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Solventum Reports First Quarter 2024 Financial Results and Capital Allocation Update
  • Completed spin-off from 3M and began trading on April 1, 2024
  • Reported sales increased 0.2% to $2.016 billion, organic sales increased 0.9%
  • GAAP Earnings Per Share (EPS) of $1.37; adjusted EPS1 of $2.08
  • Generated $442 million in cash from operations; free cash flow1 of $340 million
  • Reaffirms full-year 2024 guidance

ST. PAUL, Minn., May 9, 2024 /PRNewswire/ -- Solventum (NYSE: SOLV) today reported carve-out financial results for the first quarter ended March 31, 2024.

"As a newly independent company, we have an incredible opportunity to create significant value for our shareholders over time as we position our company for long-term success," said Bryan Hanson, chief executive officer, Solventum. "With the recent spin-off, Solventum is better positioned to pursue tailored capital allocation plans and more targeted business strategies to accelerate growth and deliver value for our customers, investors and employees."

First quarter 2024 financial results:

3 months ended March 31, 2024

(Millions of dollars, except per share amounts)

GAAP

non-GAAP1

Sales

$2,016

$2,016

Operating income

$381

$484

Operating income margin

18.9 %

24.0 %

Earnings per share (EPS)

$1.37

$2.08

Cash from operations /

Free cash flow1

$442

$340

Solventum's historical financials reported in the Form 10 and Q1 2024 financials in this release and the Form 10-Q to be filed are prepared as a carve-out of 3M. This basis of presentation is different than what has been reported in 3M's historical consolidated results for the Health Care segment. Starting in Q2 2024, Solventum will report its results as a stand-alone company instead of on a carve-out basis. 

Organic sales growth1 benefited from the annualization of 2023 pricing actions, partially offset by lower volumes. Additionally, organic sales growth in the Purification and Filtration segment included a benefit from the timing of customer orders in Q1 2024. Operating income and adjusted operating income increased due to higher gross profit associated with the 2023 pricing actions, partially offset by an increase in operating expenses related to public company and functional stand-up costs.

1 

Represents non-GAAP financial measure; see the "Non-GAAP Financial Measures" section for applicable information.

 

Segment Sales:

   

Three months ended March 31,

   

2024

 

2023

 

Sales Change 2024 vs 2023

(Dollars in millions)

 

Net Sales

 

Net Sales

 

Total Sales Change

 

Translation

 

Divestiture

 

Organic Sales

MedSurg

 

$

1,119

   

$

1,123

   

(0.4)

%

 

(0.5)

%

 

%

 

0.1

%

Dental Solutions

 

335

   

341

   

(1.8)

   

(0.4)

   

(1.8)

   

0.4

 

Health Information Systems

 

317

   

316

   

0.3

   

   

   

0.3

 

Purification and Filtration

 

245

   

231

   

6.1

   

(0.6)

   

   

6.7

 

Total Company

 

$

2,016

   

$

2,011

   

0.2

%

 

(0.4)

%

 

(0.3)

%

 

0.9

%

Capital Allocation Update
As communicated during the recent Investor Day, Solventum intends to prioritize debt paydown for approximately the next 24 months and has decided not to pay a cash dividend on its common stock or authorize the repurchase of shares at this time. The company will continue to assess its capital allocation plans for potential future actions.

Full-Year 2024 Guidance
Solventum reaffirms its full-year 2024 guidance:

  • Organic sales growth of -2% to 0% 
  • Adjusted EPS of $6.10 to $6.40 
  • Free cash flow of $700M to $800M

Additional Considerations:

  • Solventum expects a waning benefit from pricing for the remainder of 2024 and a return to a normalized pricing environment.
  • The SKU rationalization project discussed at Investor Day is expected to begin impacting financials in the second half of 2024 and continue into 2025 and 2026.
  • Solventum now expects an unfavorable impact from foreign exchange of ~50bps on reported sales for the full year 2024.
  • 3M supply agreement mark-up started on April 1, 2024, and Solventum anticipates impact to the income statement to begin largely in the second half of 2024.
  • Stand-up functional expenses are expected to ramp up for the remainder of 2024.

Organic revenue, adjusted EPS and free cash flow amounts included in Solventum's full-year guidance are non-GAAP financial measures. Solventum does not provide reconciliations of the forward-looking non-GAAP financial measures set forth above to the respective GAAP metrics as it is unable to predict with reasonable certainty and without unreasonable effort certain items, such as the impact of changes in currency exchange rates, impacts associated with business acquisitions or divestitures, timing and magnitude of restructuring activities, among other items. 

