Solventum Corporation

Good afternoon, my name is amy and i'll be your conference operator for today at this time, I would like to welcome everyone to the solventum third quarter 2024 earnings call. As a reminder, this conference is being recorded 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 the star and the number one on your keypad. If you would like to withdraw your question, again, press star and the number one. Thank you. I would now like to turn the program over to your host for today's conference, Kevin Moran, Senior Vice President of Investor Relations. Please proceed.

Good afternoon and welcome. Today we will discuss Solventum's third quarter fiscal 2024 results, along with an update to our 2024 outlook. Just after market closed today, a press release was issued with our earnings results and updated outlook. The press release and earnings presentation are available on the investor section of the Solventum website. Joining me today are Brian Hanson, our Chief Executive Officer, and Wade McMillan, our Chief Financial Officer. During the call, we will be making forward-looking statements that are subject to risks and uncertainties. For a full description of these risks and uncertainties, please refer to our SEC filings and the forward-looking statement slide at the beginning of our presentation. Please note that during our discussion, our comments will all be on a non-GAAP basis, unless they are specifically called out as GAAP. GAAP to non-GAAP reconciliations for all relevant periods can be found in the schedules attached to our press release. For the Q&A portion of today's call, we kindly ask that you limit yourself to one question and one follow-up. And with that, I'll hand the call over to Brian.

