Good afternoon. My name is Amy, and I will be your conference operator for today. At this time, I would like to welcome everyone to the Solventum Third Quarter 2024 Earnings Call. As a reminder, this conference is being recorded. The operator provided instructions to participants on how the Q&A will proceed. I would now like to turn the program over to your host for today's conference, Kevin Moran, Senior Vice President of Investor Relations. Please proceed.

Good afternoon, and welcome. Today, we will discuss Solventum's third quarter fiscal 2024 results, along with an update to our 2024 outlook. Just after market close today, a press release was issued with our earnings results and updated outlook. The press release and earnings presentation are available on the Investors section of the Solventum website. Joining me today are Bryan Hanson, our Chief Executive Officer; and Wayde McMillan, our Chief Financial Officer. During the call, we will be making forward-looking statements that are subject to risks and uncertainties. For a full description of these risks and uncertainties, please refer to our SEC filings and the forward-looking statement slide at the beginning of our presentation. Please note that during our discussion, our comments will all be on a non-GAAP basis, unless they are specifically called out as GAAP. GAAP to non-GAAP reconciliations for all relevant periods can be found in the schedules attached to our press release. For the Q&A portion of today's call, we kindly ask that you limit yourself to one question and one follow-up. And with that, I'll hand the call over to Bryan.