Solventum's full-year 2024 guidance is based on Q1 2024 3M carve-out financial information and expected results for the remainder of the year as a stand-alone company, starting April 1, 2024.

See the "Non-GAAP Financial Measures" section for explanations of our non-GAAP financial measures.

Upcoming Investor Conference
Solventum executives expect to participate in the Bank of America Merrill Lynch Healthcare Conference 2024 in Las Vegas, Nevada on Tuesday, May 14, 2024 at 5:00 p.m. PDT / 8:00 p.m. EDT.

This event will be webcast live and a replay will be available on the company's website: https://investors.solventum.com.

Forward Looking Statement
This news release contains forward-looking information about Solventum's financial results and estimates and business prospects that involve substantial risks and uncertainties. In particular, statements regarding the future performance of Solventum, including guidance for 2024, are forward-looking statements. You can identify these statements by the use of words such as "anticipates," "believes," "could," "estimates," "expects," "forecasts," "goal," "guidance," "intends," "may," "outlook," "plans," "projects," "seeks," "sees," "should," "targets," "will," "would," and other words and terms of similar meaning in connection with any discussion of future operating or financial performance or business plans or prospects. Among the factors that could cause actual results to differ materially are the following: (1) worldwide economic, political, regulatory, international, trade and geopolitical conditions, natural disasters, war, public health crises, and other events beyond Solventum's control; (2) operational execution risks; (3) damage to Solventum's reputation or its brands; (4) risks from acquisitions, strategic alliances, divestitures and other strategic events; (5) Solventum's business dealings involving third-party partners in various markets; (6) Solventum's ability to access the capital and credit markets and changes in Solventum's credit ratings; (7) exposure to interest rate and currency risks; (8) the highly competitive environment in which Solventum operates and consolidation in the healthcare industry; (9) reduction in customers' research budgets or government funding; (10) the timing and market acceptance of Solventum's new product and service offerings; (11) ongoing working relationships with certain key healthcare professionals; (12) changes in reimbursement practices of governments or private payers or other cost containment measures; (13) Solventum's ability to obtain components or raw materials supplied by third parties and other manufacturing and related supply chain difficulties, interruptions, and disruptive factors; (14) legal and regulatory proceedings and legal compliance risks (including third-party risks) with regards to antitrust, FCPA and other anti-bribery laws, environmental laws, anti-kickback and false claims laws, privacy laws, product liability claims, tax laws, and other laws and regulations in the United States and other countries in which Solventum operates; (15) potential liabilities related to per-and polyfluoroalkyl substances; (16) risks related to the highly regulated environment in which Solventum operates; (17) climate change and measures to address climate change; (18) security breaches and other disruptions to information technology infrastructure; (19) Solventum's failure to obtain, maintain, protect, or effectively enforce its intellectual property rights; (20) pension and postretirement obligation liabilities; (21) any events that adversely affect the sale or profitability of one of Solventum's key products or the revenue delivered from sales to its key customers; (22) any failure by 3M Company ("3M") to perform any of its obligations under the various separation agreements entered into in connection with the separation of Solventum from 3M and distribution (the "Separation"); (23) any failure to realize the expected benefits of the Separation; (24) a determination by the IRS or other tax authorities that the Separation or certain related transactions should be treated as taxable transactions; (25) indebtedness incurred in the financing transactions undertaken in connection with the Separation and risks associated with additional indebtedness; (26) the risk that incremental costs of operating on a standalone basis (including the loss of synergies), costs of restructuring transactions and other costs incurred in connection with the Separation will exceed Solventum's estimates; and (27) the impact of the Separation on Solventum's businesses and the risk that the Separation may be more difficult, time-consuming or costly than expected, including the impact on Solventum's resources, systems, procedures and controls, diversion of management's attention and the impact on relationships with customers, suppliers, employees and other business counterparties.

Changes in such assumptions or factors could produce significantly different results. A further description of these factors is located under "Cautionary Note Regarding Forward-Looking Statements" and "Risk Factors" in the Information Statement included in the registration statement on Form 10 filed by Solventum with the Securities and Exchange Commission in connection with the spin-off. Solventum assumes no obligation to update any forward-looking statements discussed herein as a result of new information or future events or developments.

