Good morning, ladies and gentlemen, and welcome to the Baxter International Fourth Quarter 2019 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 rebroadcasted 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, Katherine. Good morning, and welcome to our fourth quarter 2019 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 fourth quarter and full-year 2019 financial results as well as growth comparisons to restated historical financial results as disclosed in today’s comprehensive 10-K filing. We will also provide our financial outlook for the first quarter of 2020. A supplemental presentation to complement this morning's discussion can be accessed on our website. This presentation including related non-GAAP reconciliations can be accessed on Baxter's external website in the Investors 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 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 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 US GAAP financial measures is included in our earnings release and available on our website. On the call this morning, we will be discussing operational sales growth, which for a historical period adjust for the impact of foreign exchange and generic competition for cyclophosphamide in the U.S. Operational sales growth guidance for 2020 adjust for the impact of foreign exchange and the acquisition of Seprafilm, which closed on February 14 of this year. Now, I'd like to turn the call over to Joe.

Good morning and thank you for joining us. Before Jay and I review financials for the fourth quarter and full-year 2019, I want to update you on our internal investigation regarding non-operating income related to foreign exchange gains and losses. As you know, the company and the Board have taken this matter very seriously. We move to address it quickly and comprehensively with the help of independent experienced advisors and forensic accounts. We also communicated proactively to the SEC and has maintained open dialogue with the commission throughout.

Thanks, Joe, and good morning, everyone. As Joe mentioned, our fourth quarter results demonstrate robust operational performance with solid growth across all six global business units and three geographic segments. Throughout the year, we delivered on our goal of growth through innovation and drove further benefits from our ongoing transformation initiatives. Moving into 2020 and beyond, we will continue to execute on our commercial strategies, while also invest in several initiatives to support accelerated growth opportunities.

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's website for 60 days at www.baxter.com. And our first question comes from Pito Chickering from Deutsche Bank. Your line is open.

Good morning, guys. Thanks for taking the questions. First one is on your manufacturing site. You talked about in the script that you guys don't believe in the issues with the supplies. Can you sort of go into more detail around where the majority of your raw materials are coming from? What percent of those are sourced to the China? And sort of why is that sort of not a risk in terms of be able to offset from the other supplier, ? And I’ve a follow-up after that.

Yes. So just to refresh, I think this is a little hard for you to hear you, Pito. So I think what you’re talking about is the overall manufacturing where we're at, where our raw materials are coming from, how confident are we in the supply chain, is that kind of summarize what you were asking?

Yes. Yes. And I apologize. On the cell phone, obviously.

Okay. Pito, good morning. And our raw materials come from a variety of places around the globe. Let me -- because your question has a specificity for COVID-19, I'm sure and our supply chain. So our electronics come primarily from parts of Europe and China. We're working very diligently and we're getting -- start to get components out of China. We have good safety stocks. We feel comfortable that towards late spring we will have enough -- for most of our products would have guaranteed ability of having products sold across the globe. So I'm not that concerned. So if things become really difficult in China, back to what was in January or February, then the conversation is different. But today, the way we're seeing the shipping lanes are clearing up, we're getting products into our factories, not -- don't feel that we're under tremendous amount of pressure now. What comes to IV bags? IV bags, the products are made for the U.S. are exclusively made in the U.S., meaning the raw materials are made in our plant in Arkansas. The bags are made in the Carolinas and we can also make bags down in Mexico in Cuernavaca. So that is a backup plant that we have set up since Hurricane Maria, and we can get -- we are getting products from there now, we can get products -- more products in the future. So our supply chain is we have probably 20, 25 components and raw material that we're watching very closely. But we have 24 hours coverage around the globe. Our procurement departments are set in many parts of the world. So at this moment, we feel that between APIs, which are also made in India and China, we have a pretty good grip in the APIs about the same of the electronics. You’re talking about late spring. If things get worse in China, that's a different conversation. But it was with what we know right now. We are comfortable with inventory levels and we can supply the demand.

