SOLV - Earnings call transcript Q2 2024

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Operator

Good day. My name is Ellie, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Solventum Second Quarter 2024 Earnings Call.

As a reminder, this conference is being recorded. [Operator Instructions].

to conference, program President Kevin Relations. like host to of now today's for Moran, would turn over the your Investor I Senior Vice proceed. Please

Kevin Moran

Good our XXXX Solventum will Results, afternoon, with outlook. Today, Fiscal along to Quarter XXXX discuss update an and welcome Second we

results earnings of market earnings presentation on Investors today, section are Solventum with closed The website. outlook. after press release available updated Just issued press the was a our and release and the

Officer; and are Officer. Bryan Hanson, Executive Chief our Joining McMillan, me Financial Wayde Chief today our

and During forward-looking the call, statements that we will be are making subject to uncertainties. risks

a discussion For the they attached refer forward-looking on called these all press for all comments today, note a of and and to at specifically GAAP. to slide found uncertainties, Please the unless beginning our be full to please of schedules description statement can the basis non-GAAP filings in our non-GAAP are our during GAAP be the SEC our relevant presentation. reconciliations risks as out will release. periods that

the Bryan. call, hand ask call yourself to you limit that, and we X And the portion the question For that to I'll X over kindly follow-up. of Q&A with

Bryan Hanson

of confident business And a and in have raising and the the midst you for our start All ability team quarter, we that joining I'm be to and I Kevin, to of mistake, for we to create want that Make there, continue remain as by Simply here would to company, you. come reflect listening we're to progress made work I I earnings urgency, be. be our and I'd we with a to tell full call right. said, gotten that it new point. expect we call not encouraged get ability solvers this the all Great. without year your and for thanks it's hard would value. first us that plans has are want that separation. are continuity no we we our Thanks, It's as thank And by everyone this business to be you. progress maintain this exciting in with today. here the publicly to to out saying traded the know where moving not happening, our outlook which say results together the to us our as to

believe reminder a Investor And phased for for around update the our provide call story, presentation, the well as as in a our to creation Day I'm today, brief of situation on specifically to going value reasons our and reminder and analysis of approach look to time for Wayde I'll and transformation save and deeper and our dive improved then of conversation. the XXXX, forward course, over turnaround. it we'll and to that pass on quarter a for And for outlook certainly the Q&A

the separation. of complex March, confident associated but before, new we creation again, highly this that, of be proactively with with we background like some Day start spin think result any we to since are this that, right start a situation about extensive Solventum, and the may the story in IP talked type Investor you and And why executing some giving XM. place We've story. And let the that as we entangled As share of me therefore, on mitigate team to ensure But risk have a to separation. is we're value by the I itself. our our in

of the have regulated with and sector, planning team experience. assembled intentionally separation, business deep transformation the given experience. have and we team ensured significantly We has significant a the implementation this can which regulatory the requirements also And impact spin of

going we to before, this Simply done are we and it have put, do again.

business our segments setup, to growing relative attractive are business and in Now markets. the

We [ markets of global underperformed said, levels [indiscernible] misalignment we R&D ]. investment recognition strong volume last growth R&D, we have That in brand with markets, have commercial flat the and solid consistently that those REIT their have protection, X over productivity. in IP and also in significant sub poor have businesses

Now with reposition this portfolio. the then about like as to for course, optimize the do growth our it remind it, going we context, to are I'd stabilize and and of to approach of you and profitable separate what phased business,

phases, at we and which our this in running parallel. underway discussed are As currently meeting, outlined have all X investor in

As that of business which will growth. focused talent, implementing our XM, activities on profitable catalysts for mission I plan reposition is spin-related Phase well to long-range Phase critical, and the you may separate is critical X all developing us is X them, remember, growth portfolio are and as from Phase culture structure driving as optimization. to and

of to success to starting absolutely and mission created We've And done new already members, tell performance. our meeting an what Phase culture becomes specifically Okay, I, essential which articulated with our to thousands right, a And ceremonies the mission all I statement got related company values. as talent around of structure. we've a you and also the mission and the its I because company it as write to a and company. a I they life. the connection a amazing how to capturing with hearts and see common to of incredibly globe, so when something the to opportunity business enabler and the again, our I team, values across held purpose help values bring meaningful. and critical minds was of see mission an team feel of for discuss employees of be sustainable mission the lucky new part mission