Non-GAAP Financial Measures
In addition to reporting financial results in accordance with U.S. GAAP, Solventum also provides non-GAAP measures that we use, and plan to continue using, when monitoring and evaluating operating performance and measuring cash available to invest in our business. The adjusted measures are not in accordance with, nor are they a substitute for, GAAP measures. These non-GAAP financial measures are supplemental measures of our performance and our liquidity that we believe help investors understand our underlying business performance and Solventum  uses these measures as an indication of the strength of Solventum and its ability to generate cash.

Solventum calculates forward-looking non-GAAP financial measures, including organic revenue growth, adjusted operating income, adjusted operating income margin, adjusted earnings per share, and free cash flow based on internal forecasts that omit certain amounts that would be included in GAAP financial measures. Solventum does not provide reconciliations of these forward-looking non-GAAP financial measures to the respective GAAP metrics as it is unable to predict with reasonable certainty and without unreasonable effort certain items such as the impact of changes in currency exchange rates, impacts associated with business acquisitions or divestitures, timing and magnitude of restructuring activities, among other items. The timing and amounts of these items are uncertain and could have a material impact on Solventum's results in accordance with GAAP. 

The Q1 2024 financial statements and financial information, including reconciliations of non-GAAP financial measures and certain prior period reconciliations, are available on Solventum's website: https://investors.solventum.com

About Solventum
At Solventum, we enable better, smarter, safer healthcare to improve lives. As a new company with a long legacy of creating breakthrough solutions for our customers' toughest challenges, we pioneer game-changing innovations at the intersection of health, material and data science that change patients' lives for the better — while empowering healthcare professionals to perform at their best. See how at Solventum.com.

Solventum Corporation

CONDENSED COMBINED STATEMENTS OF INCOME

(Dollars in millions, except per-share amounts)

(Unaudited)

 
   

Three months ended March 31,

   

2024

 

2023

Net sales of product

 

$

1,553

   

$

1,550

 

Net sales of software and rentals

 

463

   

461

 

Total net sales

 

2,016

   

2,011

 

Cost of product

 

725

   

752

 

Cost of software and rentals

 

119

   

122

 

Gross profit

 

1,172

   

1,137

 

Selling, general and administrative expenses

 

596

   

577

 

Research and development expenses

 

195

   

195

 

Total operating expenses

 

1,635

   

1,646

 

Operating income

 

381

   

365

 

Interest expense, net

 

39

   

 

Other expense (income), net

 

13

   

2

 

Income before income taxes

 

329

   

363

 

Provision for income taxes

 

92

   

70

 

Net Income

 

$

237

   

$

293

 
         

Earnings per share:

       

Basic earnings per share

 

$

1.37

   

$

1.70

 

Diluted earnings per share

 

$

1.37

   

$

1.70

 

Weighted-average number of share outstanding:

       

Basic

 

172.7

   

172.7

 

Diluted

 

172.7

   

172.7

 

 

Solventum Corporation 

CONDENSED COMBINED BALANCE SHEETS 

(Dollars in millions) 

(Unaudited)  

 
   

March 31,

 

December 31,

(Millions)

 

2024

 

2023

Assets

       

Current assets

       

Cash and cash equivalents

 

$

996

   

$

194

 

Receivables — net of allowances of $86 and $82

 

1,220

   

1,313

 

Inventories

       

Finished goods

 

490

   

453

 

Work in process

 

171

   

171

 

Raw materials and supplies

 

240

   

233

 

Total inventories

 

901

   

857

 

Other current assets

 

242

   

155

 

Total current assets

 

3,359

   

2,519

 

Property, plant and equipment — net

 

1,491

   

1,457

 

Goodwill

 

6,468

   

6,535

 

Intangible assets — net

 

2,810

   

2,902

 

Other assets

 

583

   

530

 

Total assets

 

$

14,711

   

$

13,943

 

Liabilities

       

Current liabilities

       

Accounts payable

 

$

587

   

$

477

 

Unearned revenue

 

566

   

574

 

Other current liabilities

 

701

   

677

 

Total current liabilities

 

1,854

   

1,728

 

Long-term debt

 

8,303

   

 

Pension and postretirement benefits

 

321

   

166

 

Deferred income taxes

 

211

   

231

 

Other liabilities

 

171

   

152

 

Total liabilities

 

10,860

   

2,277

 
         

Equity

       

Net parent investment

 

4,809

   

12,003

 

Accumulated other comprehensive income (loss) — net

 

