Good morning, ladies and gentlemen, and welcome to Baxter International's Second 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 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 Second 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 second quarter 2017 financial results, along with our updated outlook for 2017. In addition, as previously mentioned, we will be providing an updated financial outlook for 2020 as compared to the expectations we laid out at our investor conference in May of 2016. As a reminder, we have posted a supplemental presentation to complement this morning's discussion. This presentation, along with the related non-GAAP reconciliations, can be accessed at Baxter's external website in the Investors section under Events and Presentations. 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 detail 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? José E. Almeida: Good morning, everyone, and thanks for joining us today. I will get started with a brief look at our second-quarter results. Then I will share some highlights reflecting the progress and potential of our ongoing business transformation and conclude with an update…

Thanks, Joe, and good morning, everyone. As Joe mentioned, we're pleased with our second quarter results, reinforcing our confidence that we are on the right path to achieve our goal of sustaining top quartile performance. Sales in the quarter increased 1% on a reported basis, 2% constant currency and 3% operationally, in line with our expectations. The results were really driven by strength across many of our U.S. businesses and improving operational growth internationally. On the bottom line, adjusted earnings were $0.63 per diluted share. This exceeded our guidance of $0.55 to $0.57 per share and reflects solid execution on the top-line, the ongoing impacts from our business transformation efforts and a modest benefit from other income and a lower tax rate. Now I will walk you through performance by business. I will be speaking to growth figures on an operational basis to provide a clearer understanding of underlying performance. As a reminder, our operational basis presentation excludes the impact of foreign exchange, U.S. cyclophosphamide, and selected strategic product exits. Global sales for Hospital Products were $1.6 billion, advancing 4% operationally. Breaking this out by business, sales in Fluid Systems were $607 million, up 6% operationally. Performance was primarily driven by strong sales of IV solutions in the U.S. Moving to Integrated Pharmacy Solutions or IPS, global sales were $568 million, increasing 4% operationally. Contributing to performance in the quarter was increased demand for the company's nutritional therapies in the U.S., driven by a temporary market disruption for select nutritional products. Sales for premixed injectable drugs also increased in the quarter, driven by recent launches and incremental pull-through of other premixed injectable products in our portfolio. Moving to Surgical Care, which includes anesthesia and biosurgery, total sales were $352 million, increasing 3% operationally. Performance in the quarter was fueled by…

Thank you. We will now begin the question-and-answer session. I would like to remind participants that this call is being recorded and additional replay will be available on the Baxter International's website for the 60 days at www.Baxter.com. And our first question comes from Vijay Kumar of Evercore ISI. Your line is now open.

Hey, guys. Congratulations on another impressive quarter here. So maybe one on the LRP and I'm curious the revenue outlook of 4%, that wasn't changed. I mean, just given the underlying momentum we're seeing in the business, I'm curious why that was maintained and does the LRP contemplate any increase in gross margins?

Sure. Vijay, thanks for the question. So just commenting on your second question first with respect to gross margin performance over the LRP. In last year's iteration of our financial projections, we shared an operating margin of roughly 17% to 18%, we've increased that to 20% in our current look at 2020. But to decompose the 17% to 18%, we were really in the range of 44% to 45% on a gross margin standpoint. R&D was roughly 5% and then SG&A was 22%. As we moved to this year's LRP, there are a number of areas of improvement. One of the biggest relates to gross margin where we now expect roughly a 46% gross margin in 2020. There are a number of contributing factors to this. I said in the past I've been very pleased with the manufacturing performance under the leadership of Scott Pleau. That team has been incredibly focused on driving cost savings and improvements in the manufacturing network. So we expect to see some of that. But on the gross margin line we'll also benefit from mix as we move forward as we did exit some lower margin sales and then furthermore as we look at the inclusion of Claris in our projections. To complete the picture, R&D is basically unchanged versus the prior iteration and SG&A improves another hundred basis points, again, driven by continued and relentless focus on cost. So that's really the picture from a margin standpoint. As it relates to sales projections, yes, I think it's safe to say we've been very pleased with the sales performance of our business, right? And as we look at the LRP, really the biggest changes for us are a couple of fold. One, we've included Claris so the IPS business now will grow faster than we previously expected but then we did exit certain strategic lower margin sales areas. And so we do have an impact on Fluid Systems and on the Renal business. Those business growths are down a little bit from the prior version of the LRP. So as we sit here today, obviously we're looking to accelerate wherever possible. And in fact, Joe's comments and my comments around innovation, as we look over long-term, we're looking to accelerate the pace of innovation and pull-forward where possible. But as we sit here today, we feel comfortable with the 4%.

