Good morning, ladies and gentlemen, and welcome to Baxter International's First Quarter 2017 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 conference call is being recorded by Baxter and is copyrighted material. It cannot be 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, Investor Relations at Baxter International. Ms. Trachtman, you may begin.

Thanks, Candice. Good morning and welcome to our First Quarter 2017 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 first quarter 2017 financial results along with our updated outlook for 2017 before taking your questions. As a reminder, we have posted a supplemental presentation to complement this morning's discussion. This presentation can be accessed on Baxter's external website in the Investors section under Events & Presentations. In addition, I would like to remind you to please limit yourself to one question during the Q&A session so we can accommodate others in the queue. With that, let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook, new product development, 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. 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 would like to turn the call over to Joe. Joe? José E. Almeida: Good morning, everyone, and thank you for joining us today. I will get started by sharing some comments on our first quarter performance, then I will turn it over to Jay who will walk through the rest of the P&L and provide an update on our guidance…

Thanks, Joe, and good morning, everyone. As Joe mentioned, we're pleased with our first quarter results, reflecting continued momentum towards delivering on our long-term financial goals. Sales in the quarter increased 4% on a reported basis and 7% operationally, which was ahead of our expectations, driven by favorable performance in the Fluid Systems and anesthesia businesses. Volume and mix were the primary drivers of growth in the quarter with price contributing approximately 1%. Walking through the rest of the P&L, adjusted gross margin of 44.3% represents an improvement of 200 basis points over the prior year, driven by improved pricing in select areas of the portfolio, favorable manufacturing performance, and a benefit from our business transformation efforts aimed at simplifying the portfolio to drive efficiency and reduce costs. Adjusted SG&A totaled $560 million, decreasing 10% on a reported basis. The primary driver of the improvement was our ongoing focus on effectively managing our expense base to eliminate costs and reduce inefficiencies. Transition Service Agreement income totaled approximately $20 million in the quarter compared to approximately $28 million in the first quarter of 2016. TSA income from Shire will continue to decline as the need for these services ramps down, which is expected to be by mid-2017. For the year, we expect TSA income to decline by approximately $45 million versus 2016. Adjusted R&D spending in the quarter of $130 million decreased 4% versus the prior year. As Joe mentioned, we expect to continue to ramp up our investments in R&D to drive innovation and augment top line growth. Adjusted operating margin in the quarter was 16.4%, an improvement of 590 basis points versus the prior year. Operating margin compared favorably to our expectations driven by improved gross margin and disciplined expense management. Interest expense was $14 million in the first…

Thank you. We will now begin the question-and-answer session. I would like to remind participants that this call is being recorded, and a digital replay will be available on Baxter International website for 60 days at www.baxter.com. And our first question comes from Matt Taylor of Barclays. Your line is now open.

Hey. Good morning. Thanks for taking the question. I guess, the first question I had, I wanted to understand in your guidance what you're assuming for some of the new things like Claris, the ScinoPharm partnership, and the contribution from the molecules that you talked about launching, which is all the injectable stuff.

Sure. Good morning, Matt. Thanks for the question. With respect to Claris, we have included no impact from that transaction. We expect that the transaction will close in the second half. Upon closing the transaction, we will provide updated guidance, both from a sales and an EPS standpoint. As it relates to ScinoPharm, there is really no material impact in 2017. The large majority of those molecules will launch in 2020, so we have a few years before we start to experience the benefits from that important partnership. And then finally, from the other injectable products, we haven't broken out the specific sales related to the Carrera (20:56) molecules. What we have said is we expect the original set of molecules to generate approximately a little north $200 million in annual sales, but that ramps up over a number of years. In 2017, the impact is still modest. So, what I would say overall is we're very excited about the generic injectable space. It's an area where we believe Baxter can win and do very well, but we're really setting the stage for that success in the first half and second half of 2017.