Great. Then the follow-up question is going be a non COVID-19. Can you walk us through the manufacturing capabilities of THERANOVA at this point? How fast can that be expanded? Whether it's new lines of manufacturing sites? And how much would each of those costs and how many units would those create? Thanks so much.

So, Pito, we have the ability to date to make THERANOVA, okay? We can make high single-digit millions of that -- mid single digits in the millions of that, okay? We are starting in October, converting production lines from our current REVACLEAR to THERANOVA, meaning the lines will be able to make either one of them. And I think by the time we finish the conversion for the globe, we're going to be able to supply probably close to 30 million units, 28 million to 30 million units, okay? This is, as we know today. We can always make investment plans for more capacity. As you know or you may not know we manufacture our own equipment, our ,our spindles and spinning equipment and how we bundle the fibers into very proprietary, but great product that we currently design and are not making outside of the U.S. today. So that's our capacity. And we're prepared, by the way, once the period of 2 years of demonstration of the add-on payment, what's called the , I got corrected in Washington last week by somebody at CMS, it's not . We can accelerate investment and we can produce more than $30 million if they need to be.

Great. Thanks so much.

Thank you.

Thank you. Rob -- Robbie Marcus with JPMorgan. Please state your question.

Hi. Thanks for taking the question. So I imagine everyone is very curious about what life will be like under COVID-19. You pulled the guidance, but we are almost completely through the first quarter here. So I was wondering if you could comment on trends you're seeing in first quarter in terms of different positives and negatives in the business and any actions you're seeing from the hospitals in Europe and U.S. as they prepare for what's to come here over in the next few weeks?

Robbie, we will -- let me get part of your question, and Jay is also here, he can chime in. We are seeing buying patterns that you see usually in with this kind of situation. We have only to compare in heavy flu seasons and some of us remember back in 2003 sites, okay? So we have buying patterns that go from people not understanding what's happening, all of a sudden stockpiling going on everywhere, okay? So Baxter is at the front line of treating patients with acute respiratory and acute generalized infection with our CRT contingency in replacement therapy, our fluids, our antibiotics, our pumps. So we feel that right now we are seeing buying patterns that are starting to get more coherent with an outbreak of something like the COVID-19 that we saw probably half way through the first quarter. Because halfway through the first quarter, China was more in focus and what we saw in China. And remember, not only we're in the front lines for treatment of diseases such as this, but also we are in the chronic treatment business, which we need to deliver products, products to people's homes. So we saw in China an acceleration of purchasing for PD, peritoneal dialysis products. And then what we've seen in the U.S. probably it's going to go through the same thing. We're getting calls from state governments, not only the feds, but also the state government, countries asking placing orders for stockpile of products. So we're starting to see the volume of those orders picking up. We're very -- we've been very judicious because we don't have at this moment a capacity restriction, but capacity is all relative. If you go ahead and you start buying significant amounts by unit, by hospitals more than what we can make, we will not be able to supply a business. So we think we're well equipped to supply the world with the products that we need and the products we have. And we are not -- we have few products that may go in allocation, just as production, but we have to date the major IV business. These solutions, we don't have any allocations of that. We're prepared to supply the market and actually activate our backup plans that we have put in place since Maria. In terms of the quarter, we're giving guidance few weeks before we close the quarter. So as I said, we saw different patterns in the first quarter. And I think it shows the resilience of our business through a process like this, because we do have products used in all sorts of different products, different settings from the home to the acute side to the more long-term care, as well as for non-elective and elective procedures. Jay any color?

Joe, I think that's a great commentary and you described the resiliency and the durability of the portfolio. We have a number of product lines which benefit, I mean, in this kind of scenario, like acute IV, some of the antibiotics as Joe described. And then we'll watch them very carefully, our anesthesia and advanced surgery businesses, which are more related to actual operating procedures that take place in hospitals. So that's one area that we're watching very carefully. But generally speaking, this is a very durable portfolio that we have.

Great. And maybe just one follow-up. People are starting to worry about the impact to capital equipment sales. So with you set to launch a new pump system, which could actually be in high demand, do you expect any impact to that or to your PD cyclers over the next few weeks and months? Thanks.

