Summary of Solventum (SOLV) 2025 Conference Call Company Overview - **Company**: Solventum (SOLV) - **Date of Conference**: May 13, 2025 - **Key Speakers**: Brian Henson (CEO), Wade McMillan (CFO) Key Points Company Progress and Transformation - The company has experienced significant transformation since going public over a year ago, with rapid changes in leadership and organizational structure [5][6][7] - A focus on cultural change has led to increased autonomy, quicker decision-making, and accountability within the organization [6][7] - The company is in the process of a significant divestiture related to purification and filtration, which is expected to enhance operational focus [6][7] Financial Performance - The company reported a Q1 growth of 4.3%, which was adjusted to 2.5% when accounting for one-time items related to the separation and ERP cutover [13][15] - The underlying business strength is attributed to commercial changes and new product launches, leading to increased confidence and raised guidance for the year [14][15] - The growth rate of 2.5% is more than double the growth rate for all of 2024, indicating strong performance across all segments [15] Market Dynamics - The dental market is currently the only challenged segment, but it remains stable [13] - The company is experiencing broad-based growth across its four segments, with a strong start to the year [15] ERP Implementation - The company has developed a robust mitigation strategy for the ERP implementation, focusing on risk management and customer interaction [21][22] - The implementation is ongoing, with positive early indicators, and the company is prepared for potential challenges [24][25] Tariff Impact - The company anticipates benefits from the reduction of tariffs, which previously impacted earnings per share (EPS) guidance [29][30] - The tariff impact was significant, with China accounting for approximately 50% of the overall tariff burden [30] - The company expects to see a positive effect on EPS as tariffs decrease, although the exact financial impact is still being assessed [32] MedSurg Business Overview - The MedSurg business is divided into wound care ($1.8 billion) and infection prevention/surgical solutions ($2.8 billion) [39] - The company holds a significant market share in negative pressure wound therapy, with growth opportunities in both traditional and single-use categories [45][46] - The specialized sales organization is expected to drive growth in the advanced wound care segment, particularly through new technologies [47][56] Growth Drivers - Key growth drivers identified include IV site management and sterilization assurance, with a focus on digitizing sterilization processes to improve market penetration [60][62] - The Tegaderm product line, enhanced with FDA-approved infection reduction claims, is positioned for growth through upselling to existing customers [68][69] Capital Allocation and Future Strategy - Proceeds from the purification and filtration divestiture will primarily be used to pay down debt, with future considerations for M&A opportunities [73][75] - The company is focused on enhancing its commercial organization, introducing new products, and pursuing inorganic growth through acquisitions [75] Additional Insights - The company has undergone significant changes in its commercial organization, which has been carefully managed to avoid disruptions [70][71] - The leadership is optimistic about the future, with a clear strategy for growth and market development [75]

Core Viewpoint - Solventum reported strong financial performance in Q1 2025, with a revenue of $2.1 billion, a year-over-year growth of 2.7%, and an adjusted EPS of $1.34, exceeding market expectations, leading to a 5% increase in stock price [1][5]. Financial Performance and Future Outlook - In Q1 2025, Solventum's revenue breakdown by business segments showed strong performance: - MedSurg generated $1.281 billion (approximately 61% of total sales), with a 3.4% year-over-year increase driven by demand for V.A.C. negative pressure wound therapy systems and Tegaderm transparent dressings [3]. - Dental Solutions achieved $336 million (approximately 16% of total sales), with a 0.4% year-over-year increase, supported by the partnership with SprintRay for 3D-printed dental crowns [4]. - Health Information Systems reported $273 million (approximately 13% of total sales), with a 3.6% year-over-year increase, benefiting from hospital digital transformation and new AI-driven coding tools [4]. - Purification and Filtration generated $210 million (approximately 10% of total sales), with plans to divest this segment to optimize business structure [4]. - The company has raised its full-year organic sales growth forecast to 1.5% to 2.5% and expects adjusted EPS to reach $5.45 to $5.65 [6]. Strategic Progress and