Title

Presentation

Solventum Corporation beats earnings expectations. Reported EPS is $1.48, expectations were $1.35.

Operator: Hello, and welcome to Solventum Corporation’s first quarter fiscal year 2026 earnings call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. If you would like to ask a question during this time, please press 1 on your telephone keypad. I would now like to turn the conference over to Amy Wakeham, Senior Vice President of Investor Relations, Finance, and Communications. You may begin.

Amy Wakeham: Thank you. Good afternoon, and welcome to Solventum Corporation’s first quarter fiscal year 2026 earnings call. Joining me on today’s call are Chief Executive Officer, Bryan Hanson, and Chief Financial Officer, Wayde McMillan. A replay of today’s earnings call will be available later today in the Investor Relations section of our corporate website. The earnings press release and presentation are both available there now. During today’s call, our discussion and any comments we make will be on a non-GAAP basis unless they are specifically called out as GAAP. The non-GAAP information discussed is not intended to be considered in isolation or as a substitute for the reported GAAP financial information. Please review the supporting schedules in today’s earnings press release to reconcile the non-GAAP measures with the GAAP reported numbers.

Our discussion on today’s call will include forward-looking statements including, but not limited to, expectations about our future financial and operating performance. These statements are made based on reasonable assumptions; however, our actual results could differ. Please review our SEC filings for a complete discussion of the risk factors that could cause our actual results to differ materially from any forward-looking statements made today. Following our prepared remarks, we will hold a Q&A session. For this portion of today’s call, please limit yourself to one question and one related follow-up. If you have additional questions, you can rejoin the call queue. And with that, I would now like to hand the call over to Bryan.

Bryan Hanson: All right. Great, and thanks, Amy, and to all of our shareholders and everyone else following the Solventum Corporation story, I just want to say thanks and welcome to our first quarter 2026 earnings call. I am going to start by addressing our Solvers around the world because I am pretty sure that a few of them are listening in today. I just want to say thank you, and thank you once again for delivering on your commitments in our fast-paced transformation environment. I know it is not easy with the amount of change, but the results that we are sharing today just do not happen without you and your hard work. I am extremely proud of not just your dedication but the results that you continue to deliver. This team’s ability to drive outcomes while navigating ongoing separation efforts, ERP implementations, and acquisitions and divestitures is a testament to the strong talent we have in the organization.

It is a testament to you, and it is a testament to the culture that we have already built. So again, to our global team members, thank you very much for making it happen. Now let us get into it. We delivered first quarter results ahead of our plan and ahead of expectations. Organic sales growth and EPS both exceeded our plan, again reflecting very strong execution across the organization and the momentum that we have already built. We saw solid performance across all segments driven by strong commercial execution and new product launches, and thanks to positive volume, mix, and continued progress in our savings initiatives, we also achieved better-than-expected performance on margins as well. This is a clear reflection of the discipline and rigor we have built into how we manage this business.

Q1 is a clear indication that we are well on our way to delivering our 2026 guidance and, importantly, our go-forward LRP objectives. Our transformation journey is working; we have rebuilt our commercial engine with clearer accountability, needed specialization, and stronger leadership, and now innovation is reinforcing the commercial momentum that we have built. We expect to have close to 20 new products launched over the next two years, and as you would expect, a meaningful portion of them will be within our growth driver areas. This will be additional fuel for that new and enhanced commercial team. On operational efficiency and the separation from 3M, we have made meaningful progress on our ERP cutovers as well as the overall separation process, and I can tell you that the team continues to execute against these milestones with purpose.

That said, we cannot wait to get to 2027 and put the majority of the separation work behind us. We expect the resources and bandwidth we free up to create significant value, and that is exactly what our Transform for the Future program is designed to capture. As a reminder, our Transform for the Future program is a multiyear $500 million savings program. It is our way of proactively reshaping our operating structure while freeing up resources to invest for the long term. We are streamlining systems, increasing automation, and optimizing our global footprint while repositioning spend toward the highest-return areas of our business. This program is already paying dividends and will deliver more meaningfully in 2027 and beyond. On our portfolio optimization program, we have moved rapidly with clear proof points of our ability to execute, ranging from SKU rationalization to the sale of the P&F business to the acquisition of Acera.

