Core Viewpoint - Solventum Corporation announced a secondary offering of 8,800,000 shares of its common stock, expected to generate approximately $648 million in gross proceeds for 3M Company, the selling shareholder, with the offering closing around August 15, 2025 [1]. Group 1: Offering Details - The offering consists of shares sold entirely by the selling shareholder, 3M Company, and Solventum will not receive any proceeds from this offering [1]. - Goldman Sachs & Co. LLC and BofA Securities are acting as underwriters for the offering [2]. - The shares are being offered under the Company's shelf registration statement on Form S-3, which became effective upon filing with the SEC on August 13, 2025 [3]. Group 2: Regulatory Information - The offering is made only by means of a preliminary prospectus supplement filed with the SEC, and interested parties can access these documents for more information [3]. - The press release clarifies that it does not constitute an offer to sell or solicit an offer to buy the securities in any jurisdiction where such actions would be unlawful [4]. Group 3: Company Overview - Solventum aims to enhance healthcare through innovative solutions at the intersection of health, material, and data science, focusing on improving patient outcomes and empowering healthcare professionals [7].

Core Viewpoint - Solventum Corporation announced a secondary offering of 8,800,000 shares of its common stock, all being sold by 3M Company, with Solventum not receiving any proceeds from the offering [1]. Group 1: Offering Details - The offering consists of 8,800,000 shares of common stock with a par value of $0.01 per share [1]. - Goldman Sachs & Co. LLC and BofA Securities, Inc. are acting as underwriters for the offering [2]. - The shares are being offered under the Company's shelf registration statement on Form S-3, effective as of August 13, 2025 [3]. Group 2: Regulatory Information - The offering will be conducted only through a preliminary prospectus supplement filed with the SEC and the accompanying prospectus [3]. - Interested parties can obtain the preliminary prospectus supplement and accompanying prospectus for free via the SEC's EDGAR database or by contacting the underwriters directly [3]. Group 3: Company Background - Solventum aims to enable better healthcare through innovative solutions at the intersection of health, material, and data science [7].

Core Insights - Solventum (SOLV) reported strong second-quarter 2025 adjusted earnings per share (EPS) of $1.69, exceeding the Zacks Consensus Estimate by 16.6% and showing an 8.3% year-over-year increase [1][7] - The company raised its full-year 2025 EPS guidance to a range of $5.80-$5.95, up from the previous guidance of $5.45-$5.65, indicating positive growth expectations [12] Revenue Details - Solventum's revenues for the quarter reached $2.16 billion, reflecting a 3.9% increase from the prior year, with organic sales growth of 2.8% [2][7] - The revenue growth was primarily driven by strong performance in the MedSurg and HIS segments [2][7] Segment Performance - MedSurg segment revenues totaled $1.23 billion, up 4.8% reportedly and 3.9% organically year over year, supported by new product launches and commercial restructuring [5] - HIS segment revenues amounted to $339 million, up 3.4% reportedly and 3.2% organically, driven by partnerships and AI-driven solutions [8] - Dental Solutions generated $338 million in revenues, up 2.3% year over year, attributed to product innovations [6] Margins and Expenses - Adjusted gross profit was $1.21 billion, with an adjusted gross margin of 56%, up approximately 20 basis points year over year [9] - Selling, general and administrative expenses increased by 10.1% year over year to $772 million, while research and development expenses decreased by 1.6% to $189 million [9] Financial Position - At the end of the second quarter, Solventum had cash, cash equivalents, and investments totaling $492 million, down from $534 million in the previous quarter [11] - Total assets increased to $15.07 billion from $14.52 billion in the previous quarter [11] Future Outlook - The company expects organic sales growth for 2025 to be in the range of 2-3%, an increase from the previous guidance of 1.5-2.5% [12] - Continued demand for products in the MedSurg segment and strong adoption of revenue cycle management solutions in the HIS segment are anticipated to support future growth [13]