Absolutely. And then just one follow-up, guys, on just maybe the guidance for the current fiscal. You look at the one half versus second half mix the last couple of years, it's been somewhere in 40% to 45% in one half versus 55% to 60% in the second half. I know you have a number of items hitting you in the back half, including the TSA transition. The guidance basically implies the mix is more 50-50 this year. Can you walk us through that, Jay?

Certainly. We would normally expect to see an uptick in the second half EPS just based on natural business trends. And that's something that we've seen over the last several years. There are several factors that we have to be mindful of. First of all, transition service income. We expect Shire to wind down their need for our services, and right now that's a $0.03 headwind first-half to second-half. Secondly, we did from a cyclo-performance standpoint, we have roughly $0.04 of deterioration, $0.03 to $0.04 of deterioration first-half to second-half. Third, we are going to be accelerating some R&D investments, I think these are very strategic and important. And as we get to your first question in relation to how do we accelerate sales growth, it's very much about pulling forward timelines as much as possible, something our team is really focused on. R&D tics up roughly $0.03 in the second half of the year. And then finally, the way the tax rate works with the benefits related to FASB 123(NYSE:R), typically those benefits are concentrated in the first half of the year, and so we do see the tax rate ticking up $0.03 to $0.04. And finally, we have other income and interest which is $0.01 – or there's a $0.01 impact in the second half of the year. So as we look at the first half to the second half, there are roughly $0.14 to $0.15 of headwinds as we analyzed it, that we fight through to give the guidance that we've shared with you today.

Great. Thanks. Congratulations.

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

Thanks for taking the question. Maybe if I can stick in two questions here. For one, can you talk about the Claris accretion to your 2020 guidance with what the expected EPS contribution would be? And then second, just want to make sure I'm reading the cap allocations slide correctly on the dividend? So is the assumption that the dividend payout ratio is still 35% or something below that?

Yes. From a Claris standpoint, we expect roughly $0.05 of accretion in 2020, a little bit north of that. And then from a dividend payout ratio, our expectation is to maintain over the long term this targeted payout ratio of 35% of adjusted net income.

Okay, Jay, it was helpful.

As you know, we are not doing today-

And, Joe, we just want to get your kind of latest thoughts on business development. On the last quarter call we talked about the potential for larger acquisitions, and it felt I think to the Street, as if the likelihood of larger transactions may be diminished over the course of the quarter. So can you just give us your latest read on kind of what's out there and what's the likelihood of different sizes occurring? José E. Almeida: Sure, Mike. Just augmenting Jay's previous answer on Claris, we are giving this guidance on Claris for 2020 as Claris is today. Claris for Baxter is the foundation of getting us to a significant number of molecules in other areas. So when we speak about Claris itself as Claris is today as it transitions over there, there's significant amount of investment that we are going to be making in new molecules that we'll be adding to the pharmaceutical business of Baxter, which we plan to be much bigger than just Claris. On the business development, we have a significant capacity in our balance sheet, organic and inorganic, meaning we are generating a significant amount of cash. I think Jay has spoken about our conversion ratio is really good. It is one of the best I've seen, the team has done a great job. So our natural generation of cash flows well we can borrow put us in a very good position. So what is the difference between where I am right now and a big acquisition and several tuck-ins that will get to the value that we had spoken last quarter but in a different way. Clearly, there is custody of large targets as we all know. So, and also when you look into the financials and how that works with a…

Understood. I'll let some others jump in. Thanks, Joe.