business country as team is future or clear. and It for ready where the or in, The excited region on it doesn't matter solvent. is

areas experienced value, roles actively spinning we as are that our Now of turnaround. X fast. to relative talent Level finalize X leadership the one we're for completed continue to X, structure We've key selection positions the creates acquiring really which talent, is and the key to these the company critical and a team, move And Level where identify in or well. sourcing X Level at internally of

importantly, that create project margins. [ for while calling expectations and of here have ]. talent the and to culture great Way restructuring growth are from industry this the creation in day, increased my speed on we and progress interested is At joining also making lot structure less trending our project. is we more team. the Solventum value understand benefiting help end ensure are high-level in autonomy, of that also We're story hierarchical of talent drives to The us and and a the ahead acquisition, very nimble will invest we're goal enhancing that accountability a ability This a the structure

to of days the obviously critical Phase Moving but the of separation still the ahead X. of in early months separation, activities are progress. I'm these work us, most happy and our inside It's with with

efforts speaks a in a I business performance on with teams their for separation standing complement continuity while quarter's This independent start alone newly the company. face Again, of commitments delivering successful distraction. to our financial up want to the

supply of these should X about like areas of X. is separation, continuity but Phase will continuity spin. the work, to IT a expect also time perspective, extend For the our time disentanglement be that frame X, are good supply line teams From and our XX the hard with project, but with project will naturally XX our Phase speed. given beyond initiatives progressing and I This plans. manufacturing months in completed activities note to overlap Phase majority X months, it we I XX post feel Phase

we've profitable us focused saw talent long-range in strategic for is growth. Because shortened position actually to plan to plan intuit [indiscernible], Phase path on able X, to finalize Phase accelerate in X. the we X we were Phase our acquisition

coincide would which with XXXX expect to Now earnings this one guidance. expect fourth share quarter as during we our plan our call, will

growth that and markets And will probably So our of eventual plan, decisions the you down our areas. comprehensive, importantly, currently expect, resources end going markets R&D our initiatives driver most the that key finalize able but of build these of as we're key [ And be markets scale. to is double shift growth we're assessing those and to year. that [indiscernible] and elements in. would submarket will drivers, elements Inside growth going to showing market those selection. to to be be to ] and driver before those primary that intent of [indiscernible] commercial the primary plan Again, we're

that the changes, markets Once we drivers, the sales incentive changing begin the like things our as said and I the the in before, like things our growth growth plans infrastructure primary focus for identified to sales areas. bias have we'll driver the commercial we've shifting, starting with organization, specializing organization resources,

expand as finally, and We expect shift markets. toward align that we potential more dollars our on in innovation the will driver And areas. growth growth our R&D also where our priorities, capital that ], XX we our to pipeline tuck-in product driver including new matters allocation [ reduction spend debt so next material to focus months, is that allow M&A again, will the we over tied flexibility

Okay.

Moving value strategic a focus and in on value and and various their means our order financial clarity, to contribution for optimization strategic our inorganic to deliver We're and bring X. actively as on at are Phase through And assessing markets pathways businesses portfolio to looking organizational additional priorities. result, creation. we

there given will how said, considerations that process, X. contractual the spin Phase we are in are that Now early influence

days it's fourth strategic structure again phased I plan progressing our four, process, our with because quarter quarter will a [indiscernible]. on our to business said foundational just in Phase which well days separation in early to guidance. perspective, when one, talent, I mission, And company number we SKU and Number our timing. schedule a on during and pivotal progress our positively intend our I first independent more it early confidence share what is ahead XXXX our given to summarize plan progress also are as early our comes good but our have now sign of and long-range Wayde To impacting speak three, coincide Okay. X well, call, an I team. but progressing a From things approach. project, our quarter and will and think continuity on the and was culture and the minute, work in Number

taking separation, reposition incredible turn create value we creation have value us the and just the I reiterate future. the profitable are and up growth relative to identifying in Before it for actions we to I I over significant executing to this set opportunity for want Wayde, will opportunities an to company to believe today significant that that

Wayde? Okay.

