Solventum (SOLV) Q2 2026 earnings call transcript

Thank you. Good afternoon, and welcome to Sylventum's second quarter fiscal year, 2026 earnings call. Joining me on today's call are our Chief Executive Officer, Brian Hansen, and Chief Financial Officer, Wade McMillan. A replay of today's earnings call will be available later today on the Investor Relations section of our corporate website. The earnings press release and the presentation are both available there now.

During today's call, our discussion and any comments we make will be on a non-GAP basis unless they are specifically called out as GAP. The non-GAP information discussed is not intended to be considered in isolation or as a substitute for the reported GAP financial information. Please review the supporting schedules in today's earnings press release to reconcile the non-GAP measures with the GAP 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 based on reasonable assumptions. However, our actual results could differ.

Please review our SEC filings for complete discussion of the risk factors that could cause their actual results to differ materially from any forward-looking statements made today. Following our prepared remarks, we'll 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.

I'd like to now hand the call over to Brian.

Alright, thanks, Amy, and thanks to everyone joining us today. Before we get into the quarter, I want to talk directly to our team for just a minute. I know the work right now isn't easy. With the transformation work, the ERP cutovers, and everything else we have in flight, it's a lot. And through all of it, you keep showing up, you stay focused, and you deliver for our customers. And honestly, that's everything.

So thank you. Thank you for making it happen. And speaking of making it happen, let's get into the quarter. The quarter came in ahead of plan, top, and bottom line. Organic growth and EPS were both ahead of expectations, and that comes down to the strong execution and the momentum this team keeps building. We saw healthy performance across every segment, led by our specialized commercial teams and new product innovation, and operating margins also came in better than expected.

That's the discipline we built into how we run this business showing up in the numbers. And just as we communicated last quarter, these results include the advanced orders we planned for the North America ERP cutover. We also put the balance sheet to work. During the quarter, we accelerated our billion dollar share repurchase program right in line with our balanced capital allocation strategy.

So here's a bottom line on the quarter. We delivered across the board. We're clearly on track to achieving our long range plan earlier than expected. And importantly, we did what we said again, and let's say do equation really matters to us. And as strong as the quarter was, I'm just as encouraged by the progress on our transformation.

And as a quick reminder, our transformation has three phases, stabilize and separate the business, reposition it for profitable growth, and optimize the portfolio, and importantly, as we've said from the beginning, these phases are not sequential. They're running concurrently. Different initiatives are progressing at different speeds, but all three phases continue to move forward and increasingly reinforce one another.

Let me start with the separation from 3M because we're now in the final steps. The final phases of our ERP cutover are already in motion. And getting to the other side of this, it's a big deal. Now it removes a significant amount of complexity from the business. It frees up talent and resources for innovation and margin expansion, and it meaningfully improves free cash flow. Just put simply, we're very close to moving from an environment with separation distraction to full operating mode.

Now let's talk portfolio optimization because we took another major step today. As we just announced, we're advancing the separation of our health information systems business with a clear objective pursuing the path that maximizes value. And let me walk you through the thinking because we obviously didn't arrive here casually.

First, strategic fit. We believe HIS can create greater value outside of solvents, either as an independent company or combined with a scale player in the space. It's a differentiated, trusted business with a highly resilient financial profile. And in a rapidly changing environment, this will better position it to capitalize on the fast moving advances in AI. The second is value. You know, we're confident a separation can unlock shareholder value. And our intent is to leverage both the separation method and the use of proceeds to maximize that value.

And third is focus. For solvents, this will make us a more dedicated medtech company. And it will sharpen our focus on metrics and dental.

In timing here matters. In April, as you probably remember, we passed the second anniversary of our spend. That gives us additional flexibility to evaluate and pursue more significant portfolio actions just like this one. And to support this next chapter, we're planning to host our third annual investor day in Q1 next year. That's where we're going to lay out the post HIS long range plan and provide updates on our remain coast strategy and innovation pipeline.