Core Insights - Solventum (SOLV) reported $2.16 billion in revenue for Q2 2025, a year-over-year increase of 3.8% and an EPS of $1.69 compared to $1.56 a year ago, exceeding Zacks Consensus Estimates for both revenue and EPS [1] - The company’s stock has returned -2.2% over the past month, underperforming the Zacks S&P 500 composite's +1.2% change, and currently holds a Zacks Rank 4 (Sell) [3] Financial Performance Metrics - Net Sales in MedSurg reached $1.22 billion, surpassing the $1.18 billion average estimate, reflecting a +4.8% year-over-year change [4] - Net Sales in Purification and Filtration were $252 million, exceeding the estimated $242.52 million, with a +5.9% year-over-year change [4] - Net Sales in Health Information Systems totaled $339 million, slightly above the $334.42 million estimate, marking a +3.4% year-over-year change [4] - Net Sales in Dental Solutions amounted to $338 million, compared to the estimated $332.9 million, representing a +2.1% year-over-year change [4] - Operating Income in MedSurg was $210 million, below the estimated $215.41 million [4] - Operating Income in Purification and Filtration was $48 million, significantly above the estimated $20.15 million [4] - Operating Income in Health Information Systems reached $120 million, exceeding the estimated $112.01 million [4] - Operating Income in Dental Solutions was $96 million, above the estimated $89.41 million [4]

Company Performance - Solventum (SOLV) reported quarterly earnings of $1.69 per share, exceeding the Zacks Consensus Estimate of $1.45 per share, and up from $1.56 per share a year ago, representing an earnings surprise of +16.55% [1] - The company posted revenues of $2.16 billion for the quarter ended June 2025, surpassing the Zacks Consensus Estimate by 1.87%, and an increase from $2.08 billion year-over-year [2] - Over the last four quarters, Solventum has consistently surpassed consensus EPS and revenue estimates [2] Stock Performance - Solventum shares have increased approximately 9.9% since the beginning of the year, outperforming the S&P 500's gain of 7.9% [3] - The stock currently holds a Zacks Rank 4 (Sell), indicating expectations of underperformance in the near future due to unfavorable estimate revisions prior to the earnings release [6] Future Outlook - The current consensus EPS estimate for the upcoming quarter is $1.37 on revenues of $2.11 billion, and for the current fiscal year, it is $5.58 on revenues of $8.43 billion [7] - The outlook for the Medical Services industry, where Solventum operates, is favorable as it ranks in the top 40% of over 250 Zacks industries, suggesting potential for outperformance compared to lower-ranked industries [8]

[PART I. Financial Information](index=5&type=section&id=PART%20I.%20Financial%20Information) This section presents the company's unaudited financial statements, management's analysis of performance, and disclosures on market risk and internal controls [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) The company's financial statements show modest sales growth, stable net income, and a significant decrease in operating cash flow for the first half of 2025 Condensed Consolidated Statements of Income (Unaudited) | (Millions, except per share data) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | **Total net sales** | $2,161 | $2,081 | $4,231 | $4,097 | | **Gross profit** | $1,175 | $1,137 | $2,289 | $2,309 | | **Operating income** | $214 | $244 | $367 | $625 | | **Net income** | $90 | $89 | $227 | $326 | | **Diluted earnings per share** | $0.51 | $0.51 | $1.30 | $1.88 | Condensed Consolidated Balance Sheet Highlights (Unaudited) | (Millions) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total current assets** | $3,208 | $3,249 | | **Total assets** | $15,074 | $14,457 | | **Total current liabilities** | $2,620 | $2,703 | | **Long-term debt** | $7,815 | $7,810 | | **Total liabilities** | $11,429 | $11,498 | | **Total equity** | $3,645 | $2,959 | Condensed Consolidated Statements of Cash Flows (Unaudited) | (Millions) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $198 | $797 | | **Net cash used in investing activities** | ($224) | ($160) | | **Net cash (used in) provided by financing activities** | ($249) | $66 | | **Net (decrease) in cash and cash equivalents** | ($268) | $703 | [NOTE 1. Significant Accounting Policies](index=11&type=section&id=NOTE%201.%20Significant%20Accounting%20Policies) This note details the company's recent spin-off from 3M, its four business segments, and the planned divestiture of the Purification and Filtration business - On April 1, 2024, 3M completed the **spin-off of Solventum Corporation**, which is now an independent public company listed on the NYSE under the symbol 'SOLV'[20](index=20&type=chunk) - The company is organized into four operating business segments: **MedSurg, Dental Solutions, Health Information Systems, and Purification and Filtration**[21](index=21&type=chunk) - On February 25, 2025, the Company agreed to sell its Purification and Filtration business to Thermo Fisher Scientific Inc for **approximately $4.0 billion**, after amending the agreement on June 25, 2025, to exclude the drinking water filtration business[22](index=22&type=chunk) [NOTE 3. Acquisitions and Divestitures](index=12&type=section&id=NOTE%203.