And we are just getting started. We see portfolio optimization as a perpetual lever for value creation here at Solventum Corporation. As we said in our original Investor Day, we will continually assess our businesses for strategic and financial fit, and when we determine that someone else can offer more value for a business we divest, or we see another path to increase shareholder value, we will act decisively just like we did with the purification and filtration business. Relative to our SKU rationalization, we are more than halfway through this process and expect to finish by the end of this year. Our separation of P&F is on track and progressing well, and Acera—although it is early—the performance reinforces our ability to identify, close, and effectively integrate attractive assets in our space.

In fact, Acera is another great proof point that portfolio optimization is not just a strategic priority; it is a value creation lever that we absolutely know how to pull. We targeted the right asset, a fast-growth business aligned to our existing call points and, as a result, immediately beneficial to our combined commercial teams. Importantly, we see Acera as just the beginning. We have a target-rich environment for additional tuck-in acquisitions and a balance sheet that gives us the flexibility to pursue them while also returning capital to shareholders. As you probably remember, we have board approval for up to $1 billion in share buybacks, and given the substantial value we see in our shares and the quality of our business, one should expect that we will accelerate execution of that approval.

Moving to our three operating segments, I will start with MedSurg, which is our largest business. We continue to see strong underlying performance in our growth driver areas. Negative pressure wound therapy was led by ongoing demand for traditional and single-use therapy, continued expansion of our VAC Peel & Place dressing, and our specialized sales force. With Acera, it opens the door to the fast-growth acute care synthetic tissue space and really slots perfectly into our advanced wound care infrastructure. We are early in integration, but the thesis is playing out. The team is executing, the product portfolio is resonating with our customers, and we expect Acera to be a meaningful contributor to reported growth as the year progresses. In our infection prevention and surgical solutions business, Tegaderm CHG remains a consistent performer as our team successfully upsells this important clinical solution, and we are encouraged by the adoption of the recent Attest sterilization product launches as well.

Both of these areas are benefiting from our specialized sales teams. In Dental Solutions, we are building on the momentum we saw in 2025. Our Clarity brand relaunch, Filtek EasyMatch, and Clarity Aligners Pro Clear are resonating with our customers and benefiting again from a more specialized sales team. As we exited 2025, this team made significant strides in improving backorders, and our customers are noticing. I want to thank our supply chain and the dental teams for making it happen. Moving to our Health Information Systems business, we continue to benefit from the strength of our revenue cycle management sub-business. Inside RCM, our autonomous coding offering continues to gain traction in both outpatient and inpatient settings. Our international expansion is providing a strong tailwind as well.

Relative to AI and autonomous coding, I will reiterate what I said on our last call. We see AI as a helpful tool to deliver better outcomes when it comes to autonomous coding, but what differentiates the outcomes is the data, the rules, and the rigor behind them. We are differentially able to leverage AI thanks to our unique ability to efficiently and effectively train it. We built deep rules and algorithms designed to assure accurate and compliant reimbursement coding, and this, combined with our vast datasets and proprietary workflows, allows us to more effectively train and maximize AI and, ultimately, deliver autonomous coding that our customers can trust. The economics of autonomous coding are compelling. Our customers benefit by improving productivity, eliminating FTE cost infrastructure, and improving revenue capture thanks to increased accuracy.

That is a powerful value proposition: reduce cost, improve productivity, and capture more revenue. Shifting gears to tariffs, we continue to expect the annual headwinds to be in the range of $100 million to $120 million. From the very beginning, our supply chain teams have been actively working on mitigation strategies since we first saw tariff headwinds emerge. Our Transform for the Future program gives us additional firepower to offset these headwinds, and as a result, we have committed to expanding operating margins 50 to 100 basis points in 2026, and we absolutely intend to do so. Zooming out, going into Q1, we had people ask whether we could maintain the momentum we saw in 2025. We did triple our comparable annual sales growth in 2025, but that was before the full benefits of our recent product launches, our pipeline innovation, and the commercial enhancements that we made in 2025.