Just two commitments before I move on. To our HIS team, you should be incredibly proud of what you've built over decades. And to be clear, you are part of the solvents and family until a transaction is finalized. You have my commitment and this leadership team's commitment that we will fully support you through this process. And to our HIS customers, nothing changes. We'll maintain our investment strategy in this business. We'll keep supporting your operations and we will absolutely keep executing the innovation roadmap. Okay, now moving to the M&A side of portfolio optimization.

Sara, which as you probably remember is our first acquisition, continues to perform extremely well with you over your revenue growth above 40% and gross margin above 80%. And that's the M&A playbook, a differentiated technology in a space we know accelerated through customer relationships we already have. And we intend to keep running that talking acquisition playbook in a disciplined way. But portfolio moves are only part of the story. The engine here is organic growth. And that's why we chose our five growth drivers with intention, durable markets, attractive growth in margin profiles, and in spaces where we lead with differentiated solutions.

And as a result, we see a multi-billion dollar growth opportunity in front of us. And a big portion of it sits inside customers we already serve. Where our preferred and differentiated solutions are still under-penetrated. And that's what gives us confidence that over time we can sustainably deliver growth at or above our long-range plan. What makes this opportunity especially meaningful is that it goes beyond just market growth. In many cases, growth comes from helping to address challenges that healthcare systems and patients face every day. So basically as adoption of our solutions expands, we create shareholder value for sure, but we're also helping improve outcomes for the patients that we serve. And let me just make that real with one example of our growth driver's IV site management.

IV related infections impact an estimated two to three million patients every year. They can increase mortality risk by 50% that's five, zero percent. And they create roughly 10 billion in healthcare costs in the U. S. alone. And for cancer patients with central lines, the stakes are even higher. Roughly 20% of those bloodstream infections are fatal. For patients already finding cancer, preventable infections should never be the thing that takes their life. And that's where our products can help. Tegeterum CHG is the only transparent dressing cleared by the FDA to reduce capital-related bloodstream infections.

Studies show nearly 60% lower infection rates versus non-CHG solutions. And yet it's used less than 20% of the time. Think about that. A clinically differentiated solution of potentially life or death problem, and over 80% of the opportunity is still in front of us. That's just one example of the kind of upgrade opportunities that exist across the majority of our growth driver markets.

Of course, attractive markets aren't enough. You need innovation and commercial focus. And that's where we've made real progress. Our innovation and commercial teams are now aligned around these growth drivers. And our new products are showing up in the results. As an example, in MedSurg, innovation is focused on three of our five growth drivers, IV site management, which I just talked about. Negative pressure loop therapy and sterilization assurance.

And recent launches, including our VAC peel-and-place dressing. Three new test sterilization products, and our global expansion of Tegeterum CHG, are driving conversions to these higher value solutions. And dental innovation is focused on our core restorative growth driver and a shift towards higher growth aesthetics. Products like ClinProClear, PhilTech Easy Match and Easy Match Flowable are composite warmer, and our clarity aligner attachments are all gaining momentum with our customers.

And in HIS, innovation remains focused on revenue cycle management, including new AI-driven autonomous coding and our international expansion efforts. Across all three segments, our specialized sales teams are accelerating adoption in these markets. And looking ahead, our vitality index improvements are working. The pipeline is strong. We're expecting to launch almost 20 new products through the first quarter of 2028. That includes meaningful MedSurg's launches in the first half of 2027, particularly in advanced room care. We also have some exciting dental innovations in aesthetics starting later this year, and a continual stream of market leading autonomous coding applications in HIS.

So when I take a step back, I see the transformation doing exactly what we designed it to do. The separation is nearly complete. The portfolio is getting more focused. The growth driver strategy is gaining traction, and our commercial structure and innovation is translating into performance. Okay. I've turned a lot at you, so I just want to give you four key takeaways.

First one, we delivered another quarter exceeding our expectations, including executing the ERP Advanced Order Plan that we laid out in May. The key takeaway here is, even in a complex environment, the say-do equation continues. Number two, we're nearing the end of the 3M separation journey. That takes risk off the table, improves free cash flow, and lets us put our full energy into growth in margin expansion.