Very different dynamics, Robbie. Very different dynamics. First of all, hospitals today in the U.S., the priority is to treat potential patients coming in. I don't think we've changed dramatically their buying patterns for capital in the mid-term, but in the short-term, it may alter their priorities. Not that we're not going to be able to sell the pumps, so we probably will sell them and we'll probably supply product to customers, who today are impacted by the Class 1 recall of our competitor. But that may change a little bit of sequence looking at the priorities that we are currently putting into place. Remember, we are sending service personnel to hospitals, but I don't think we're going to be sending a bunch of people to install pumps now into hospitals. So it may shift a couple of months here and there, but I don't think the pattern of capital by -- as we know today, it will change in the mid-term to the long-term. It will change in the short-term because the priorities of the hospital are to treat the patients. And PD is a different conversation. PD is actually the safe place to be, which is the home, imagine putting patients in a clinic with five or seven other very ill patients with diabetes, sometimes insufficiency and with the kidneys not functioning. And going to a clinic in this type of outbreak it is really dreadful. So I would say that there's a pretty compelling reason for the peritoneal dialysis modality to take shape and be something strong going forward. I'm not saying right now, but I think this actually reinforces the AAKHI prerogative, that the government had on having people treated at home, this is another added benefit of the home treatment.

Thanks a lot.

Thanks, Robbie.

Thank you. Bob Hopkins of Bank of America is on the line. Please state your question.

Great. Thank you and good morning. I hope everybody is well. Two quick questions. So it sounds like from your commentary that you've got some products where you're seeing increased demand like you do in a heavy flu season and some products, you're seeing decrease in demand, currently. I'm just curious, kind of directionally from where you sit today, is this overall feel like a net neutral to your business as far as you can tell right now?

It's tough to say, Bob. That's the reason why we are not putting long-term -- the 2020 guidance out there because we need to figure this thing out. As I said, the buying patterns are really strange. We're getting orders for our CRT equipment. They are in excess of anything we ever seen, okay? We also have a pretty healthy advanced surgery business. So we don't understand some of the patterns today. I have to imagine with the changes in procedures in hospitals, some of our business will be impacted like anesthesia, for instance, you have less procedures at surgery. And on the other hand, we have significant amount of business in the ICU. So I cannot give you an answer precisely what if this is a net neutral or not. We're going to have to wait. We hope by April -- end of April, when we announce our first quarter results, we have either guidance for the rest of the year or have a better understanding what's happening at the moment.

Okay. And then one quick follow-up. I'm really curious as to what you're seeing in China in the advanced surgery business. Are you seeing kind of a return to sort of stabilization in procedures in China at this point? Just kind of curious what you're seeing there in that business, in particular?

That's a very small business for us. So I think on an annual basis, we're talking single-digit millions. So it's very difficult for us to comment on procedure volumes in China, given the small size of that business. And the largest business in China for us is our renal business, which is a different kind of business and really not an illustration of what's happening in hospitals.

Okay. I was just trying to get a sense for trends in hospitals in China as they hopefully come out the other side of this. Thank you.

Yes.

Thank you. And our next question comes from David Lewis with Morgan Stanley. Please state your question.

Good morning. Thanks for taking the questions. Maybe, Jay, a couple of quick ones for you. We didn't get segment guidance for the first quarter. So I just wonder if you could help us if COVID has been largely limited impact, it sounds more neutral impact so far for the first quarter. Can you just bridge us from the first quarter guidance 5% to 6%, obviously, the fourth quarter, very, very strong, first quarter is anniversarying an easier comp. So just headwinds and tailwinds we should be thinking about to sort of -- to think about the fundamental momentum deceleration in the first quarter. What businesses are stronger, what businesses are weaker, or what dynamics change fourth to first? Just so we can kind of get the bridge, that would be super helpful. Then one follow-up.

