Good morning, ladies and gentlemen and welcome to Baxter International's Second Quarter 2018 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, Candace. Good morning, and welcome to our second quarter 2018 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 2018 financial results along with our updated financial outlook for 2018. A supplemental presentation to complement this morning's discussion can be accessed on our website. This presentation along with related non-GAAP reconciliations can be accessed on Baxter's external website in the investor section under Events & news. With that, let me start our prepared remarks by reminding everyone that this presentation, including comments regarding our financial outlook, new product developments, business developments 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 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: Thank you, Clare, and good morning to everyone joining us. I'm going to share a few comments on our second quarter performance. Then Jay will walk through the financials and guidance in more detail. And we will close as always by taking your questions. I would like to start by saying how energizing it was meeting with so many of you face-to-face at our investor conference. Thanks also to those of you who attended…

Thanks, Joe, and good morning, everyone. As Joe mentioned, we're pleased with our second quarter results, which represented another solid quarter of continued momentum. I'll start by discussing our second quarter results before providing our updated financial outlook for 2018. Beginning with the second quarter, global sales of $2.8 billion were in-line with guidance, increasing 9% on a reported basis, 5% at constant currency, and 4% on an operational basis. Key growth drivers for the quarter included increased sales of injectable pharmaceuticals, strength in the company's Renal Care and Acute Therapy businesses, as well as solid performance from our compounding and contract manufacturing businesses. And as Joe discussed, growth was partially offset by performance in our Medication Delivery and Clinical Nutrition businesses. On the bottom line, adjusted earnings increased 22% to $0.77 per diluted share. This exceeded our previous guidance of $0.69 to $0.71 per share, driven by solid top-line performance, the ongoing benefit of our business transformation initiatives, a lower than expected tax rate, and other income. Now I'll walk you through performance by our regions and global business units. Note, for this quarter, constant currency sales growth is equal to operational sales growth for all businesses with the exceptions of our Pharmaceuticals and Advanced Surgery businesses. For these businesses, we will provide operational growth, which adjust for the impact of generic competition for U.S. cyclophosphamide as well as the Claris and Mallinckrodt surgical product acquisitions. Starting first with sales growth for our three regions, sales in the Americas advanced 6% on a constant currency basis and 4% operationally. Sales in Europe, Middle East and Africa grew 3% both constant currency and operationally. And finally, sales in our Asia-Pacific region rose 6% on a constant currency basis and 5% operationally. Moving on to performance by global business units. Global…

Thank you. We will now begin the question-and-answer session. 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 with the opportunity to ask a question. We'll 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. And our first question comes from the line of Bob Hopkins of Bank of America. Your line is now open.

Okay, thanks. Can you hear me okay?

Yes. José E. Almeida: Yes, we can.

Great, great, great. Thanks a lot for taking the questions. I just wanted to start out with a question on revenue growth in the quarter. And I think I basically heard three areas where things were a little slower. On the LVP side, you talked about getting new customers, on the Med Delivery side about tight supply, and on the Nutritional side about delay and sort of post-hurricane situation there. Can you just kind of qualify those three things and their impact on the quarter, and then talk a little bit more specifically about when you expect those things to be fully resolved? It sounded like they'd be fully resolved by Q3 or during Q3, but I just wanted to be sure. Thank you. José E. Almeida: Thank you, Bob, and good morning. I'm going to break the question into three areas so it becomes easier for us to speak about. LVP is a large volume parenterals. We have categorically not lost one point of share or one customer. We just were slower to convert new beds. We are converting new beds. As a matter of fact, we convert significant amount of beds, but late in the quarter, did not feel the effect. We also had just taken a large OEM customer from a competitor, and we did this just now in early July, okay. So we were not fast enough coming off the hurricane. We got our volume repositioned. We got our supply chain with significant amounts of flexibilities, and we do have now the ability to direct our volumes not only to the U.S. but at anyplace in the world that we need volume. So that I feel very comfortable. Our team's just taking a little longer, and I feel that we're going to be able to get there in the second half. Just so you know, there was about 16% of growth in the first half of the year in LVPs. So you know, 16% growth in the first half of the year. We slowed in the second quarter, probably some bleed of inventory, and now we're slow, and we were slow in picking up new customers, but categorically speaking, we have now lost one customer and one point of market share. When it comes to SVPs, or small volumes parenterals, but – do you mind to mute your line? There's a – thank you.