Transformation - Since its spin-off, Solventum has made significant strategic progress: - The company took on $8.3 billion in debt during its spin-off from 3M and secured $600 million in cash and equivalents to support independent operations [7]. - Solventum acquired MediWound, an Israeli wound care company, enhancing its market share in the MedSurg sector [8]. - The company announced the sale of its Purification and Filtration business for $4.1 billion to Thermo Fisher Scientific, aiming to optimize its business portfolio and focus on high-growth areas [8]. - Solventum plans to use proceeds from the sale for strategic acquisitions, targeting small medical technology companies with annual revenues between $50 million and $200 million [9]. Challenges and Risks - Solventum faces several challenges: - Tariffs and macroeconomic factors are expected to impact earnings by $80 million to $100 million in 2025, with foreign exchange fluctuations negatively affecting Q1 sales growth by 1.5 percentage points [10]. - The company carries a significant debt burden of $8.3 billion, which remains a financial challenge despite debt management efforts [11]. - Intense competition in the global medical market, particularly in the MedSurg and Health Information Systems sectors, necessitates ongoing innovation and enhancement of product and service competitiveness [12]. About Solventum - Solventum originated from 3M's healthcare business and became an independent medical technology company after its spin-off in 2024, inheriting over 20,000 employees and 6,500 patents, with a customer base in over 90 countries [13]. - The company's business composition includes: - MedSurg: 61% of total sales, focusing on wound care, infection prevention, and surgical supplies [13]. - Dental Solutions: 16%, offering dental restoration materials and digital dental technology [13]. - Health Information Systems: 13%, providing information management software and data analytics tools for hospitals [13]. - Purification and Filtration: 10%, specializing in water and air purification technologies [13].

Group 1 - Solventum (SOLV) has reached a significant support level and is considered a good investment pick from a technical perspective, having recently broken through the 200-day moving average, indicating a long-term bullish trend [1] - The 200-day simple moving average is a widely-used indicator that helps establish market trends, and SOLV has gained 6.1% over the past four weeks, currently holding a Zacks Rank 2 (Buy), suggesting potential for further price increases [2] - Positive earnings estimate revisions strengthen the bullish case for SOLV, with three upward revisions compared to none lower for the current fiscal year, and the consensus estimate has also increased, indicating potential for more gains [3]

[Financial Information](index=5&type=section&id=PART%20I.%20Financial%20Information) [Financial Statements](index=5&type=section&id=Item%201.%20Financial%20Statements) Solventum reported **$2.07 billion** in Q1 2025 net sales, a **2.6%** increase, but experienced significant declines in operating income, net income, and operating cash flow post-spin-off | Financial Metric | Q1 2025 (Millions) | Q1 2024 (Millions) | Change | | :--- | :--- | :--- | :--- | | **Income Statement** | | | | | Total Net Sales | $2,070 | $2,016 | +2.7% | | Gross Profit | $1,114 | $1,172 | -5.0% | | Operating Income | $152 | $381 | -60.1% | | Net Income | $137 | $237 | -42.2% | | Diluted EPS | $0.78 | $1.37 | -43.1% | | **Balance Sheet (as of)** | **Mar 31, 2025** | **Dec 31, 2024** | | | Total Assets | $14,527 | $14,457 | +0.5% | | Total Liabilities | $11,265 | $11,498 | -2.0% | | Total Equity | $3,262 | $2,959 | +10.2% | | **Cash Flow** | | | | | Net Cash from Operating Activities | $29 | $442 | -93.4% | - On April 1, 2024, Solventum completed its spin-off from 3M Company, becoming an independent public company listed on the NYSE under the symbol "SOLV"[20](index=20&type=chunk) - Financial statements for periods prior to April 1, 2024, were prepared on a combined, carve-out basis from 3M's accounting records and may not be indicative of future performance as a standalone company[24](index=24&type=chunk) [Acquisitions and Divestitures](index=12&type=section&id=NOTE%203.