Sure. Overall, looking at the fourth quarter, as we've said in the past and David, you and I have discussed, we were very pleased with the performance across the portfolio. We saw strength in every one of our geographic regions. We also saw strength across the business portfolio in terms of, great -- great medication delivery, sales -- great sales in each of the portfolios. So very strong quarter. There were a couple of one-time components in place in the fourth quarter. So we did see some buying from distributors related to our flu business. We did have some benefit in our advance surgery business relative to competitors being off the market, roughly $50 million. There were some accounting adjustment true-ups at the end of the year, perhaps around $10 million or so. So we don't see a markedly different trend going from Q4 to Q1. We will see -- like I said, given the strength of the medication delivery, that business will come down a little bit, but we still expect to have a solid first quarter in that area. So no markedly different trends. And frankly, if you think about our aspirations that we've talked about over the long-term, this Q1 guide is very consistent with what we've seen and shared in the past. So like I said, there were a couple of specific items that -- because we're not a 9% growth company at this stage. So there's a couple of specific items that accentuated the great performance in Q4 that we don't expect to repeat in Q1, and really that's the primary driver. No real change in fundamentals.

Okay. And then, Jay, just a related question, both for the first quarter and for the year. So EPS guidance for the first quarter, can you just give us the headwind and tailwinds first quarter '19 to first quarter '20, just given the guidance is relatively flattish. And then for 2020, there may be some revenue impact for 2020, positive or negative. Please help us understand if there is a negative impact, how we should be thinking about the drop through or the kind of spending activities that are going on inside Baxter now to support customers? Thanks so much.

Sure. As it relates to Q1 year-over-year, you're right. As we look at our Q1 of 2019, we had $0.75 roughly in earnings per share and our current guidance is $0.72 to $0.74. The primary driver is really not related to operational performance. I would say the number one driver year-over-year is tax rate difference. Last year we had a very large FAS 123R benefit in the first quarter of the year. We also recorded certain other income in the first quarter, which you can see in our restated financial tables. If we were to adjust for those items, I think it's roughly a $0.06 impact. So what you would see is the sales growth along with some slight operating margin improvements in the first quarter dropping through, and that's really what drives the performance improvement offset by some of those financial items that I just referenced. As we look to the balance of the year, our number one priority as an organization is to fulfill the mission of the company, saving and sustaining lives. And that means getting product to our customers consistently and reliably. What we're seeing is there are situations where there are some extra costs required from a supply chain standpoint to ensure the continuity of supply, to ensure we're getting critical raw materials out of impacted geographies and we will spend to support that. So I would expect that, we had some very disciplined targets on supply chain spending, but there will be some spending related to supporting our customers and ensuring consistency of supply. And we've got a lot of work that's ongoing in terms of enhancing cash flow. But we will also be really thoughtful about carrying extra inventory in the coming months, because at the end of the day, we have to have sufficient supply to do everything we can to ensure that. And so we will have -- we will carry some extra inventory of critical products and products we think are likely to be stockpiled in the event of a broader scale pandemic. So, David, you can imagine there are a lot of moving pieces as we look at the coronavirus and different manifestations this can take. And so we are prioritizing serving our customers over just about everything else. And we're also focused on ensuring the safety of our employees. So those are a few comments.

Great. Thanks so much.

Thank you. Matt Taylor from UBS is on the line. Please state your question.

Hi. Thanks for taking the question. So I just wanted to clarify two things on your comments on inventory and supply customers currently. Are you starting to run towards higher inventory levels? It didn't seem like it from your commentary. And then, in terms of people stockpiling, are you starting to ration any product, or how are you managing your inventory to make sure that you're going to have enough, that this does get much worse?

So I'll take the inventory question and Joe can take on the question regarding customer stockpiles. Inventory, we are looking to build inventory levels of critical products wherever possible. Now, in some cases, that's not possible because we are running full tilt today. But in cases where we do have the opportunity to think, first of all, creatively about where we locate our inventory around the globe, but also are we running the facilities that could support inventory build at their highest levels? Matt, we have to be prepared for disruption. We have to be. And so the best way that we know to do that is to build up some extra inventory so that to the extent that disrupting -- disruptions do occur, we are prepared and ready. So that's really our philosophy. You won't -- you'll see it when we talk about Q1 cash flow, but that's something that we're watching very carefully, and we're absolutely willing to do and carry in the short-term until the situation correct itself. Joe, you want to talk about customer stockpile?