Perfect

Thank you. José E. Almeida: Thank you. The SVPs. We are in tight supply level, recovering now quite fast. So these are Mini-Bags and Mini-Bag Plus. These products are designed to reconstitute pharmaceutical APIs, okay. So we were now in channel, meaning Cardinal, Owens, and Medline, people who distribute our products, now we have Mini-Bags into that channel. Mini-Bag Plus is not yet there. It's going to get there in September, meaning that when it gets in the channel, you get volume because some of these customers will not buy directly from us. But we had to take them off the channel because we are in short supply. So we also are putting these products in more than 100% allocations and we hope by the end of the year, early next year, Mini-Bag Plus and Mini-Bag will be off allocation. So a point on allocation. LVPs are 100% out of allocation. No more allocation for LVPs. Let's now cover the Nutrition. The Nutrition side is the part we had the worst supply issues during the hurricane, those amino acids and other nutrients. Those are slow – we're feeling those are slower to pick up. Those are practice changes in hospitals. We are market leaders and we feel that they will probably be the slowest ones to pick up on the ramp-up curve. It's the smallest business that we have among them all, but we feel confident that in the next six to eight months, we'll be able to get back into a course. It's a slower process to recover than the SVPs and the LVPs. I hope that has clarified some of the questions that you and some of your colleagues may have in this area.

Yeah, definitely helpful. Just curious, Jay, if there is any kind of quantification of these three issues. And to sort of summarize all that I just heard, it sounds like the majority of all of these issues will be resolved this calendar year? José E. Almeida: Bob, this is Joe. It is correct. In terms of quantification, we prefer not to get into the number of customers and things like this. I just gave you just a bit of a reference. We will probably convert approximately 4,000 beds in the second half of the year, okay. And we did about the same number in the first half, but most of that happened in the first quarter, not the second quarter. But just giving you the numbers for reference, and we'll stop here.

Great, thank you very much. José E. Almeida: You're welcome.

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

Hey, guys. Thanks for taking my question. So maybe I'll start one on the guidance here, maybe just one clarification on some confusion on organic operational numbers in the Q. Operational was in line with how you guys were expecting, right? It's just cyclo came in a little bit better for the difference in how we do the math right. I wanted you to clarify that. And the guidance now for the year, given the 3Q operational growth guidance, that implies a big step up, high singles for Q4. Can you just walk us through on what changes in Q4?

Yeah, just to give a little context on our overall sales performance in the quarter, generally speaking we were pleased. Our operational guidance, which excludes the impact of cyclophosphamide and it also excludes acquisitions that we've undertaken, was 4%. The guidance that we provided was 3% to 4%. So sales came in strong. I think probably the most important aspect of Joe's commentary was the diversified nature of the portfolio that we have and the fact that we were able to offset some short-term challenges with strength elsewhere in the portfolio. Now, moving to the back on an overall annual basis, our guidance operationally is 4% to 5%. And again there is a meaningful step up in the fourth quarter. The third quarter we guided operationally to 3% to 4%. Now, you'll recall last year we had a settlement with a compounding customer, which was about $20 million or 1 percentage point of growth. So that's one of the elements that takes – this Q3's a little bit more challenging for us, driving this 3% to 4% growth, which, again, organically we're in line with our expectations. And then going to Q4, we do have the $70 million hurricane impact that's included in our numbers last year. So you will see, the fastest growth of the year we expect to take place in the fourth quarter.