Three, we're continuing to advance portfolio optimization through the separation of HIS, creating a greater focus for both HIS and Solventum, and we're confident this will unlock shareholder value with a full commitment to our HIS team and customers along the way. And four, our five growth driver catalysts represent a multi-billion dollar opportunity, much of it inside customers we already serve.

And our commercial structure and innovation engine are increasingly converting that opportunity into results. Okay, said simply, we're building a more focused, a more disciplined company, one that is well positioned to deliver sustainable growth, margin expansion, and shareholder value. And with that, I'm going to turn it over to wait. Okay, wait, go ahead.

Thanks, Brian. We delivered another solid quarter in Q2 with continued momentum across the business. Our commercial and operational performance continues to improve, and we made additional progress across our separation and portfolio activities.

All will navigating our largest ERP cut over to date. Collectively, this increases our confidence in our 2026 outlook and acceleration towards achieving our long-range plan earlier than expected. As usual, I'll begin with an update on our 3M separation progress and portfolio actions, then walk through our second quarter financial performance, and conclude with our outlook for the remainder of 2026.

Our separation from 3M remains on track, and we're nearing completion of full separation. Inclusive of the ERP cut over activity since June, we have now exited nearly 70% of our approximately 200 transition service agreements, keeping us on pace to exit 90% by the end of 2026. We have migrated approximately 950 of 1200 systems, including the majority of our ERP implementations and all of the solventum site conversions.

Our supply chain footprint remained consistent in the quarter with the majority of work focused on settling prior changes and planning for the ERP implementations.

Global supply chain remains a critical work stream to establish a more efficient operating model, while positioning us to capture the benefits of our longer-term transformation plans.

Regarding portfolio actions, purification and filtration, divestiture activities continued to progress according to plan, including the transition-related work streams supporting separation of the business. Our integration activities related to the ACERRA acquisition remain on track with several key system conversions already complete. The business continues to accelerate sales and exceed our expectations.

As Brian discussed earlier, we are moving forward with separating our health information systems business. We expect the greater focus on MedSurg and Dental will unlock shareholder value as a pure-play MedTech company. We'll provide updates at a future date as appropriate.

Now, turning to our second quarter results, starting with top-line performance, sales of 2.2 billion increased 9.5% on an organic basis compared to the prior year and 2.2% on a reported basis.

Foreign currency was a 100 basis point benefit to reported growth, while the net impact of acquisitions and divestitures was an 830 basis point headwind, primarily driven by the sale of purification and filtration, and partially offset by the ACERRA acquisition.

Growth in the quarter was driven primarily by volume, including ERP advanced orders of approximately 125 million, while pricing remained within the expected range of plus or minus 1%. As we shared last quarter, we were managing through planned, temporary, advanced ordering as a mitigation to the ERP cutovers, which will mostly reverse in Q3. Q2 organic growth on a normalized basis was approximately 4%, when taking into consideration approximately 630 basis points of ERP advanced orders, partially offset by approximately 100 basis points of our SKU rationalization plan headwinds, and the partial separation timing benefit shared in Q1, mostly impacting the med surge business.

A CERRA growth contribution is not yet included in our organic growth, and would have added approximately 40 basis points to total growth, and 70 basis points to med surge.

Now moving to the segments, med surge delivered 1.4 billion in sales, an increase of 8.9% on an organic basis. ERP advanced orders represented approximately 700 basis points contribution in the quarter, with the majority in the infection prevention and surgical solutions business.

Within med surge, advanced wound care grew 7.1% organically, with continued benefit from performance and negative pressure wound therapy, and a benefit from advanced orders.

A CERRA contributed 32 million to reported sales. The business grew 48%, driven by its innovative synthetic tissue matrix technology, and continues to outpace this attractive double-digit growth market.

In prevention and surgical solutions delivered organic growth of 10.1%. Driven primarily by advanced orders, an expanding adoption of antimicrobial solutions within our IV site management growth driver. Our dental solution segment delivered 396 million in sales, representing organic growth of 15.2%. ERP advanced orders contributed approximately 10 percentage points in the quarter. Underlying performance continued to benefit from innovative new product launches.

Health information systems delivered 354 million in sales, representing organic growth of 5.4%. Growth was driven by continued strength in revenue cycle management solutions, supported by healthy customer retention, and ongoing commercial execution.