All right. Great. Thanks, Kevin, and thanks to everyone for joining us for the call today. Hard to believe, but we've already completed our second quarter as an independent company. And I would tell you that I'm increasingly encouraged by the progress our team is making against our phased approach to transform this business. And as a reminder, for those that might be new to the story, we look at transformation in Solventum in two ways. The first one is the turnaround of our business performance; and the second is standing Solventum up as an independent company. Both of these vectors provide a real opportunity to drive shareholder value. Looking at the quarter, Q3 is yet another data point that speaks to the team's overall progress in this transformation and the success of our business continuity efforts, which we clearly see as being reflected in both the performance in the quarter and our ability to raise our full year guidance for the second consecutive quarter. We saw positive top-line growth in Q3 despite a challenging year-over-year comparison. As a result, as I just referenced, we're raising our full year organic growth rate to the upper half of our prior guidance of flat to 1%, and we're increasing our adjusted EPS and free cash flow guidance ranges as well. We saw operating margins improve sequentially, benefiting from some one-time items that helped offset the known incremental headwind from the 3M supply agreement markups, and following our disciplined capital allocation strategy, we paid down $200 million of debt during the quarter. This should clearly show that we are committed to maintaining our investment-grade rating and prioritizing debt paydown. When thinking about our progress to date, I'm incredibly proud of our teams for their continued and steady performance, especially as they continue to work through separation-related activities and challenges. I want to take a minute to say thank you to all the Solventum employees that I know are listening today. It is your continued focus on working through the separation, maintaining business continuity and, most importantly, delivering for our customers. It is greatly appreciated; it is a clear testament to your resolve to move our mission forward. Moving from Q3, I'd also like to give an update on our phased approach to stabilizing and separating the business, repositioning us for profitable growth and optimizing the portfolio. I'll start with Phase 1. Phase 1 really is just firmly taken hold as we've made significant progress on our mission, talent, culture and structure as well as separation activities, all of which are critical and foundational for driving business growth. It's hard to believe again, but it's been seven months since the spin and our culture is rapidly taking shape, our new leaders continue to gel as a team, learn and assess the business and finalize our go-forward strategy. The energy across the organization remains high with tangible excitement as I travel around the world for our new mission at Solventum. We also continue to advance our planning for the Solventum Way restructuring project. This project is focused on creating a more flexible, more decentralized structure that ultimately will complement our culture shift, and it will focus on allowing us to create headroom to invest for growth while also concentrating on margins. As we finalize the plan, we're going to provide more context to the project and it will obviously include some expected financial impacts. Given our progress to date and our current project cadence, we are on track to complete the large majority of Phase 1 activities within our original 12- to 24-month timeline. Overall, I'm really encouraged by our progress, and I'm impressed with the team's ability to manage through the challenges and keep us on track. Let's move to Phase 2. As we've referenced in the past, Phase 2 is focused on a long-range plan that will unlock the profitable growth potential of our business, ensuring we take full advantage of the attractive markets that we play in. Because we were able to accelerate talent acquisition in Phase 1, we've been able to compress the timeline in Phase 2, now enabling us to share both our long-range plan and our 2025 guidance during the fourth quarter earnings call that we have coming up in February. Some elements of the plan will be, first and foremost, our primary market and submarket selection — those markets and submarkets where we will concentrate our efforts on a go-forward basis. The market selection in this process has biased toward faster growth markets, markets where we have an ability to win and markets that have relative profitability benefits versus our other markets. Inside of these markets, we're also going to be selecting our growth driver initiatives intended to drive scale and share in these attractive areas. We continue to make solid progress, and we remain on track to finalize these decisions before the end of the year. Final decisions here will facilitate the shifting of our commercial, R&D and eventually M&A resources to these growth driver areas and this disciplined focus will help us improve the vitality index and the overall innovation of our businesses, which is a key variable in accelerating our growth. That said, even before this shift occurs, we do have some recent product launches that are worth mentioning. Starting with MedSurg: in the quarter, we officially launched the V.A.C. Peel and Place dressing that we've been talking about. This product gives us three advantages: simplifying the procedure; reducing procedure time; and reducing the number of dressing changes per week. All of these combined give us the opportunity to reach a broader set of patients across multiple sites of care. Out of the gate, the very positive early response we're getting from customers has us focused on increasing capacity of this product and orienting our commercial structure to drive adoption. Moving to our Dental Solutions business, we launched the Clinpro Clear Fluoride Treatment, which we believe, and early customer response indicates, is a meaningful advancement in fluoride treatment technology. Clinpro is focused on making the fluoride application process simpler for the caregiver and improving the experience for the patients. Early customer response is positive and indicates that the product is delivering on its intended outcome. In our Health Information Systems business, in collaboration with Sift Healthcare, we recently introduced a new AI-driven payment integrity solution that we're calling the Solventum Revenue Integrity system. This focuses on improving our customers' reimbursement leakage by predicting reimbursement at every step of the patient journey. It's intended to reduce denials and potentially prevent them altogether, helping our customers ensure they get timely and accurate payer reimbursement. Finally, in our Purification and Filtration business, we recently launched a new product in our Harvest RC family. This latest addition is focused on improving our customers' manufacturing process by streamlining time, reducing cost of producing, reducing risk during scaling and boosting overall productivity with a clear goal of helping companies bring therapies to market more quickly and with less risk. These recent launches are encouraging. They may take a little time to deliver measurable results, but they are just the tip of the spear when it comes to a refocused R&D effort that will begin in earnest during 2025, aligning with the selection of our growth driver areas. Moving on to Phase 3, our portfolio optimization phase: we've been actively assessing the value contribution and the strategic alignment of our markets and businesses. This work has been well underway since announcing our three-phased plan at our Investor Day in March. We continue to make progress against this effort, and at the right time, we will discuss Phase 3 in more detail. It's important to reiterate that all phases are not strictly sequential; they are running concurrently. Parts may be in execution mode and parts in planning mode, but all are moving forward at one time. To close my section, while we are clearly off to a solid start, it is not lost on us that revenue growth remains below market. This performance turnaround will take time, but rest assured, we are moving with urgency while also being thoughtful and strategic about building and investing for the long-term. We have an incredible opportunity ahead of us, and by focusing on the right areas with appropriate investments, we are setting the foundation for growth acceleration and ultimately significant value creation. With that, I'm going to turn it over to Wayde.