Got you. And then just one on margin stuff, Jay. So the guide for the year is – call it low 17s, right, and if I go back in a long-term guidance rate, so we're looking at north of 20% for 2020. So that would imply a 300 basis points margin expansion between 2019 and 2020, right. So that's a step up in margin expansion. When you're looking at 2019, 2020 versus 2018, I mean, maybe just talk about what would cause some optimism on the margin expansion side for 2019 and 2020. Thank you.

Yeah, look. We are extremely pleased with the margin progression of the business and this is very much in line with the expectations that we've outlined, and this is tracking very well. You'll recall, Vijay, at the spin-off we had a 9% or 10% margin. We outlined specific plans to take that to 17% over the course of three years, but we also recognized in the 2018 timeframe, there would be a number of headwinds that we would experience with respect to things like cyclophosphamide, the sunsetting of transition service agreement. And so if you were to adjust for those items, the 80 basis points to 100 basis points that we expect this year is a number that's much higher than that. And so as we get some of these factors behind us in 2019 and 2020, we have clear line of sight, plans and expectations to drive the margin consistent with what we shared targeting the 20% to 21% by 2020. I'll remind you that when we put together the long range plan, there is no sort of unidentified item in the plan in the sense that every single cost program is delineated and specific included in our numbers, so there's no unidentified go-get that we have to get after. It is simply about executing the plans that we've laid out, managing against that.

Very helpful commentary, Jay. Congrats on a nice Q.

Thank you. José E. Almeida: Thank you.

Thank you. And our next question comes from Robbie Marcus of JPMorgan. Your line is now open.

Oh, great, thanks for taking the question. I wanted to talk maybe if you can about the Pharmaceutical businesses. That was one of the standouts there. Particularly, cyclophosphamide revenues going up for the year and a difficult comp in the U.S. business as there was the Transderm Scop benefit last year. So maybe talk about some of the underlying trends there and how sustainable that is. José E. Almeida: Robbie, the strategy in Pharmaceutical is one to use the strength of the company in its formulation and drug-delivery technologies, and it always comes back to our ability to make products consistently like cyclo, like BREVIBLOC, and other drugs that are – the generics and the competition is coming, but people have a hard time consistently making this product. So hence the strategy that we've placed in front of you guys in our Investor Day in May. It's important that we continue to expand our Pharmaceutical business in tough-to-make molecules, cytotoxics, oncolytics, because despite the fact that other people have the desire to get in, they don't make it consistently. So right now, there is another competitor in cyclophosphamide in the market. In BREVIBLOC, there's one coming in the month of September, and we plan another one coming in cyclo at the end of the year. As you can see, we continue to sell cyclophosphamide. We haven't seen the one that was approved come into the market. I think it's just a matter of time, but we have the advantage of having a consistent production of this product, and I think our team here in the U.S. has done a wonderful job really creating the commercial opportunities to make this business more reliant on us than other people, and more resilient. As you can see, this business – we had spoken about this cyclophosphamide issue two years, three years ago, and we're still making the product and making a lot of money when we sell it, and we will continue to do it as long as the competitors are not getting or hesitant in getting the market. But I want the folks to understand that Baxter has unique capabilities and that's the reason why we're doubling down in Pharmaceuticals. We – now, at this moment in time, we are planning for a second cyclo to come in – I'll say third, because Sandoz is already on the market. Another two coming in, one just came in, another one at the end of the year, and BREVIBLOC coming in September. Those numbers are baked into our forecast and estimates.