For our full year 2026 expectations, excluding SKU exits, we represent continued progress on that ramp. As I have said in the past and will say again, it is not a question of whether we get to our LRP targets of 4% to 5% organic sales growth; it is a question of when. To summarize the key messages: number one, our underlying commercial momentum is real and continuing, and our new product pipeline will be the fuel that momentum needs to continue from here. Number two, our operational programs—the Transform for the Future program, programmatic supply chain savings, and the separation progress—give us additional confidence in the margin expansion story for the full year and beyond. Number three, we have moved with speed and, importantly, impact on portfolio optimization, but we are not finished.

We will continue to actively shape this portfolio for the long term. Number four, the ramp toward our long-range plan is happening, it is real, and it is happening faster than most people thought possible. I will now turn the call over to Wayde to walk through our financial details, and then we will open it up to questions. Wayde, go ahead.

Wayde McMillan: Thanks, Bryan. We are off to a great start in 2026, delivering first quarter results that were ahead of our plan and expectations on both sales and earnings. As usual, I will begin with an update on separation progress and portfolio actions, then walk through the quarter, and conclude with a review of the full-year outlook. Our separation from 3M continues to progress; we have exited approximately 50% of the transition service agreements and are on pace to exit over 90% by the end of 2026. We have also migrated approximately 75% of over 1,200 system applications, which captures the recent and successful ERP cutover in Asia Pacific, including China. We are now looking ahead to our next wave of ERP cutovers, which includes the U.S. and Canada, planned for Q3.

There was also meaningful progress across our facilities with the move of our Saint Paul, Minnesota facility from the legacy 3M campus to our new standalone facility in Eagan, Minnesota, and we achieved a meaningful milestone with the completion of our site migration activities covering several hundred sites around the globe. We also finished a strategic expansion of our manufacturing facility in South Dakota, which enhances our supply chain’s flexibility to support existing product growth and new product launches. With further work to streamline our distribution centers, we are now down to 54 worldwide. Regarding recent portfolio activities, we continue to make progress on the P&F divestiture, with a majority of transition service agreements to be completed in 2027, and the Acera integration efforts are tracking to plan while maintaining strong momentum of the commercial team.

Now turning to our first quarter results. Starting with top-line performance, sales of $2 billion increased 2.1% on an organic basis compared to prior year and decreased 3% on a reported basis. Foreign currency was a 270 basis point benefit to reported growth, while the net impact of acquisitions and divestitures was a 780 basis point headwind to reported growth. Growth in the quarter was driven by stronger-than-expected performance across all segments, primarily from volume, while pricing remained within the expected range. Our SKU rationalization remains on track with a 100 basis point impact in the quarter, tracking in line with our full-year expectation. Organic growth on a normalized basis would have been approximately 4% when taking into consideration separation-related timing benefits that accelerated sales volume of approximately 70 basis points from Q2 into Q1, along with the difficult year-over-year comparison and SKU headwinds, all before the contribution of Acera, which would have added another approximately 40 basis points.

Moving to the segments, MedSurg delivered $1.2 billion in sales, an increase of 1.2% on an organic basis. Within MedSurg, Advanced Wound Care grew 2.1%. Negative pressure wound therapy performance was driven by strong brand, new product launches, and commercial enhancements. Acera contributed $28 million to reported sales, which is reflected in the Advanced Wound Care business. Infection Prevention and Surgical Solutions grew 0.6%, reflecting improved commercial alignment and continued customer demand, as well as the separation-related timing benefits previously mentioned. As a reminder, IPSS growth in the prior year was just over 8%, as the primary beneficiary of order timing related to customers buying ahead of ERP and distribution center moves and SKU exits.

Our Dental Solutions segment delivered $354 million in sales, an increase of 3.4% on an organic basis. Growth was driven by innovation as well as separation-related timing benefits. Core restoratives led overall performance, driven by strong underlying demand and commercial execution leveraging new product launches. Our Health Information Systems had another strong result with $342 million in sales, an increase of 4.7% on an organic basis, driven by strength across revenue cycle management and performance management solutions, offset by expected double-digit declines in clinician productivity solutions. Combined with strong customer retention, the pipeline activity and backlog conversion continue to support confidence in our sales growth. From an operational standpoint, we made further progress in supply chain execution during the quarter.

