks, Bob. Robbie Marcus of JPMorgan is on the line with a question. Please state your question. Great, thanks. Appreciate it. Jay, maybe I could start with you. I wanted to touch on guidance. You guys had a really nice EPS beat in the quarter. You have admissions trending towards pre-COVID levels over the back part of the year. Maybe you could just walk us through the updated guidance and how you ended up where you did, especially on EPS. Sure. You're right, Robbie. Thus far, we're seeing a fairly stable admissions environment relative to our expectations. Underlying our guidance, we're expecting roughly 98% of admissions in the U.S. in the fourth quarter of the year. We watch that, of course, very carefully, and I've talked about the risk and the sensitivity around that in the past, and we're particularly watching given the Delta variant, but feel solid that we've got our hands around this at this point. As we translate that to the rest of the P&L, let me talk first about a full year basis and then maybe make some comments on the second half. On a full year basis, we are seeing some challenges in the pharmaceuticals business related to competition and pricing. On a full year basis, probably $0.06 of a headwind from pharma offset by $0.06 of a benefit from our BioPharma Solutions business, which is performing better than our expectations. Those items kind of sort of counteract each other. We have roughly $0.08 or so on a full year basis of global supply chain costs that we're contending with. Essentially, we're seeing things like freight and premium freight costs. That's roughly $0.03. We actually have a fairly substantial manufacturing facility in Colombia. We've had a couple of cents of impact from Colombia unrest and ensuring we're getting product to our patients and product out of the country in an expeditious manner. Of course, there's some purchase price variations, which there is some inflation in that rounding out the $0.08. Offsetting that, we're committed to really using resources efficiently as a company. We're able to counteract the vast majority of that. Roughly $0.07 of benefit from measures that we have in place that are enhanced versus our expectations. Really looking at all of the spending categories and challenging ourselves to make sure that we're using resources as efficiently as possible. Of course, when we do those exercises, we don't touch things like quality or critical R&D programs, but we really do look hard at the cost base to ensure we're being efficient and offsetting where possible. That's really the story on a full year basis. If you think about it, and then there's financial assumptions that kind of wash out. We had some benefit in the first half from a number of assumptions, and then we have some headwinds in the second half. If you look at it exclusively from a second half standpoint, I'll say that FX is actually $0.03 of impact. That is really one of the big drivers of the second half performance. We've seen dollar strengthening, that has an impact on our translation back of our overseas business. That's roughly $0.03. BPS and pharma, again, kind of wash out in the second half. We have $0.02 of supply chain expenses. I think really the most notable impact to the second half is this foreign exchange impact that we're contending with right now. Great. Jay, I don't know if you want to take this or Joe. I think it is worthwhile spending a little more time on the $0.06 pharma headwind. What's driving that? What drugs? What makes you feel better you could overcome it in the second half? Just any detail there would be great. Thanks. Robbie, when we think about pharma, what's the value proposition of our pharma business? Is complex formulations and delivery in novel ways, premixes in ways that have not been yet launched or a combination of both. We are in process of delivering our portfolio. The conditions of the market have deteriorated in terms of pricing headwinds as well as COVID with the patients that have not gone to a hospital and the budget of the pharmacies, right? When we look at this whole thing, where do we stand today? We still see the headwinds that business has. Don't confuse the whole category that we have, which has two very separate businesses. One is our anesthesia business, which are gases, anesthetic gases. That has declined consistently over the last 24 months because the type of delivery systems the anesthesiologists are using across the globe for gas from our pharmaceutical business. I tell you that we just have three products conditionally approved. We're going to be launching three in the next six to nine months. We are excited about that portfolio and follows the same recipe of difficult to formulate and novel ways of delivering. If you think about that, it is still a good business. Has very, very, very strong and healthy profitability. What we need to do is to make sure that our innovation wheel doesn't stop, and we continue to bring products organically and sometimes inorganically to the portfolio to be able to augment the growth of this business and keep ahead of the competition. Baxter has put together a very good group of R&D scientists in the United States as well as