Now moving down the P&L, gross margins were 60.1%, an increase of 410 basis points compared with 56% in the prior year. The performance includes a one-time tariff refund benefit of 100 million. Excluding the refund, our gross margins were approximately 55.6%, consistent with our expectations, and 40 basis points lower compared to prior year, driven by a tariff impact of 150 basis points and inflation headwinds, partially offset by programmatic savings and portfolio optimization.

Operating expenses were 701 million. The 35 million reduction versus the prior year reflects portfolio moves, along with benefits from cost discipline and our savings initiatives, outpacing ongoing investments to support our growth initiatives and the business.

In total, we delivered operating income of 627 million, or an operating margin of 28.4%. Removing the approximate 670 basis point benefit of advanced order sales timing and tariff refund, operating margins would have been approximately 21.7%. Just above the high end of our initial full-year outlook, this compares to 21.9% in the prior year with the year-over-year 20 basis points by ramping transform for the future savings.

Below operating income, non-operating expense was 73 million, and our effective tax rate was 20.2%. Both consistent with our full-year expectations.

Altogether, we delivered earnings per share of $2.55. This includes a 34-cent contribution from the advanced orders and 48-cent benefit of expected tariff refunds.

Excluding both, we estimate earnings per share would have been $1.73, ahead of our expectations. Of note, we've recorded certain litigation costs of 157 million, related to 204 million of estimated legal charges, net of 55 million related to insurance proceeds, received to date that is included in our GAP to non-GAP supplemental schedule in the press release, and excluded from our non-GAP operating income and earnings per share.

Turning to the balance sheet, we ended the quarter with 403 million in cash and equivalents, and net debt of 4.7 billion. From a free cash flow perspective, we generated 144 million in the quarter, which was above our expectations through primarily to timing of tax payments and insurance proceeds.

As we've discussed on prior calls, separation-related activities continue to create temporary demands on cash flow during 2026. Despite these headwinds, underlying cash generation year-to-date is ahead of our expectations, and we continue to expect meaningful improvement as separation-related costs decline beginning in Q4.

During the quarter, we repurchased nearly 4 million shares for total consideration of 288 million under our authorized share repurchase program. This brings combined repurchases in the first two quarters to 4.8 million shares for total purchase of 355 million. Our balance sheet remains well positioned to support our balanced capital allocation strategy, including tuck-in acquisitions and share repurchases.

Turning to our 2026 outlook, we are tightening our organic sales growth range to the upper half of our initial 2 to 3% guidance range, raising our organic sales growth range to 2.5 to 3%. Excluding the expected 100 basis points impact of SKU exits this year, this now represents 3.5 to 4% growth.

We continue to estimate currency will have a favorable impact of approximately 100 basis points on sales growth for the full year. Our outlook for operating margin is increasing to a range of 22.2 to 22.7%, and increase versus our prior 21 to 21.5%, which reflects the entire expected tariff refund benefit of approximately 120 basis points.

Our expectation for annual non-operating expenses of approximately 300 million and a tax rate in the range of 19.5 to 20.5% are both unchanged.

Tariffs are now expected to have a neutral impact versus our prior estimate of 100 million to 120 million, given the tariff refund we recognized in Q2.

Given our continued solar performance through the first half of the year and confidence in executing for the remainder of the year, along with the tariff refund, we are raising our earnings per share guide to $7.10 to $7.20 versus our prior range of $6.40 to $6.60.

We now estimate free cash flow will be in a range of 200 to 300 million versus our prior estimate of approximately 200 million, with the change reflecting the expected benefit of tariff refunds at the high end. The large majority of our free cash flow is still expected in Q4, consistent with timing of winding down separation charges.

Regarding the third quarter, we expect the Q2, 125 million advanced order sales timing benefit, and 34 cent contribution to earnings per share will mostly reverse in Q3.

And as a quick reminder, our full year 2026 outlook includes the health information system segment. We'll update you on a financial impact of the expected separation at a future date.

In summary, we delivered another quarter of solid business execution as we managed through very complex separation, transformation, and several portfolio initiatives.