%20Acquisitions%20and%20Divestitures) The company entered an agreement to sell its Purification and Filtration business for **$4.1 billion**, classifying its assets and liabilities as held for sale on the balance sheet - On February 25, 2025, the company entered into a definitive agreement to sell its Purification and Filtration business to Thermo Fisher Scientific Inc for **$4.1 billion**, with the transaction expected to close by the end of the 2025 calendar year[32](index=32&type=chunk) - The Purification and Filtration business has been classified as held for sale, with its assets and liabilities presented separately on the March 31, 2025 balance sheet, though the sale does not meet discontinued operations criteria[33](index=33&type=chunk)[34](index=34&type=chunk) Assets and Liabilities Held for Sale (as of March 31, 2025) | Category | Amount (Millions) | | :--- | :--- | | **Current Assets Held for Sale** | **$293** | | Accounts receivables — net | $127 | | Inventories | $144 | | **Non-current Assets Held for Sale** | **$2,106** | | Property, plant and equipment — net | $503 | | Goodwill | $1,494 | | Intangible assets — net | $106 | | **Current Liabilities Held for Sale** | **$57** | | **Non-current Liabilities Held for Sale** | **$47** | [Debt and Borrowings](index=17&type=section&id=NOTE%209.%20Long-Term%20Debt%20and%20Short-Term%20Borrowings) As of March 31, 2025, the company reported **$7.913 billion** in total long-term debt, including senior notes and term loan facilities, with no outstanding balances on its revolving credit facility or commercial paper program - As of March 31, 2025, the company had total long-term debt of **$7.913 billion**, including senior notes and term loan facilities, alongside a **$2.0 billion** revolving credit facility and a **$2.0 billion** commercial paper program, both with no outstanding balances[45](index=45&type=chunk)[47](index=47&type=chunk)[49](index=49&type=chunk) Total Long-Term Debt Composition (March 31, 2025) | Description | Carrying Value (Millions) | | :--- | :--- | | Senior Term Loan Credit Facilities | $1,079 | | Senior Notes (various maturities) | $6,834 | | **Total Long-Term Debt** | **$7,913** | | Less: current portion | $100 | | **Long-term debt (excluding current portion)** | **$7,813** | - In March 2025, the company repaid **$100 million** of the principal outstanding under its eighteen-month senior unsecured term loan credit facility[48](index=48&type=chunk) [Commitments and Contingencies](index=23&type=section&id=NOTE%2012.%20Commitments%20and%20Contingencies) The company is involved in numerous legal proceedings, including product liability and intellectual property claims, with **$35 million** in accrued litigation costs as of March 31, 2025 - The company is involved in numerous legal proceedings, including product liability, intellectual property, and commercial claims, with accrued litigation costs of **$35 million** as of March 31, 2025[71](index=71&type=chunk)[73](index=73&type=chunk) - Solventum has agreed to indemnify 3M for uninsured liabilities related to over **8,100** lawsuits concerning the Bair Hugger patient warming system, managing the litigation and covering legal expenses[78](index=78&type=chunk) - The company is involved in a qui tam (False Claims Act) lawsuit related to its subsidiary KCI, with an agreement in principle to settle the case reached in November 2023, pending government agreement and final terms[87](index=87&type=chunk)[89](index=89&type=chunk) [Restructuring](index=25&type=section&id=NOTE%2013.%20Restructuring) The company initiated the "Solventum Way" restructuring program in Q4 2024 to enhance margins, recognizing **$18 million** in Q1 2025 charges, with accrued liabilities of **$29 million** - The company initiated the "Solventum Way" restructuring program in Q4 2024 to create a more flexible, decentralized structure and enhance margins, with actions expected to be substantially complete by the end of 2025[92](index=92&type=chunk) - In Q1 2025, the company recognized **$18 million** in restructuring charges, primarily for employee termination benefits and asset-related costs, with accrued liabilities for the program standing at **$29 million** as of March 31, 2025[93](index=93&type=chunk)[94](index=94&type=chunk) [Related Party Transactions](index=27&type=section&id=NOTE%2016.%20Related%20Parties) Following its spin-off, Solventum entered into various agreements with 3M, including transition and master supply agreements, to govern their ongoing relationship - Following the spin-off, Solventum entered into several agreements with 3M, including transition and master supply agreements, to govern their ongoing relationship[106](index=106&type=chunk) Related Party Transactions with 3M (Q1 2025) | Transaction Type | Amount (Millions) | | :--- | :--- | | Net sales of product to 3M | $20 | | Cost of product from 3M | $155 | | Selling, general and administrative expenses | $67 | | Research and development expenses | $3 | [Business Segments](index=29&type=section&id=NOTE%2017.