%20Acquisitions%20and%20Divestitures) This note confirms no recent acquisitions and classifies the Purification and Filtration business assets and liabilities as held for sale - The company had **no acquisitions** during the first six months of 2025 or 2024[31](index=31&type=chunk) - The sale of the Purification and Filtration business is expected to close by the end of 2025, with its assets and liabilities **classified as held for sale** on the June 30, 2025 balance sheet[32](index=32&type=chunk)[33](index=33&type=chunk) Assets and Liabilities Held for Sale (June 30, 2025) | (Millions) | Amount | | :--- | :--- | | **Current assets held for sale** | $168 | | **Non-current assets held for sale** | $2,060 | | **Current liabilities held for sale** | $54 | | **Non-current liabilities held for sale** | $38 | [NOTE 9. Long-Term Debt and Short-Term Borrowings](index=14&type=section&id=NOTE%209.%20Long-Term%20Debt%20and%20Short-Term%20Borrowings) This note outlines the company's debt structure, recent prepayments, and available credit facilities Debt Summary | (Millions) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total long-term debt** | $7,815 | $8,010 | | **Current portion of long-term debt** | $0 | $200 | | **Long-term debt (excluding current portion)** | $7,815 | $7,810 | - In March and June 2025, the company **prepaid the entire $200 million** outstanding under its eighteen-month senior unsecured term loan credit facility[54](index=54&type=chunk) - As of June 30, 2025, there were **no amounts outstanding** under the $2.0 billion 5-year Revolving Credit Facility or the commercial paper program[54](index=54&type=chunk)[55](index=55&type=chunk) [NOTE 12. Commitments and Contingencies](index=18&type=section&id=NOTE%2012.%20Commitments%20and%20Contingencies) This note describes the company's legal proceedings, including indemnification agreements with 3M and current litigation accruals - The company is involved in numerous legal proceedings related to **product liability, intellectual property, and commercial matters**[82](index=82&type=chunk) - Solventum has agreed to **indemnify 3M for uninsured liabilities** related to over 8,100 lawsuits concerning the Bair Hugger patient warming system and will manage the litigation[89](index=89&type=chunk) - **Accrued litigation costs were $21 million** as of June 30, 2025, down from $25 million at December 31, 2024, with $12 million in legal charges recognized in the first six months of 2025[85](index=85&type=chunk) [NOTE 13. Restructuring](index=20&type=section&id=NOTE%2013.%20Restructuring) This note details the 'Solventum Way' restructuring program, its financial impact, and associated liabilities - The company initiated the **'Solventum Way' restructuring program** in Q4 2024 to create a more flexible and decentralized structure, with actions expected to be substantially complete by the end of 2025[99](index=99&type=chunk) - **Accrued liabilities for restructuring were $26 million** as of June 30, 2025[101](index=101&type=chunk) Restructuring Charges | (Millions) | Three months ended June 30, 2025 | Six months ended June 30, 2025 | | :--- | :--- | :--- | | **Total operating income impact** | $8 | $26 | [NOTE 16. Related Parties](index=22&type=section&id=NOTE%2016.%20Related%20Parties) This note summarizes the ongoing commercial relationship and financial transactions with former parent company 3M following the spin-off - Following the spin-off, Solventum entered into several agreements with 3M, including **transition and master supply agreements**, to govern their ongoing relationship[112](index=112&type=chunk) Transactions with 3M (Post Spin-Off) | (Millions) | Three months ended June 30, 2025 | Six months ended June 30, 2025 | | :--- | :--- | :--- | | **Net sales of product to 3M** | $22 | $42 | | **Cost of product from 3M** | $158 | $314 | | **SG&A expenses** | $59 | $126 | [NOTE 17. Business Segments](index=24&type=section&id=NOTE%2017.%20Business%20Segments) This note provides a breakdown of net sales and operating income for the company's four business segments - **Corporate and Unallocated costs**, which include amortization, restructuring, and spin-off related expenses, increased significantly to $536 million for the first six months of 2025 from $283 million in the prior year period[117](index=117&type=chunk)[121](index=121&type=chunk) Net Sales by Business Segment (Six Months Ended June 30) | (Millions) | 2025 | 2024 | | :--- | :--- | :--- | | **MedSurg** | $2,375 | $2,281 | | **Dental Solutions** | $667 | $666 | | **Health Information Systems** | $667 | $645 | | **Purification and Filtration** | $494 | $483 | | **Total Company** | $4,231 | $4,097 | Operating Income by Business Segment (Six Months Ended June 30) | (Millions) | 2025 | 2024 | | :--- | :--- | :--- | | **MedSurg** | $416 | $435 | | **Dental Solutions** | $175 | $203 | | **Health Information Systems** | $229 | $212 | | **Purification and Filtration** | $83 | $58 | | **Total business segment operating income** | $904 | $908 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=26&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Sales grew across all segments, but operating income and cash flow declined due to separation costs from 3M and higher standalone expenses [Overview](index=26&type=section&id=Overview) The