And your first question comes from the line of Jason Bednar with Piper Sandler.

Congrats on all the progress here team. I wanted to start with the HIS announcement this afternoon. A few questions. I'm just going to pack them all in here. Have you received any outside interest in the asset that helped spur this decision? Maybe talk about how far along you are just in this process and the kind of the separation decision. And then I'm interested just in the release, you're framing the decision is transitioning to a stronger growth profile, but maybe elaborate on that since HIS has been growing above the corporate average over the last several years.

Great. I just want to make sure on that last question, Jason, and it's funny, Wayde and I are kind of laughing across the desk because we were questioning whether HIS would be the first one or not. And then we were trying to say what would the sub-question be, you did most of them. On that last question, though, can you just provide context? I just want to make sure I got that right.

Sure. Yes. In the -- and sorry, I have it up in front of me, but in the release, there was a reference to transitioning the business to a stronger growth profile, positioning it for a stronger growth profile. And I'm trying to understand that just in the context of HIS running at a growth rate that's been above the corporate average over the last several years that we have the financial data for?

I got you. Yes, that makes sense. I appreciate it. I was thinking about where you saw that. That's really one of the primary reasons why we're looking at this as being able to unlock value. We do have a really strong performing business and 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. Just think about it. If you think about autonomous coding, as a revolution, if you will, inside of revenue cycle management. It is just beginning. There is 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 pace of innovation. And we truly do believe that this asset on its own or with a scaled player that's in the HIT space, we'll be able to get after that faster than we will. So we love the performance of the business, and it's doing a 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 an HIT player. And for us, we see it as a benefit to be a dedicated MedTech company that's going to be focusing on the businesses that we have that are MedTech related. So it's not an easy decision, as you can imagine, because it's an attractive asset, but we definitely see more opportunity with it 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 of the big ones is just that 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 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 this 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.

Yes, totally agree. I appreciate all that, Bryan. Maybe just to follow up a little bit. And I know you're super early, but are you agnostic as far as the transaction form, assuming when one occurs, how that takes place? And maybe walk through some of the considerations that you have with respect to speed of transaction and the value considerations when we think about like tax leakage or just overall value on a spin versus a sale? And maybe the final thing of just remind us how integrated HIS is into Solventum. I don't think it's highly integrated, but maybe refresh us there.

Yes. Again, all great questions. I'll start maybe with the second one and then 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 from 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 could grab between the businesses. So we have left it very separate. And remember, it's not a manufacturing footprint. So from an ease of separation, this is about as easy as you're going to get now. No separation is easy. 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 synergies that drew those connection points, it will be easier than most. When I think about the -- how agnostic we are in 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 shareholder value, so we 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.

Your next question comes from the line of Ryan Zimmerman with U.S. Bancorp.

Congrats on all the progress as well. When you back out the advanced orders, we saw a nice acceleration in the underlying businesses in MedSurg and Dental. Bryan, I wonder if you could kind of speak to the health of the market, what you're seeing, again, ex the advanced orders because I think, again, if you look at the report thus far this season, there's been obviously questions about utilization and so forth. And I think you can shed some light on that just based on your performance.

Yes. We appreciate it. 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 that some people are saying that they're seeing that demand wane and others are saying they're not seeing it at all. And 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.

Understood. The other question, I mean, the cash flow is picking up. You obviously got a share buyback going on. Let's say, the HIS business gets done in some fashion, you're going to have certainly more cash proceeds or cash on the balance sheet. And Wayde, I'm curious kind of how you think about putting that to work? I mean whether that's more rapid debt pay down, whether that opens up the aperture in terms of M&A size. Just help us understand kind of the capital strategy and maybe I'm getting a little ahead of myself for this Q1 Investor Day next year, but I want to get your thoughts on it today.

I'm just curious, you don't think I can answer that question?

Sorry, Bryan, you feel free to take a swing at it, too.

Let me take a shot and then Wayde will correct me when I say it wrong, but -- so what I would say, first of all, the assumption that you're making is that there's proceeds. So that's an assumption of a certain separation process. And then obviously, if there was that direction, it would be significant proceeds. And I would almost kind of bifurcate that. If you look at typical capital allocation, we're going to be looking at a very balanced plan. I think you're seeing that with the acquisition of Acera. You saw that with the $1 billion 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 -- shareholder return applications. And here's the good news. From a separation standpoint, in HIS, we're in a very different place than we were when we were separating 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 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.

Bryan, that was perfect. I think the only thing I would round off there is just to highlight that we're very happy with our solid investment-grade ratings today. And so I think whether we -- however we transact HIS and move forward in the future, we're looking at solid investment-grade ratings. And then the only thing I'd add is on the organic side of your question, I think Bryan covered really well. The HIS side of it is in this balance 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 to date. 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 do additional tuck-in 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 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 divestiture costs that we're dealing with right now. So we're pretty excited on all those fronts.