%20Business%20Segments) The company operates through four segments: MedSurg, Dental Solutions, Health Information Systems, and Purification and Filtration, with segment performance evaluated based on operating income - The company operates through four segments: MedSurg, Dental Solutions, Health Information Systems, and Purification and Filtration, with segment performance evaluated based on segment operating income[110](index=110&type=chunk) - The "Corporate and Unallocated" category includes costs not assigned to segments, such as amortization of acquired intangibles, restructuring charges, and spin-off/separation related costs[111](index=111&type=chunk) [Management's Discussion and Analysis (MD&A)](index=31&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management reported a **2.6%** sales increase for Q1 2025, with **4.3%** organic growth, but operating income declined **60.1%** due to standalone costs, compensation, and transition service agreements, while focusing on restructuring and divestiture [Overview](index=31&type=section&id=Overview) The company is a global healthcare entity with four operating segments, currently in agreement to sell its Purification and Filtration business for **$4.1 billion** by year-end 2025 - The company is a global healthcare entity with four operating segments: MedSurg, Dental Solutions, Health Information Systems, and Purification and Filtration, with a definitive agreement to sell the Purification and Filtration business for **$4.1 billion**, expected to close by year-end 2025[121](index=121&type=chunk)[122](index=122&type=chunk) Total Company Sales Growth Analysis (Q1 2025 vs Q1 2024) | Metric | Percentage | | :--- | :--- | | Reported Growth | 2.6% | | Currency Impact | (1.6)% | | Constant Currency Growth | 4.2% | | Other (Acquisitions/Divestitures) | (0.1)% | | **Organic Growth** | **4.3%** | [Results of Operations](index=33&type=section&id=Results%20of%20Operations) Cost of product increased to **52.3%** of sales due to transition agreements, SG&A expenses rose to **37.1%** due to standalone costs, and net interest expense increased to **$104 million** due to new debt, while the effective tax rate was **(262.1%)** due to a divestiture tax benefit - Cost of product as a percentage of product sales increased from **46.7%** to **52.3%** year-over-year, driven by higher costs on inventory sourced from 3M under transition agreements[136](index=136&type=chunk)[139](index=139&type=chunk) - Selling, General & Administrative (SG&A) expenses rose to **37.1%** of net sales from **29.6%** year-over-year, primarily due to higher compensation, including equity awards, and costs to support a standalone company[141](index=141&type=chunk)[142](index=142&type=chunk) - Net interest expense increased to **$104 million** from **$39 million** year-over-year, attributed to a full quarter of interest on debt issued in February and March 2024[144](index=144&type=chunk) - The effective tax rate was **(262.1%)** in Q1 2025 compared to **28.0%** in Q1 2024, primarily due to a tax benefit on the expected divestiture of the Purification and Filtration business[41](index=41&type=chunk)[146](index=146&type=chunk) [Performance by Business Segment](index=34&type=section&id=Performance%20by%20Business%20Segment) MedSurg sales grew **3.4%** organically, Dental Solutions was flat, Health Information Systems grew **3.6%**, and Purification and Filtration saw **(0.9%)** reported decline, with varying impacts on operating margins across segments Q1 2025 Segment Performance vs Q1 2024 | Segment | Net Sales (Millions) | Reported Growth | Organic Growth | Operating Income (Millions) | Operating Margin | | :--- | :--- | :--- | :--- | :--- | :--- | | MedSurg | $1,157 | 3.4% | 6.0% | $206 | 17.8% | | Dental Solutions | $328 | (2.1)% | 0.4% | $78 | 23.9% | | Health Information Systems | $329 | 3.6% | 3.9% | $109 | 33.1% | | Purification and Filtration | $242 | (0.9)% | 2.2% | $35 | 14.5% | - **MedSurg:** Sales growth was driven by strong volumes in Infection Prevention and Surgical Solutions, particularly I.V. site management and hospital consumables, though operating margin decreased due to higher standalone operating costs[153](index=153&type=chunk)[155](index=155&type=chunk) - **Dental Solutions:** Flat organic growth was observed, with restorative products offsetting declines in orthodontics, while operating margin fell significantly due to higher standalone costs and inventory-related charges[160](index=160&type=chunk)[162](index=162&type=chunk) - **Health Information Systems:** Growth was driven by continued adoption of the 3M 360 Encompass software, with operating margin increasing due to temporary savings from restructuring - **Purification and Filtration:** Growth in bioprocessing and industrial filtration was offset by declines in membrane OEM products, with operating margin decreasing due to higher compensation and standalone costs [Financial Condition and Liquidity](index=41&type=section&id=Financial%20Condition%20and%20Liquidity) Cash and cash equivalents decreased to **$534 million** from **$762 million** due to debt interest payments and principal repayment, while operating cash flow significantly declined to **$29 million** due