Wayde McMillan

and their thank start I'll sentiment us are getting to we Solvent today. echoing am for Bryan's everyone by at work where hard

X-phased Phase performance QX into X and time. I'll mostly focused to create designed with related remarks is updates wrapping before and then approach on value guidance. getting my activities keep Our significant to over separation up

plants XX distribution this from we significant X also XX from XXX have building to We're moving by separate, our lines separating new To supply underway. chain centers. time. we're and XX distribution to at which Solventum efforts We're plants, manufacturing changing of our

efforts are rebranding significant across XX countries. Our

commercial our changed work ERP stand and distribution be the have including streams system up over transition models XX SAP XX platforms in we're We systems IT countries. over our working over to new new may most X,XXX complex as globally. The

In parallel well. revenue separation metric improving on expanding some already work, on important as turnaround, making It's are to the each we provide progress understand for baseline and margins. centered growth the the I'll historical and to is background which

growth than we and have clearly more with over and XXXX X all reflected the flat in the the mid-single-digit volumes markets past price was years. revenue, where This revenue underperformed year. was For our for historically declining

As a around growth. price the and focused we negative are period turning intently on out volume we of normalizes, move hyperinflationary

Bryan of touches be segment, company. margin Solventum the an will in region for effort the enhancement every function part plan. growth which our project, covered This Way is investment reposition restructuring to ongoing important and and and

on we initiative. SKU Additionally, remain comprehensive focused rationalization global a

strategic, Our simplify SKUs families. low by streamline and company and/or low-margin goal the or product less is eliminating to growth

margin have real X And help to achieved will date. chain. material and approximately X,XXX they and impact is as identified XXXX. of represent initiative. X% will supply revenue a already progress They simplify eliminated of promising start total have to not We a SKUs This the in about and Wave this be SKUs part of to

XX Wave improving to and revenue X XX% to more have in historical in is improve designed Solventum and efficiencies The XXXX. and Way on margin XXXX margins. from before projects to operating Form carve-out The seen expected mentioned and are turnaround to also SKU approximately margins focused be margin. XXXX impactful financial our down identify we step in our statements the reinvest is point due to post-COVID up the to rebound. [ significantly We're decline XX% reposition our XX% to XXX is public products planned increased to investments the in to of given stand XXXX not This XXXX. and our to growth. in company, for by supplied a including basis operating by well XXX it cost additional inflated the ] expenses baseline, as XM as was

financial the XM. be update. under this company. first previously We to presenting a remind to as QX results now is financial basis was want everyone reported the first carve-out time Turning under as stand-alone the results still XXXX I a quarter we'll

provide year sales. to then full I'll overview results Starting and shift that, an With with our of guidance. QX

second the X.X% of For increased a points on basis. of compared improving basis quarter prior year organic reported $X.X XX an XXXX, to sales billion basis on while

growth expected of the points. quarter, basis During was a exchange reflected the Sales headwind foreign of XXX normalizing price.

volumes continue the This in decline. included we benefit a backorder which improvement from discrete a volume While without to slight quarter. reported increase

the Moving segments. to

sales, an of of the of basis, continued led Our back site billion the of negative primary category, largest IV delivered beneficiary organic therapy was and $X.X increase This our product adoption by management an solutions. reduced pressure on segment, X.X% segment antimicrobial MedSurg wound orders.

Encompass offset continued segment clinician million of which ] to pressures offset and solutions. Dental cycle by HIS was in the reflects Similar was XXX $XXX increase quarter, management an by changing X.X%, contributed revenue, declines $XXX volume revenue, partially and fueled investment. of of conditions, a X%, by of with to market results of solutions pricing. million steady revenue associated in challenging partially Our which decrease [ delivered management, segment of performance conditions, adoption prior productivity market these strength inside due areas inconsistent in

strength basis lower-margin million Finally, in $XXX in in impacted margins sales costs bioprocessing filtration. backorder in Overall, was driven unfavorable a points XXX pricing. better-than-expected of Purification in prior drinking X.X%, which recovery performance represents in declines were the Filtration within segment international year, reduction decline filtration, water delivered and offset This Gross quarter. partially business. and of MedSurg, that by the of volume mix by primarily offset XX.X% by partially were by over a driven increased was OEM by

basis, return gross weighed sequential on these more a On along X the normalized margins. with to pricing factors,

additional added functions expenses The to year operating due high support compared SG&A to margin items increased and approximately other to we for $XX.X QX. both spend income of translates QX total, charge adjusted expected, sequentially new $XX in employees. was million. compensation strategy. This XM stock-based standing also to legacy In operating important note results delivered and As of million, smaller prior of discrete a an represented spend our and includes QX It's which versus growth $XXX to operating up that million.