Okay, great. And then maybe just a quick follow-up for you or maybe for Jay. At the Analyst Day you laid out your capital allocation plans, but even just since a few months ago, continue to generate strong free cash flow. That guidance is moving higher. Your stock price continues to move higher and so do other asset prices. So maybe in that context, give us your latest thoughts on how you plan to use your capital and maybe timing or expectations around that. Thanks a lot. José E. Almeida: Thank you, Robbie. Listen, our intention is, it's very easy to buy shares back and we have the cash and we've been doing a good job at that. But our intention, working very hard, is actually to deploy capital in acquisitions that will positively impact the business. And we have three thresholds that we have to cross when it comes to acquisitions. One is sustainable revenue growth. It has to be accretive to Baxter's growth at minimum, the strong market position and leadership, and accretive to Baxter current margins, and clear path to drive margin improvement. So – and this is not about size. It can be a niche or it can be a large market company. We are looking at a significant amount of opportunities as we speak to expand Baxter's adjacencies and even looking at other opportunities that are at the moment variable. So we want to make sure that we deploy the capital with the returns that the market can count on Baxter to return. Our execution is starting to get really good. Even with the setback that we had on the 483 of Claris, we're executing on that business extremely well. Not only that, we not only covered a vast majority of the things that the FDA wrote us up for, but also, have improved significantly the operation and capacity at the plant and you can see, we're up 20% on sales that came into Baxter as an acquisition. The same thing with Mallinckrodt. So we're starting to get the execution in Baxter now with an SG&A between 21% and 22% and probably next year going sub 21%. We will be able to integrate much better acquisitions in our systems and everything else. So we need into to find a good opportunity for Baxter. We're looking forward to do it, and we have the capacity and the capability to do so.

Thank you. And our next question comes from Larry Keusch of Raymond James. Your line is now open.

Thanks, good morning, everyone. So, maybe, Joe, just to start, if my math is correct here, it looks like the U.S. growth accelerated in the 2Q from the 1Q, so maybe just some thoughts on the U.S., how the environment feels? José E. Almeida: The environment is not bad. I think you still have low single digit growth, but consistent growth. We see no less admissions. You always have the seasonality in the mid of the summer, people will not voluntarily sometimes go through full procedures, and this is not a heavy time of the year primarily for most of the Baxter products which are related sometimes to flu and heavy hospitalization in general. But we see the U.S. market as a healthy, healthy market, with – continuing to see consolidation on the provider side, and I think a lot of movement in the payor provide area. So – but in terms of population, being treated is a healthy market and it's a good market to be part of.

Okay. Perfect. And then just the other question is clearly, new products are important for the second half of the year. I think that's embedded in your guidance that you'll start to see some revenues here. Can you just again give us some thoughts on the status of those new products? What are the drivers? And I would assume that it would be mostly weighted towards the fourth quarter. Thank you. José E. Almeida: Yes. Let me start with the Kaguya launch in Japan. We are excited about that. We're slightly ahead of our plan, to the point that we had actually to accelerate some purchase of production equipment at our partner to be able to supply the market. So it is a super exciting market, Japan, because it's a high paying market with very, very low penetration of peritoneal dialysis, so we're starting to see some good movement there. We just launched our Spectrum V9 in the U.S. We've converted one account, and a significant prospect of accounts coming up. So this is – our U.S. team, our Scott Luce and his team in the U.S. need to execute now in the second half, bringing new customers and some conversions to the table. On the V9, Evo IQ, and – it's out new pump outside of the U.S., the first time in I think 15 or 17 years since we launched a new product outside of the U.S. when it comes to pumps. We're going to not only secure our current base of products in the UK, Australia, New Zealand and Ireland, but we also plan to gain market share there. So we have now an install base of COLLEAGUE pumps, a name of the past that is still being used outside the U.S. And this product was launched in partnership with a company outside of the U.S. We were able to bring this product to the market with Baxter trademark points, meaning some of the features that we have in our pump is built into their product in 18 months. So we're excited about that as well. We have PRISMAFLEX in Japan. We're now a comprehensive player in Japan. We also have Prismax in Europe in Q4, and more stuff coming in 2019. So we're excited about – this is a Baxter that we haven't seen in many years with so many launches. Now it's on us to execute.

Okay, terrific, thank you. José E. Almeida: Thank you.