to lower net income - As of March 31, 2025, the company held **$534 million** in cash and cash equivalents, a decrease from **$762 million** at year-end 2024, driven by debt interest payments and a **$100 million** principal repayment on a term loan[169](index=169&type=chunk)[174](index=174&type=chunk) - Cash flow from operating activities decreased to **$29 million** in Q1 2025 from **$442 million** in Q1 2024, primarily due to lower net income[171](index=171&type=chunk)[172](index=172&type=chunk) - Capital expenditures increased to **$109 million** from **$102 million** year-over-year, driven by separation-related spending to relocate manufacturing from 3M[173](index=173&type=chunk) [Market Risk Disclosures](index=44&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risks are foreign currency exchange rate fluctuations, managed through hedging, and commodity price changes, mitigated by negotiated supply contracts - The company is exposed to transactional and translational foreign currency exchange rate risk from its international operations and uses hedging to manage this risk[182](index=182&type=chunk) - Commodity price risks are managed through negotiated supply contracts and price protection agreements, with no material commodity hedging activity[183](index=183&type=chunk) [Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures are effective as of the end of the reporting period[184](index=184&type=chunk) - No changes occurred during the quarter that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[185](index=185&type=chunk) [Other Information](index=45&type=section&id=PART%20II.%20Other%20Information) This section incorporates legal proceedings by reference from financial notes, confirms no material changes to previously disclosed risk factors, and reports no unregistered equity sales or senior security defaults during the period [Legal Proceedings and Risk Factors](index=45&type=section&id=Item%201.%20Legal%20Proceedings) The company incorporates its discussion of legal matters by reference from Note 12 of the financial statements and confirms no material changes to the risk factors disclosed in its 2024 Annual Report on Form 10-K - The discussion of legal matters is incorporated by reference from Note 12, 'Commitments and Contingencies,' in Part I of this report[187](index=187&type=chunk) - There have been no material changes to the risk factors as disclosed in the company's 2024 Annual Report on Form 10-K[187](index=187&type=chunk)

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Core Viewpoint - Solventum (SOLV) reported strong first-quarter 2025 results, with adjusted earnings per share (EPS) of $1.34, exceeding estimates, although showing a year-over-year decline of 35.6% [1]. Financial Performance - Adjusted EPS of $1.34 beat the Zacks Consensus Estimate of $1.19 by 12.6%, while GAAP EPS was 78 cents, down 43.1% year over year [1]. - Revenues reached $2.07 billion, reflecting a 2.6% increase from the prior year, with organic sales growth of 4.3%, surpassing estimates by 3.4% [1]. - Adjusted gross profit was $1.15 billion, down 1.9% year over year, with an adjusted gross margin of 55.6%, a decrease of approximately 260 basis points [8]. - Adjusted operating income totaled $407 million, down 15.9% year over year, with an adjusted operating margin of 19.7%, down approximately 430 basis points [9]. Segment Performance - MedSurg segment revenues were $1.16 billion, up 3.4% reportedly and 8.2% organically year over year, driven by strong volumes in IV site management and hospital consumables [3]. - Dental Solutions revenues totaled $328 million, down 2.1% year over year but up 0.4% organically, with strong sales in Restorative offsetting weak performance in Core Orthodontics [4]. - HIS segment revenues amounted to $329 million, up 3.6% reportedly and 3.9% organically, driven by the adoption of 360 Encompass revenue cycle management [5]. - Purification and Filtration segment revenues were $242 million, down 0.9% year over year but up 2.2% organically, supported by strength in bioprocessing filtration [7]. Financial Position - Solventum ended the first quarter with cash, cash equivalents, and investments of $534 million, down from $762 million in the previous quarter [10]. - Total assets increased to $14.52 billion from $14.46 billion in the previous quarter [10]. Guidance - The company raised its sales guidance for 2025, now expecting organic sales growth of 1.5-2.5%, up from the previous 1-2% [11]. - Adjusted EPS guidance remains in the range of $5.45-$5.65, with the Zacks Consensus Estimate at $5.48 per share [11]. Strategic Outlook - Solventum is undergoing a three-phase restructuring program post-separation from 3M, focusing on debt reduction, portfolio optimization, and operational efficiency, expected to enhance long-term prospects [13].