the impact increased also debt first issuance, offset by XXXX our down expense quarter full sequentially, P&L. partially reflecting income. February interest was Interest of Moving the which

our adjustment. post the expectations. favorable internal Lastly, due year-to-date in, All of our of per of came share a effective delivered rate in ahead of to mix tax part statutory we in estimated our income XX.X% $X.XX, which geographic earnings includes spin,

the Turning on credit to no free million in $XXX $XXX cash our of to in with the total We our flow outstanding with balance bringing year-to-date and borrowings million million. quarter $XXX generated sheet. and equivalents facility. QX We cash ended

our continued $X Importantly, investment-grade generation strong remain credit we with billion We next are financial to and paydown committed to cash liquidity rating, debt facility. priority over flow the addition XX maintaining a position expect will in months. free maintain our and revolving the

Now turning XXXX. for to guidance

assumption and guidance material X an sales rationalization will importantly, X%. that on XXXX to business organic are not QX, from continuity. including reflects first have We reduction half in a to in This impact raising results, confidence up building backorder SKU benefit growth the our range performance, up updated

and I the the to quarterly do but large play highlight guidance, sales providing comparisons second sure the dynamics We be in half to want QX of which are growth organic will year-over-year not a role QX. in

XXXX, the XXXX. rate rate For lowest while comparison of growth QX highest in an XXXX XXXX a background, the tougher growth and for to second QX expected rate with therefore, was comparison growth in down QX flat easing as results QX was and in

on earnings sales to and tax raising For improved guidance rate. are our favorable and per outlook we $X.XX our $X.XX to share, estimated

$XXX continue We expect free the of in $XXX to range million cash flow million. to

a through continue few agreement from we begin gross P&L XM On additional in QX margins, will the gross reference, to For to shared. our margin expect previously headwinds supply items markup incremental we've flow XXXX.

expect the For ramp operating year expenses, out range to to of anticipate year. we XX% we continue continued the XX%. to stand-alone strategy support for half second operating build in, functions of in margin and investment growth the XXXX through full our All the

rate. tax to Turning

XXX earlier be a to to on which our an mix that It's updating costs function rate of based expected our XX%. XXXX, basis this tax year XX% generating important income are We XX%, rate near-term effective in to our our benefiting tax from points we're separation is recognize jurisdictions. XX% to a of improvement temporary from we to are to assumption full where favorable for as realizing is certain of change

to delivering we separation our a commitments, while line year. guidance the on conclusion, We're on our bottom around are focusing business, executing solid start, for activities, public turning financial the closing raising off top and the quarter. In first near-term on

flow our revenue we phased key metrics, will make execute to operational business capital our transform driving allocation. improvements Looking growth, approach accelerating across and margins, our expanding and optimizing to free ahead, cash our continue on

in deliver material will to and health, We use our data our mission. expertise science

by value creation are and ahead. early look the the We to progress plan encouraged forward

the operator I'll now for call. to the of hand the portion Q&A back it

Operator

America. Bank Our first question comes from from Travis . Steed of

Travis Steed

anything raise? there. the but of maybe I it kind the came Wayde, in raise first the wanted the plans of I start about raise guess of items? the things of you like understand half guidance modeling pushed tax, are the for ahead really a XXXX. are guidance the how sounds SKU kind guess, from and outlook QX second parts your call. and the on EPS of to to And earnings lot been to here kind with think rationalization Congrats more of and confident moving drove I line all different tracking kind

Bryan Hanson

our Travis, you some of this more is just have what's there. then specifics some of Wayde, if Bryan. we Maybe particularly start pass and And question, confidence you, around pushing into of kind the I'll get with I'll your guide.