Thanks, Bryan, and thanks to everyone at Solventum for the extra effort to separate from 3M and position us to report a strong second quarter as a public company. As you heard from Bryan, we are tracking to our separation and execution plans across all three phases. I'll focus on updates related to Phase 1 before getting into Q3 financial performance and then wrapping up with guidance. We're continuing to advance our separation efforts. This includes our manufacturing strategy and site selection for our new manufacturing facilities as well as transitioning to our stand-alone distribution centers. We have also made good progress to advance our product licenses and rebranding transitions. We have changed our commercial distribution models in over 60 countries, created structure and hired staff all ahead of schedule. Shifting to IT, we have implemented new ERP systems in four countries and will continue to roll them out globally over the next couple of years. Overall, it's great to see these early successes and our team's resilience as we manage through this complex separation from 3M. Turning now to our Q3 results starting with sales. For the third quarter of 2024, sales of $2.1 billion increased 30 basis points compared to the prior year on an organic basis, with reported growth increasing 40 basis points, slightly ahead of expectations due to some order timing in the U.S. During the quarter, foreign exchange was approximately neutral. Price was flat for the quarter as we have now normalized from 2023 actions and volume was slightly favorable. From a year-over-year growth perspective, recall that Q3 had a tough comparison. Moving to the segments. Our largest segment, MedSurg, delivered $1.2 billion of sales, an increase of 1% on an organic basis. Within infection prevention and surgical solutions, we saw continued adoption of our antimicrobial IV site management solutions with the growth of Tegaderm IV dressing. Sales growth also benefited from continued positive trends in OEM products. Performance in these areas was partially offset by negative pressure wound therapy. Our Dental segment delivered $313 million of revenue, a decrease of 3.9%. This decline reflects challenging market conditions and the fact that this segment faced the toughest year-over-year comparison among all four segments. Our Health Information Systems segment contributed $326 million of revenue, an increase of 1.5%, which benefited from growth of our revenue cycle management platform, 360 Encompass. Strength in revenue cycle management was partially offset by declines in Performance Management Solutions and continued headwinds in clinician productivity solutions. Finally, the Purification and Filtration segment delivered $238 million of sales, a decline of 0.3%, which was impacted by declines in drinking water filtration and dialysis membranes, partially offset by better-than-expected strength in bioprocessing filtration and newly expanded capacity in industrial filtration. Looking down the P&L, gross margins were 57.3% in the quarter, ahead of our expectations and down 100 basis points versus prior year. On a sequential basis, gross margins increased 180 basis points. This included approximately 100 basis points of one-time benefits, which offset the impact of the 3M supply agreement markup. We anticipate some of this one-time benefit will partially reverse in Q4. As expected, operating expenses increased versus the prior year. When excluding the impact of approximately $30 million of discrete items in Q2 2024, operating expenses in Q3 also increased sequentially. As we have shared before, the added spend reflects public company stand-up costs and growth investments to support our business transformation. We expect the magnitude of the increase in Q4 to be similar sequentially to what was seen in Q3 off the normalized Q2. In total, we delivered adjusted operating income of $475 million, which translates to operating margin of 22.8% — ahead of expectations given both sales and the one-time benefits in gross margin. Moving down the P&L to non-operating items, our net interest expense benefited sequentially from a higher cash balance. Lastly, our effective tax rate of 22.4% puts us on track for our full year expected tax rate of 18% to 19%. All in, we delivered earnings per share of $1.64 ahead of our expectations. Turning to the balance sheet, we ended the quarter with $772 million in cash and equivalents with no outstanding borrowings on our credit facility. We generated $75 million of free cash flow in Q3, which includes making the first semiannual interest payment, bringing our year-to-date free cash flow total to $712 million. Importantly, we're committed to maintaining our investment-grade rating and given strong year-to-date cash flows, paid down $200 million of our $1.5 billion prepayable term loans earlier than anticipated. We continue to expect debt paydown will remain the priority into fiscal 2026. We maintained strong liquidity and financial position with continued free cash flow generation in addition to our unused $2 billion revolving credit facility. Now turning to our 2024 outlook. We expect improved organic sales growth to be in the upper half of our full year guidance range of flat to up 1%. This reflects our performance year-to-date and continued execution of our separation plans. While we are not changing our full year foreign currency impact expectation of approximately 50 basis points unfavorable, given recent rates, we do expect foreign currency to be a headwind in Q4. For earnings per share, we are raising our guidance to $6.50 to $6.65 on our improved sales outlook and stronger Q3 gross margins. We're also raising our free cash flow guidance to a range of $750 million to $850 million to reflect both continued strong cash flow generation and the expectation that capital expenditures will come in toward the lower end of the $400 million to $500 million range we provided earlier this year. In conclusion, we are off to a solid start as a new public company, delivering two consecutive quarters of better-than-expected performance, which is encouraging given the complex and highly entangled separation. We're delivering on our near-term financial commitments, executing on our separation activities and focusing on turning around the business, while raising the top- and bottom-line guidance for the year. Looking ahead, we will continue to execute on our phased approach to transform our business, and we'll use our collective expertise in health, material and data science to deliver our mission. While we know this turnaround will take time and focused investment, we're encouraged by the meaningful progress and remain well-positioned to execute our value-creation plan. I'll now hand it back to the operator for the Q&A portion of the call.