Thank you. And our next question comes from Matthew Taylor of Barclays. Your line is now open.

Hi. Thanks for taking the question and good morning. So I wanted to follow up on some of the thoughts on the Claris accretion and maybe just spin this into a discussion around how you think the mix could improve with your injectable initiative in general. Could you give us some thoughts on the different partnerships that you have, Claris and in your internal programs? And what do you think the margin structure of that business could look like over the course of the LRP because, as you know, not all injectable businesses are created equal? José E. Almeida: Yes. We feel that we have three pathways here. We had our internal programs, which I thought were good but not at all sufficient. Those are good molecules. Our internal program, when we first arrived at Baxter, were related to things that are difficult to create. In solutions, we stabilized. We're looking at our GALAXY technology in Round Lake, Illinois, to make them. And our pace was one of not great speed, okay. So that program could not only – would not get us what we want. Claris adds a piece to the puzzle, which is the ability to do the filling operations and packaging, also the procurement of APIs and manufacturing of APIs in a very cost-effective way with good quality product. We are expanding now with the ScinoPharm and as well as Dorizoe partnerships to be able to get more volume of molecules. But this is not volume of a million-dollar molecule. We're looking at molecules that are more relevant to the portfolio, therefore creating good accretion to the gross margin. If you think about this business, this is a business with a low SG&A. So it's all about gross margin here And gross margin is providing the market with effective supply chain that creates a cost advantage for us in the market and for the customer. So with 45% and Jay said 46% by 2020, we feel this business has a bigger capacity to deliver on a gross margin, but more so, Matt, is down the P&L with very low SG&A, okay. So we are actively, actively pursuing more partnerships and with all kinds of different companies, either for distribution of the drug, for augmentation of portfolio, for the design of these generics, which is the case of hard-to-make oncolytics with ScinoPharm or just capacity to develop the API new formulation with Dorizoe. So it's all in – when you put together, it is a business. It's a core growth business for us, which is the definition is, has better gross margin, better growth rates, change to vector growth and also impacts our operating income and our EPS.

Thanks, Joe, some helpful perspective. And I just wanted to follow up on the Fluid Systems business. That continues to perform very well. I know you've been saying it kind of gets the trophy every quarter for best-performing business. And I just wanted to understand some of the dynamics there between, I guess, the competitive environment and share gains, how you're doing on pricing, and some of the pull through. If maybe you could touch on those things to understand how much longer you can continue to grow above market like this? José E. Almeida: Well, if you think about the Fluid business in general, we came back to the market with an effective pump strategy. We have probably 22%, 22.5%, 23% market share in pumps and where we are today, and I'm talking about the U.S. per se. So let's focus on the U.S. as the Fluids business outside the U.S. is completely different characteristics and profit profile. So the pumps in the U.S., the SIGMA SPECTRUM, we have a nice momentum on product development. We're going to be launching the new revised version of SIGMA with auto-programmable functions and other features next year. And then we have a pathway all the way to a new platform not too far in the future. That is the foundation of creating momentum in terms of our Fluids business. Fluids themselves is all about capacity and quality. And right now I feel confident that we're working very hard on both fronts. So we have product availability as much as we can and we're augmenting capacity, we're validating new lines in our North America planned footprint. So the ability to provide product to the market at a higher rate is one that will determine in the future our ability to continue to grow. Remember those products are not sold in the spot market. Those are created through contract and those are long-term contracts. So as long as Baxter has the capability to continue to provide those long-term contracts where price escalation is built-in. Second, we have invested in the right capacity, meaning what is the right capacity – it's capacity in the right places and we are. And we maintain the quality required by the FDA. We will be continue to deliver on this business. Clearly there is a point where there is a reduction in growth just by the sheer volume of products that we make. We're number one in the market in terms of solutions. So we would expect this business to taper off a little bit in growth but our expectation is, as we continue to augment capacity, we continue to gain market share. And I think this is something that our team here in North America is doing a significant amount of work and will continue on to be able to provide products to our customers.