Backorders across the portfolio continued to improve, reflecting improved manufacturing performance and the benefits of ERP and distribution actions. Looking down the P&L, even in the face of tariffs and inflation, our gross margins of 56.4% improved 80 basis points over prior year, driven by favorable programmatic savings, portfolio moves, as well as sales leverage and mix. We were above our expectations as typical first quarter seasonality was more than offset by benefits from additional sales, favorable mix, and higher programmatic savings. Operating expenses decreased versus prior year although were 100 basis points higher as a percentage of sales. This reflects the impact of portfolio moves, partially offset by the benefit of our savings programs, including Transform for the Future, outpacing investments.

In total, we delivered adjusted operating income of $392 million, or an operating margin of 19.5%. Similar to last year and consistent with our expectations for a sequential seasonal decrease, operational improvements mostly offset the impact of tariffs and inflation. Net interest expense decreased year over year primarily due to a lower average debt balance following the paydown of debt in our third quarter 2025 using proceeds from the [inaudible]. Our tax rate of 20.4% was within our full-year guidance range expectations. Altogether, we delivered earnings per share of $1.48, or 11% growth, ahead of expectations. Shifting to our balance sheet, we ended the quarter with $561 million in cash and equivalents and net debt of $4.5 billion. From a free cash flow perspective, we finished ahead of our expectations mainly due to timing within the year.

We had several expected demands on cash flow in Q1, including higher separation costs and tax payments related to the P&F divestiture, as well as normal seasonality for annual compensation and expense timing. Like last year, we expect Q1 to be the lowest quarter of the year. Looking ahead, free cash flow will improve, with Q4 representing the strongest quarter due to step-down of separation-related costs, timing of tax and interest payments, and the outlook for improved operating results as we exit 2026. On our fourth quarter earnings call, we indicated the separation costs and P&F divestiture transient headwinds will mostly complete in 2026, and we continue to expect significant improvement in 2027. We also started the first quarter of our share repurchase program and repurchased approximately 923,000 shares for total consideration of $67 million for the three months ended March 2026.

Our balance sheet strength is well positioned for us to execute our balanced capital plan, inclusive of share repurchases and tuck-in acquisitions. Regarding our full-year 2026 outlook, we delivered a solid first quarter performance benefiting from commercial execution, increased contributions from innovation, and portfolio moves. Our confidence in underlying growth and operating performance continues to increase, and we are off to a great start with important ERP and separation milestones still to go while navigating an elevated macro headwind environment. As a result, we are maintaining our full-year organic sales growth and free cash flow guidance as provided on our fourth quarter call, and following the better-than-expected start to the year, we now estimate that our earnings per share will be toward the high end of our initial $6.40 to $6.60 range.

We also want to provide some added insights about sales phasing as it relates to the last large ERP cutover, which is planned for the U.S. in Q3. We estimate over $100 million of sales timing benefit in Q2 that we expect will reverse in 2026, mostly in Q3. The additional sales phasing is an important part of our mitigation, and we will update you on our Q2 and subsequent calls on the eventual impact. Turning back to the full year, we continue to estimate a foreign exchange benefit of approximately 100 basis points on sales growth, and we are holding operating margin in the range of 21% to 21.5%, an increase of 50 to 100 basis points over prior year despite significant headwinds from tariffs annualizing and inflationary impacts. There is no change to our tax rate of 19.5% to 20.5%.

In summary, we delivered a strong start to 2026. Business momentum is improving, the work in the portfolio is having a positive impact, and our execution is creating a clearer path to margin expansion and cash conversion. We will now open the call for questions.

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Operator: Thank you. If you would like to ask a question, please press 1 on your telephone keypad. If you would like to withdraw your question, simply press 1 again. As a reminder, please limit yourself to one question and one follow-up. Your first question comes from Brett Adam Fishbin with KeyBanc Capital Markets. Your line is open.

Brett Adam Fishbin: Hey, thank you so much for taking the questions. I wanted to start with the phasing commentary around the ERP event. Could you flesh out where you expect to see the benefit relative to the different segments in Q2 from a modeling perspective?