Core Insights - Solventum (SOLV) reported revenue of $2.07 billion for the quarter ended March 2025, reflecting a year-over-year increase of 2.7% [1] - The company's EPS was $1.34, down from $2.08 in the same quarter last year, but exceeded the consensus estimate of $1.19, resulting in an EPS surprise of +12.61% [1] - The reported revenue surpassed the Zacks Consensus Estimate of $2 billion, yielding a revenue surprise of +3.37% [1] Financial Performance Metrics - Net Sales in MedSurg reached $1.16 billion, exceeding the average estimate of $1.10 billion from three analysts [4] - Net Sales in Purification and Filtration were $242 million, slightly below the average estimate of $242.25 million [4] - Net Sales in Health Information Systems totaled $329 million, surpassing the average estimate of $319.96 million [4] - Net Sales in Dental Solutions amounted to $328 million, exceeding the average estimate of $325.61 million [4] - Operating Income in MedSurg was $206 million, below the average estimate of $229.10 million [4] - Operating Income in Purification and Filtration was $35 million, above the average estimate of $31.92 million [4] - Operating Income in Health Information Systems reached $109 million, exceeding the average estimate of $104.45 million [4] - Operating Income in Dental Solutions was $78 million, below the average estimate of $95.98 million [4] Stock Performance - Solventum's shares have returned -4.5% over the past month, contrasting with the Zacks S&P 500 composite's +11.3% change [3] - The stock currently holds a Zacks Rank 2 (Buy), indicating potential for outperformance in the near term [3]

Core Insights - Solventum (SOLV) reported quarterly earnings of $1.34 per share, exceeding the Zacks Consensus Estimate of $1.19 per share, but down from $2.08 per share a year ago, representing an earnings surprise of 12.61% [1] - The company achieved revenues of $2.07 billion for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 3.37% and showing an increase from $2.02 billion year-over-year [2] - Solventum has consistently outperformed consensus EPS and revenue estimates over the last four quarters [2] Earnings Outlook - The sustainability of Solventum's stock price movement will depend on management's commentary during the earnings call and future earnings expectations [3][4] - The current consensus EPS estimate for the upcoming quarter is $1.38 on revenues of $2.07 billion, and for the current fiscal year, it is $5.55 on revenues of $8.25 billion [7] Industry Context - The Medical Services industry, to which Solventum belongs, is currently ranked in the top 22% of over 250 Zacks industries, indicating a favorable outlook [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can impact Solventum's performance [5][6]

Financial Data and Key Metrics Changes - The company reported Q1 2025 sales of $2.1 billion, reflecting a 4.3% increase on an organic basis and a 2.6% increase on a reported basis [26] - Adjusted earnings per share (EPS) for the quarter was $1.34, exceeding expectations [32] - Gross margins were 55.6% of sales, slightly ahead of expectations but down 260 basis points compared to the prior year [30] - The company ended the quarter with $534 million in cash and equivalents, with no outstanding borrowings on its revolving credit facility [32] Business Line Data and Key Metrics Changes - The MedSurg segment generated $1.2 billion in sales, a 6% organic growth, primarily driven by Infection Prevention and Surgical Solutions, which grew 8.2% [28] - The Dental Solutions segment reported $328 million in revenue, with a modest 0.4% organic growth, supported by new product launches [28] - The Health Information Systems (HIS) segment contributed $329 million in revenue, reflecting a 3.9% organic growth, benefiting from strong customer retention [29] - The Purification and Filtration segment delivered $242 million in sales, a 2.2% organic growth, led by bioprocessing filtration [29] Market Data and Key Metrics Changes - The company experienced a favorable foreign exchange impact, which was initially a headwind of 160 basis points but is now expected to have a neutral impact on sales growth for the year [26][35] - The overall market volumes remain challenged, particularly in the Dental segment, but the company is seeing resilience in its core restorative areas [28][84] Company Strategy and Development Direction - The company is committed to its three-phase transformation plan, focusing on enhancing its mission, talent, and commercial productivity [12][21] - The strategic focus includes investing in key growth areas and maintaining a commitment to delivering value for shareholders [12][13] - The company plans to execute tuck-in M&A after the divestiture of the Purification and Filtration business, expected to close by the end of 2025 [22][20] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the challenges posed by tariffs but expressed confidence in mitigating their impact through various strategies [9][36] - The company raised its full-year organic sales growth guidance to a range of 1.5% to 2.5%, reflecting positive momentum across business segments [34] - Management emphasized the importance of delivering for customers and investing in