confidence. So obviously, about driving our X really components our and that talked are Wayde that guide

feeling our number The first is That's progress business making is plan. and one. against continuity just great the we're now, good pretty right

impact is in it's ] in in we prepared referenced that Wayde clarity, and a Wayde And the backorder about to two reason we that's more XXXX remarks, the now, second, just Number have the the for change. clarity broad-based in see [ feeling XXXX. his we're That's will banked guide of right SKU just we're then recovery and but QX. better going what talk that versus the

in down that feel part, every continuity. most for area And most like I though, day importantly, A the business retiring now, biggest turnaround is. we executing X risk, feel strategy. where delivered think And to in reducing click in those time. think every pretty about further pivotal business passes, risk that months. pretty we It's against much risk and and just can long a are our then lot just continuity I in better our during importantly, months the on primary that's the the plan. those months And maybe time. happen doesn't It been separation. progress but only And

it to would really in in think going and be our momentum the place important a talent that way strategy lot is even anybody it equally from that, that accountable have gone is And to have for positive, it's here, you the we're drives is to really simplest maybe you more recognize don't don't say fast but if people want great. a could probably confidence. are that the the than strategy. I put simple acquisition. probably is didn't, mean which probably wrong doesn't guess and It But I in moving

strategy and move the that and in having you of So eventually LX flawless it's the strategy. the can place, positions, LX in faster ownership formulating to critical put of the that that execution people just particularly strategy,

those increasing that's the are reflected optimism. like feel So guide. moving things we direction, are the that the in right And hopefully, tone our in in our

have that with a other little [ components. way, So color we given ] the maybe on more

Wayde McMillan

Yes.

sort and here Sounds how good. to thinking of Happy on up guidance SKU we're about pick project.

to a full guidance our quarter just As where our be public after company. can raise said, position here stand-alone in Bryan as pleased we're really year first a we

built about what off here. levels. we the ahead So expectations slightly because let of me of we the an reduction in was and quarter out improvement In of was called the backorder talk our new that QX, I really service back got, revenue the in that range. from

So positive for said, continuity. Bryan business signs, as

for that been contemplates the for business. then range recovery. order new the for a high near we've the as performance. When see into half you and comp things half. those a to we as wane back it that the half, consistent assumes second price -- low second So more normalizing improvement continues assumes well in X the tougher end end seeing that first the the benefit And normalize for from the then

comfortable first year and go. we a really half to early growth that the feel It's range is we date have with priority strategy. days, with for of us to the So for with performance are And second through on the the our keeping its here #X half. focus just pleased we the half business that second but the real driver

gross down mentioned couple in we margins, P&L. that remarks, If some in prepared higher about international the color unfavorable MedSurg, those things both little costs the costs mix A quarter, the drove and really we backorder the a products. recovery think in on margin around the of

could takes. and puts quarter. be next And It so lots different to consider

margins still from necessarily cost doesn't in a puts up lot there but in and step-up mean XM takes. a We because that and step are of are expecting gross a

the our the and so all expectations that operating 'XX. with comfortable for And up with of even are XX% in to year margin step still full cost, we XX%

think on an remarks quickly also not how separation-related items OpEx prepared because out We here. in out we touch that a are our that important a It's just discrete modeling about bit that part had separation. always probably amount a is called in with good work. the noisy things we of of should coming of I And unexpected

out other really then large a expense So in were that the few $XX for we one things called about million that and we a particular, comp took quarter. stock-based in

So build with that, ramp investment functions QX to through still we stand-alone anticipate support for of the but the that growth to our the half the out continued second year our normalized without and those items. strategy will be often discrete

in, about low and So the good the and really the this guide high both time. raising all at happy to feeling be end end

Travis Steed

start I earnings some you you about potentially have size I to year. the of of things help do some to -- think down guess -- know in kind way impact level year have [ in or and us But like is, kind have of is you 'XX you of where could and that XXXX the can next 'XX, deal don't guys And if T the ] think rationalization headwinds a any the about earnings. question kind high there's on is that. I thinking you grow of of 'XX when the range know some that with again? plans have I growing a you