Okay, Jay. Thanks for that. And then I just wanted to see if you could give us a little bit more color about what's going on in the Renal business. That's an area where we had expected you might do a little bit better this quarter with the launch of AMIA and continue to see a little bit below market growth there. So, what can get that to pick up, and I guess, what's causing kind of the lower-than-average growth in that segment now? José E. Almeida: Matt, the performance of our Renal business in the PD, peritoneal dialysis, and acute renal care is doing very well. And because we are market leaders in both of them, our growth for the vast majority dictates the growth of the market. We have added a good number of patients for the PD business. And AMIA has been a tremendous success in the U.S. As a matter of fact, the growth is at or above what we have said before in terms of market. The issue that we have is simply in-center HD and is focused in Europe for the vast majority. We have had a decent amount (22:38) of competition – price competition actually in Europe on the dialyzer, and we have plans to come back at that with growth opportunities in Asia to offset that. And our issue in Renal is primarily Europe in-center HD, and we are attentively looking at that. Just a note on the general business of Baxter, for Europe, we have made significant changes in management and as well as country management. We are revamping that organization and looking forward to the new folks to make an impact. So, that's the area of focus that we have right now. But in terms of the Renal business, not only we are very happy with the PD business and acute renal care. Matter of fact, the acute renal care, we are taking market share in the U.S. as we speak. We continue to convert at a large rate hospitals in the U.S., and the profitability, most importantly, has increased significantly in the renal business. So, we're quite happy with that. So, the focus, as I said, is in fixing Europe in-center HD.

Great. Thanks and congrats on a nice quarter. José E. Almeida: Thank you.

Thanks, Matt.

Thank you and your next question comes from Vijay Kumar of Evercore ISI. Your line is now open.

Hey, guys. Congrats on a really impressive quarter here. Maybe the first one, a big picture question for Joe. We've had a number of deals hit the tape recently, a lot of consolidation. And just given your thoughts on portfolio optimization rate (24:26), some of the valuations we've seen here are pretty healthy. I'm just curious how you're thinking of acquisitions, tuck-ins versus even possibly divestitures. Thank you. José E. Almeida: Vijay, good morning. My perspective has not changed about where Baxter stands. We're open to the tuck-ins, and we're doing them, and we're working very hard to get even more opportunities. We have a good pipeline in our pharmaceutical business between partnership and some tuck-ins and even in our advanced surgery, our biosurgery business. With the performance of the company and the work that Jay and Cathy Skala have done in our business transformation process and how quick we are integrating and simplifying our back office, I feel more confident that Baxter could do a 20%, 25% of our market cap deal without a problem, okay? It doesn't mean that we're going to do it, but my confidence has increased in the management of the company in really pulling off something that would be a good deal for our shareholders in terms of bringing synergies to the bottom line and a good accretion to the top line.

That's helpful. And then maybe one follow-up for Jay. Jay, I mean, operating margins was impressive, right? It really was. But when you look at the guidance of 15.5% versus what you did in the quarter, right, it sort of implies maybe 15-ish in the back half. Maybe the delta is some of this is TSA, maybe cyclo. I'm just curious. Is there anything else going on in the operating margin line? Thank you.

Great. Yeah, from the first half to the second half, there were a couple of drivers that impact the operating margin and EPS. And just to run through those, one is cyclophosphamide. From first half to second half, we expect $40 million run rate decline, and so that's about $0.06 of impact. We also expect a ramp down in TSAs of approximately $30 million. So, that's roughly $0.04 of impact. And then the other important thing that we're doing in the second half of the year is we're accelerating some investments in R&D. It's important for us to really set the stage for accelerating growth in the future that has been a core area of focus for us over the last eight quarters. And so, for us, we are ramping up some spending, about $40 million or roughly $0.07 of impact related to first half to second half increases in R&D spending. The final point I would make with respect to second half EPS, not operating margin, is the tax rate because the primary source of benefit related to the new stock option exercise and stock issuance guideline is a first quarter impact. The tax rate picks up in the second half of the year roughly $0.03. So, interestingly, if you total all of this, we're talking about $0.20 of impact in the second half of the year or roughly $110 million, $120 million worth of pre-tax impact in the second half. So, that's really the drivers as to why we're not seeing the standard rates of growth that we've seen previously in the second half of this year.