(958)

   

(337)

 

Total equity

 

3,851

   

11,666

 

Total liabilities and equity

 

$

14,711

   

$

13,943

 

 

Solventum Corporation

CONDENSED COMBINED STATEMENTS OF CASH FLOWS

(Dollars in millions)

(Unaudited)

 
   

Three months ended March 31,

(Millions)

 

2024

 

2023

Cash Flows from Operating Activities

       

Net income

 

$

237

   

$

293

 

Adjustments to reconcile net income to net cash provided by operating activities

       

Depreciation and amortization

 

139

   

145

 

Postretirement benefit plan expense

 

9

   

10

 

Stock-based compensation expense

 

4

   

18

 

Deferred income taxes

 

(25)

   

(34)

 

Changes in assets and liabilities

       

     Accounts receivable

 

78

   

32

 

     Inventories

 

(52)

   

(6)

 

     Accounts payable

 

115

   

26

 

All other operating activities

 

(63)

   

25

 

Net cash provided by operating activities

 

442

   

509

 
         

Cash Flows from Investing Activities

       

Purchases of property, plant and equipment

 

(102)

   

(65)

 

Net cash used in investing activities

 

(102)

   

(65)

 
         

Cash Flows from Financing Activities

       

Net transfers to 3M

 

(7,851)

   

(460)

 

Proceeds from long-term debt, net of issuance costs

 

8,303

   

 

Other — net

 

10

   

(2)

 

Net cash provided by (used in) financing activities

 

462

   

(462)

 
         

Effect of exchange rate changes on cash and cash equivalents

 

   

 
         

Net increase (decrease) in cash and cash equivalents

 

802

   

(18)

 

Cash and cash equivalents at beginning of year

 

194

   

61

 

Cash and cash equivalents at end of period

 

$

996

   

$

43

 

 

Solventum Corporation

SALES CHANGE ANALYSIS

(Dollars in millions)

(Unaudited)

 

Sales Change Analysis By Geographic Area:

   

Three months ended March 31, 2024

   

United States

 

International

 

Worldwide

Net sales (millions)

 

$

1,116

   

$

900

   

$

2,016

 

      % of worldwide sales

 

55.4

%

 

44.6

%

 

100.0

%

Total sales change

 

1.2

%

 

(0.9)

%

 

0.2

%

Translation

 

   

(0.9)

   

(0.4)

 

Divestitures

 

   

(0.7)

   

(0.3)

 

Organic sales

 

1.2

%

 

0.7

%

 

0.9

%

 

1

Total sales change is calculated based on reported sales results. The components of sales change include organic local-currency sales, acquisitions, divestitures, and translation. Organic local-currency sales include both organic volume impacts (which excludes acquisition and divestiture impacts) and selling price changes. Acquisition and divestiture impacts are measured separately for the first 12 months post-transaction.  

 

Solventum Corporation
BUSINESS SEGMENTS
(Unaudited)

Operating segments include components of an enterprise where separate financial information is available that is evaluated regularly by the Company's Chief Operating Decision Maker ("CODM") for the purpose of assessing performance and allocating resources. The Company's CODM is its Chief Executive Officer. The Company's operating activities are managed through four operating segments: MedSurg, Dental Solutions, Health Information Systems, and Purification and Filtration. There have been no changes to the composition of the segments or to financial information reported within each of the business segments. These segments have been identified based on the nature of the products sold and how the Company manages its operations. Transactions among reportable segments are recorded at cost. No operating segments have been aggregated to form reportable segments.

Corporate and Unallocated includes amortization of acquired intangible assets, restructuring related charges, costs or benefits from the capitalization of manufacturing variances and other net costs that the Company chose not to allocate directly to its business segments. Because Corporate and Unallocated includes a variety of miscellaneous items, it is subject to fluctuation on a quarterly and annual basis. Business segment operating income is reconciled to total operating income below:

BUSINESS SEGMENT INFORMATION

                       
   

Three months ended March 31, 2024

 

Three months ended March 31, 2023

     

(Dollars in millions)

 

Net Sales

 

Operating Income

 

Operating Margin %

 

Net Sales

 

Operating Income

 

Operating Margin %

MedSurg

 

$

1,119

   

$

221

   

19.7

%

 

$

1,123

   

$

253

   

22.5

%

Dental Solutions

 

335

   

110

   

32.8

   

341

   

111

   

32.6

 

Health Information Systems

 

317

   

101