As we shared previously, we are accelerating towards achieving our long-range plan targets earlier than expected with the high end of our new excuse sales growth and operating margin guidance already at or near the LRP ranges. Our execution to date on key priorities reinforces our confidence in our full year objectives and our longer-term financial commitments. We are making great progress on our three-phase transformation and plans for shareholder value creation while serving our mission to enable better, smarter, safer healthcare to improve lives.

With that, we'll turn it back to the operator for the Q&A portion of the call.

Sure.

I gotcha. Yeah, that makes sense. I appreciate it. I was thinking about where you saw that. Yeah, that's really one of the primary reasons why we're looking at this is being able to unlock value. We do have a really strong performing business, particularly now. I mean, the performance of the business has gone up since we took charge of it for sure.

But we see significant opportunity. You just think about it. We think about autonomous coding as a revolution, if you will, inside of revenue cycle management. It is just beginning. There's no question about that. But to be able to truly maximize it, we're going to have to see a different investment level. We're going to have to see a different gate to innovation.

And we truly do believe that this asset on its own, or with a scale player that's in the HIT space, we'll be able to get after that faster than we would. So we love the performance of the business and it's doing our great job inside of our organization, growing fast, great margins. But we know that there's more value to unlock here if it was on its own again or with a HIT player.

And for us, we see it as a benefit to be a dedicated mid-tech company that's going to be focusing on the businesses that we have that are mid-tech related. So it's not an easy decision, as you can imagine, because it's an attractive asset, but we definitely see more opportunities that are being separate from us. Relative to how long we are in the process, we're earlier in the process.

We've gone through the analysis to determine whether we should keep or not. We're obviously looking to separate. There are a number of reasons why we're early in the process. But one big one is just that, you know, from a timing standpoint, we really couldn't look at this as an asset to remove, because we had some barriers associated with where we were in the spin process. So when those are out of the way, and we're seeing the market change in the way that it is, and we see this opportunity, we want to lean into moving this forward.

Relative to are we getting any out inbound offers or any inbound approaches? We've been getting that for a while. So that's not new. Certainly now I think it's going to increase as a result of making the public. But there's no question in our mind that there's going to be a pretty large field of interested parties in this asset. Again, it's an attractive asset.

Yeah, again, all great questions. I'll start maybe with the second one and go back to the first one. It's not highly integrated. And it's intentional and it's purposeful. I mean, it is a very different business, a business model standpoint than the rest of our businesses. And to try to integrate it just wouldn't make sense. There's not a lot of synergies that you can grab between the businesses. So we have left it very separate. Remember, it's not a manufacturing footprint. So from the ease of separation, this is about as easy as you're going to get. Now, no separation is easy. I don't want to, I don't want to diminish the work that's going to be in front of us.

But on a relative basis, because it's not a manufacturing footprint and we don't have those, those synergies that grow those connection points, it will be easier than most. When I think about the how agnostic we are to the separation process, that was what I was trying to get across in the prepared remarks. We are open to the separation process or method as well as if there are proceeds that are involved, which certainly if there was a certain separation method, there would be proceeds. We would look to use both of those to be able to maximize sure what their values who want to leave our options open. As I said before, I think we're going to have a lot of interested parties to buy this asset.

But we also see a spin as being a very reasonable path to move down. And we believe both of those potential methods could drive shareholder value. Our goal is just to maximize that value.

Yeah, thanks.

Yeah, we appreciate it. You know, hey, we're paying a lot of attention to what we're hearing out there. There's no question that there's been a lot of noise. And there's been conflicting information. Some people are saying that they're seeing that demand, Wayne and others are saying they're not seeing it at all. We're in that camp. We're not actually seeing right now, at least at this point, any softness in the procedures or the momentum of our business. So we feel pretty good about the environment. And I'm not just talking about MedSurg or Dental, I'm talking about HIs as well. Right now it feels pretty good.

So we're clearly not discounting what we're hearing, but we're not feeling it right now.

You don't think I can answer that question.

