Solventum : Transcript (BofA HC Conference Transcript vF)

Solventum

BofA Securities 2025 Healthcare Conference Transcript

May 13, 2025

2:20 p.m. PDT

Corporate Speakers: Bryan Hanson - Solventum Corporation; Chief Executive Officer Wayde McMillan - Solventum Corporation; Chief Financial Officer Participants: Travis Steed Bank of America; Analyst Travis Steed - Bank of America; Analyst

Good afternoon. I can finally say afternoon. Next up, as you all know, I'm Travis Steed an analyst at Bank of America. Next up, we have Solventum. Bryan Hanson, Chief Executive Officer and Wayde McMillan, Chief Financial Officer So, so welcome. Thank you.

Bryan Hanson - Solventum Corp; Chief Executive Officer

Yeah. Thanks for having us.

Travis Steed - Bank of America; Analyst

Yeah. I just wanted to open it up and I think I'm a little over a year as public company now. This is kind of your first conference a year ago. And so just like maybe talk about some of the -- in the last year as a public company and how you kind of progressed versus your plan, you know, some of the biggest surprises and kind of how you feel about the business today versus where you did a year ago when you were here?

Bryan Hanson - Solventum Corp; Chief Executive Officer

So first of all, it's actually hard to believe it was only a year ago that we spun, because so much has happened. But, I'll try to maybe break it down into two groups, things that probably went better than planned and maybe some things that surprised us a little bit on the negative side. So first of all, I'd say that the takeaway is the speed at which the

transformation is moving is the thing that stands out for me is maybe being a bit of a surprise, because we've been able to move so fast, make so many changes without breaking anything, which is fantastic.

And just a couple of examples in there. We hired people at the L1, L2, L3 level that have deep experience at a much more rapid pace than I expected. And that really got things moving and that drove a quicker acceptance of the cultural change that we're pushing, which is dramatically different than what was existing before. It's more autonomy, quicker decision-making, just speed overall and accountability. So that happened faster than I expected. I think one that most people noticed is that we moved very fast on a transaction that was sizable and meaningful for us. We haven't closed it yet, but we're in the process with our purification and filtration divestiture. And then the other one is just people may have forgotten because there's a lot going on, but just the speed at which we moved to completely reorganize the company on a global basis, in particular the commercial organization with again, without breaking anything in coming into this quarter really strong with a completely revamped commercial organization from a specialization standpoint. Everything I would say from a positive surprise standpoint beyond the speed is we probably had more meat on the bone than I expected in the brands that we already have in the market, things Tegaderm CHG and the new product pipeline. So, we didn't have much in

there, but some other ones that we found are pretty attractive. So, it's the combination of the enhancements we've made to the commercial team, the bright spot that we found in the brands that we already have in the market, and the NPI that's driving our performance right now.

Probably didn't appreciate it. I've said this before, how complex this separation was going to be. 3M was highly entangled, is highly entangled. And to disentangle that takes a lot of effort. So we built a great team to do it. But it's been it's been tough. It's been hard work. We're in the middle of that ERP cutover - the biggest one to date actually started last week. So a lot that's happening there. And the other thing I would say, not really about the separation, but tariffs. We had so much going on in this business and then everybody had to stop, drop and roll to manage those. The team did a great job, but that was an absolute surprise. I think for everybody. That is the way I would sum up the last year.

Anything you'd add Wayde?

Wayde McMillan - Solventum Corporation; Chief Financial Officer

Yeah, I think Bryan covered it really well. Maybe I would just add confidence has really grown. Last year at the conference a year ago, we were just a few weeks post our initial public offering and most of the team that is in place today, at least at

the L1, L2 L3 level, either was brand new or wasn't even with the team yet. And as Bryan either was brand new or wasn't even with the team yet. And as Bryan said many times, building our strategy over the last year really required having those leaders in place because you want those people accountable and part of the strategy. And so the confidence has built a lot over the last year in both what we've done execution-wise. As Bryan said, the speed has been a little ahead of where we thought we'd be. But as far as building our overall strategy as well, our confidence is building and where we can really take this business.

Travis Steed - Bank of America; Analyst

Great. Thank you. That's helpful. Maybe just since you just reported Q1, a surprise at 4.3% when I first read it in the press release. And then you come on and said it was only 2.5% underlying, which was still good. So, it's still better than expected. You know, maybe talk about some of the underlying markets, what you saw in the quarter. How confident are you in that? And at 2.5% versus like - maybe artificially higher than you think.

Bryan Hanson - Solventum Corp; Chief Executive Officer

Maybe I'll start with the underlying markets and then you can go to some of what we saw individually in the quarter. But I wouldn't say we saw anything dramatically different in the underlying markets. So I wouldn't look at the quarter as being driven by changes that were unexpected in the market. The only market that we have this really challenged now is dental, but that was relatively stable. So, it wasn't anything in the markets that drove it. From an underlying business strength standpoint, what really resonates with me is the commercial changes that I just talked about and the new products that we've launched recently in concert with some of the products we already had in the market that were underpenetrated.