Thanks, guys. That's helpful.

Thank you and our next question comes from Mike Weinstein of JPMorgan. Your line is now open.

Joe, you keep raising that percentage. Today, you said 20% to 25% of market cap, the upside size of M&A versus 15% to 20% prior. Is that where your head is at now, that bigger deals are making more sense than maybe 12 months ago? José E. Almeida: Mike, you have a good memory, and I'm happy you listen to what I say. We do have more confidence in Baxter. First of all, as a new CEO last year, you're just getting to know the company. You're getting to know the management and its capabilities. No, we have a solid team, a very, very good team, and the execution has been great. So, that gives me confidence that we can do something bigger if the opportunity arises and things are in the right place, and there is value for our shareholders and never compromising what we think is our primary reason in doing deals, which is deliver more value to our shareholders. So, basically, our confidence goes up, the percentage goes up, and I think it's really reasonable to assume that if there's an opportunity, Baxter has the balance sheet, has the borrowing capability, and we feel comfortable with it.

Okay. Just a couple of quick financial follow-ups, if you don't mind. So, one, you didn't raise your operating cash flow guidance even though you raised effectively your net income guidance by $50 million, and you had a very strong cash flow quarter. So, maybe if you could just shed some light on that. And then second, can you just give us more on what's going on in the SG&A line than what we have so far and maybe give us a sense of head count changes or anything else you can share? Underlying SG&A expense was down 10.5% this quarter. That's obviously pretty dramatic, and it's hard for us outside the company to see some of those changes that are going on.

Sure. First, as it relates to cash flow, great performance in the quarter, and it was definitely a little bit ahead of our expectations. It was certainly ahead of last year, but as you'll remember, Mike, we did have a tax payment last year that distorted the Q1 result. But importantly, the pieces that I think we're pleased with, days payable, we held flat, but days inventory on hand, we improved 16 days roughly year-over-year. DSO was down nine days year-over-year, so this relentless focus on working capital balances is paying dividends, and the teams are hard at work driving a result in this regard. The other piece of this relates to CapEx where we continue to focus on driving savings where possible, taking a zero-based approach to CapEx and capital spending. The reason we haven't raised guidance, in my prepared remarks, I said our confidence in our ability to beat or exceed guidance has increased. So much of our free cash flow is concentrated in the fourth quarter of the year that it's very difficult to have a line of sight to exactly how payables and receivables will land at year-end. And given the back-end load of cash flow, it's a very volatile number. So, I think for us, we have an improved line of sight, increasing level of confidence. We'll watch this throughout the year, and perhaps if things continue along the current trend in Q2 or Q3, we'll be able to update guidance and provide some updated numbers in that regard. As it relates to the SG&A initiatives, yeah, I will tell you, we as a team are very proud of the progress that we've made in the transformation of Baxter. We started this in the second half of 2015, you recall, really accelerated the efforts in…

Perfect. Thanks, Jay.

Thank you and our next question comes from David Lewis of Morgan Stanley. Your line is now open.