India. Together they are working 24 hours a day in tandem to be able to deliver on that. I'm still a fan of that portfolio, understanding the headwinds that portfolio can have every so often, as some drugs will go down in contribution based on competition. We're able to launch new products. Remember, of our 22 new product launches this year, probably around half of them are pharmaceutical products. We do not see a long-term issue for this business, but more so a every-so-often issue that you have when you have competition coming into your market that has just happened in the last 12 months. Appreciate it. Thank you. Thanks, Robbie. Pito Chickering of Deutsche Bank is on the line with a question. Please state your question. Hey, good morning. Thanks for taking my questions. Two on renal. The first is, the U.S. grew sequentially by about $1 million. Can you walk us through sequential PD growth versus non-PD? How much did January excess mortality from COVID-19 impacted that sequential growth? Pito, I will start, and Jay will pick up from there. Our sequential growth has improved from Q1 to Q2 in the overall U.S. market from 3.3% to about 4% in Q2, and going to peak about 6% in Q4 for a pretty good performance on a post-2020 year, which was really hit hard in terms of new patients and the death of patients on COVID. I would say that the PD market is still very much a good market to be in. It has grown above the overall renal dialysis business across the globe. Particularly in the U.S., we're still very optimistic on the vector of the growth that despite all that happened in 2020, we're able to have growth this year and expect to return to a high single-digit patient growth to double-digit patient growth probably towards the end of 2022, going into 2023. Yeah. Pito, just to add to that, basically, by the end of the year, we would expect the dialysis population in the U.S. to grow just under 1%. It is starting to recover after being down more than 2%. Again, this is the treated dialysis population in 2020. It will return to growth this year and then continue to grow even faster in 2022 and beyond. Okay, great. A follow-up question on the Renal OUS. How much of the impact that you guys saw in this quarter was from excess mortality from COVID-19? Like you mentioned to Bob, that you expect it to normalize the back half of the year. I just want to understand how much is purely temporary, like the procedures in Japan for PD versus more permanent nature. Yeah. What I would say is it is really a mix of those two items, and we don't differentiate. We don't split that out for a number of different reasons, but understand those drivers internally. The 1% decline, we're going to expect to see in the second half of the year 4% growth as we start to see procedures normalize, and then we start to lap the headwind of the very unfortunate patient mortality situation. Again, as I commented earlier, if you look at the international business on a rolling 12-month basis in PD and renal internationally, it's a solid grower for us. We expect that story to continue moving forward. Great. Thanks so much. Thank you. Vijay Kumar of Evercore ISI is on the line with a question. Please state your question. Hey, guys. Thanks for taking my question. Maybe my first one, a high-level, big-picture question for Joe. Joe, when you think about the business pre-pandemic versus post-pandemic, at a very high level, has anything changed fundamentally for the business, whether when you look at your end markets, margin structure? I mean, there are obviously some temporal issues here, but these all seem to be workable, solvable, temporal in nature. Fundamentally, has anything changed when you think about the pre and post-pandemic universe? Vijay, I think that there is changes in how patients are being treated and how hospitals are seeing the influx of patients. When you think about 2019, and you see how we are looking at for the rest of the year, we see this year as a recovery year where your admissions towards the end of the year, the exit into 2022 will be probably 90%-100% of going back to the admission flow rates that we had before. If you think about the major dynamics of the market, I would say there's a move from the acute care to the less acute care. What is the impact for Baxter? If you think about Baxter as a healthcare supply company with products that are a must-have independent of your setting. We follow the patient with our products in many places. If you go to a less acute site, you need a pump no matter what. You still need fluids, you need medicines, injectables. You still need things that are needed to treat that patient. To the home side, we have that advantage and have spoken about the PD advantage that is a positive for the company, not only by the rule in the U.S. with the kidney dialysis and transplant changes that were done during President Trump's tenure. Also the place to be if you have sick patients that don't want to go to acute sites or dialysis clinics. That is a positive. When we look at what I see is temporary, the inflation that we are seeing and the disruption in supply chain, I think not only Baxter is working hard to offset that, but also I don't believe