The operator provided instructions to participants for the Q&A. Your first question comes from the line of Travis Steed with Bank of America.

I wanted to ask first on the Q4 EPS guidance of $1.22 to $1.37. It's a little below the Street; anything to call out there? But really the question is more about what that implies about 2025. If you annualize that at the midpoint, it's around $5.20. Looking at the Street numbers next year, the wide range, $5.30 to $5.80 and trying to figure out, should we be closer to the lower end of that range, higher end of that range? Any color so we can get models in the right place for 2025 would be helpful.

Travis, it's Wayde. We'll start with the Q4 EPS that you mentioned. So really, what you're talking about is what's driving the decline here from Q3 to Q4. A few things to keep in mind: we had some timing benefits that we called out in gross margin, which benefited Q3, and those were one-time in nature and will partially reverse here in Q4. So that's the biggest change and the biggest impact to Q4. We had additional favorability in Q3 that will be a headwind for Q4. As we continue to invest in operations and ramp our operating expenses, as we said in our prepared remarks, there will be a similar ramp from Q3 to Q4 as we saw from Q2 normalized to Q3 — both the stand-up cost of the company and our growth investments. We also called out that we expect FX to be a headwind at this point in time. Those are the items that are new to Q4 to contemplate in the Q4 EPS. That said, we are raising our EPS guidance for the full year given the strength of Q3, even though some of it was one-time in nature, and we're giving some of that back in Q4. We're not guiding to 2025 yet. Certainly, lots of moving pieces as we are in our first year post-separation. We have a lot going on to grow revenue, expand margins and drive EPS growth over time. It is pretty well understood that 2025 will be pressured by the annualization of some costs post-spin. As a reminder, we spun in Q2 of 2024, so we'll see natural annualization in Q1 of 2025. That will show up in operating margin in a few areas. We have the 3M supply markup that impacts COGS and we'll annualize that in the first half of next year. Then we have stand-up functional expenses, which are ramping this year and will annualize next year. We're making growth investments, some made this year and some continuing next year. We also have the SKU rationalization program we're contemplating — Wave 2 — and the extent of those Wave 2 plans could be a headwind for next year. Below the line, there are items to consider as well: the annualization of interest expense and normalizing tax. So we have a lot to annualize into next year. We also have our Solventum Way restructuring program which could provide tailwind into next year. That program is designed both to fund investments and give additional margin enhancement. We'll put all of that together into our calculus for 2025 and provide guidance when we report our Q4 results. Once we move beyond those items into 2025, we believe we have a strong platform to grow EPS and expand margins over time.

And the follow-up question I have is on how you're thinking about portfolio management and managing the dilution around that. Any updated thoughts on portfolio management would be helpful.

Sure. From a dilution standpoint, we haven't communicated anything on portfolio management yet, so we can't comment on any dilution or the net impact of any portfolio moves at this time.

Yes. We've been pretty front-footed on this since March, talking about Phase 3 as portfolio optimization. Obviously, we wouldn't make those decisions if we didn't think they were good for shareholders. We'll look at any dilution and offset that dilution. We're looking at our businesses from a strategic standpoint and assessing value contribution. Eventually, when we have the right data in front of us, we'll begin to share changes we are going to make. We will be considering the financial implications of any change and ensuring it's good for shareholders.

Your next question comes from the line of Patrick Wood with Morgan Stanley.

I have a couple of questions. First, do you have any updated timeline on the TSAs and how we're thinking about those rolling off? And how are you thinking about reinvestment as those begin to roll off? Second, on negative pressure wound therapy, traditional NPWT was a little softer but disposables were strong. Is that a switching trend from capital equipment reusable systems to disposables? Or are these separate trends?