Wayde McMillan: Sure. Hey, Brett. As we called out in the prepared remarks, we are estimating over $100 million of additional sales in Q2 as we work with our customers and distributors to advance orders before we begin our Q3 cutover of ERPs in the U.S. and Canada. This will mostly impact IPSS and Dental, to your question. This is a key mitigation strategy to ease the number of orders and shipments in Q3 as we ramp up on new ERP functionality. Keep in mind, the U.S. is a very different region in that the majority of our sales go through distribution, and this helps mitigate any challenges with ERP cutovers with advanced orders into the distributors. Importantly, when we eventually report Q2, we will provide the amount of orders shipped in advance and then adjust our second half accordingly.

As we have shared previously, it is difficult to predict advanced orders and volume. Therefore, we are giving you a heads-up here on magnitude, not precision. The key is we are not adjusting our full-year guide. We expect all Q2 advanced orders will be offset in 2026, mostly in Q3, and the good news is that we are nearing the end of our heavy lift on ERPs from 3M. This will be the last large cutover, and we plan to be done with ERPs and 90% of the TSAs by the end of the year.

Bryan Hanson: I might just draft off of that too. It sounds a little messy—it is big numbers—but we feel pretty confident on this one. We are lucky because it is the biggest region we have in the ERP cutover, and we feel like the mitigation efforts are fantastic. It puts us in a really nice position to have almost all of our business run through distribution in the U.S., and because we can stock up those distributors, even if we have a challenge, we can cover our customers and continue to recognize revenue, which is great. In addition, this is our last one, so the team has gotten pretty good here. We have a tuned-up team and a really strong contingency program.

Brett Adam Fishbin: Thanks, that is super clear. A quick related follow-up: thinking about Q2 and that $100 million benefit, on an underlying basis, is there any reason to think that the ex-ERP benefit run rate would not be somewhere within the 2% to 3% current guidance range?

Wayde McMillan: That is the intent of calling out the heads-up on this advanced ordering. We do think it will be a larger magnitude than we experienced last year. We are not giving quarterly guidance, but you should assume that given the strong performance in Q1, we should continue that momentum in and through the rest of the year.

Bryan Hanson: Good way to look at it. Thanks, Brett.

Operator: Your next question comes from David Roman with Goldman Sachs. Your line is open.

David Roman: Thank you. Good afternoon, everyone. In your prepared remarks, you talked mostly about the contribution to revenue growth coming from volume and mix versus price. Can you give us more flavor on the volume versus mix contribution, and what you are seeing from a new product launch perspective year to date?

Bryan Hanson: I will start with the new product launches. As I referenced in my prepared remarks, one of the biggest catalysts we have right now is the commercial enhancements, but now we are feeding that commercial machine with some really nice product launches. I talked about those, and they are definitely helping us, with more coming—about 20 new products over the next two years. It is a combination of the enhanced commercial organization, the focus we have in growth drivers, and we are peppering in some really nice product launches as well.

Wayde McMillan: On volume, mix, and price, the way to think about it is our price continues to be in that plus/minus 1% range. That means the majority of our growth is volume-based, with a significant contribution from volume and a modest positive mix.

David Roman: Very helpful. As a follow-up, this is the first quarter you initiated the share repurchase program, and it was another quarter with macro-related volatility. How did you think about deploying the buyback in the quarter? Were there competing considerations for capital that drove the amount to be where it was, or should we expect this to ramp over the course of the year?

Wayde McMillan: We are very happy to have our share repurchase program kicked off in Q1. We have multiple layers to it. The first layer is to repurchase shares to offset dilution of stock-based comp and to hold our share count flat. Then we also have an opportunity to buy if we see value in the shares, and we certainly see a lot of value in the stock where it has been trading more recently. We will balance that with our M&A plan. It is a balanced plan for us—when we launched the authorization program, we also launched the first acquisition of Acera. We will continue looking at tuck-in acquisitions where we can drive value, and we will also be looking at our share repurchase program with a minimum of anti-dilution and being opportunistic where we see value.

Operator: Your next question comes from Ryan Zimmerman with BTIG. Your line is open.