Sure. Sure. Matt, we limit our hoarding of inventory because otherwise you're going to have hospital systems in the U.S. going out and buying more antibiotics, more this more that and we are -- we have a control tower approach where we look at everybody's consumptions and we will supply everyone with their needs. What we want to prevent is people buying months of inventory at a time. They don’t even have a place to store, these are bulky items. So we prefer to do our inventory ourselves, we store things ourselves. Our operations today, Bob Reed runs our operations and supply chain for the company and its being very thoughtful about how we -- where we put the products. We are starting production lines as a backup. For instance, we started production line in Mexico for the U.S. that is going to be producing millions of bags for the U.S. We have other things that we are doing just in case. But remember, we want to make sure that everybody gets what they need and not one customer or two customers who put an order first. So we're triaging things. We're making sure that our U.S. system through a heather night is doing a great job in making sure everybody gets what they need. So we're not rationing. We're not allocating everything. What we're doing is just simply making sure the orders are rational and we'll be able to ship them correctly where people need. The same thing with PrisMax. For instance, the PRISMAFLEX, our CRT machines, you have countries book new orders for hundreds of those, so well hang on a minute. Why do you need hundreds? You have less beds in another country, so we're making sure that we made and sold more CRT machines than we ever did in the period time where we need to make sure that we can make them, the component lead times, the components were measured. We're making sure that we get the supply chain coming in right, and the supply chain comes from China and other places we're making sure that we're doing things right. So we're here to serve our customer. Our mission is so important to us. It's sometimes tough to comprehend looking from the outside, from finance community, how much our employees are committed to our mission. And we'll do everything we can to make sure everyone has what they need.

Thanks, guys. Maybe I could just ask one follow-up. And I appreciate all the comments on mission, it is very important right now. The European situation is very fluid. You commented a little bit on China, now that’s returned to normal. That's encouraging. So wondering if you could give us any color about what's going on -- on the ground and your businesses in Italy or other places where we're seeing infections rise and what that might mean for the U.S.?

First of all, we cannot take China's situation for granted because a lot of that has to do with isolation. I think there are papers out there. There's a paper that I read yesterday from the Imperial College in London talking about that communicable nature of the disease can be spread again. So we are not taking anything for granted. We're very cautious. Our daily calls with our locations always stress the safety of our employees first and servicing the patients as well. So when it comes to Italy, we have the special letters that we give to employees because we make products in Italy, primarily in Lombardy area. We have three plants there and we're making fluids and we're making equipment there and we're making sure the plants have -- are staffed properly. And so far we not have had much disruption to those plants and the crossing of the border for supplies are -- is happening. So, so far, so good. And Italy is really the hot spot at the moment, as well as Spain we’ve a factory in Spain primarily supplying the Spanish market and some of the south of Europe market. We also have plants in England. All of all of these plants are operating, as we say, with a sense of normalcy, which is kind of not normalcy because everybody has very heightened attention to everything. And this is just to tell you how committed our people are because they live in their homes and going to work every day in plants in North Carolina, in Alabama, in England, in Australia, everywhere in the world. China -- five plants in China. They all are operating with the normalcy that you would expect under significant stress on the -- by the outside world and by the news channels and everything that’s happening around them.

Thanks a lot.

You're welcome.

Thank you. Danielle Antalffy with SVB Leerink is on the line. Please state your question.

Good morning, guys. Thanks so much for taking the question. I hope everyone's staying healthy during these crazy times. Just a quick question, a non-COVID-19 related question. On the medication delivery business, very strong operational sales growth in Q4. Obviously, that's not likely to continue, but can you help us understand how sustainable any momentum that you have in the medication delivery business is into 2020 and beyond? And the different drivers of the strong growth that we've been seeing there in the back half of the year?