company's sales grew organically in Q2 and YTD, and it plans to use proceeds from the $4.0 billion sale of its Purification and Filtration business for debt reduction - The company plans to sell its Purification and Filtration business to Thermo Fisher Scientific Inc for **approximately $4.0 billion**, with the transaction expected to close by the end of 2025 and net proceeds used primarily for debt reduction[128](index=128&type=chunk) Total Company Sales Growth (Q2 2025 vs Q2 2024) | Metric | Percentage | | :--- | :--- | | **Reported Growth** | 3.9% | | **Currency Impact** | 1.1% | | **Constant Currency** | 2.8% | | **Organic Growth** | 2.8% | Total Company Sales Growth (Six Months 2025 vs 2024) | Metric | Percentage | | :--- | :--- | | **Reported Growth** | 3.3% | | **Currency Impact** | (0.2)% | | **Constant Currency** | 3.5% | | **Organic Growth** | 3.5% | [Results of Operations](index=30&type=section&id=Results%20of%20Operations) Operating results were impacted by increased cost of product from 3M and higher SG&A expenses related to the company's separation and new IT system deployment - **Cost of product as a percentage of product sales increased** for both Q2 and the first six months of 2025, driven by higher costs on inventory sourced from 3M under master supply and transition agreements[146](index=146&type=chunk)[147](index=147&type=chunk) - **SG&A as a percentage of total net sales increased** to 35.7% in Q2 2025 and 36.4% YTD, driven by costs to separate from 3M, including IT system deployment, and higher compensation[151](index=151&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk) - **Other expense (income), net decreased significantly** in 2025 compared to 2024, primarily due to charges in the prior year associated with the liquidation of foreign operations as part of the separation from 3M[156](index=156&type=chunk) [Performance by Business Segment](index=31&type=section&id=Performance%20by%20Business%20Segment) This section analyzes the sales growth and operating income performance for the MedSurg, Dental, Health Information, and Purification segments - **MedSurg:** Q2 sales grew 4.8% (3.9% organic), driven by strong volumes in Infection Prevention and Surgical Solutions, while YTD sales grew 4.1% (4.9% organic), though operating income margin decreased due to higher tariffs and standalone operating costs[162](index=162&type=chunk)[163](index=163&type=chunk)[164](index=164&type=chunk) - **Dental Solutions:** Q2 sales grew 2.3% (0.7% organic) due to new restorative products, offset by declines in traditional orthodontics, with YTD sales flat and mixed operating margin results[166](index=166&type=chunk)[167](index=167&type=chunk)[168](index=168&type=chunk) - **Health Information Systems:** Sales grew 3.4% in Q2 and 3.5% YTD, driven by adoption of the Solventum™360 Encompass solution, with operating income margin increasing in both periods due to price growth and product mix[169](index=169&type=chunk)[171](index=171&type=chunk)[172](index=172&type=chunk) - **Purification and Filtration:** Sales grew 5.4% in Q2 and 2.2% YTD, driven by bioprocessing and industrial filtration, with operating income margin increasing significantly due to volume growth and the cessation of depreciation on assets held for sale[173](index=173&type=chunk)[174](index=174&type=chunk)[178](index=178&type=chunk) [Financial Condition and Liquidity](index=35&type=section&id=Financial%20Condition%20and%20Liquidity) The company's cash position decreased due to a sharp decline in operating cash flow, increased capital spending, and debt repayment - As of June 30, 2025, the company had **$492 million in cash and cash equivalents**, a decrease from $762 million at the end of 2024[182](index=182&type=chunk) - **Operating cash flow for the first six months of 2025 was $198 million**, a sharp decline from $797 million in the same period of 2024, primarily due to higher interest payments, standalone company tax payments, and higher incentive compensation payments[184](index=184&type=chunk)[185](index=185&type=chunk) - **Investing activities used $224 million** in the first six months of 2025, up from $160 million in 2024, driven by capital spending related to manufacturing separation from 3M[186](index=186&type=chunk) - **Financing activities used $249 million**, mainly for the repayment of $200 million in debt[187](index=187&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=38&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is exposed to foreign currency exchange rate and commodity price risks, which are managed through operational strategies and negotiated contracts - The company faces **foreign currency exchange rate risk** from transactions with international customers and intercompany dealings, as well as from the translation of foreign earnings into U.S. dollars[195](index=195&type=chunk) - **Commodity price risks** are managed through negotiated supply contracts and price protection agreements, with no material commodity hedging activity[196](index=196&type=chunk) [Controls and Procedures](index=38&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls were effective, even with changes to financial processes resulting from a new SAP ERP system implementation - Based on an evaluation as of the end of the quarter, the CEO and CFO concluded that the company's **disclosure controls and procedures are effective**[197](index=197&type=chunk) - During Q2 2025, the company completed the initial phase of a **new SAP ERP system implementation**, which impacted internal controls over financial reporting, but believes appropriate controls were maintained during the transition[198](index=198&type=chunk) [PART II. Other Information](index=39&type=section&id=PART%20II.