Good morning. Thanks for taking the questions. Maybe a quick one on long-term guidance for Joe or Jay. So, as it relates to long-term guidance next quarter, you've been pretty transparent about that. I think investors are very focused on margins, Joe. And I think given your comments on your comfort and transformation, it sounds like we get a material update as it relates to margins. But I wonder if you could talk about organic growth transformation for a second. Have you seen enough from some of the pipeline developments in biosurgery and the continued traction in Renal and Fluid Systems to kind of have a fundamentally different view for how this business can grow in the future from an organic perspective? José E. Almeida: David, I would say that all of the efforts that were put into innovation and the better deployment of R&D dollars and portfolio management are all starting to give us more comfort that our top line growth can be augmented organically towards the end of 2017 into 2018. Those are not overnight programs. Those are programs that take a significant amount of time if you know our products. Even our hemostats, those are long-term studies that need to be done. But as what I have seen so far coming out our R&D reviews and portfolio business reviews that we're going to start getting momentum towards the end of this year, beginning next year with the things that we started since we started as CEO. I would say that there are some very notable upticks in areas like PD with AMIA and HOMECHOICE CLARIA. We are seeing the launch of some technologies across the board that were not before emphasized by the company such as our extra portfolio (35:48) technologies as well as acute renal care new technology we match (35:51). So, I would tell our investors that there's a significant focus in innovation, but innovation is the part that takes a little longer, and we see that hitting most in 2018. Our story is one of providing value to the shareholder. We went very hard at our cost structure as well as our efficiency selling products in the market, and you can see that. The Claris acquisition will bring some really good molecules, between 150 to 175. I gave the team led by Robert Felicelli a specific goal that by 2021, we need to have more than 300 molecules in the marketplace as well as understanding and potential pipeline of biosimilars. So, we are just in the beginning of our journey to develop a really strong top line organic growth company. And in the meantime, to deliver value to our shareholders, we're hitting everything that we can in terms of making this company the most efficient and effective in everything we do.

Joe, very, very clear. Maybe just a quick couple of follow-ups for Jay. Jay, just second quarter numbers seem a little conservative. There's some modest comp- adjusted deceleration. It is your toughest comp of the year, but the question is just, is there anything momentum perspective in your mind that really changes into the second quarter or is that just the comp? And then Fluid Systems, really significant upside relative to our number. Can you just give us a snapshot of what's happening with momentum right now between pumps, disposable pull-through, and price? Thanks so much.

Sure. First, as it relates to Q2, to your point, David, it is the most difficult comp of the year. Q2 last year, we had 12% growth in the U.S., so a really strong performance. And we had a very strong pump placement quarter along with strong sales in our Surgical Care area. So, from a comp standpoint, it's a challenging one. I would say there's two other factors in play that are factors that are well understood from our perspective. First is Fluid Systems in the U.S., 20% growth. We do expect that to come down over time as we anniversary certain agreements and as we start to get to a more steady-state approach from a pump placement and sets growth standpoint. So, that 20% growth is not a number that we expect to see for the continued future. That will moderate down. And then the other factor is, as Joe referenced in his comments regarding sales, we did have a bolus of sales related to a product called Transderm Scop, about $20 million or so of sales in the first quarter. We expect the alternate supplier to be back on the market. In fact, they are on the market, so those sales will moderate down. That benefit will be more muted as we look to the second quarter. So, what I will tell you is, it is, however, consistent with our original expectations from a sales growth standpoint. As it relates to the Fluid Systems business, 20% growth in the U.S., zero percent, international. If we were to exclude strategic exits, we would see 3% international growth, 12% growth overall, or 13% on an operational basis, excluding the strategic exits. Really, the way to think about that, our infusion systems was high single-digit growth, and really, with the pumps – it wasn't really a pump story. It was more about the sets associated with the pumps because we had good pump placements in Q1 of last year. And so, we saw double-digit, near-teens growth from a set standpoint. Our whole theory in terms of our pumps business is as we grow the installed base, these sets ride along at a higher margin and helps transform the margin profile of the company. That clearly played out with the Q1 result with the double-digit growth in sets. And then the IV business in the first quarter in the U.S., we saw very significant growth, north of 20%. And that was very much a mix of volume along with some pricing. So, again, it was ahead of our expectations overall. We're pleased with the progress there and continue to focus on driving sales of the SPECTRUM pump because that's such an important aspect of our overall business.

Great, Jay. Thanks so much.