Great. Thanks for the thought.

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

Good morning. Thanks for taking my questions and I'll echo the earlier sentiments on another good quarter, guys. Let me start with the 2020 margin – operating margin target. Could you talk about how you thought about that target in 2020? Is there some conservatism baked in? Is there room for further expansion beyond the 20% in 2020 – beyond 2020, I'm talking about and how should we think about the path to 20%? Should we think about it linear between 2017 and 2020? And I did have one follow-up. Thanks.

Okay. Larry, thanks for the question. Overall, from a margin standpoint, the first comment I would make is we do not believe that 20% is the peak. In fact, as we share our guidance in May of next year we'll extend beyond 2020. And you heard Joe make some earlier comments about a business' life, our injectables business, there's incredible excitements around that in part because of the higher margin those businesses carry than the Baxter corporate average. So as we move from 2020 to beyond, we start to get lift from mix and innovation really, really accelerating and helping the margin improvement. In terms of how we develop the target as a conservative or not, it's the same methodology that we've used over the last three years for developing our long-range financial planning commitments. Specifically, we have programs earmarked from a bottoms-up standpoint that sum total to 20%. In the past, I've talked with investors about outside-in and comparing to competitors and using that as a basis. But for us, we've never done that. We've always done bottoms up initiative by initiative. And so we know exactly how we're going to get from where we are today, 15.5% to 16%, to the 2020 target of 20%. And, in fact, as we leave this call, Joe and I will be going to a zero-based budgeting meeting where we will be reviewing many of the savings initiatives that support this 2020 objective. As far as the linearity of this, I don't want to get into guidance discussions for 2018 at this point. What I will tell you is, it is now like there's 300 basis points of improvement in a particular year. It is fairly balanced. But again, I'll stop short of giving annual targets for margin improvement.

That was, I guess, on the guidance. My follow-up question was just on the 4% CAGR. What's the – on this revenue, what's the definition of that? It includes Claris, but it doesn't include other business development. And I did hear you say, Jay, that you expect, or maybe Joe, accelerating above for as you come to 2020, my question was going to be around how to think about 2018, anything different from 2017? Should we be thinking about it in a similar way? Not sure if you're willing to kind of give us some of the puts and takes at this point. Thanks. José E. Almeida: Hi Larry. The way we think about the top-line is the following. Our weighted average market growth rate, or WAMGR, is about 3%, okay. So we have a 4% plan which is significant amount of new product launches, geographic expansion, things you're putting in to grow above market. Primarily not growth categories, oaky, as we outlined in our presentations in the past. We call core growth. When you look at how to get to 5% is basically execution, excellence on those initiatives and the risk in those initiatives. So the more we de-risk our initiatives, the more we fill our bullpen of new opportunities, we can possibly get to 5%. It's a stretch, it's not easy, and I'm not saying we're going to get there, but we have a lot of Baxter people probably listening to this call, we are getting ready to get there because we're executing., we're doing everything we can. We brought good people from the outside with excellent people from inside, and we're mixing our teams with very good execution people. So we have a possibility to get there. But right now we feel that with all we have on the table, 4% is adequate for our shareholders to model our growth going forward. But we're working hard to get to 5%

Thanks for taking the questions, guys.

Thank you.

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

Good morning. Just two questions. One short and one longer-term. Jay, maybe you for the short-term question. I think about the second quarter and back half of the year from an organic growth perspective. So momentum slowed a little bit in the second quarter, but your guidance implies a fairly material acceleration in organic growth into the third quarter. And then you have the easy comp in the fourth quarter. So I think about the 5% guidance at the top end. It looks like if you can do the third quarter, frankly, you'd more than do that in the fourth quarter. So could you just help us understand the acceleration into the third quarter, and how you think the third quarter will play out in terms of your back half of the year growth guidance?

Sure. One important point relates to Claris, and so as we think about the growth rate for the third quarter, there is some benefit from Claris, roughly $15 million in the third quarter. Or actually is it $15 million or $20 million do we say?

$20 million.

