Solventum Corp

Results of Operations

Net Sales

Refer to the preceding “—Overview” section and the “—Performance by Business Segment” section later in MD&A for discussion of sales change.

Operating Expenses

Costs of Product

Costs of product includes manufacturing, engineering and freight costs.

Costs of product, measured as a percent of sales of product, decreased in the first three months of 2024 when compared to the first three months of 2023. Benefits from both price and logistics costs, partially offset by higher material and labor inflation, drove a decrease of 1.9%.

Costs of Software and Rentals

Costs of software and rentals includes compensation-related costs associated with installation, training and maintenance for our software products, and depreciation, maintenance and refurbishment cost and freight costs related to our hardware rental units.

Costs of software and rentals, measured as a percent of sales of software and rentals, decreased in the first three months of 2024 as compared to the first three months of 2023 due to product mix from higher software sales.

Selling, General and Administrative

SG&A, measured as a percent of total net sales, increased in the first three months of 2024 when compared to the first three months of 2023. This increase was driven by increased spending on standalone costs in preparation of the Spin-Off.

Research and Development

R&D, measured as a percent of total net sales, was flat in the first three months of 2024 when compared to the first three months of 2023 as the Company maintained consistent investment in research and development initiatives.

Interest Expense, Net and Other Expense (Income), Net

Interest expense, net includes interest paid on debt and interest income from cash and marketable securities. Interest expense, net increased in the first three months of 2024 as compared to the first three months of 2023 due to interest incurred on the February 2024 issuance of senior notes and March draw on the senior term loan credit facilities. Refer to Note 7 to the unaudited condensed combined financial statements for more information. This increase was partially offset by interest earned from cash balances and marketable securities held during the period.

Other expense (income), net primarily includes the non-service component of periodic pension cost, investment gains and losses, and currency-related impacts from foreign currency translation. Other expense (income), net increased in the first three months of 2024 as compared to the first three months of 2023 resulting from charges associated with the substantial liquidation of foreign operations completed as part of our separation from 3M.

Provision (benefit) for Income Taxes:

The increase in our effective tax rate is primarily due to the tax impact of legal entity restructuring in connection with the Spin-Off in 2024.

Refer to Note 6 for further discussion of income taxes.