those are fundamental changes that will alter completely the going forward dynamic of our logistic costs as well as raw material costs. We were facing headwinds in this area. We have spoken about the cost of containers are very expensive, fuel, and everything else. We're offsetting that, as you could see this quarter, and we have done for the year, and we plan to continue to do it. The thing is, how do you see that? Is that a fundamental change in the cost structure? We don't think so. We think that that will eventually subside. At the moment, we don't have that in our numbers. In our numbers, what we have is us offsetting headwinds coming in from the cost point of view. Market-wise, as I said, there are changes, a significant amount of telehealth connecting the dots of information coming from ICUs. We will be better off by continuing to develop our digital health products as we're doing. If you think about our Sharesource with a mobile companion that we just launched earlier this year, TrueVue in our CRRT, as well as half of a portfolio with the FDA today regarding our new pump. It's not a mechanical electrical pump. It's actually software that is going with it that will be installed in the hospital's networks as gateway to be able to manage traffic and bring information back and forth. That boat has shipped. That boat has sailed. There's no way to not be in the connected market going forward. That's extremely helpful, Joe. Jay, one quick one for you. You take a lot of pride in the free cash flows. Obviously, the pandemic has been a lot of moving parts. year-to date, the free cash conversion sub 70%. I'm curious, what are temporal items here? When should we think about Baxter getting back to being a premium free cash conversion company? Thanks for the question, Vijay. As you know, Joe and I are both really focused on driving free cash flow and driving free cash flow performance sustainably. Frankly, we've made a series of decisions over the last 2 years to suboptimize the base case to protect against severe situations that could emerge. All of these things were absolutely the right thing to do. Carrying extra inventory into the pandemic. As we sit here today, carrying select inventory of incremental product as we look at a hurricane season, which could be a challenge. So, we've had a little bit excess inventory relative to our normal expectations. As we move towards the end of the year, and as we've been able to improve the predictability of sales by product line in a post-pandemic world, we'll start to be able to optimize cash flow a little bit more carefully and closely. I think, as we move to 2022 and 2023, we'll start to see more normal years for cash flow. Obviously, 2020 was a huge anomaly. 2021 continues to be anomalous because of, again, just really being sensitive to having enough product available to support patients in a very challenging situation. As I said, I think as we emerge in 2022 and 2023, we'll be able to optimize inventory a little bit better, continue our focus on accounts receivable, and then furthermore, on the days payable, really work to optimize that, working closely with our suppliers. Finally, from a CapEx standpoint, there are certain investments that we always make, and we'll continue to make those, especially those that support growth in businesses like our PD business. We'll continue to look for those value-creating opportunities, and those exist. We'll have more CapEx and that will be a continued area for us of great investment. I think 2022 starts to become a more normal year, and then even more so in future beyond that. That's helpful, Jay. Thank you, guys. Larry Biegelsen of Wells Fargo is on the line with a question. Please state your question. Good morning. Thanks for taking the question. One on BPS, one on Novum IQ. Joe, BPS was really strong this quarter. I'd love to understand the contribution from the COVID vaccine, how sustainable that is. Is that still a $50 million-$100 million annual opportunity? Joe, you signed a contract last year with a partner on a non-COVID vaccine. When could we start to see that contributing? Just trying to understand the outlook for BPS. I have 1 follow-up. The outlook has been improving because of the necessity for vaccines. Right now we're looking at about north of $100 million this year of contribution from BPS. Specifically COVID vaccine. Specifically COVID-19 vaccine. Now BPS as a business is larger than that, but just BPS vaccine, north of $100 million. In terms of the sustainability of that, Joe, I guess there's no way to comment on that at this point? It's tough, Larry. On one side, we hope that we don't ever need to produce another vial of vaccine, so this disease goes away and the world is back to normal. On the other hand, we're doing what we can to help the world get through this. I would say that you're probably going to have some residual production in 2022, because, as you can see, I was overseas about a few weeks ago, and the scarcity of vaccine is remarkable. There's still a lot of places in the world that don't have vaccines, and I think eventually those vaccines will reach there. We're not making a prediction 2022, but we think there will be