Thank you. And our next question comes from Larry Biegelsen of Wells Fargo. Your line is now open.

Good morning. Thanks for taking the questions. I wanted to ask about the Renal pipeline and then one on M&A. So, Joe, you've talked about being excited about the acute renal pipeline in new areas, but I don't think you've given us much color on that. And also, can you talk about the point of care PD regulatory pathway? How close are you to getting FDA signoff on that trial? And then I just had one follow-up. José E. Almeida: Hi, Larry. The Renal pipeline is one of the richest that we have right now. And we reorganized our company that put squarely under the general managers and presidents of the businesses, the research and development management with people that we brought from other companies to Baxter. It has enhanced significantly our ability to not only develop, put products in the market but also accelerate the clinical studies that we're doing. So, I'll give an example. We're very excited about THERANOVA. We're going to be investing in the next few years $25 million in clinical data because we are convinced and have sufficient data in hand right now that proves this product is superior to any dialyzer in the market today. When it comes to acute renal care, we have great products for the sepsis treatment. We're going to continue to double down (41:56) in places like Japan and bring that technology on a global basis. And then let me talk about the point of care. A lot has been said by a bunch of different people about point of care and PD and all of this stuff. And Baxter is probably the only company that has the capability to vertically integrate all of these technologies. And to that end, we will be putting our first patient on point of care treatment towards the end of 2018. So, we have a very strong belief, and our pathway is now determined that we can do that. So, that is a great achievement to the chronic renal team that has put that together. So, as I say to the folks at Baxter, go compete for the dollars, go show the best ROIC, and Renal has done a great job so far. I hope the other divisions will follow through, go fight for that dollar that we have available for product development and clinicals.

Joe, that's very helpful. Just one clarification on that and one follow-up. The first patient on point of care by the end of 2018, is that the first patient in your clinical trial or is that when you're basically saying that you can launch? José E. Almeida: Clinical trial. Will be first – a little – I would say fourth quarter of 2018 we'll have a (43:16) first patient clinical trial. And from that point on, we're going to roll it out as soon as we can in terms of getting the population defined by the agencies in terms of clinical trial. And the launch, we'll be looking at probably towards the end of 2019.

That's very helpful. And then just on M&A, can you talk about the M&A pipeline and why we haven't seen more activity besides the Claris deal? And given the change in the deal size that you talked about earlier on this call, have your targets or areas of interest changed or evolved since you last provided the update? Thank you. José E. Almeida: Larry, this is a very dynamic marketplace. There's a lot of things happening. We have a relentless focus in inorganic opportunities. But inorganic opportunities is now what will drive our company solely. So, we do a very good balance between how much time we spend in looking new opportunities, how much time we spend managing Baxter's current businesses and making sure that all the businesses are performing well. We are every month looking at least 10, 12 opportunities. Some fall off for financial reasons. Some of them have changed in dynamics and performance and situation. With the expansion of our reach in terms of size, it brings a bit more opportunity to the table in terms of evaluating. This doesn't mean that we're going to do the deal, but this means that we're going to evaluate. And one thing Baxter is starting to do very well, we're very fast at evaluating the deal coming to the table, have enhanced significantly our internal capabilities, which are under Andy Kidd who runs the strategy for us and BD&L (45:12) and David Roman who is in strategy as well here. So, these teams have been put together, a significant amount of horsepower. So, we are doing everything we can, but the first thing is if it strategically makes sense, it needs to make sense for our shareholders. The money, when we look at this, this is not our money. We're just here taking care of the money for our shareholders.

Thanks for taking the questions. José E. Almeida: Welcome.

Thank you and our next question comes from Bob Hopkins of Bank of America. Your line is now open.

Thank you and good morning. So, I want to ask a quick question for Jay and then a follow-up for Joe. So, Jay, just to start out, obviously, a lot of people looking forward to next quarter when you will give us an update on the long-range plan. In anticipation of that, are there things that you think we should be focusing on in terms of major puts and takes to the long-term plan, things that you'd want to highlight that investors should be considering as we think about the long term relative to your previous guidance obviously?