sustainable growth despite a shifting geopolitical landscape [12][13] Other Important Information - The company has exited over 30% of its transition service agreements and plans to exit all agreements over the next two years [25] - The effective tax rate for the quarter was 19.9%, slightly below the low end of the full-year outlook [31] Q&A Session Summary Question: Confidence in underlying growth rate - Management expressed confidence in the 2.5% underlying growth rate, attributing it to strong commercial execution and customer order patterns [41][43] Question: Quarterly cadence and impact of tariffs - Management clarified that tariffs primarily impact the bottom line rather than top-line growth, with expectations for Q3 to see the most significant effects [47][50] Question: Top line drivers in MedSurg - Management highlighted improvements in commercial execution and new product launches as key drivers for growth in the MedSurg segment [59][61] Question: Tariff impact and mitigation efforts - Management discussed ongoing mitigation strategies, including optimizing inventory and exploring selective pricing strategies to offset tariff impacts [67][71] Question: Performance in Dental segment relative to market - Management indicated that the Dental segment performed well relative to the market, supported by new product innovations [82][84]

Financial Data and Key Metrics Changes - The company reported first quarter sales of $2.1 billion, reflecting a 4.3% increase on an organic basis and a 2.6% increase on a reported basis [25] - Adjusted earnings per share (EPS) for the quarter was $1.34, exceeding expectations [31] - Gross margins were 55.6% of sales, slightly ahead of expectations but down 260 basis points compared to the prior year [29] Business Segment Data and Key Metrics Changes - The MedSurg segment generated $1.2 billion in sales, an increase of 6% on an organic basis, driven by strong performance in Infection Prevention and Surgical Solutions [27] - The Dental Solutions segment reported $328 million in revenue, a 0.4% increase on an organic basis, benefiting from new product launches despite market challenges [28] - The Health Information Systems (HIS) segment contributed $329 million in revenue, a 3.9% organic growth, supported by strong customer retention [28] - The Purification and Filtration segment delivered $242 million in sales, a 2.2% organic growth, led by bioprocessing filtration [28] Market Data and Key Metrics Changes - The company experienced a favorable foreign exchange impact, with currency now estimated to have a neutral effect on sales growth for the year, compared to a previous estimate of a 150 basis point headwind [34] - The overall market volumes remain challenged, particularly in the Dental segment, but the company is seeing resilience in its core restorative areas [28][84] Company Strategy and Development Direction - The company is committed to investing in key areas to support sustainable growth and margin improvement, focusing on five growth driver areas [12][21] - The ongoing separation process is on track, with over 30% of transition service agreements exited and significant progress in ERP deployments planned for the year [24] - The company anticipates completing the divestiture of the Purification and Filtration business by the end of 2025, which will allow for tuck-in M&A opportunities [19][21] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the headwinds from tariffs but expressed confidence in managing these challenges through mitigation strategies and strong business momentum [8][34] - The company raised its full-year organic sales growth guidance to a range of 1.5% to 2.5%, reflecting positive volume-driven performance across business segments [32] - Management emphasized the importance of delivering for customers and maintaining focus on long-term value creation despite short-term challenges [11][38] Other Important Information - The company has made cumulative repayments of $400 million on its $1.5 billion prepayable term loans, ending the quarter with $534 million in cash and equivalents [31] - Free cash flow for Q1 declined by $80 million, consistent with expectations due to planned payments and one-time separation costs [31] Q&A Session Summary Question: Confidence in underlying growth rate - Management expressed confidence in the 2.5% underlying growth rate, attributing it to strong commercial execution and analytics from distributor partners [40][42] Question: Quarterly cadence and impact of tariffs - Management clarified that tariffs primarily impact the bottom line, with expectations for most order timing impacts to be realized in Q3 [48][49] Question: Top line drivers in MedSurg - Management highlighted improvements in commercial execution and new product launches as key drivers for growth in the MedSurg segment [60][62] Question: Tariff impact and mitigation efforts - Management discussed ongoing mitigation strategies, including optimizing inventory and exploring selective pricing strategies to offset tariff impacts [68][72] Question: Performance in Dental segment relative to market - Management indicated that the Dental segment performed well relative to the market, supported by new product innovations [84]