$20 million, sorry. $20 million in the third quarter, so that's one item. As far as other areas, there is some acceleration outside the U.S. and part of the business outside the U.S. relates to tenders. So as we look at some of our regions, our EMEA region, our Asia-Pacific region, we do see a sequential growth from Q2 to Q3 based on the timing of tenders, which is a little bit different than we've seen in prior quarters and years. So really that is one of the factors that drives this acceleration into the third quarter. And then, of course, we had a solid Q4 last year. So that factors into our math.

Okay. That's helpful. But can you sustain those levels, sorry Jay, into the fourth quarter? But then the comp gets a little easier. It just feels like whatever you deliver in the third quarter, you should be able to do consistent growth in the fourth quarter just based on the easier comparable.

Again, we also have cyclo which tails off a little bit in the fourth quarter, so that's a factor as we look at pure constant currency growth. So that's another element to consider. I think as we look at the second-half growth, we feel confident in our ability to achieve it. There are some nuances between Q3 and Q4 related to timing of tenders' performance in Q4 cyclo. But on balance, I think it's consistent with what we've expected. And like I said, we feel confident in our ability to deliver it.

Okay. Thanks, Jay. And then two long-term questions first. Jay, I'll start with you and then finish with Joe. So, Jay, I don't know if you can give an EBITDA margin guidance update on this call. I think you initially had said 24% to 25%. Obviously, the EBIT margins are fantastic. So if you think about EBITDA in 2020, just given the tremendous improvements you've had on CapEx and the impacts on depreciation, how do we think about EBITDA guidance in 2020? And then for Joe, I think all these questions about organic growth on the call are trying to get to sort of one question which is if you can do 6% operationally in the third quarter, are you really saying you're going to see some deceleration in the business intermediate-term before you get acceleration into 2019 and 2020, or are we just making more of this than we should be and these numbers may be a little conservative? Thanks so much. José E. Almeida: So let me start with your question and Jay will talk to you about EBITDA. One of the growths in the quarter-to-quarter basis is about comps from the previous quarter. We need to look at sequential and we also need to look at sustainability. So we feel comfortable with the long-term being 4% because we look at how our programs are being factored into the growth and also the tenders that we have. Remember we have a static business in terms of products that we sell. And if we're out of a tender, we're out of a tender. This is the issue that we had in Europe in the last 18 months is we're out of spme tenders because we didn't want to bid. When we get back in, it guarantees the business for…

David, the EBITDA margin in 2020 is approximately 26%.

Okay. Thank you very much. José E. Almeida: You're welcome.

Thank you. And our next question comes from Isaac Ro of Goldman Sachs. Your line is now open.

Good morning, guys. Thank you. First question on the long-term guidance. I was just trying to go through some of the moving parts that were yet uncovered and one was on share count. I just want to confirm that you're assuming that you believe perhaps in a share repurchase offset – options solutions but not assuming that there will be a meaningful net reduction in share count through 2020. Is that sort of the right way to think about it?

That's exactly right. In our modeling, we've held share counts flat to 2017 levels.

Okay. Great.

And underlying that is an assumption about a certain amount of buyback. But the result of that, given the very strong cash flow generation of the company, is a serious positive net debt or net asset position as we look at cash relative to growth stat.

Right. Great. That's what I was getting at. Thank you. And then a follow up on just a couple of the product specifics. Biosurgery, you guys mentioned the slight decline there. But I think you also talked a little bit about how your pretty strong pipeline is in 2018. So I'm just trying to handicap how we should think about the recovery to growth. Is it going to be sort of a sharper inflection towards this time next year or could we see an improvement sooner than that? José E. Almeida: So we have a significant amount of activity going on at the end of this year and into 2018 for biosurgery. What is affecting us today is the performance of the Synovis acquisition products. They were made by the company a few years ago. Those are products that are legacy, there are very little improvement to those products to be made, and what we are focusing on our hemostats and sealants, the base business of Baxter which just in one category, just the FLOSEAL alone is growing 7%, okay. So that is good growth there. So for us to return to a market growth rate, this is what we expect to do in 2018, okay. And then we look forward to some augmentation inorganically speaking into that business that will help us deliver more pipeline in some adjacencies into the surgery business. I'm quite confident in the delivery of this new products. They are not homeruns, they're singles and doubles, but just reignite the innovation that the company has not delivered in the past years. And just the new management into that business is really instilling the innovation part quite a bit. That's why we're having so many things happening next year. We have launch of new forms of FLOSEAL, new applicators, new geographic expansion. So will get back into this game in a good way and beginning to see that transformation in 2018 in terms of getting to market growth.