Look, I don't know that we would – we have items that are new items to point out with respect to our long-term guidance at this stage. The biggest note I would make is we are certainly ahead of our expectations, and the guidance that we give for this year in 2017 currently sits at $2.20 to $2.28. I believe that's above the 2018 guidance we shared in July of last year. So, a lot of work, a lot of strong momentum. That's probably the biggest change that we've seen in our overall guidance. In areas like working capital or CapEx, we've also seen some improvements, so those would be a couple of other items that we're hard at work in our long-range financial planning process isolating. Beyond that, there's no major dynamic change. We are excited about some of the portfolio items that Joe highlighted in his comments earlier and some of the work that our teams have done from an R&D standpoint, so that should feature – but again, the biggest impact, those will come a little bit later in the long-range plan.

Okay. And then for Joe, just on this M&A commentary, I was wondering if you could kind of talk a little bit about your priorities, and two, I guess, two specific questions. One, as you consider M&A, would you consider something that's a little bit more of a white space? And then secondly, on the wound management side, I was wondering if you could just talk about that transaction a little bit more and your interest broadly in wound management as a category. Thank you. José E. Almeida: Hi, Bob. We have four areas that we consider core growth in our portfolio. It doesn't mean that we don't pay attention neither invest in those other areas. We do and we pay a lot of attention to those. But Renal is about new therapies and end-to-end care of our patients. Then we have critical care, which is an augmentation of what we already have between acute renal care as well as our IPS, our fluid management business. Then we have the Baxter Pharmaceutical business, which is to go into generics and eventually into biosimilars, okay, all injectables, cytotoxic molecules, oncolytics, so that's in Baxter Pharmaceutical. And then you have advanced surgery, which is to complement our product. So, the way we think about this, by defining broader categories within Baxter, allows us to look at spaces that is less singularly focused on product but more focused in areas of care. So, in process of looking at this, we really stumble at opportunities and encounter opportunities that has a little bit of white space in them. At the moment, we are looking at augmentation to support areas of growth for us, not specifically and exclusively in white spaces. We're not there yet. We have our venture capital group here at Baxter where we look at opportunities in white space, but those are at the venture capital level. So, this should give you a bit more color on how we think about deals. The second in wound management specifically is a natural adjacency of our biosurgery business, which is an adjunct, that knowledge in the OR, are opportunities such as this one we just acquired. It's a small business but goes nicely into our wraps bags (50:08). The wound management per se in terms of traditional wound management, specifically is not an area of interest. As I said, we may come across a company that we like overall products but has that as a small business. It's a different conversation. But to have us specifically targeting wound management is not something that is in the cards at the moment in time. This has to do with wound closure, which is very adjacent to our hemostat and sealing business.

Terrific. Thanks very much. José E. Almeida: Thank you.

Thank you and our next question comes from Danielle Antalffy of Leerink Partners. Your line is now open.

Hi. Good morning, everyone, and thanks so much for taking the question. Congrats on a good quarter. Jay, I wanted to ask you about fiscal 2017 guidance and the incremental guidance on EPS beyond the Q1 outperformance. What segments do you expect to drive incremental strength versus prior expectations there?

Sure. So, as we look at the updated guidance, the midpoint of the range increases about $0.10, and principally, $0.07 of that has arrived in Q1. We expect another $0.03 related to cyclophosphamide. So, really, those are the drivers as we look at the margin improvement on a full-year basis. The Q1 driver, clearly Fluid Systems, had a stand-out quarter. That was an important aspect along with some SG&A savings that contributed ahead of schedule to drive the $0.07. But really, as we move forward, the big change to guidance relates to cyclo. As we look at other factors like foreign exchange, sundry, interest, tax, and share count, they all essentially net out to zero. So, the big drivers are the two that I've mentioned.