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

Hey, good morning, guys. Thanks so much for taking the question. Just wanted to follow up on Robbie's question regarding potential capital deployment and M&A. There's a lot of possible assets out there and potential adjacencies where you could fill some product gaps or potentially go even bigger. And I was just hoping to get a better sense from you guys on what does make the most sense strategic strategically as it relates to adjacencies? So some examples from the Analyst Day is you're getting back into nerve repair. Is it kind of building out specific areas like that? I mean, can you give any more color on where the priorities are as it relates to parts of the business from a BD perspective? José E. Almeida: We have presented to you the adjacents that make sense to us, right? So we're strong in hospital. We're strong in home. So we have the channels. We have the key account management, but also, in terms of bringing synergies to the market, we have the capability now with one of the industry's lowest SG&A, okay. So I feel that we bring that part and we also bring the commercial ability to grow businesses. We like parts of surgery, but more so we like hospital supplies. We also like some niche products into the doctor's office and areas that may bring some of our expertise in all these settings. So we now have some very interesting things that we're looking at. Some a little different than others, but it's not a lack of desire and a lack of opportunity. Now – and then boils down to value, and hopefully we can cross that bridge because value is one of the things that we continue to be focused on, despite the fact that we need to meet three criteria that I just outlined before at Robbie's question.

Okay. That's fair, and just one follow up question on the long range plan as it relates to sales growth guidance and operating margin expansion. I mean, in this quarter you saw another nice step up in operational sales growth. Seems like you're heading in the right direction. Just wanted to get a feel from you on your confidence in achieving the long range plan based on these results, as this is the first quarter you've reported since updating that in May. Thanks so much, guys. José E. Almeida: Thank you. Long range plan, as it says, is long range, so we still – we remain confident in our ability to meet those numbers, first of all. For several reasons I outlined a series of new products we're launching and our effectiveness in doing so. We also have market share leadership in many areas of care that we participate. So one quarter doesn't give you the right picture for the long arrangement, because if you think about the mix of products that Baxter's going to have in 2023, it's going to be different than what we have today. So it's going to be focused on 100 plus molecules in pharmaceuticals. It's going to have significant presence in the ICU. It's going to be in the specialty monitoring with our pumps. So things that we don't have today. So our confidence in achieving the plan on the base business is solid. We have no questions about that. The part that we need to execute and we need to launch, and I'm feeling confident because the amount of products coming onto market is the technology and the innovation. And the third piece of it is really capital deployment, so we can get that thing done correctly and continue to augment, because I'm starting to feel more confident in our ability to take really tough stuff like Claris and turn things around, and actually use that asset as well as tuck-in acquisitions. But I feel comfortable with a solid confidence on our LRP.

Thank you.

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

Good morning. Maybe just one quick one for Joe and then a follow up financial question for Jay. Joe, just coming back to Medication Delivery and the comments around customer acquisition speed, is the ability to acquire new customers or supply those new customers, is that being impacted in any way by better supply by competitors or any changing pricing dynamics in the saline market? José E. Almeida: We'll start, David, from the end of your question. No, no price dynamics. These are long-term contracts. As a matter of fact, of the three GPOs that are in the market today, the largest ones, we have two already re-signed with us, and we're going to continue to re-sign customers under them, extending the longevity of these contracts. So – and the prices built in is a modest increase just to maintain with inflation or maintain up to a certain index. So it's not the pricing that will change the dynamics, at least in the next four to five years, because the contracts are five, and some have extensions built in that go up to seven. The availability of other competitors, I would assume that one of the competitors, which had a significant issue with capacity will come back to the market. I don't doubt that, but the contracts are locked, so for us, right now, we're picking up beds that are available, but also importantly is to supply what most of you probably did not recognize is the large OEM opportunity that is out there, and we've just signed one not too long ago that brings a significant volume into Baxter from somebody else. And one that is locked is locked for many years. So – and everything, David, has to do with consistency of manufacturing and distribution, and I feel absolutely comfortable with our plant in North Cove doing a wonderful job, really a wonderful job. A plant manager came in, Jon Rushford, about a year ago and has really transformed the culture of that place. Secondly, getting the network in Latin America now to be flexible that I can ship into the U.S. if I need or I can revert back into Latin America or go to Europe if I need, and vice-versa. That creates a unique advantage to Baxter. Not putting any of our competitors down, but we bring a different dimension of supply stability and partnership to this market.