Let me take a shot and then, and then Wade will correct me when I say it wrong. So what I would say, first of all, the assumption that you're making is that there's proceeds to this and assumption of a certain separation process. And then, you know, obviously, if there was that direction, it would be significant proceeds. And I would, I would almost kind of bifurcate that. You know, if you look at typical capital allocation, we're going to be looking at a very balanced plant. I think you're seeing that with the acquisition of Sarri. You saw that with the, you know, the billion dollar repurchase signal that we gave and we're acting on it. But in this particular situation with these proceeds coming in, we would be more biased to applying those dollars to more direct shareholder application, shoulder return applications.

And here's the good news, you know, from a separation standpoint in HIS, we're in a very different place than we were when we were separated from purification and filtration. Right. We had a very different leverage ratio back then. So any proceeds that would come in now, obviously, some portion of those will have to go down to buy down debt. So we don't, we don't hurt our leverage ratio, but the majority of proceeds can, again, be applied to those things that can drive shareholder value.

And that's what we're going to be concentrating on. Right.

That was perfect. I think the only thing I would round off there is just to highlight that, you know, we're very happy with our solid investment grade ratings today. And, and so I think whether we, you know, however we transact HIS and move forward in the future, we're looking at solid investment grade ratings.

And the new one thing about it is on the organic side of your question, I covered really well. The HIS side of it is in this balanced plan that we're in, we're not looking to change our acquisition strategy. It would still be a tuck in acquisition strategy. Obviously, we're very happy with the ACERA acquisition today. Our teams are focused on building a queue of future opportunities for us and building a pretty exciting pipeline for us, actually. So we're looking forward to additional tucking acquisitions in the future, but we would not be looking to do anything larger scale than that. We've got a playbook here. We're excited about building a momentum in the business. You mentioned generating free cash flow in the future, something else we can't wait to get to.

This is a very strong cash generating business. We just have to get through all the separation, the best your costs that we're dealing with right now. So we're pretty excited on all those fronts. What's the good thing we have a combo there? That was one of the key messages we wanted to get. And I forgot that we're not going to be shifting to a large transaction as a result of proceeds when they come or if they come.

So thank you, wait, get to that.

Yeah. Okay. Let me. I just want to forget that there was around dental and men's surgery. So let me start with the EPS solution question that you referenced and I would just reiterate is a very profitable business. There's no question. But the EPS solution is, as you obviously know, pretty dependent on the method of separation and also as we just talked about before the use of proceeds as they come in. And we're going to be looking, as I said in prepare remarks at both of those to be able to minimize pollution, obviously, and also maximize shareholder value.

So that's the reason why we're keeping the aperture open. We want to make sure that we're looking at both those levers to be able to do just that. From an HIS timing standpoint, why say this, I would say, you know, normally we probably wouldn't be talking about it until it was done. Two factors that drove us to do it. The first one is we've made the decision, obviously. So we've made the decision, so we know we're going to do it.

And there's just a lot of external noise already on the topic. And as a result of all that external noise, we need to control the internal and external questions that we're getting. We have to be able to respond to these. So it just put us in a position where we have to communicate it and make sure that we can control that messaging. When it comes to the med tech business, a mentor, gentle, you're right. There are different call points and not a lot of synergies there.

But there are a lot of synergies when it comes to the intellectual property that we both use, both the tech businesses use in their and their products. And also that the capability in R&D, we have great overlap in material science and data data science. So those are the reasons why they connect. And as you would imagine, as most of you know, most of you actually follow both sub sectors, where most of you don't always follow things like HIP. So when we think about med tech, there's a fit for that reason. And clearly, it's a cleaner story for you as well.

Anything else?

Anything else, wait?

No, that sounds good. Thanks.

Yeah. And just want to clarify, when you say outpatient, are you thinking like surgery centers or are you thinking care that would occur in the alternate market?

You know, my sense is I haven't seen and I can report back that that has accelerated, but it's been a pretty good movement that's been going on for a while. So that movement from the hospital to the surgery center has been happening for a long time. I don't, I didn't personally see and I can report that it accelerated in the short term here.

But we do business and both, you know, we have products that are used across almost every procedure used across multiple med surge need. And as a result of that, we're using the hospital we're using the ASC.