Okay. That's helpful. And then just longer term, if we think about Claris and what that brings to the generic injectables business, how does that change the growth profile of that business? That's a global market that I think is growing in the 9% to 10% range. So, curious if you think Claris is something that gets you to within that market growth range, above that market growth range? And then, Joe, you mentioned augmenting existing businesses. Do you feel like generic injectables is now set with Claris and you'll look elsewhere to augment your businesses? Thanks so much. José E. Almeida: Danielle, if you look at our long-term objective is to be at mid-single digit growth rate, okay? And the only way to get there in the markets that we are today is to go into a business like the generic injectables, which will change the weighted average market growth rate of our company. So, I would say that Claris will have an impact likely in 2018, and then when you go in 2019 and 2020, they will bring probably 50 to 100 basis points of incremental growth to the company because it's not Claris itself, but it's everything else that will be attached to Claris. Claris has great manufacturing capabilities. In our integration plans, we are already starting to expand a couple of their buildings to put more capability like dual chamber bags and other things there. And so, we are looking at that as a platform. So, I would say that with comfort that 50 to 100 basis points in the midterm growth rate is acceptable. We're looking at Brik Eyre and Robert Felicelli (53:55) to really deliver on those numbers and also to augment our molecule pipeline.

Okay. Thanks so much. José E. Almeida: Thank you.

Thank you. And our next question comes from Matt Miksic of UBS. Your line is now open.

Thanks so much for taking our questions. So, I wanted to follow up, Joe, I know you've gotten a couple of questions on M&A and strategic thinking on acquisitions. And I guess, one of the questions that we get and we hear in the press, particularly following some of the recent deals, this sort of this idea of scale or leverage on a platform or leveraging your distribution. And you could say the small wound care, wound closure acquisition you talked about sort of fits that on a smaller scale, and specialty injectables kind of in place and your ability to sort of continue to add molecules there, you're talking about a larger deal, I guess. To what degree does growth, does scale, does leverage, does distribution overlap kind of play a role in your thinking? And then I have one follow-up. José E. Almeida: Matt, you have to think about what are the major prerequisites for something to get into the funnel. And one of them is be within those four pillars I mentioned before. The second thing is to make sure there is category of leadership in the products that people make and sell. Then once you pass through those broad lenses, it's about what can Baxter do to be a better owner for that business. And if you look at our contract capability in the U.S., (55:45) growth in the U.S., this is phenomenal job (55:47) doing this. So, that is a positive. Baxter is a hospital company, and we are a supply company. We are in every hospital in this country. So, we should have the ability to bring synergy (56:01) in terms of distribution as well as how we manage sales and marketing within the regions of the world because we are effective and very efficient in doing it. Above and beyond that, the scale of products and the ability to synergize by channel, you have the whole efficiency of cost to maintain the infrastructure, the pure G&A, which I think now we are in a position to really bring a lot of synergies to the table that about a year-and-a-half ago, we were not. So, that gives me confidence that once and if we find the right opportunity for Baxter and our shareholders, we will have the channel synergy as well as the cost synergy. Now, remember, we always have this conversation about improving our weighted average market growth rate, and that's the only and sole focus of going into businesses on an inorganic manner and to get businesses that have markets that they serve that will be complementary to ours and the growth will be accretive to us. So, once we get those things on the table, we can make our decisions more clearly.

Now, that's very clear. Thank you for that. And then I had one follow-up on just one of your business lines. The pump business – and I apologize I've been hopping back and forth between a couple of calls, so if this has been asked, just let me know. But your thoughts on sort of the health of that general business. You've obviously done quite well in that in terms of regaining share. Where should we think about that business going from here? And is there anything else in the product pipeline that we should be looking forward to to kind of sustain this growth rate that you've been able to put up? José E. Almeida: Sure. We'll forgive you for flipping calls back and forth like that (58:12).