%20Other%20Information) This section provides updates on legal proceedings, risk factors, and lists all exhibits filed with the report [Legal Proceedings](index=39&type=section&id=Item%201.%20Legal%20Proceedings) Details regarding legal matters are incorporated by reference from Note 12 in the financial statements - Information regarding legal proceedings is detailed in **Note 12 of the financial statements**[200](index=200&type=chunk) [Risk Factors](index=39&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred to the risk factors previously disclosed in the 2024 Annual Report on Form 10-K - **No material changes** to the risk factors disclosed in the 2024 Annual Report on Form 10-K have occurred[200](index=200&type=chunk) [Exhibits](index=40&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including key transaction agreements, governance documents, and required certifications - Key exhibits filed include the **Amended and Restated Transaction Agreement** for the sale of the Purification and Filtration business, debt indentures, and CEO/CFO certifications[209](index=209&type=chunk)

Financial Data and Key Metrics Changes - In Q2 2025, the company reported sales of $2.2 billion, representing a 2.8% increase on an organic basis and a 3.9% increase on a reported basis compared to the prior year [27] - Gross margins improved to 56% of sales, an increase of 20 basis points over the prior year [30] - Earnings per share (EPS) for the quarter was $1.69, exceeding expectations due to sales outperformance and favorable margins [32] Business Line Data and Key Metrics Changes - The MedSurg segment generated $1.2 billion in sales, a 3.9% organic growth, driven by infection prevention and surgical solutions, which grew 5.9% [28] - The Advanced Wound Care business saw a growth of 0.8%, impacted by a product recall, but is expected to accelerate in the second half of the year [15][29] - The Dental Solutions segment achieved $338 million in sales, a 0.7% organic growth, supported by innovation in restorative products [29] - The Health Information Systems segment contributed $339 million in sales, a 3.2% organic growth, benefiting from strong customer retention [29] - The Purification and Filtration segment reported $252 million in sales, a 3.1% organic growth, led by bioprocessing filtration [30] Market Data and Key Metrics Changes - The company experienced a favorable foreign exchange impact of 110 basis points on reported growth [27] - The estimated tariff impact for 2025 has been reduced to $60 million to $80 million, down from $80 million to $100 million, easing pressure on gross and operating margins [34] Company Strategy and Development Direction - The company is focused on disciplined mergers and acquisitions (M&A) to enhance progress post the P and F transaction [9] - Five growth drivers have been identified to account for over 80% of long-term growth: negative pressure wound therapy, IV site management, sterilization assurance, core restoratives, and revenue cycle management [14] - The company aims to achieve sales growth of 4% to 5% and EPS growth at a 10% compound annual growth rate (CAGR) [37] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in delivering growth and margin targets, raising sales growth and EPS guidance for the year [6] - The company is navigating an uncertain macro environment while making foundational changes to deliver on its long-range plan [24] - Management highlighted the importance of the ongoing ERP implementation and its expected positive impact on future cash flows [76] Other Important Information - The company has made significant progress in its separation from 3M, including exiting 35% of transition service agreements and completing corporate rebranding [26] - Solventum was recognized on the Fortune 500 list in its first year as a standalone company and named a best company to work for by U.S. News and World Report [22] Q&A Session Summary Question: What is driving the organic growth in the MedSurg business? - Management attributed growth to commercial restructuring, differentiated brands, and new product launches [42][44] Question: Can you provide clarity on the EPS bridge from last quarter to this quarter? - Management noted that the increase in EPS reflects strong performance and confidence in the second half, while managing various variables [50][52] Question: How do you view the underlying patient trends in the Dental Solutions business? - Management indicated that while there hasn't been a dramatic change, the focus remains on new products and specialized sales organization [98] Question: Can you elaborate on the partnership with Ensemble for autonomous coding? - Management explained that the partnership allows for integration of their technologies into Ensemble's accounts, enhancing efficiency and revenue capture [82][86]