It's good thing we have a combo there. That was one of the key messages we wanted to get out and I forgot it, 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, Wayde, for catching that.

Your next question comes from the line of Travis Steed with Bank of America.

Maybe a little bit of a follow-up to the last one. I guess, first, the health care IT business is a pretty high-margin business. And so how are you thinking about managing the EPS dilution if that is sold? Is there a willingness to buy back stock so you can kind of protect earnings there? And then I don't know if you could comment on why announce the intent to separate versus just announcing when something is done? And how you think about the business kind of post the separation, MedSurg, Dental, kind of both medtech, but it's 2 completely different call points. So just curious what happens in that situation over time.

Yes. Okay. Let me -- I just don't want to forget that third one is around Dental and MedSurg. So let me start with the EPS dilution question that you referenced, and I would just reiterate, it is a very profitable business. There's no question. But the EPS dilution 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 prepared remarks, at both of those to be able to minimize dilution, 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 I say this. I would say, normally, we probably wouldn't be talking about it until it was done, 2 factors that drove us to do it. The first one is we've made the decision, obviously. So we 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 this. 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 medtech business, MedSurg, Dental, 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 businesses use in their products and also the capability in R&D. We have great overlap in material science and 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 subsectors, where most of you don't always follow things like HIT. So when we think about medtech, there's a fit for that reason. And clearly, it's a cleaner story for you as well. Anything else, Wayde, that I missed? Anything else, Wayde?

No, that sounds good.

Your next question comes from the line of Steven Valiquette with Mizuho Securities.

Just a follow-up on the question earlier on the overall market utilization trends. From our view, it seemed like there was maybe not a major change in patient volumes overall, but maybe just an acceleration in the shift of patients from inpatient to outpatient setting. So I guess in light of that, I'm curious if you would maybe endorse that same sort of view or maybe saw something different. And maybe just remind us of your general mix of MedSurg revenues or volume tied to inpatient versus outpatient and whether that's drastically different in the market one way or the other.

Yes. 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?

Probably more ASCs more than the latter.

Yes. My sense is I haven't seen and I can't 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't report that it accelerated in the short term here, but we do business in both. We have products that are used across almost every procedure used across multiple MedSurg need. And as a result of that, we're used in the hospital. We're used in the ASC. So it 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.

Your next question comes from the line of Brett Fishbin with KeyBanc Capital Markets.

Obviously, a lot of noise here, but one metric that stood out was just a very high level of growth from Acera. Maybe just expand a little bit on what drove the performance this quarter and thoughts on durability over the first year of ownership as you benefit from this integration.

Well, by the way, thanks for asking that question because that was one that I was hoping somebody would ask. It's a great profile of what exactly Wayde said before our acquisition strategy looks like. This is a very interesting asset in a space that we know with customer relationships we already have, where we can leverage their relationships on their Acera side and our team's relationships, and it's playing out. I mean this is already in a very attractive $1 billion market in a much larger multibillion-dollar market. And that synthetic tissue that Acera brought on the table that we call Restrata has a lot of differentiated qualities. 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. It feels pretty good. And we feel just to say, 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, it's obvious straight math. It's going to become a bigger element of our overall portfolio and will have a bigger impact on our overall growth. So we're pretty excited about and really happy with the integration so far.

Great. And then I'll just ask one more follow-up on the revenue trend. Just given the noise, the ERP -- the buy-in ahead of the ERP, guidance came up by 50 bps on an underlying basis. So maybe just removing some of the moving pieces around timing, what got better versus the last time you guided that's driving the increase?

You want to take that?

Yes, 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 to that 3.5% to 4% on an ex SKU basis. Maybe just add a little bit more color there for you. Obviously, we 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%. And clearly, that was elevated by the advanced orders. But just on a pure 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 to 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, and that gets the second half to 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 cutover, and this is our last large cutover 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 3.5% to 4% on an ex SKU basis.

And then I think you have to see how it actually lands. But again, on an ex SKU basis, wherever we finish this year, our full expectation is we will be better than that next year. And as Wayde 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 keep moving.

That was really helpful on the cadence and thanks for clarifying on the midpoint magnitude.

Your next question comes from the line of Rick Wise with Stifel.

Maybe start off with a little more -- help us understand a little more about the advanced orders. I get the concept, $125 million, so just in case of disruption. But just as I reflect on it, I was just wondering, is this a quarter's worth of orders? Is it all used up by the end of this year? And so it won't have any impact on next year. Is it going to be used quickly, but how do we think -- given all the orders this quarter, how do we think about the second half P&L and the potential impact on ex all the moving pieces on sales, margins and EPS?