Bryan Hanson

to put in prepared going expenses his tough And would got we provide right to didn't the are if direction pressure right, we in 'XX unique pressure 'XXX going if in be you're has the We'd remarks, some head of in about But be Wayde, begin start question. on absolutely for EPS. to 'XX. it is a year recover that to 'XX. of a on color points expect more want the annualization disappointed to Obviously, Wayde little that you for the extremely some in to us. 'XX. talked Thanks

you don't So lot more remarks, prepared provided to Wayde, thought you anything know I a I in your provide 'XX, in but. want if

Wayde McMillan

growth our year I'll to lot XX say, on can. of understood to we're said, pieces not a first do have some over we're XX There margins. pressured We be a well I as of post think of moving the these And are by separation. Yes, post-spin revenue guiding We in Bryan grow certainly lot as costs yet. EPS and we'll and to expand going resulting that it's have certainly annualization in do XXXX. time.

just So to quarter XM the expense. is that markup our public functional because we've will X company, annualizing them, interest as a and annualize. we'll annualizing this below And the then be supply we'll all list line, stand-up next fourth year. expenses. be quarters we've year of got got We'll a And this annualize

good had did number as impact I progress great. impact. small opportunity one dollars it is save that this a benefit will start. SKU to low supply in on because We take don't rebrand significant very to as then them few news the project or value don't us. the very million well these well simplify SKUs mean of And that to there a out us they just And touch We of a Great is And There's don't way. in was of to real gate, is first out have SKUs impact found the to real a nice material already lot our the Wave margins expect XXXX. revenue a we in the rebranding because chain. We'll revenue help on here.

So the underway, but an XXXX, we wave, don't of to on is work impact yet. there an the have on team anticipate will that which next work we is and have continuing update more do still

Operator

from Our from Chopra comes next question Wells Fargo. Vik

Vikramjeet Chopra

couple me. A nice a on quarter. Congrats for

this? of as to million I are revenue about just guidance million raise math, segments to business then $XXX had And XXXX. the by a $XX dollar Maybe help follow-up, upside So us driving what please. understand

Wayde McMillan

can the a of and confidence. to It by lot having down There's that that. good having important from long break it don't is as the a continuity go put would the say what one. amount business business was happy message quarter. Yes, We take a to gained remarks segment. we But most separate quarters from the of prepared we X into we we that risk and way no

That's us. where As the Bryan quarter mentioned, it was confidence a for grew. really pivotal

thinking it's in a the it some so sized backward the good we're MedSurg second here. to strength. think board size, in going we're really see quarter banking recovery that Obviously, was the Bryan called us. a across for good And that I bump

segments So We with reduction going don't products, to much of be it's across the SKU the an think and then just impact would HIS. also as continuity not that, the have on including X 'XX. business That program. with

Bryan Hanson

add Yes. just to too. I might that,

And there's vectors they're no -- If won't do these, vectors, X X no here, of and put I rocket you with. science it. all through the you to think things pretty But drive to that there's about but it's really you go got growth basic. to accelerate can

One do can first drive And the your great can just for you and are people. commercial We've focus commercial promoted to people the brought incentives on are to to accelerated and the in better of things and organization right rigor your now, the those things changing very growth. people that we impact We're capable organization right? bringing is -- from in outside. upgrading just fastest do, the talent

have because accountability a quickly will they dividend and That in organization. the increase rigor will pretty the

into back help in 'XX. us and half that So we would the of certainly expect to 'XX

Vikramjeet Chopra

update just my Very question. an activist with it. stake helpful. much a your and follow-up you they've the high-level on feedback Got then how actually provide conversation And Can just amassed. share just some to of

Bryan Hanson

people, investor. say more our the company about a probably no would any we about feedback, but a company, As listen humble as imagine, we and to as individual absolutely said, appreciate don't shareholders public That you public and talk that. to

Wayde McMillan

Next question, please, Operator.