Got it. That's very helpful. Thank you, guys. José E. Almeida: Thank you.

Thanks, Isaac.

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

Thanks. Good morning. Can you hear me okay?

Yes.

Great. Good morning. So just two quick things since a lot of questions have been asked. Joe, I was wondering if you could talk a little bit more about some of the leadership changes this year referring to on this call. Just in terms of kind of when that happened and maybe a little bit more on the folks that you're bringing into the company? And then I have one quick one for Jay to follow up. Thank you José E. Almeida: Yes, Bob. We had an organization that was – had international businesses all concentrated under one person. When this person retired was an opportunity for us to really take a look and say, I don't like to concentrate 60% of our business with very different profiles under just one person. So bringing Americas under Brik, very experienced leader with Baxter. And Cristiano Franzis who worked with me before, and Andy Frye, who comes from a large distributor in Asia, and before that Abbott, who give us a great execution lever to focus on those regions instead of just have one person looking at everything but the U.S. It's just a philosophy and a proven theory that I have that when you divide the world in the right regions, you have people focus on those regions, not only the top-line, but also the EPS per region. The other, Sumant is a great technology and research and development leader, comes into the company with significant experience as we have ambitions to continue to grow our pharmaceutical business. Sumant brings a wealth of knowledge and experience into this area. And I think the Street's familiar with him, and he worked for Hospira before and then Pfizer. We are really excited about that. And Giuseppe moving up to have a global role in terms of managing our product franchise in terms of innovation as well as upstream marketing, and working closely with our M&A group to make sure that we have the right inorganic opportunities in place, makes this team pretty strong. On top of that, we brought Dennis Crowley who used to work for me before in M&A. Dennis really brings a strong background in acquisitions with him. There are a couple more team members that came to Baxter. So we're augmenting where we need. You never say you're finished. There is no finishing line when you manage a company. But we think today that we confidently have a strong team amongst our peers.

Great. That's helpful. Thank you. And then just to finish, Jay, previously in your LRP you gave specifics on 2018 and 2020 for top-line growth. And we've talked a lot about top-line growth here. But I'm just curious if maybe you could talk a little bit more about the cadence of operational revenue growth over the course of the LRP. And you've mentioned growing above 4% in 2020. Is there a more specific target for 2020 that you'd be willing to disclose here? And I guess just a question on cadence.

Yes, again, for us, the relevant number is the 4% over the period. As we approach the back part of this long-range plan horizon, you start to see the impact of innovation and annual rates ticking the 2020 rate is a little bit above the 4%. And then as we look at 2018, there are a few different factors in play that impact that. You have the full – a annualization or some – a part of your benefit from Claris, but you also have an assumption around cyclo competition that we will be taking. And then also the impact of innovation in 2018 is not as great as it is in the latter part of this plan period. So a number of different factors. We'll stop short again today of giving annual revenue guidance because, again, there's a lot of puts and takes as we approach 2018.

Great. I appreciate you taking the questions. Thank you.

Thank you. And our next question comes from Joanne Wuensch of BMO Capital Markets. Your line is now open.

Thank you very much for taking my questions. Many have been answered already. Briefly, could you please give us an idea of how the cyclophosphamide competition you expect will be annualizing over the next couple of years? You briefly mentioned the impact in 2018, but you have a better line of sight on the competition than we do.

