Solventum Corporation(SOLV) - 2025 Q2 - Quarterly Results

Financial Performance Overview Second Quarter 2025 Financial Highlights 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] - 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] - Organic sales growth was positive across all segments, with MedSurg and Health Information Systems (HIS) being the primary drivers[4] 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 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] - 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] 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 Segment Sales and Operating Income Analysis 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 Condensed Consolidated Statements of Income 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 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] 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 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] 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 Non-GAAP Financial Measures Reconciliation 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] - 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][47] Adjusted Operating Income and EPS Reconciliation 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] 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 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 |