Operator

from Roman Sachs. David from comes question Goldman next Our

David Roman

for on with the sort I to of half the in help as first the the get operating as Maybe balance bit supply hope commentary of And could bridge around the it for put the the what roughly well the to around trying year? XX% of XM that's just side outlook the financial and the some the side. some the to second an year. rate to agreement way you I'm then one together investments first the us maybe planning on in on parts with implies as here a moving to follow-up here margin, of what starting and did that of the half the for versus incremental commentary respect one you little reiteration exit strategic relates XX% half.

guidance, maybe free the second And at implies cash here Can then, of cash parts there moving understand utilization as help updated it step-up and us some look year-to-date half. the a as the significant you in in flow well? I

Wayde McMillan

Sure.

just second a half half, outlook. cover more, question to first your So David, little bit on to

the first that I that back a think there, couple waning in recovery, opportunistic second a in anticipate point. of I the don't amount on touched at good and just we which items that we in won't highlighting this the revenue, repeat seeing and then is second half pricing half half had the

it's X% our And rate, X% and to the so for that's growth gets what a revenue year. us

I to so And the on there for significant math second between issue QX. prepared highlight you comp that do half. QX our do comp can -- just the that want remarks is from a and

So that's important revenue. for

thinking and about we're headwinds for with operating around margins revenue. -- are some You exit The QX margins way and in margins. favorability had the mentioned us. this offset Those is bridging operating in gross the the rate

we gained to detail. in point. the you hold that we've lot to what about not get learned at going go. on just to not so We're We're what XX% But confidence exit of gives that's separation. comment to us confidence long our not going giving guidance. ways and quarter the a lot to We're level belt. the just the got quarterly Obviously, the a X an tell is, XX% we rate year. this can we under post of a quarter, we've And got for to business had And

it's top before line the bottom building after here just both we what raise the first our and allowed and to -- us confidence So quarter. that's

I well. timing say expenditure that as cash well things mentioned just we're that separation is post You capital would the managing work probably biggest as processes. standing of doing up as the the here intercompany of all we're our

year the the And as so using cash half of more some in second we settle do those ramping the use expenditure to capital out think we our in half. be up of well will as second

David Roman

quarter And comments forums kind to Bryan, kind about I with the think being top on fourth made turnaround on the of share it. in your I the appreciate then other us comments you've call. line Got that on more Can But time. of you period us parts of different the maybe into any outlook respect context solvent how that X-year earlier? phasing of of roughly that falls referenced turnaround being you and on to a update with of the thoughts the ready the

Bryan Hanson

And to good Absolutely. hear from you.

in pick So this opportunity said We're care markets some an now be to for I maybe will we're expect a those as imagine. the growth markets, see end and little and our going articulate us you would right? would add strategic as in. XXXX. bit double through very markets to And some to of I We're can and going plan say down those by additional of then -- faster our clearly to I I'll what repeat color. about, what working that

in revenue Once That that shift drive we it but really that point. get were of I resources here. again, -- there secret the And to on sauce of we and that just R&D, M&A do accelerators. double-click just and maybe areas. the begins X that time, no growth those begins to that, focus there's commercially those. can I when referenced traction takes

the a how acceleration. ever you doing These much around, things X you've If time run take. revenue them of drove question business you turn and just It's to you they are do. have a and

drive revenue the in drive in just it's I'll to referenced, so And growth. paramount, as the and getting and first, commercial how kind rigor people way fastest is start with I organization place of a to great

way changes, on. to that spaces concentrate Second is important in fastest just going either commercial we're or increasing structure reach specialization those

of the expect, increasing you would be Third, as productivity R&D. would

meaningful impactful, have iterative the in less these We to more do and high-growth approaches launches R&D areas. of inside more of

parallel And in would X then that probably look And in portfolio at that I be optimization. with ways.

The ways should get the And I those 'XX kind side, first of there. would are it's that other to Those of in are we half the would that things think benefit. your now give talent into you right be growth, to going exiting the in right? tuck-in of 'XX, timing more potentially see about just categories question, slow expect be that would acquisitions back If the again, on scale the fast-growth to those markets.

little changes actually start the And latter and the a them, to got you because where structure, timing. know start complexity, best probably the hire that's then you of people longer on to the case on to regulatory change just a you're do the about take you got structure depends but think going part R&D really, side, least depending then at once I portfolio likely requirements. deleveraging on and more optimization, Commercial project, you XX. productivity, just one XXXX, when acquisition product beyond that, If is probably just

that I of when we about out elements these figuring just the think important to why as so LRP, are. because time is mix through where accelerate gaps going growth LRP, growth. now to that need to not work are mix, the inform but And these we're And the our the the will we're accelerate that major revenue

So to hopefully, the us in said get more versus but I've what are that elements gives color there. little those a the past,