Ryan Zimmerman: Good afternoon, and thanks for taking the question. Following up on the ERP cutover dynamics: you called out about a 70 basis point impact from some order pull forward. As you think about what occurred in Asia with the ERP cutover, what did you see in terms of impact when you did that cutover that informs the U.S. plan? And how much of that 70 basis points was reflective of preparation for the Asia ERP cutover?

Wayde McMillan: Great questions. Our primary objective is always to ensure product availability for our customers. The good news is we had a very successful ERP cutover in Asia Pacific, including multiple countries plus China, and that is in the rearview mirror now. We started with Europe, moved to Asia Pacific, and now we are moving to the U.S. The 70 basis points we called out was related to volume purchased ahead of mostly SKU exits and some of the separation work we are doing, not necessarily ERPs. There is a little ERP element, but given that the U.S. ERP cutovers are not until Q3, the majority of that is other separation activity. Think about countries where we have a couple of months without registrations as we cut registrations over from 3M to Solventum Corporation, so we shipped some advanced orders to keep customers stocked as we transition. To clarify, the 70 basis points in the quarter is volume we would have normally seen in Q2 that moved into Q1.

Ryan Zimmerman: Understood. Looking at margins, gross margins came in well ahead of consensus. I do not believe there is any refund activity in there. Your comments suggest you are still holding the line on tariff assumptions for the year. Where is your head at on tariff refunds or potential changes in tariff rates through the year?

Wayde McMillan: On gross margin, we had a benefit from sales and mix as well as higher programmatic savings. We normally expect some seasonality headwinds in Q1; we saw those, but they were more than offset, which drove the 80 basis points of margin expansion. We also benefited from portfolio moves—the P&F divestiture and the Acera acquisition are both accretive to gross margins. On tariffs, it is a fluid situation. We are monitoring and managing it closely, but without clarity at this point, we are holding our estimate in the $100 million to $120 million range for the year. Our Q1 came in at the high end of that range on a quarterly basis. We have not booked any potential refunds in our results yet; like most companies, we are in process on refunds, but nothing has been recognized.

Bryan Hanson: On the gross margin side, since it came up, maybe you can provide any color for the rest of the year, Wayde?

Wayde McMillan: Yes, thanks. We do expect the rest of the year to be slightly below Q1. We think closer to 56% gross margin is a good estimate for the coming quarters. So, strong Q1 a little above 56%; for the rest of the year, just under 56% would be a good estimate.

Operator: Your next question comes from Jason M. Bednar with Piper Sandler. Your line is open.

Jason M. Bednar: Hey, good afternoon. I am going to layer onto the ERP cutover topic from a different angle. You sound confident around the planning. What does this big U.S. ERP change mean for your OpEx savings plans? When do you begin realizing cost savings from this switch—later this year, early next year? And is that wrapped into your restructuring cost savings program, or are these distinct items?

Bryan Hanson: Maybe I will quickly say on the mitigation plan, I want to call out the team because everyone is working really hard on the ERP cutovers. It is a very large cross-functional group that is just flat out right now. The mitigation process we have gone through is probably the best I have ever seen, so I feel very confident coming into Q3. On whether this opens up margin opportunity, Wayde?

Wayde McMillan: The primary objective here is separation from 3M. Because we were in a separation situation, there was not a lot of preplanning around ERP cutovers to drive OpEx benefits immediately. So OpEx does not benefit significantly from the ERP cutovers at this time. However, Transform for the Future is designed to pick up on the systems we have and drive savings going forward—system benefits, automation, efficiencies—hand in glove with the rest of the Transform for the Future work, including structural areas. On operating expenses this year, we had $740 million of OpEx in Q1, which is lower in dollars but higher as a percentage of sales. Some of that was due to seasonality—higher compensation-related and other timing of expenses in Q1. We expect operating expenses to step down from Q1 into Q2, Q3, and Q4, which helps us increase operating margins as we move through the year.

Jason M. Bednar: Thanks for the extra modeling color. As a follow-up, Bryan, you mentioned almost 20 new products over the next couple of years. Can you break out by segment, cadence of launch activity, contribution to growth, and whether these are brand-new products versus relaunches?