Thank you. José E. Almeida: So, this is a platform for Baxter. Baxter had this product line for decades in several different shapes and form. We are here to stay. We have this SPECTRUM platform today in the U.S. and Canada, which is doing very, very well. Most importantly is not only the pumps but also the ability to place the sets. And the sets are what continues to deliver on profitability and revenue growth. We have a couple more generations of our SPECTRUM pump coming up in the next couple of years, and then we're going to launch a new global platform that includes different types of pumps that were currently in development. We're outside the U.S. We have a partnership with a foreign manufacturer where we're going to be augmenting our product lines in Anglo-Saxon speaking countries, so we have the ability to replace our old platform called COLLEAGUE, which is still being sold outside the U.S. in a few countries with a much more modern. But the beauty about our platform on a global basis is our drug library is second to none. And having that being retrofitted in any platform, including the one that we are developing with a foreign partner at the moment, is really important. So, our teams are working very hard. We have augmented our research and development teams across the globe. We have strong center in the U.S. We have centers now in India. We augmented not only with third-party design houses but also our own people in our R&D centers in India. So, we are ramping up to really make this business a leading business in the industry that it competes.

Thank you.

Thank you and our next question comes from Glenn Novarro of RBC Capital Markets. Your line is now open.

Hi. Good morning. Thanks for taking the question. Joe, I wonder if you can comment on Surgical volumes in the first quarter. One of the companies that we covered last week came in with better volumes, and they thought maybe the uncertainty about healthcare reform may have pulled forward some volumes into the first quarter. And I looked at your Fluid Systems, up very strong. So, maybe comment on what you saw in terms of volumes. And do you think there was any pull forward in cases? And then I had a follow-up. José E. Almeida: Glenn, I don't think there was any pull forward. I think our cycle of sales and growth that Jay had explained here, it had to do a lot with the placements of products that we had early this year and also in the last year-and-a-half. So, we see the U.S. supply business as steady, as low single-digit growth, but it is growing. And we don't see at the moment anything that would create major disruption to the system. Clearly, healthcare reform is up there. And now, they were looking at tax reform and how things are coming along, but I think in businesses like ours where the significant infrastructure products that are used for day-to-day operation of a hospital or a care center or patient care like our PD business, we see that the market in the U.S. is still a good market. The increase of growth is about 2%, 3%. So, we find no disruption in the near term or foreseeable future to that market.

And then just as a follow-up, can you talk about your emerging market growth in the quarter? And the reason I'm asking is your international results came in a little bit below our expectations, and I know you've exited some business lines, but I'm just trying to search for why international may have come in a little bit lower. Maybe it's emerging markets. So, can you talk about emerging market growth? And has emerging market growth been meeting your expectations, exceeding expectations, or coming in light? Thank you. José E. Almeida: Glenn, once you take out the businesses that we exited, which are all in emerging markets, so we are talking about India, you're talking about Venezuela, you're talking about Turkey. Our growth was 6%, and emerging markets is 20% to 22% of our overall sales. You have an impressive growth in Latin America ex Venezuela of 10%. We had good growth in China, 5%. Remember, we are not in physician-preferred medical devices in China. We are local manufacturer of fluids in China for PD and so specialty fluids or IV as well as nutrition. So, 5% is a good growth in China for those products. Emerging Asia, 5%, and East EMEA (01:03:45), which is all the Eastern Europe, Middle East, and Africa is about 4%. So, I'm quite happy with that. We had to exit those businesses because the profitability profile of them were way below what we had set as acceptable for our company. But ex those businesses, we are pretty good there. The issues that we have in international, some parts of Europe which are underperforming, as I said, we're taking measures to replace management but also to extend product line offerings and clinical trials to get new products in the market there.

Okay. Great. Thank you for the color, Joe. José E. Almeida: Thank you, Glenn.

Thank you. And that concludes our question-and-answer session for today. Ladies and gentlemen, this concludes today's conference call with Baxter International. Thank you for participating.