Financial Data and Key Metrics Changes - In Q2 2025, sales reached $2.2 billion, reflecting a 2.8% increase on an organic basis and a 3.9% increase on a reported basis, with foreign exchange contributing a 110 basis point benefit to reported growth [24][25] - Gross margins improved to 56% of sales, an increase of 20 basis points over the prior year, despite headwinds from the three ms supply agreement [28] - Earnings per share (EPS) was reported at $1.69, exceeding expectations, driven by sales outperformance and favorable margins [30] Business Line Data and Key Metrics Changes - The MedSurg segment generated $1.2 billion in sales, up 3.9% on an organic basis, with growth led by infection prevention and surgical solutions, which grew 5.9% [26] - Advanced Wound Care saw a growth of 0.8%, impacted by a product recall, while Dental Solutions segment sales increased by 70 basis points on an organic basis, driven by innovation [27][16] - Health Information Systems contributed $339 million in sales, a 3.2% organic growth, benefiting from strong customer retention in revenue cycle management software [27] Market Data and Key Metrics Changes - The company is experiencing strong demand in international markets, particularly in Australia and the Middle East, for its Health Information Systems solutions [17] - The Purification and Filtration segment reported $252 million in sales, a 3.1% organic growth, led by bioprocessing filtration and industrial filtration categories [28] Company Strategy and Development Direction - The company is focused on disciplined tuck-in M&A to enhance progress post the P and F transaction, aiming to establish itself as a mission-driven performance leader in the industry [8][19] - The five growth drivers identified are negative pressure wound therapy, IV site management, sterilization assurance, core restoratives, and revenue cycle management, expected to account for over 80% of long-term growth [13] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving growth and margin targets, raising sales growth and EPS guidance for the year due to strong execution and positive momentum [6][21] - The company is actively monitoring tariff impacts, reducing estimated tariff impact for 2025, which is expected to ease pressure on gross and operating margins in the second half of the year [12][32] Other Important Information - Solventum was recognized on the Fortune 500 list in its first year as a standalone company and named a best company to work for by U.S. News and World Report [20] - The company is making significant progress in its separation from three ms, with 35% of transition service agreements exited to date [23] Q&A Session Summary Question: What is driving the organic growth in MedSurg? - Management highlighted the commercial restructuring, differentiated brands, and new product launches as key drivers of growth in the MedSurg business [42][43] Question: Can you provide clarity on the underlying growth rate in Q2? - Management indicated that the reported 2.8% growth reflects a realistic view of underlying performance, accounting for various factors including order timing and SKU impacts [56][58] Question: How does the partnership with Ensemble for autonomous coding impact revenue opportunities? - Management noted that the partnership allows for integration of their technologies into Ensemble's accounts, enhancing efficiency and potentially improving revenue capture [87][89] Question: Why was there an increase in organic sales growth and EPS guidance while maintaining free cash flow guidance? - The increase in guidance was attributed to strong commercial improvements and margin performance, while free cash flow guidance remains unchanged due to a slow start and timing of payments [95][96]

Q2 FY25 Financial Performance - Solventum's total sales reached $2161 million, with a reported year-over-year increase of 3.9% and an organic growth of 2.8%[12] - The company's GAAP operating margin was 9.9%, while the non-GAAP operating margin was significantly higher at 21.9%[13] - GAAP EPS stood at $0.51, and non-GAAP EPS was $1.69[13] - Cash from operations amounted to $169 million, while free cash flow was $59 million[13] Segment Performance - MedSurg segment sales were $1218 million, showing a reported increase of 4.8% and an organic growth of 3.9%[12, 15] - Dental Solutions segment achieved $338 million in sales, with a reported growth of 2.3% and an organic growth of 0.7%[12, 19] - Health Information Systems segment reported sales of $339 million, reflecting a 3.4% increase, with organic growth at 3.2%[12, 23] - Purification & Filtration segment's sales were $252 million, with a reported increase of 5.4% and an organic growth of 3.1%[12, 26] FY2025 Guidance - The company raised its organic sales growth guidance to a range of 2.5% to 3.5%, excluding an approximate 50bps impact from SKU exits[29] - Adjusted EPS guidance was increased to $5.80 - $5.95[30]