Okay, Jay. Very clear, and then – sorry, okay, Joe. And Jay, just a couple of dynamics. José E. Almeida: I'm surprised that you confused our accents. Jay has a New York accent and I have a Brazilian accent.

Well, I hold you both at the high esteem; you're the same in my book. So a couple things, Jay, just on numbers here. So number one, just – you're seeing a benefit, obviously, of some customer or competitive disruption in BREVIBLOC and the OEM business. We have that as sort of two points in terms of growth impact this year. Kind of – is that close, Jay? And when can we think about those dynamics beginning to reverse? And just a second, broader question, Jay, on guidance. Into the back half of the year, the 4% to 5% number, at the low end you have to have some modest acceleration to get there, obviously more at the higher end. Are you as confident at the higher end of the range here of 4% to 5% now as you were to begin the year? Those two. Thanks so much.

Yeah, certainly. On the guidance question, we are very confident in the guidance in the second half of the year. I think there's a few factors in play that sort of distort the quarters a little bit, one of which is the compounding that I referenced, one of which is the hurricane that I referenced. If you were to adjust for those items, really the piece that starts to contribute meaningfully are some of these new product launches, along with some of the customer gains that we started to see in the Medication Delivery business. So I think overall we feel quite good about it, and it's one of these areas where our line of sight to delivering the plan is as consistent as it's been. On the BREVIBLOC item, certainly that was a contributor in the quarter. We saw maybe $15 million plus in terms of incremental BREVIBLOC sales above plan. We do expect this to subside, as we have a competitor entering in September. So – and there are some use cases for this particular product which we believe will abate over time, but that's been a factor – that was a factor in the quarter.

And Jay, just the OEM quantification on the OEM benefit?

We don't really get into -

And on the revenue?

Yeah, in terms of OEMs – oh, I'm sorry. So there's two different pieces, right. Joe referenced this concept of OEM, which is sales of IV bags to other institutions that are not necessarily hospitals, right. We're going to stop short of quantifying that particular item because from our standpoint, we don't want to get into specific customer dynamics. As it relates to our other business, which did experience solid growth in the quarter, there were a number of factors going on with respect to what we call our B2B business, which is really contract manufacturing for others. We were able to generate a number of new customers, and then also we saw incremental volumes being sold to current customers. So again, good performance for us in the quarter from the "Other" business. It's something that we'll see some continued performance in that regard going forward.

Great, thanks so much.

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

Good morning, thank you guys. Joe, I wanted to come back to your earlier comments on the IV solutions' dynamic there, and the reason for asking is the marketplace – clearly, you guys have been able to bring back some capacity. You mentioned the long-term contracting, but I'm curious if given the supply shocks that we saw last year, if the nature of some of these contracting terms have changed at all to maybe incentivize vendors to ensure capacity or supply – I'm sorry, supply in future crises. And to be fair (55:47) that might be an advantage you can take to the market; is that something that's helped you win business? And to the extent that you might have new competitors coming in down the road to help you maintain that share and pricing that you talked about? Thank you. José E. Almeida: Isaac, it's very relevant. As a matter of fact, I don't – I think all of our future contracts, there will be some kind of clause that has guarantee of certain volume or more penalties if you don't provide the volume. And we like that, and now we're in a comfortable position because I think spot market sellers are very opportunistic, but they may not be able to provide for the longer term. I think with us on the LVPs and the SVPs, we are getting to a lot of contracts that have that language. I feel very comfortable on the LVPs. The SVPs, we're going to get more comfortable towards the end of the year and towards the mid to late 2019, we're going to have more Mini-Bag Plus capacity in a different location, as well – in two different locations; one coming up this December coming from Europe, and then one in the Americas, new capacity for Mini-Bag Plus that can be out there between Mini-Bag Plus and Mini-Bag. So for us, having capacity and long-term contracts assure us in a tough, tough situation that happens more often than people think, which is tough – flu season is already hitting places like Brazil right now. We need to have solutions, and last year it was a good lesson, I think, for the industry and for us in terms of how to be more prepared and have contingencies in place. We've been working very hard as well with the FDA to get redundancy for emergencies and things like that. But that plays a role in the contract because having that clause in the contract makes our customers more at ease with – in a situation of a crisis and allows us also to plan for the longer term.