residual production 2022 for vaccines. We do have some of our contracts do extend out through 2022 as well. Thank you for that. On Novum IQ, Joe, obviously it's a very important product for you. I'm wondering if you'll talk a little bit about the nature of the questions you received and the timing of the response and your confidence in a 2021 approval. Thanks for taking the questions. Larry, I will give you an update overall. The nature of the questions is a little too much. We're not going to get into it. I would say all the questions are answerable, and all the questions are not out of this world in terms of complexity to put them on a piece of paper and get back to the FDA. I don't comment, all of you know on the call and outside the call, that I don't comment on behalf of the agency. The agency will do what the agency will do. What we can do is make sure that our engineers and scientists and the regulatory folks are focused on this. We have a lot of people focused on getting those answers to the FDA. We hope that they will be happy with the answers, and we can have the product launched this year as we're planning at the moment. I also want to just make sure that you all know we're having pretty good demand for our Spectrum pump, our current pump. It's not all or nothing. We do have really good demand for our pump. Very large contracts coming about. I just want to make sure that we feel very comfortable with where we are in terms of our technical responses to the FDA. We think we have it. We are very happy with the design of the pump and the future that it holds because a very different platform that will hit the markets when approved and hopefully bring this industry at a different level of technology. Nevertheless, Baxter has three different groups of pumps, Evo IQ, Spectrum, V ersion 9, as well as the pump that is yet to be approved by the FDA. Thank you, Joe. Danielle Antalffy of SVB Leerink is on the line with a question. Please state your question. Hey, good morning, everyone. Thanks so much for taking the question. Just a follow-up to Vijay's question. Jay, this is for you on what's fundamentally changed. You did have pretty strong SG&A control this quarter, and just wondering, is that something that's sustainable going forward, and should we be thinking about that as a more meaningful lever going forward as we head into the analyst meeting? I have one more higher-level follow-up. Sure. I think the controls that we had in place, we were pleased that we were able to save a substantial amount in the second quarter, roughly $0.06 relative to our expectations on the OpEx line. As we move to the full year, there's probably $0.02 more relative to our expectations. We'll always look to optimize spending, for sure. What we were pleased that we were able to drive an impact in the face of a challenging worldwide supply chain environment in the second quarter. There is part of the savings that we experienced this year that are related to a slower resumption of activity. As we look at the second quarter, we had sort of anticipated a very substantial increase in SG&A. You'll note that we did have a nicely sized increase in SG&A, it was just not quite at the pace that we anticipated. We'll expect that to resume. Here's what I would say about SG&A and other spending categories and cost of goods going forward. At the Investor Day, we'll talk about things like the work that James Borzi is doing to really optimize manufacturing and supply chain, and really taking a cutting-edge approach in that arena. The other thing that we'll tell you about is the digital transformation that we're undertaking. That will have a nice impact in terms of really spending across the company. I think that's something that will feature prominently. In the meantime, we were pleased to drive a short-term result. I don't think all of the changes that we're making are the ones that we'll be talking about with you when we get together in September. Understood. Thanks for that, Jay. Then Joe, I guess this question is for you. Again, back to shifting fundamentals. You mentioned site of care, things like that. How are pricing conversations or contracting conversations different between the two sites of care, talking more ambulatory or outpatient versus hospital and inpatient? Is that something that we need to consider as we look over the long term for Baxter? Thanks so much. Danielle, I would say that a lot of these sites are owned by large hospital systems. They're not just independent sites. The configuration of products in some of those sites are different than used in hospitals. Price points may differ for products used in non-acute or step-down, significant step-down facilities that are not part of a hospital campus. There's no two different conversations going on. We believe that our products have price consistency across customers. We negotiate every single contract with intent to have as much penetration as we can within that integrated supply chain for the hospital. If you think about negotiations are all about class of products and quality, availability of products, and evidently, price is a big deal. Best price usually wins. I don't see tremendous distinction. Okay. Thank