Danielle, just a little color on the business and Jay, if you want to chime in, please do. We are -- what we have done is transformed the U.S. sales and marketing organization. We have done a very good job in selling pumps and placing pumps last year was a crescendo. This is not something that you start and get done in one quarter. The fourth quarter was the result of months and months of preparation of accounts, of bids that we won. This was not an easy path. So I would say that the pumps, the way they work, they perform in the fourth quarter, they did very well. We are going down the same path and trying to get the same business in 2020 because we think we have a pump platform currently in place. And hopefully, when approved by the FDA, which we don't have a date yet, our new pump platform, we're going to be able to perform as well or even better with the new platform because we'll have a more complete set of products that we currently don't have. We also had good fluid sales. Remember a little anticipation of fourth quarter, not much, but some anticipation of the flu season. At that time, it was not known to the world that the coronavirus was just dangerous. So I will say that this business has tremendous resilience and aided by a new platform and a good solid pump, which is our version 9 of our SIGMA SPECTRUM on the market today. We feel comfortable with the trajectory going forward. Is that going to be easy? No, it's not going to be easy. But I think with the contracts that we have signed, which are more long-term contracts and with the pumps and sets that we have, I think we can continue to aim to perform well.

Yes and Danielle just to add to that. Well, we appreciated about 2019 was that there were some unique set of circumstances that allowed us to guide to 6% growth. And part of that had to do with an easy comp and some challenges in the prior year and then there were some other factors in play. So we were so thrilled. You can imagine when we actually exceeded the 6% and delivered 7% growth on a full-year basis, and it's really a testament to the teamwork that Joe described earlier. Having said all of that, we don't -- we've always said that 2019 was a bit of an anomaly and we will see a lowering of the growth rate a little bit more in line with what the long-term expectations are for this business. But by no means are we not incredibly excited because we are. But again, we have to appreciate the specific and unique circumstances that allow that 7% growth to occur in 2019.

Okay. And then I just have one quick follow-up as it relates to the generic injectables business. And how dependent is the growth on that business on upcoming new product launches? I asked the question just because it feels like there's potential for things to even slow down at the FDA. And I'm just curious as to whether the growth in that business is highly dependent upon products to come or do you feel like you have the portfolio right now to sustain growth there, which has been very strong. Thanks so much.

So just a curious comment on the FDA. I expect the FDA will slow down the approval process because people are now working there mostly working remotely. But interesting, we just got the other day, our PrisMax2 approval just came in and came in a couple months ahead of time. So we made significant -- we made some changes in hardware, improved and some software change that enable an upcoming digital portfolio with the Wi-Fi capability and other things, the true view analytics that is going to be on the machine, so we file for the 510(k), got approval. So we were kind of surprised, it came so fast. Perhaps that was already in the pipeline and got accelerated. But I think we -- I just got news the other day, we just filed for another molecule ahead of time with the FDA. So we can't control and speak on behalf of the FDA. The only thing I can say is that we expect and we should plan for those delays. And we'll keep you posted as we see things, as we're going to know much more probably in a month from now when we're talking to you about April, what is going to happen with all this -- with the environment, with the landscape of hospital purchasing patterns, as well as agents approvals and things like that. But just a curious fact about one file that was sent in ahead of time and the other one was approved way ahead of time. So, it's tough to predict what's coming. Quarter Thank you so much.

Thanks, Danielle.

Thank you. Larry Keusch with Raymond James is on the line. Please state your question.

Thanks. Good morning, everyone. Jay, you in your prepared comments, I believe, talked about the cash situation of the company, the draw down on the European revolver, comments around the U.S. revolver. Could you talk a little bit about how you are thinking about capital allocation priorities as we think about what the stock has done, what asset valuations may be doing out there in the market? So just give us some thoughts around that as you raised, obviously quite a bit of cash to be ready.