So doesn't have as much of an impact on us as maybe somebody in orthopedics or other areas. But clearly there has been a movement as we all know to the ASC for some time now.

Yeah. Thanks.

Well, by the way, thanks for asking that question because that was one that I was hoping somebody would ask it is a, you know, it's a, it's a great. Profile of what exactly we said before our acquisition strategy looks like. This is a very interesting asset in a space that we know what customer relationships we already have, or we can leverage their relationships on their set. I started our team relationships and it's playing out. I mean that this is already in a very attractive billion dollar market in a much larger multi billion dollar market. And that synthetic tissue that a Sarah brought to the table that we call Rastrada has a lot of differentiating qualities.

And so it's not only in an attractive space, but it is a highly differentiated technology versus what's being used in that space. So we're benefiting from all those things right now and it feels pretty good.

And we feel just to say, you know, I'm not going to give specific guidance on it, but we absolutely feel that this will continue to be a double digit grower for us. And the longer it goes at that pace is obvious straight math. It's going to become a bigger element of our overall portfolio and have a bigger impact on our overall growth. So what we're pretty excited about and really happy with integration so far.

Sure. So obviously we've had a really strong first half to the year normalized 4%, which would be at the high end of our previous annual guide. And so performing at the high end of our guidance and certainly accelerating over prior years, what gave us the confidence to raise and tighten our range that 3.5 to 4% on an execute basis.

Maybe just add a little bit more color there for you, you know, obviously want to continue to perform at this level. But if you just think about the business before normalized because I think a lot of people are focused on that. The first half of the year was 5.8%. We clearly that was elevated by the advanced orders, but just on a on a peer reported basis 5.8%. If you're looking at that guidance that you mentioned 3.5 to 4% for the year that squeeze math puts you at flat for the second half of the year. And that's obviously driven in large part by the advanced orders that we talked about our mitigation strategy for ERP. And so with those advanced orders reversing mostly in Q3, we're going to expect that Q3 to be in that minus 3 to minus 4% range.

So I just want to make sure everybody understands that as those advanced orders clear in Q3, we're expecting sales growth be in that minus 3 to minus 4% range. And then to complete the squeeze math that puts our Q4 in that same 3 to 4% range, but on a positive side, that gets the second half the flat growth. So we certainly have some noise in our numbers here across the quarters. But if you just take that step back and look at it on a full year basis, it clears out all that normalized advanced orders between Q2 and Q3. So we're certainly dealing with more variability given an ERP cut over, and this is our last large cut over that we're working through.

It creates some noise amongst the quarters, but on a full year basis, we're very happy to be raising our guide again to that 3 and a half to 4% on an excuse basis. And then I think about that, you want to see how it actually lands, but again, on an excuse basis, wherever we finish this year, our full expectation is we will be better than that next year. And, you know, as Wade referenced at the top end of that range, we're already at the bottom of the LRP that was supposed to be in 2028. So we're certainly not going to stop there. We're going to be moving.

Thank you.

So maybe I'll start with that and then we provide the last bit of color there. I would say the 125 is not a full quarter. So we did put a full quarter of inventory in it will absolutely be used in the in Q three. It's going to be used in Q three. The big question becomes, can we then fill the inventory levels back up? You know, when you have ERP cutovers, the reason why you built inventory is because you can have challenges and certainly in every one of these you have challenge. So we have to fight through those challenges, fill the coffers back up. It's a well from an inventory standpoint and get back to where we would normally be an inventory standpoint in Q three.

But but make no mistake that 125 is going to get burned through really quickly because it's not a full quarter.

Outside of that, any other comments you would want to make on the implications to either revenue growth or margin normalization? Yeah, I think we could just add we include in our prepared remarks, the exact basis point impact of advanced orders, 34 cents on earnings per share. And you should just assume as a mirror image that it would be minus 34 cents as we give the $125 million advanced order sales back. The 34 cents comes off of earnings per share as well. And then of course we included the expectation for tariff refunds. And we booked that in Q two that added 48 cents to the first half as well. So if you're looking at that first half, the second half cadence of earnings per share.