Bryan Hanson: You remembered exactly—almost 20. It is mainly new products. There are some relaunches in certain areas where we will do capacity expansion to meet demand and then relaunch globally, but the large majority are new products across each of our businesses. The cadence is steady and will accelerate through the two years, but it is not back-end loaded—nice cadence this year and the same next year. They are dedicated to our growth driver areas, with some outside of that, and span each of our businesses. We think about the portfolio as singles, doubles, and triples—not relying on one home run—so it reduces risk. The combined portfolio launches on a cadence that is digestible for the organization and gives the new commercial team the fuel they need to hit our LRP targets and, hopefully, beyond.

Operator: Your next question comes from Travis Lee Steed with Bank of America. Your line is open.

Travis Lee Steed: Thanks for taking the question, and congrats on the good quarter. Following up on the portfolio comments in the prepared remarks: do you have any signs that someone else might be willing to pay a higher value than public investors are valuing parts of the business at? And on timing, is there anything that might slow that down, or could something happen fairly quickly? Any other color on the portfolio side?

Bryan Hanson: We expected interest here because we are leaning in on this as a vector of value creation. The good news is where we are from a perspective—after a spin, there are considerations outside of typical transaction factors, and the further the spin gets in the rearview mirror, the more flexibility we have. That itself indicates where we are. Then it is the simple formula you mentioned. I do not want to lean one direction or the other, but when others view our businesses as either strategically more relevant to them or financially attractive, we will pay attention. We will unlock shareholder value whether via transaction or other methods. On timeline, I do not want to set expectations. We are constantly looking at this the right way—both exits and additions.

Acera is a great example of exactly the type of deal we are looking for on the add side: great growth, squarely in our business, lower risk because we know the space, and synergistic with our commercial infrastructure. Expect more of that, and we can do those while also returning cash to shareholders. We feel in a good position.

Operator: Your next question comes from Rick White with Stifel. Your line is open.

Rick White: Hi, good afternoon, Bryan and Wayde, and nice to see another excellent quarter here. It is hard to resist coming back to the second quarter. Consensus is a shade over $2 billion for Q2 coming into the call. Do you feel like that adequately reflects a reasonable midpoint given all the puts and takes?

Wayde McMillan: It is worth coming back to this dynamic. We are not commenting on quarterly guidance, but number one, nothing changes for the total year—our guidance stays the same. Our recommendation would be: do not change your Q2 models. When we get to Q2, we are going to overachieve because of a certain amount of advanced ordering. It could be higher or lower than $100 million. When that number lands in Q2, we will call it out and then give you a clear read-through of our numbers without that advanced ordering, and we will take that same amount out of the second half, mostly in Q3. It is great that we have a higher amount of product through distribution in the U.S.; it gives us a nice mitigation strategy for the ERPs here.

Bryan Hanson: If you think about it, you can expect Q2, on a normalized basis and not guiding to it, to be in the range of the growth guidance we have given, and then on top of that, Q2 is going to come in substantially higher due to the phasing. We just do not want you to try to model the phasing precisely because it will be wrong. When we get to Q2, we will give you the actuals, and as Wayde said, we will provide the information to help with your models in Q3 and Q4.

Rick White: Understood. Talking about Q2 EPS then—you nudged your range toward the upper end. If consensus is $1.65 for Q2, leave it alone even with Acera contributing more, more new product, more cost reduction, and the extra $100 million revenue and leverage? Conceptually, what do we do with that?

Wayde McMillan: If we set aside the phasing and look at the business: yes, we should see improvement in EPS in Q2 because Q1 is our lowest operating margin quarter, and we had a very tough comp in sales in Q1. In Q2, we should see good sales growth, higher operating margins, and that should drive improved EPS. Bringing phasing back in, if you just do the math on an extra $100 million of sales, we are not increasing investments tied to that phasing, so you will see a clear drop-through in gross margin and EPS. We will wait to see the precise mix and the exact amount—higher or lower than $100 million—but as a simple view, about 5% extra sales with roughly 30% drop-through on EPS. Again, I would not recommend precision there; it is a large magnitude, but not finalized. Net: Q2 looks like another strong quarter with improved EPS, plus additional drop-through from phasing.