Yes. Thanks, Larry. We have to be prepared for whatever we can anticipate. The coronavirus will -- how that will emerge. And so as a result of that, we've been really thoughtful about having adequate capital on hand. This is the time to have the balance sheet work on our behalf and we want to be absolutely ready to support the company. And so what we did in the first quarter is we have, $200 million plus in borrowings on our European revolver. And that's a facility we used from time-to-time, but we've chosen to leave that $200 million, we have cash to offset the borrowing. And we have nearly $3 billion in cash. We also recently successfully redid our U.S. revolver, which has a $200 million same day withdrawal feature on it and some other contemporary provisions that make it a best-in-class facility. And so we have all of that in place. What we wanted to ensure is that there would be no disruptions to our operations. So our primary objective is to ensure we have adequate liquidity on hand, despite the fact that we have a resilient and durable portfolio. We just -- we want to be ready for all circumstances that might emerge. But then, there are opportunities that could emerge as a result of this. And so we are seeing asset prices come down quite substantially in MedTech. And we've seen the share price of come down quite a lot. So as we think about allocation of capital and capital deployment, then we also want to be ready to take advantage of those kinds of opportunities. We were pleased to close the transaction in the quarter. The Seprafilm deal was a great one, but we do expect perhaps some of the patients that we've had over the last several years with respect to capital deployment, let's see how that fares us in the current market environment, because as I say, we are seeing asset prices moderate down quite a bit relative to prior levels. Joe, do you want to add anything to that?

Yes. First of all, our first responsibility is to ensure that we have liquidity in the company and we've have plenty of that, as -- and we are prepared for anything come all way. But also, I think it's worth noting that we kind of took a long, long pause on speaking about large acquisitions or midsized acquisitions. We could not justify prices. The PEs were so high. And I think sometimes time is on the side of the patient, individual and we are patient here. And I think perhaps having a good amount of money in the bank and asset values are being down, I think maybe as an opportunity for us to continue to look at M&A landscape. But I don't discount the fact that also our stock is that the pricing is very attractive.

Okay.

Thanks very much.

Katherine, we’ve time for one more question.

Thank you. Our next question -- our last question comes from Vijay Kumar with Evercore. Your line is open.

Hey, thanks, guys. Quick, maybe a guidance question, Jay. Margins for Q1, I think I heard you say a slight expansion. Maybe, is this some incremental investments going on for Q1 and not free cash conversion? Looking at the restated numbers, it's in the 80s. Is that the new normal, or should we expect that free cash to step back to 90s? Thanks, guys.

So, Vijay, there's some impact in terms of investments in the first quarter related to supply chain and other activities. But this is a very fluid situation and we're watching it very carefully. And like I say, while we are incredibly rigorous on spending across a number of areas, we have to spend to support getting supply to our patients that need it, and our customers that need it. And so we will continue to do that. So this is stay tuned on this, we will have some more commentary when we report Q1 results. As it relates to free cash flow conversion, if you look at our 2019 results, it was off our expectations. I mean, really, there were a few factors in play. One is, we had a higher receivables balance and there were two drivers of that. One is a different business mix than we expected. So we had a little bit more ex-U.S. sales, in sales and higher DSO geographies, leading to a higher DSO. And then second, we had an incredibly strong December and the result of that is those sales were not paid off with account receivable collections. Those account receivable collections occur in 2020. In addition to that, while we saw improvements in days inventory on hand, we were off a little bit, our expectations are days payable. We did not make enough progress in this particular area. And finally, there were some higher cash tax payments than we originally budgeted for. Those are the drivers that led to our 2019 free cash flow performance. What I can tell you is our organization is incredibly focused on enhancing cash flow performance. And the number that you cited is not the new normal. We brought in a new chief procurement officer who was looking across the entire vendor base and restructuring terms and days payable terms across the vendor base. Our supply chain forecasting process started to pay dividends at the end of last year. And as we move to this year, it will pay significant dividends. So we are very optimistic about improvements in free cash flow performance and working capital balance performance. But I do have to take you back to my comments earlier on, which is over the next several months, we are not focused on that so much as we are supplying consistently our patients and if that requires incremental inventory, which it will, we will carry the incremental inventory. So we will have this factor that comes into play over the next couple of quarters. But it's going to match the tremendous progress that we are going to make across the board on free cash flow performance. So with that, I think we can conclude the call. But Vijay thanks very much for the question. We appreciate it and the support.

Thank you.

Thank you all and be safe. Be protective of your health and we wish you all well. Thank you.

Ladies and gentlemen, this concludes today’s conference call with Baxter International. Thank you for participating. You may now disconnect. Everyone have a great day.