[Financial Performance Overview](index=1&type=section&id=Financial%20Performance%20Overview) [Second Quarter 2025 Financial Highlights](index=1&type=section&id=Second%20Quarter%202025%20Financial%20Highlights) Solventum reported solid second quarter 2025 results with increased sales and adjusted EPS, though operating cash flow and margins were pressured by stand-up costs and supply agreement impacts - CEO Bryan Hanson highlighted five consecutive quarters of positive sales volume growth and raised full-year guidance, reflecting confidence in the company's strategy and execution[4](index=4&type=chunk) - GAAP and adjusted operating income margins declined due to lower gross margins, impacted by the 3M supply agreement mark-up, and increased operating expenses from public company stand-up costs and growth investments[5](index=5&type=chunk) - Organic sales growth was positive across all segments, with MedSurg and Health Information Systems (HIS) being the primary drivers[4](index=4&type=chunk) Q2 & First Six Months 2025 Financial Results | (Dollars in millions, except per share) | Three months ended June 30, 2025 | Three months ended June 30, 2024 | YoY Change | Six months ended June 30, 2025 | Six months ended June 30, 2024 | YoY Change | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | **Net sales** | $2,161 | $2,081 | 3.9% | $4,231 | $4,097 | 3.3% | | **Operating income margin** | 9.9% | 11.7% | (180) bps | 8.7% | 15.3% | (660) bps | | **Adjusted operating income margin** | 21.9% | 20.7% | 120 bps | 20.8% | 22.3% | (150) bps | | **Net income** | $90 | $89 | 1.1% | $227 | $326 | (30.4)% | | **Diluted earnings per share** | $0.51 | $0.51 | — % | $1.30 | $1.88 | (30.9)% | | **Adjusted diluted earnings per share** | $1.69 | $1.56 | 8.3% | $3.03 | $3.64 | (16.8)% | | **Net cash provided by operating activities** | $169 | $355 | (52.4)% | $198 | $797 | (75.2)% | | **Free cash flow** | $59 | $297 | (80.1)% | $(21) | $637 | (103.3)% | [Full-Year 2025 Guidance](index=2&type=section&id=Full-Year%202025%20Guidance) The company raised its full-year 2025 guidance for organic sales growth and adjusted EPS, while maintaining its free cash flow outlook - The current guidance includes the Purification & Filtration segment and will be updated after the partial sale of this segment closes[9](index=9&type=chunk) - Solventum does not provide reconciliations for forward-looking non-GAAP measures like organic sales and adjusted EPS to their GAAP equivalents due to the inability to predict certain items with reasonable certainty[10](index=10&type=chunk) Updated Full-Year 2025 Guidance | Metric | Prior Guidance | Updated Guidance | | :--- | :--- | :--- | | **Organic Sales Growth** | +1.5% to +2.5% | +2.0% to +3.0% | | **Adjusted EPS** | $5.45 to $5.65 | $5.80 to $5.95 | | **Free Cash Flow** | $450M to $550M | $450M to $550M (No change) | [Segment Performance](index=2&type=section&id=Segment%20Performance) [Segment Sales and Operating Income Analysis](index=2&type=section&id=Segment%20Sales%20and%20Operating%20Income%20Analysis) All business segments achieved positive organic sales growth in Q2 2025, led by Infection Prevention and Surgical Solutions, with Health Information Systems maintaining the highest operating margin and Purification and Filtration showing significant margin expansion Q2 2025 Net Sales by Segment (YoY Growth) | (Dollars in millions) | Q2 2025 Sales | Reported Growth | Organic Growth | | :--- | :--- | :--- | :--- | | **MedSurg** | $1,218 | 4.8% | 3.9% | | *Advanced Wound Care* | *$467* | *1.7%* | *0.8%* | | *Infection Prevention and Surgical Solutions* | *$750* | *6.9%* | *5.9%* | | **Dental Solutions** | $338 | 2.3% | 0.7% | | **Health Information Systems** | $339 | 3.4% | 3.2% | | **Purification and Filtration** | $252 | 5.4% | 3.1% | | **Total Company** | **$2,161** | **3.9%** | **2.8%** | Q2 2025 Operating Income by Segment | (Dollars in millions) | Q2 2025 Operating Income | Q2 2025 Operating Margin | Q2 2024 Operating Income | Q2 2024 Operating Margin | | :--- | :--- | :--- | :--- | :--- | | **MedSurg** | $210 | 17.3% | $214 | 18.4% | | **Dental Solutions** | $96 | 28.5% | $93 | 28.0% | | **Health Information Systems** | $120 | 35.5% | $111 | 33.8% | | **Purification and Filtration** | $48 | 19.2% | $19 | 8.0% | First Six Months 2025 Organic Sales Growth by Segment | Segment | H1 2025 Organic Growth | | :--- | :--- | | **MedSurg** | 4.9% | | *Advanced Wound Care* | *1.8%* | | *Infection Prevention and Surgical Solutions* | *7.0%* | | **Dental Solutions** | 0.6% | | **Health Information Systems** | 