Rick White: Shifting to Health Information Systems, can you approximate your current mix of full AI autonomous coding versus primarily traditional computer-assisted coding? If not revenue, maybe from a customer adoption standpoint?

Bryan Hanson: Great question. The good news is our team’s confidence is increasing in how much coding can eventually be fully autonomous—now talking 80% to 90% of all coding, inpatient and outpatient. In practice, it takes time to implement, so today there is a definite mix—some customers using autonomous in certain aspects, others not yet, and we continue to proliferate. A good view we can share: during the current strategic plan period, our assumption—given our progress and the trust customers have in our capabilities—is that we could get close to 50% of our customers moving over to autonomous coding. Within those hospitals and systems, we will continue to increase the percentage of coding that is autonomous over time, expanding from initial swim lanes.

The value proposition—FTE infrastructure reductions, faster productivity and speed to reimbursement, and improved revenue capture from fewer mistakes—is compelling. We are moving rapidly but safely given the compliance and revenue implications.

Operator: And your last question is a follow-up from David Roman with Goldman Sachs. Your line is open.

David Roman: Thank you. I hate to come back to the Q2 dynamic, but there is confusion. Is the message to leave Q2 the same, you will beat Q2 and then lower the back half to right-size that? Or is the message that, on an underlying basis, Q2 would improve and there will be some unknown upside that may or may not come out of the back half?

Wayde McMillan: We debated whether to give a heads-up for over $100 million of phasing or just wait for Q2. We thought the heads-up would be more helpful. To restate: our recommendation is do not change your Q2 models. Whatever the advanced orders are in Q2, we will take the mirror image out of the second half, mostly in Q3. If you want a simple approach, do not change anything now. When Q2 happens, we will disclose the phasing amount, and we will mirror that out of the second half. Separately, we do see momentum in the business. We expect our growth rate to strengthen off the tough Q1 comp and our operating margin to improve seasonally off Q1, which should support EPS improvement irrespective of phasing.

David Roman: Very helpful. Lastly, when all is said and done, you would expect 2026 growth to improve versus 2025 and continue to put you on a trajectory toward the LRP targets you issued?

Wayde McMillan: Absolutely. We expect improvement across all segments on an underlying basis. They all have growth drivers, commercial improvements, and innovation improvements. Dental had a significant improvement in the second half last year in backorders, so you have to look at Dental on an underlying basis without that tough comp, but otherwise, yes—improvement across 2026 for all three businesses, keeping us on track toward the LRP.

Bryan Hanson: I think that was the last question. Before I pass it to Amy to close us out, I want to publicly compliment our team and make sure they get credit. Almost 100% of the LTE and 60% of our XLT are new to the organization, and we made those changes with very little disruption. We completed our first global restructuring—the Solventum Way—with over $100 million in savings, putting a structure in place to drive our new culture. We created a new mission and value system, and 90% of team members understand it and are energized by it. We scored above benchmark on our first global employee survey despite a challenging, changing environment. We completely revamped our R&D team and process. We increased our accounting depth and moved R&D from 2% to the mid-teens, significantly increasing pipeline value.

We identified our primary markets and growth drivers and specialized over a thousand reps globally to drive those growth drivers—a significant commercial change. We completed more than half of our complex separation from 3M, including multiple and concurrent ERP cutovers, plus concurrent manufacturing and distribution center changes, closures, and openings. We implemented a multiyear SKU rationalization program. We sold and began separating our P&F business for $4 billion, which is one of the best multiples in the sector. We paid down half the original $8 billion debt we had at spin. We acquired and began integrating Acera. We announced and started implementing a $1 billion share repurchase program. We kicked off a multiyear global cost savings program aimed at $500 million of savings.

All of that while this team has tripled comparable sales growth from our starting point. This is not possible without a deeply connected and experienced team. To our global team members: thank you.

Amy Wakeham: Thank you, Bryan. Thank you, everyone, for listening, and to our analysts for your questions. As a reminder, if you have any follow-ups or need anything else, please contact the Investor Relations team directly. This concludes our first quarter fiscal year 2026 conference call.

Operator: Thank you. The conference has now concluded.

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