Operator

comes from Vik Wells Chopra question Our Fargo. next from

Vikramjeet Chopra

going revenues. projections? you you corporate we for those and to million of building revenue a couple those forward? [ allocated into Just Do follow-ups. hopping $XX expect Should back be That of quick our continue to of ]

Bryan Hanson

Vik, year, $XX for asked million the number you yes. of the rest that one, glad I'm the Yes, an to approximate

this couple words, estimate So in a other year. that's quarters good for next of the

Vikramjeet Chopra

Okay.

roughly you the don't Got So I an it. heard for us QX year. out QX. $XX Can that? million for out with think help FX then and updated I build assumption And

Bryan Hanson

FX. No,

-- we're that? following this do the Kevin, rates use FX we just the current -- So point, have you actually at for

Kevin Moran

Yes.

that. assumption a update is revenue not So basis the from did impact. last of we perspective right now, We XX provided points

our So best safe it's to still assume guess. that, that's

Bryan Hanson

Vik, current apply we and approximately now right that. we rates just that, way take is do the And SPX the

So for points basis we're XX the full year. expecting

Operator

Our next David Sachs. from comes Goldman question from Roman

David Roman

Appreciate the additional questions taking you're here.

a where clarification talked the tax had look maybe starting the some you about with rate. I tax as year-to-date range updated think Just fair at and characterization occurred to items. Maybe But that you in the quarter. few of of land? guidance, you the tax know catch-up year. rate half in back the Wayde that the I it a items puts rate guess, the in kind XX% I should that XX% is of

And did then make you ready And is costs? how reference at start is that point you already -- here? outlook Are secondly, to where are down that rationalizing your a to a you restructuring. passing impacting

Wayde McMillan

some so our pick take I'll it. up of to strategies, way want and on probably Bryan, the tax rate then you Sure. that's about if talk to right

Bryan Hanson

Yes.

Wayde McMillan

we separate little gave of of full expected second year-to-date to rate, that the for our the you've has separation. our and hard areas expectations. sizable to is our first in one catch-up the We when the full a this better-than-expected got is pretty half we And tax it. year Basically, we at we've had similar settle for is year tax the half rate first So it. at team work year. post bit And here what had for as quarter out tax a

guide a this at we're with And Bryan? standpoint, that's for So comfortable what a point. then from restructuring

Bryan Hanson

would primary reason surprise do might right position it -- it is is start [indiscernible]. actually in this our the so like to you I the question, The work David. tell feel we Yes. I be think what Great -- might you it. And we're for project.

but restructuring my our that it one So It's can all on there's that the that so putting is venom most two structure calling really focused. me is streamlining the the complement We're against the important to shift focused into comes culture place. in we mind, we're is way.

in be organization. and we're right drive We going faster. have to to the going structure are the going you to move this shift. to of have that speed. to going We're company. We're autonomous, to to culture the culture accountability for drive going We're change look

into know, sustainable promise we way. drives when we really it and growth will the it And turn growth doing That organization. as drives a leverage in do you organization I in are an And growth. today, it we an in

focus, but wait invest of That's do. that The the and to margin like to part area we what is drive growth, also do headroom of the the expansion. would have which for a business done in It's normally allow past. second you program primary us to have and the not in only

feel So like that's right now those for thing to we the reasons. absolutely do

Wayde McMillan

covered, over us top Day add, Bryan, the just help so Bryan look metric go we and expand well around about and in that March, I that and for as growth to driving efforts really to in reflect no creation, more question initiatives will out maybe for first just timing driving fuel well. sure. think our our as where margins Investor we back growth Bryan you gross key was sharing value time. I the efficiencies part But as investment Revenue we strategy, remains talked just think of said, here. we the the covered to as X about laid additional efficiencies just change on I'll actions fund

David Roman

the it. for Got Thanks clarification.

Kevin Moran

Okay. It are looks questions. like there no further

day. thank So so Thanks, much we just I and first engaging months. joining public with to a you of for you many saying and look us our by close call, will it forward coming great over have the on

Bryan Hanson

much. so Thanks

Operator

everyone, today's you, conference attending for Thank call.

day. wonderful a now may You Have disconnect.

Solventum (SOLV) 8 Aug 242024 Q2 Earnings call transcript