you. You're welcome. Matt Miksic of Credit Suisse is on the line with a question. Please state your question. Hi. Thanks so much. I wanted to ask a follow-up for Jay on some of the environmental trends that you're seeing, and then I had one question for Joe as well, if I could. Jay, in your remarks, you mentioned this sort of sustained high level of surgical volume performance you're expecting in the U.S. throughout the rest of the year. I'm just wondering what gives you that confidence or visibility that that's kind of where we'll stay, and I mentioned one follow-up. Sure. Yeah, in my prepared remarks, we commented that we're seeing roughly at historic levels of surgical procedures, roughly 100% of prior levels. We have some line of sight in the short term, but our crystal ball gets murky as we look towards year-end. That's very clear. I would say that one point of procedure volume in the U.S. is roughly $500,000 of impact per month. That's something that we watch carefully. I think when we put together the sales guidance for the year, we have the ability to withstand a little bit of softness in surgical procedures and admissions as it relates to Delta variant. This is an uncertainty that we're contending with, not only on the surgical procedure side, but also on the admission side. I've talked historically about a lot of the work that we've done in terms of forecasting and modeling. I think we've done a really good job kind of relating our business to some of these fundamental drivers. You're right, this is a volatile world that we're living in today. We'll have to watch carefully as we move through the rest of the year if the virus changes course substantially. At this point, we don't have any reason to believe that will be the case, and feel good about the numbers. I've sized the downside risk. It's not enormous. I think we're in okay shape. That's great. Then just one follow-up for Joe. I think to Bob's question, you had mentioned that size was not so much a consideration or determinant, but that I'd love to get your sense of just two things on the M&A environment. One is sort of asset pricing or the challenges that you face in making a med device or supplies acquisition in this environment. It's been a part of the conversation for Baxter for a number of years. Then also, the balance that you see, the pluses and minuses of putting more capital to work in a large deal, the risks associated with that and continuing with some of the tuck-in acquisitions that you've done before. If you think about tuck-in acquisitions, they're always going to be there because it's a way for us to augment our product lines and adjacencies. We just announced one today. That is a good way. We don't have that kind of product. We need that kind of product to compete. This is a really good thing we saw in our pharmaceutical business with Doxil and Caelyx. It is needed. You think about where the future of healthcare is going, where the confluences of the forces are coming about, how do we look at our portfolio going forward, and what would be a good complement for the portfolio. The size doesn't play a role. Obviously, if it's something enormous and unachievable, we don't discuss that. The size by itself will never be a determinant. As I said before, it's a strategic appeal. Second is the returns. The third would be our ability to integrate well. If we don't find anything to deploy the cash, we deploy the cash back to the shareholder. Don't think about size ever being a determinant. Think about the strategic fit and future of healthcare. Got it. Thank you. Thanks. The last question comes from the line of Joanne Wuensch with Citigroup. Please state your question. Thank you for taking my question. Just a couple of pieces of clarification. What was the COVID vaccine benefit in the quarter on a dollar basis? It was just over $40 million. I'm sorry, $30 million? $40 million. Four, zero. Just over $40 million. Excellent. How much Novum IQ dollars and cents is in the current guidance? Yeah, we have approximately a little north of $25 million in the fourth quarter. Thank you. Just to confirm, you're expecting hospital volumes to be at pre-COVID levels exiting the year? No, at 98% in the fourth quarter. If we were to split it at the very end of the year, the run rate would be basically at the prior year level, so into Q1 of next year. Excellent. Thank you so much. I appreciate it. Have a great day. I just want to make sure that you all know that we are not predictors of disease here, neither infection rates. We do the best we can in putting our models in place. We base our numbers on that. We will all expect hopefully the Delta variant will be contained in most places in the world, and we move on. At the moment, the admissions in the U.S. call us for 98% exiting the year, hopefully in 2022 at 100%. Things can change, as you can see by the infection rates, the deaths are still much smaller than they were before. We do the best we can when we give you these numbers is what we think is going to happen. Thank you. That will conclude our call. Ladies and gentlemen, this concludes today's conference call with Baxter International. Thank you for participating.