3.5% | | **Purification and Filtration** | 2.6% | | **Total Company** | **3.5%** | [Consolidated Financial Statements](index=5&type=section&id=Consolidated%20Financial%20Statements) [Condensed Consolidated Statements of Income](index=5&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income) For Q2 2025, total net sales increased to **$2.16 billion**, but rising SG&A expenses led to a decrease in operating income, while net income and diluted EPS remained relatively flat Q2 2025 Statement of Income Highlights (in millions) | Line Item | Q2 2025 | Q2 2024 | YoY Change | | :--- | :--- | :--- | :--- | | **Total net sales** | $2,161 | $2,081 | 3.9% | | **Gross profit** | $1,175 | $1,137 | 3.3% | | **Operating income** | $214 | $244 | (12.3)% | | **Net Income** | $90 | $89 | 1.1% | | **Diluted EPS** | $0.51 | $0.51 | 0.0% | [Condensed Consolidated Balance Sheets](index=6&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of June 30, 2025, total assets increased to **$15.1 billion**, primarily due to assets held for sale, while total liabilities remained stable and total equity grew to **$3.6 billion** - The balance sheet now includes significant amounts for 'Current assets held for sale' (**$168 million**) and 'Non-current assets held for sale' (**$2,060 million**), related to the planned divestiture of the Purification and Filtration business[26](index=26&type=chunk) Balance Sheet Highlights (in millions) | Line Item | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | **Cash and cash equivalents** | $492 | $762 | | **Total current assets** | $3,208 | $3,249 | | **Total assets** | $15,074 | $14,457 | | **Total current liabilities** | $2,620 | $2,703 | | **Long-term debt** | $7,815 | $7,810 | | **Total liabilities** | $11,429 | $11,498 | | **Total equity** | $3,645 | $2,959 | [Condensed Consolidated Statements of Cash Flows](index=8&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the first six months of 2025, net cash provided by operating activities significantly decreased, resulting in negative free cash flow, a sharp reversal from the prior year - The significant drop in operating cash flow was primarily driven by a large negative swing in deferred income taxes and unfavorable changes in working capital, including inventories and accounts payable[28](index=28&type=chunk) Six Months Ended June 30 Cash Flow (in millions) | Line Item | 2025 | 2024 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $198 | $797 | | **Net cash used in investing activities** | $(224) | $(160) | | **Net cash (used in) provided by financing activities** | $(249) | $66 | | **Net increase (decrease) in cash** | $(268) | $703 | [Supplemental and Non-GAAP Information](index=12&type=section&id=Supplemental%20and%20Non-GAAP%20Information) [Non-GAAP Financial Measures Reconciliation](index=12&type=section&id=Non-GAAP%20Financial%20Measures%20Reconciliation) This section provides detailed reconciliations for key non-GAAP financial measures, including adjusted operating income, adjusted diluted EPS, and free cash flow, to offer a clearer view of underlying operational performance - Management uses non-GAAP measures to evaluate current performance and focus on underlying operational results and liquidity[43](index=43&type=chunk) - The primary adjustments to GAAP earnings include amortization, restructuring costs, Spin-Off and separation-related costs, certain litigation-related costs, and impacts from the sale of the Purification and Filtration business[46](index=46&type=chunk)[47](index=47&type=chunk) [Adjusted Operating Income and EPS Reconciliation](index=12&type=section&id=Adjusted%20Operating%20Income%20and%20EPS%20Reconciliation) For Q2 2025, GAAP operating income and diluted EPS were significantly adjusted to non-GAAP figures, primarily due to **$150 million** in pre-tax spin-off and separation costs - Key pre-tax adjustments for Q2 2025 included Spin-off costs (**$150 million**), Amortization (**$78 million**), Purification and Filtration sale-related costs (**$15 million**), Restructuring (**$8 million**), and Certain litigation costs (**$8 million**)[49](index=49&type=chunk) Q2 2025 GAAP to Non-GAAP Reconciliation (in millions, except EPS) | Metric | GAAP | Adjustments | Non-GAAP | | :--- | :--- | :--- | :--- | | **Operating Income** | $214 | $260 | $474 | | **Operating Margin** | 9.9% | 12.0% | 21.9% | | **Net Income** | $90 | $206 | $296 | | **Diluted EPS** | $0.51 | $1.18 | $1.69 | [Free Cash Flow Reconciliation](index=15&type=section&id=Free%20Cash%20Flow%20Reconciliation) Free cash flow for Q2 2025 was **$59 million**, a significant **80.1%** decrease from the prior year, primarily due to higher capital expenditures Free Cash Flow Calculation (in millions) | Line Item | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | **Net cash provided by operating activities** | $169 | $355 | $198 | $797 | | **Purchases of property, plant and equipment** | $(110) | $(58) | $(219) | $(160) | | **Free cash flow** | **$59** | **$297** | **$(21)** | **$637** |