Obviously, it's the headwind from advanced orders and then we're not expecting the tariff head with the tariff benefit to repeat again in the second half. But if you normalize it for those two things, you will see earnings per share acceleration from the first half the second half. And that's based on the confidence that we have in the business and the momentum that we have here.

Yeah. First of all, again, I appreciate the question. I want to give you an example. We're actually at the last phases now of ERP cut over. We're pretty good at it at this point, as you can imagine. And we've seen a lot of challenges. We've managed them. But even when things are going well in the ERP cut over, there are a lot of meetings at all levels in the organization where our brain power is being used on solving problems because no matter how good you are. Things happen, and you've got to respond to those things. And that's happening right now. The team's doing a great job, but it is extremely distracting at all levels in the organization.

It is going to feel very good to put this behind us. The places that we're going to focus on will be pretty obvious for us. You think about it. It's going to be the growth driver areas that gets a disproportionate level of our investment. It's going to be our multiple savings programs, including programmatic savings and TFF are transformed for the future program. Those are the areas where some of our best of the best right now are spending time on ERP cutovers, and not on that.

So once we move past this, we'll be able to redeploy those, again, really sharp minds on those areas.

Yeah, of course.

Yeah, so the right way to think about it is adjusting for skew because we will not have a skew impact in 2027. Even if we're looking at reducing skews, we're not going to talk about it. It'll be at a much more manageable rate than we wouldn't talk about it. So any numbers that we're talking about would be the excuse that Rick Wade is talking about. So the 3.5 to 4 is the excuse number.

And the assumption would be that we would accelerate past that next year. I'm not going to speak to specifics on how much past that, but we would be better. And we expect it from every one of our businesses. Every one of our businesses needs to accelerate year over year, then that's the plan. So it's MedServe to Stental NSHIS. All 3 businesses are expected to accelerate. And the areas of concentration for that acceleration will be our growth drivers.

And remember, it's not just the growth drivers. It's the focus there, but it's the research development that we're launching, the innovation, that we look at across the board. Every business needs to get better year over year.

Sure. So if you're speaking to the HIS transaction, it will be providing future updates on that and providing information similar to what we did with the purification filtration transaction. It's just too really to provide any detail on that at this time, but you should expect us to follow a similar path where we provide a good amount of information there.

Outside the course, HIS can be the new variable, but to your point, a lot of the other stuff is going to be washed out in 2027. Unfortunately, we're going to add to it the HIS separation. So we'll continue to keep you updated though.

Yeah, I mean, the straight answer on that easiest answer is that we're always looking at portfolio optimization. I mean, now, whether it's segment level, business level, product level, look at barrier across those things, but we'll always be looking at active portfolio management. That said, and I want to be very clear, we see this now post BNF and eventually post HIS is being a true asset company.

And so we feel pretty good about having both the message business and the dental business. But I just don't ever want to take off the table, the potential for portfolio optimization in the future.

Yeah. I'll tell you, I'm not going to get into specifics on the actual products, but you're right. It's almost 20 new products by the first quarter, 2028. And that's just a follow on what we've referenced. I think previous quarter, maybe the quarter before that as well. But we will, because of the proximity to launch at our investor day in the first quarter, we're going to talk a lot more about these products. So I'm excited about that from a timing standpoint, but I want to make sure that we see the opportunity to be able to drive performance in the market, not necessarily specific to these individual products, but because of the growth driver opportunities that I talked about in the prepared remarks.

We have technologies today, forget for a minute what we're going to launch. That's going to help us. But we already have technologies in the market today that are underpenetrate. There are advanced technologies that solve no patient problems that can reduce costs and it's underpenetrate. I gave you the IV side management example, but four of our five growth drivers have that exact same model, a very similar model. So that's the opportunity that we have to be able to grow the Whamgar. And obviously also grow our overall revenue growth.

Amy. Great. Thank you, Mark. And thank you everyone for listening and for and to our analysts for your questions. If anyone does have follow up questions or needs anything else, please don't hesitate to contact the investor relations team directly. This concludes our second quarter fiscal year, 2026 conference call. Mark, you can now go ahead and close out the call.