So maybe I'll start with that and then Wayde, you can provide the last bit color there. I would say the $125 million is not a full quarter. So we did put a full quarter of inventory in and it will absolutely be used in Q3. It's going to be used in Q3. The big question becomes, can we then fill the inventory levels back up. When you have the ERP cutovers, the reason why you build the inventory is because you can have challenges. And certainly, in every one of these, you have challenges. So we have to fight through those challenges, build the coffers back up, if you will, from an inventory standpoint and get back to where we would normally be from an inventory standpoint in Q3. But make no mistake that $125 million 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?

Yes. I think we could just add, we included in our prepared remarks, the exact basis point impact of advanced orders, $0.34 on earnings per share, and you should just assume as a mirror image that it would be minus $0.34 as we give the $125 million advanced order sales back. The $0.34 comes off of earnings per share as well. And then, of course, we included the expectation for tariff refunds, and we booked that in Q2. That added $0.48 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 benefit to repeat again in the second half. But if you normalize it for those 2 things, you will see earnings per share acceleration from the first half to the second half, and that's based on the confidence that we have in the business and the momentum that we have here.

And just as a follow-up question, Bryan, and Wayde, both, you talked about from various perspectives, the sort of the end of this long very difficult to achieve, but faster-than-expected process through implementing these ERP cutovers and transitions. And Bryan, you repeatedly talked about the language like it will free up people. There'll be cost savings, et cetera, et cetera. I assume it lowers costs. Maybe help us think once it's all done from your perspective, what are you going to be able to do? Where do you take off your foot, maybe where do you put your foot on the gas pedal and redeploy people, spend -- invest, spend the cost savings and -- how do we think about the potential accelerant impacts once it's all done?

Yes. First of all, again, I appreciate the question. I'll just give you an example. We're actually at the last phases now of ERP, and 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 on the ERP cutover, 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 is 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. If 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, or Transform 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.

Your next question comes from the line of Larry Biegelsen with Wells Fargo.

This is Nathan Treybeck on for Larry. Bryan, I appreciate your earlier comments on 2027, but any finer point you can give on what parts of the portfolio would drive the acceleration relative to '26. And then when you say acceleration, would that be relative to the 3.5% to 4% that you're guiding when adjusting for the SKU exit?

Yes. So yes, the right way to think about it is adjusting for SKU because we will not have a SKU impact in 2027. Even if we're looking at reducing SKUs, we're not going to talk about it. It will be a much more manageable rate, and we wouldn't talk about it. So any numbers that we're talking about would be the ex SKU that Wayde is talking about. So the 3.5% to 4% is the ex SKU 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 than that. And we expect it from every one of our business. Every one of our businesses needs to accelerate year-over-year. That's the plan. So it's MedSurg, it's Dental and it's HIS. All 3 businesses are expected to accelerate. And the areas of concentration for that acceleration will be in 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 -- innovative products that we're launching in that area and the specialization of sales organization. So those are the way that we look at it across the board, every business needs to get better year-over-year.

Okay. And so heading into '27, I guess, how should we think about the P&L and I guess the level of noise from stranded cost or any remaining dis-synergies? Is that all cleared away as we head into '27?

Do you want to take that?

Yes. Sure. So if you're speaking to the HIS transaction, we'll be providing future updates on that and providing information similar to what we did with the Purification and Filtration transaction. It's just too early 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, of course, HIS is to going to 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.

Your last question comes from the line of Vik Chopra with BMO.

Congrats on a nice quarter. Two for me. Bryan, with this HIS separation, does this transaction mark the final major portfolio action under the transformation plan or are there other businesses that could be candidates for divestiture or a strategic review? And I had a quick follow-up, please.

Yes. I mean the straight answer on that is that we're always looking at portfolio optimization. I mean, now whether it's segment level, business level, product level, look, it varies 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 P&F and eventually post-HIS as being a true medtech company. And so we feel pretty good about having both the MedSurg 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.

Okay. And then a quick follow-up. You talked about 20 product launches by early 2028, including some significant advanced wound care launches next year. I'm just curious which launches have the greatest potential to move the WAMGR? Or is this more of a portfolio effect story?

Yes. 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 from 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 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 underpenetrated. They're advanced technologies that solve real patient problems that can reduce cost and it's underpenetrated. I gave you the IV-site management example, but 4 of our 5 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 WAMGR and obviously, also grow our overall revenue growth.

I will now turn the call back over to Amy for closing remarks. 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 need 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.

This concludes today's conference call. You may now disconnect.