By 2020, we have a fairly small cyclo business, so we expect this winding down very significantly from the current level to a 2020 number, and that occurs – starts to occur at the end of 2018 – or 2017 as a result of incremental competition on-boarding. But I will tell you this is one that we have frankly been surprised by over the last several years. The level – the number of competitive entrants has been fewer than we originally modeled in 2015, than we modeled again in 2016. So it's best for us to keep watching this one. We'll provide an update on cyclo guidance on our January earnings call certainly, and again as we approach the balance of this year in next quarter's call. But it's hard to say what's ultimately going to happen. What I can tell you is we have a fair amount of competition that's assumed by 2020 with a fairly de minimis business left in cyclo at that point.

That's helpful – and that's my follow-up question. There's no doubt you have a lot of cash that you can deploy, and yet I feel like investors are waiting for you to do so. What does it take internally for you to pull that trigger? What kind of conversation does it – has to happen? Thank you. José E. Almeida: We have a lot of conversations. What it takes is to have the right strategic target. You've got to make sure that you are returning money to the shareholders. You can't just make an acquisition and think that internal rate of return of 7% is good enough. Maybe it's good enough for a few investors. For the majority of investors, that is below our long-term WACC, and that is not something that responsibly we will do. We will select the right targets. We are doing it as we speak a significant amount of work. But I said to you, we're going to deliver value no matter what, either through acquisitions and as well to share buybacks. So I feel comfortable on both ends of the scale. We didn't discard large acquisitions at all, we're just going now after everything that we can look at that makes sense for Baxter, okay. With a better team in place, we're looking at a much more agile process to get to our targets and as well as the amount of balance sheet capital that we have today, the ability to raise capital organically to get there, we will return money to the shareholders. So it's a win-win because we have two good avenues and we can do both at the same time.

Wonderful. Thank you so much. José E. Almeida: You're welcome.

Thank you. And our final question comes from the line of Danielle Antalffy of Leerink Partners. Your line is now open.

Yes. Thanks so much. Good morning, guys. Thanks for taking the question, and congrats on a great quarter. Jay, I was hoping you could give a little bit more color on what's driving the operation – the increase in EPS guidance? How much of that is coming from FX in the back-half of the year versus Claris versus better operational performance? And then I have one follow-up.

Sure. The prior guidance, the midpoint of the range was roughly $2.24, and as we think about the current midpoint, it moves to $2.37. There's a few drivers. The over-performance that we experienced in Q2 contributes roughly $0.07. The tax rate, improvements in tax is roughly $0.03. Cyclophosphamide is a couple of pennies of impact. FX is $0.01 and Claris is $0.01. So if you add those up, it's roughly $0.14 versus the midpoint of the last guidance range. About half of that speaks to the Q2 performance with the residual relating to other aspects of the business.

Okay. That's helpful. And then my follow up is on long-term perspective. Some of the higher profile pipeline products, specifically the on-demand PD products. Just wondering how you see products like that coming to play and driving that 4% CAGR through 2020. How do we think about the on-demand PD product for your Renal business? Is that something that takes penetration in your view from 12% to 14% in the U.S. today to some number significantly higher? Is it more a pricing play? How do we think about that impacting the Renal business and how much that contributes to your long-term guidance? Thanks so much. José E. Almeida: You're welcome. Our on demand product is on track. We see this as access to PD. We have modeled the penetration and how it's going to behave in the marketplace. I think it's a little too early for us to give you that information as we are starting our clinical trials next year. And we will be having this product on the market probably by 2020 once the clinical trial is finished. The plans that I've seen, I've seen a rapid succession of improvements to the product which makes me very happy in terms of R&D. I feel that it continue to improve the product as it launches. Our philosophy today versus the old one is we launch products faster with possibility of improvement as we go along to provide more value to the customer instead of getting and waiting for the optimal product with the most features to come out because what we find is highly featured products are not the way forward for an efficient health care system. So we want to make sure we have in the product what is needed and not what all the features that we…

Okay. Thanks.

Thank you. And that concludes our question-and-answer session for today. Ladies and gentlemen, this does conclude today's conference with Baxter International. Thank you for participating, and have a great day.