That's helpful, thanks. Maybe just a follow-up on Claris. If I look at your comments in the 8-K regarding timeline, it looks like we have something like 6 months to 12 months before we'll get the next FDA inspection. Could you maybe just walk us through the top handful of priorities that you guys need to execute upon during that window to make sure that the next inspection goes well? Thank you. José E. Almeida: Well, we will not do anything much different than we've been doing in the last 12 months. We are relentless working in correcting all the observations by the FDA and things that we – as our Baxter quality system calls for, that was different before. So we are converting their documentation systems. We have rebuilt a significant amount of the plant. We have new air handling systems. We have a bunch of different things that we've been doing and preparing that plant really to be a great plant for Baxter. It is already doing well in terms of exceeding our expectations in sales in the short-term. But we have a backup plan if we cannot get to the new molecules fast enough. We're looking for CMOs that will be able to come in and get the APIs in so we can finish the product someplace else. So we do have backup plans for that, but I have to say that our quality team led by Jackie Kunzler, our operations team by Scott Pleau, they are squarely focused in making sure that that plant will do the best it can to have a successful series of inspections by the FDA. Because it's not one inspection, you have to have a series of successful inspections so we can get into the launching product phase of the acquisition.

Got it, thank you, guys. José E. Almeida: Thank you.

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

Thank you very much for taking the question. I'll keep it brief. First of all, Jay, can you quantify the impact on the P&L or the operating margins in the quarter from the recent acquisitions of Claris and also the Mallinckrodt products? And then second one is a larger picture for you, Joe, is emerging markets. Anything new in terms of the approach there, or can you give us an update on that area? Thank you. José E. Almeida: Okay. Let me take the emerging markets first, and Jay will close the call answering your question. We right now are looking at emerging markets of close to 5% our outlook for the year with a significant – and good growth in China, close to 8%. Eastern Europe, over 6% and Emerging Asia, close to 5%. I think – don't forget, we call emerging markets, but those are 23% of our sales, okay. So they're not as emerging as one may think. I'm particularly happy with China. I think China is a place that we haven't spoken much about. We talk a lot about Japan, but China is a country that within our long range plan we will exceed $1 billion, and we feel excited about that business. So I think the two-invoice system in China and how some changes in regulatory in China are not concerning, but are watch outs, but I think those are the things that the industry and us will overcome. It's still a significant opportunity. It's still a great market, and I think Baxter is well positioned because it has a strong team in China. So great leadership there. As a matter of fact, we're going to be there next week doing a Growth Summit to make sure we can get even more growth and new white space opportunities within our Chinese group. So now, Jay?

Yeah, great. Thanks, Joe. Overall we're pleased with the performance, as Joe mentioned earlier, of both of the acquisitions, the Claris acquisition and the Mallinckrodt. In the quarter, those two acquisitions contributed approximately $0.02 and maybe improved the operating margin of the company about 10 basis points, although there may be some rounding in that. It's a small amount. But from an overall standpoint, sales moving ahead in line with our expectations, and then the EPS impact very much in line with how we thought about these transactions earlier in the year.

Thank you very much. José E. Almeida: Thank you, Joanne.

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