All right, great. Thanks, Kevin, and thanks to everyone for joining us for the call today. Hard to believe, but we've already completed our second quarter as an independent company. And I'll tell you that I'm increasingly encouraged by the progress our team is making against our phased approach to transform this business. And just as a reminder for those that might be new to the story, we look at transformation at Solventum in two ways. The first one is the turnaround of our business performance. And the second is just, you know, obviously standing Solventum up as an independent company. Both of these vectors provide a real opportunity to drive shareholder value. And in looking at the quarter, Q3 is yet another data point. That speaks to the team's overall progress in this transformation and the success of our business continuity efforts, which we clearly see as being reflected in both the performance in the quarter and our ability to raise our full-year guidance for the second consecutive quarter. We saw positive top-line growth in Q3 despite a challenging year-over-year comparison. And as a result, as I just referenced, we're raising our full-year organic growth rate to the upper half of our prior guidance of flat to 1%. And we're increasing our adjusted EPS and free cash flow guidance ranges as well. We saw operating margins improve sequentially, benefiting from some one-time items that helped offset the known incremental headwind from the 3M supply agreement markups. And following our discipline capital allocation strategy, we paid down 200 million of debt during the quarter. This should clearly show that we are committed to maintaining our investment grade rating and prioritizing debt pay down. When thinking about our progress to date, I'm just incredibly proud of our teams for their continued and steady performance, especially as they continue to work through separation related activities and challenges. And I want to make sure that I take a minute to say thank you really to all the solvers that I know are listening out there today. It is your continued focus on working through the separation, maintaining business continuity, and most importantly, as we always talk about, delivering for our customers. It is greatly appreciated. It is a clear testament to your resolve to move our mission forward. Okay, moving from Q3, I'd also like to give an update on our phased approach to stabilizing and separating the business, repositioning us for profitable growth, and optimizing the portfolio. I'll start with phase one, and phase one really has just firmly taken hold as we've made significant progress on our mission, talent, culture, and structure, as well as separation activities, all of which are critical, and I would actually say foundational, for driving business growth. You know, it's hard to believe again, but it's been seven months since the spin, and our culture is rapidly taking shape. Our new leaders continue to gel as a team, learn and assess the business, and finalize our go-forward strategy. and the energy across the organization remains high, with tangible excitement as I travel around the world for our new mission at Solventum. We also continue to advance our planning for the Solventum Way restructuring project. This project is focused on creating a more flexible, more decentralized structure that ultimately will complement our culture shift, and it will focus on allowing us to create headroom to invest for growth while also concentrating on margins. As we finalize the plan, we're going to provide more context to the project and also obviously include some expected financial impacts. Given our progress to date, our current project cadence, we are on track to complete the largest majority of phase one activities within our original 12 to 24 month timeline. Just overall, I'd say in this area, I'm really encouraged by our progress and I'm impressed with the team's ability to manage through the challenges and keep us on track. Okay, let's move to phase two. As we've referenced in the past, Phase 2 is focused on a long-range plan that will unlock the profitable growth potential of our business, just really ensuring we take full advantage of the attractive markets that we play in. And as a reminder, because we were able to accelerate talent acquisition in Phase 1, we've been able to compress the timeline in Phase 2, now enabling us to share both our long-range plan and our 2025 guidance during the fourth quarter earnings follow-up coming up in February. And as a reminder, some of the elements of the plan will be, first and foremost, our primary market and sub-market selection. Again, those markets and sub-markets where we will concentrate our efforts on a go-forward basis. And as you would expect, the market selection in this process has bias towards those markets that are faster growth, markets where we have an ability to win, and markets that have relative profitability benefits versus our other markets. Inside of these markets, we're also going to be selecting our growth driver initiatives, and those will be intended to drive scale and share in these attractive areas. And I would just say that we continue to make solid progress, and we remain on track to finalize these decisions before the end of the year. And this is critical because final decisions here will facilitate the shifting of our commercial, R&D, and eventually M&A resources to these growth driver areas. And this disciplined focus will help us improve the vitality index and the overall innovation of our businesses, which is a key variable in accelerating our growth. Now, that said, even before this shift occurs, we do have some recent product launches that are absolutely worth mentioning. Let's just start with MedSurge. In the quarter, we officially launched the back peel-in-place dressing that we've been talking about. This product gives us three advantages. The first is simplifying the procedure. The second is reducing procedure time. The third is reducing the number of dressing changes per week. All of these combined give us the opportunity to reach a broader set of patients across multiple sites of care. And I would say out of the gate, the very positive early response we're getting for customers has us focused now on increasing capacity of this product and orienting our commercial structure to drive adoption. Okay, moving to our dental solutions business, we launched the ClinPro Clear Fluoride Treatment, which we believe, and I would tell you early customer response would indicate, it is a meaningful advancement in fluoride treatment technology. ClinPro is focused on making the fluoride application process simpler for the caregiver, first and foremost, and then improving the experience for the patients. And again, early customer response is positive and would indicate that the product is delivering on its intended outcome. In our health information systems business, in collaboration with SIFT Healthcare, we recently introduced a new AI-driven payment integrity solution that we're calling the Solventum Revenue Integrity System. This focuses on improving our customers' reimbursement leakage by predicting reimbursement pretty much at every step of the patient journey. And it's intended to not only reduce denials, but potentially prevent them altogether. really helping our customers ensure that they get the timely and accurate payer reimbursement that they deserve. All right. And finally, in our purification and filtration business, we recently launched a new product in our Harvest RC family. And this latest edition is focused on improving our customer's manufacturing process. by streamlining time, by streamlining cost of producing, reducing risk during scaling, and boosting overall productivity with the clear goal of helping companies bring therapies to market more quickly and with less risk. These recent launches are encouraging, there's no question. Now, they may take a little time to deliver measurable results, but they are just the tip of the spear when it comes to a refocused R&D effort that will begin in earnest and during 2025. aligning with the selection of our growth driver areas. Okay, so let's move on to phase three, our portfolio optimization phase. As I've shared previously, we have been actively assessing the value contribution and the strategic alignment of our markets and businesses. This work has been well underway since announcing our three-phase plan back at our investor day in March. We continue to make progress against this effort and at the right time. We will discuss phase three in more detail. I think it's important to reiterate on these phases that all phases are not sequential. They are running concurrently. So parts may be in execution mode, parts may be in planning mode, but all are moving forward at one time. Okay, to close my section out, I'd just like to say that while we are clearly off to a solid start, it is not lost on us that revenue growth remains below market. As we've said, This performance turnaround will take time, but rest assured, we are moving with urgency while also being thoughtful and strategic about building and investing for the long term. We have an incredible opportunity ahead of us, and by focusing on the right areas with the appropriate investments, we are setting the foundation for growth acceleration and ultimately significant value creation. Okay, with that, I'm going to turn it over to Wade. Wade?