That's where we're getting the steam right now. And again, it's happening a little faster than we expected. Our confidence level has gone up and that's the reason why we were able to raise the guidance for the year. But relative to the one-time items - so that really attractive 4.3 turning into two five, maybe Wayde you can talk about those.

Wayde McMillan - Solventum Corporation; Chief Financial Officer

Yeah, sure. So even the 2.5%, we think is a good strong growth rate. It's more than double what we grew in all of 2024. And it was nice to see broad-based across all four segments growing faster that we did in 2024. So off to a great start, really good, strong Q1 for us in relation to the order timing that we called out in the quarter that normalized us from 4.3% down to the 2.5%. It's primarily things related to the separation, things like our ERP cutover as Bryan just touched on that we've got our first major ERP implementation happening right now here in Q2. And we also have a distribution center cutover here in Q2. And so we had customers that we had communicated to buy ahead and that was primarily in our MedSurg business within the infection prevention surgical solutions area and that makes sense because that's the area where we have most of the fast moving or high frequency SKUs and it's also sold through distribution. You wouldn't see it as much in some of the other areas.

So, that's primarily where the normalization was. And what we've talked about is we expect that we will give back that order timing later in the year. And it's difficult to know exactly when - we think it will impact Q2, Q3 and Q4, but mostly Q3. And the reason we're estimating that is because the ERP and distribution center cutovers are here in Q2. And then we also saw some customers buying ahead of some of the SKUs that we're planning to exit this year. And so we've been looking at it a lot. We spent a lot of time on it and we've got a lot of questions around how difficult is it to predict and it's very difficult to predict the size and when. But on the back end, after it happens, we're have good fidelity on that and that's why we come up with an estimate of 2.5%. And we know where distributor inventories are and those are estimatable. We also look at those SKUs that we're exiting and we can see elevated purchasing on those.

And so we have good fidelity on that 2.5% estimate and again, we think we're going to give it back later in the year. But nonetheless, off to a great, strong start here.

Travis Steed - Bank of America; Analyst

I want to touch on the ERPs and it's like, probably from my seat, we only hear about it when things go wrong of the ERPs. Like nobody talks about we did a great ERP. And so we have this negative connotation with ERP integrations and risk associated with that. So, I want to understand, like how you have confidence in management's ERP and what you're doing differently now other companies have done with the ERP implementations.

Bryan Hanson - Solventum Corp; Chief Executive Officer

Yeah, I'll tell you. On top of that, we have a lot of other things going on. So, as we are coming into the year, it was very clear that we didn't want any distractions that we couldn't manage because we had too many things happening. So, we built a mitigation strategy on the ERP implementation that's probably as robust as I've seen anywhere. Anyway and not probably - I know it's the most robust I've seen. And we looked at it in three vectors. The first one was what you would normally do when you are doing an ERP cutover is, what are all the things we can put into place to mitigate the risk of the ERP the new system actually working.

So the whole goal there is get us to the point where that system is working and is functional, we can make it, we can make it, we can transact as a result of it. And so that was just one work stream to say all of the mitigation you would normally have. The second was, if it does work, what we knew was going to happen is you would have some deficiencies in the way the customer would feel the interaction with us because there was an interim state.

And we said that's unacceptable. So we built a completely different work stream, but connected to say, how do we mitigate those additional just call it inefficiencies that the customer is going to have to deal with. And then we had a third one, which is a different team, but again, connected as a whole group to say everything breaks. We can't use the new system, all the mitigation that we had there did not work.

And what's our fallback position without having to use the system that we were moving to? And so we've built a plan around that to say we have all systems that we can go back to distribution centers that will matter. And then even leveraging some of our customers from a distribution standpoint to leverage to get to our customers. So that's three

different prongs that we've had that I've never had before. It will not go perfect. I promise you something will go wrong. But I feel more prepared now than I ever have. We're about a week and a half now into the biggest implementation, as we just referenced. I really look at this as three days, three weeks, three months, as your check-in points to see if it's going well. We're well past the three days. All systems go. Feels really good. Coming up on the three weeks and then we'll keep you abreast. But right now, there's wood here, I'm just going to knock on wood, it feels pretty good.

Travis Steed - Bank of America; Analyst

What do you think about it Wayde on the ERP?

Wayde McMillan - Solventum Corporation; Chief Financial Officer

Yeah. As Bryan said, we've been through these before and you always have challenges with them. It's all about

preparation. And as Bryan said, we've got the resources on it. We've hired a really strong team that's implementing this for us. We get a lot of confidence both in the team as well as the processes they put in place. Having said that, will we expect some challenges as we work through them? For sure. But it's all about how fast can the team address those challenges and keep us moving.

Travis Steed - Bank of America; Analyst

Have you baked in some of the challenges into the revenue guidance this year?