Patrick, it's Wayde. We're seven months, almost eight months post-spin, and we're making good progress as mentioned. At Investor Day in March, we laid out the four main TSA work streams. They range from two to three years, three to four years, with a long supply continuity timeline up to ten to twelve years. We're at the front end of that timeline and don't have updates beyond what we shared in the prepared remarks. Once we start getting nearer to the two- and three-year marks, we'll start rolling off different TSAs. There's a lot of work going on and many team members are managing separation while doing day-to-day jobs. We'll have more updates in the future.

Understood. For the NPWT question, the traditional negative pressure was softer while disposables were strong. Is that a switch-out trend from capital equipment reusable systems to disposables? Or are they separate and disposables are gaining traction independently?

Patrick, there were a couple things going on with negative pressure wound therapy in the quarter. One important note is we had a tough comparison in the quarter, particularly in MedSurg. To answer your question, they are separate markets. Our Prevena single-use product line is a very exciting submarket of NPWT and is growing steadily. We're doing well with that product and saw traction in Q3 and expect it to continue. Traditional NPWT is historically slower growth. We believe there's real opportunity to unlock growth in that market as well. The Peel and Place product I referenced in the prepared remarks is one mechanism to do that and the team is excited about that launch.

Your next question comes from the line of Vik Chopra with Wells Fargo.

First, I didn't hear an update on the SKU rationalization project. Any update there and when should we start seeing benefits from this program? I have a follow-up after that.

Vik, last quarter we mentioned Wave 1 was launched this year and we're executing on it. A significant number of SKUs — over 3,000 — are out and the team is working on them; Wave 1 will have very little impact on top- and bottom-line. We're also working on Wave 2, but we don't have an update yet. Teams are modeling it and Bryan and I will review as we get toward the end of the year to decide what SKU rationalization will look like in 2025.

My follow-up is on the Dental segment. You called out tough comps and market softness. What are your expectations for recovery in the dental market and how are you thinking about growth in 2025?

I can't predict when softness will turn, but it is impacting our business. The bigger impact for us was the comps in the dental business. We see softness in the market, but given the portfolio we have and that many procedures we serve are less elective, we typically get less impacted than other players in dental. It's a negative for our business, but perhaps less so than others. I don't want to forecast a turnaround timing. We'll focus on what we can control. The team is excited about the Clinpro product launch — it's a meaningful innovation in fluoride treatment and customers are responding well. The good news is strong demand; the bad news is we don't have capacity for it right now. We're working to get capacity in place to support that demand.

Your next question comes from the line of David Roman with Goldman Sachs.

Wayde, could you unpack the drivers in the gross margin line? There are a lot of moving parts — last quarter you had discrete headwinds around international and OEM mix, this quarter you had tailwinds and the full recognition of the 3M supply agreement. As we think about a baseline normalized gross margin, is the mid-56% range a good starting point? How should we think about moving parts like SKU rationalization, business mix, and investments to become supply-chain independent?

David, there are indeed many moving pieces. We had approximately 100 basis points of one-time benefits in Q3 that offset the impact of the 3M supply agreement markup in the quarter. We expect part of that one-time benefit to reverse in Q4, which results in a lower margin in Q4. Recall in Q2 we had unfavorable higher international cost impacts in gross margin, some of which reversed in Q3. Package that together: we had headwinds in Q2 that somewhat reversed in Q3 and a benefit in Q3 that will be a headwind in Q4. One way to think about this is to combine Q2 and Q3 and then use an assumption for the 3M step-up and the Q3 benefit; you might come out just below the 56% number you referenced as a normalized baseline.

That's helpful. And on portfolio management, could you outline the parameters you're using to assess portfolio decisions — how you weigh strategic fit, cross-divisional value creation, margin profile, and potential dilution?

Absolutely. The main considerations are where we'll invest, because you must know where you're going to invest and where you're not. First, we'll concentrate on the fastest growth markets we serve to ensure any investments give us positive mix from a revenue growth standpoint. Second, we want markets where we believe we have a pathway to win and the right to win. Third, from a margin perspective, we need attractive margins in markets where we invest; fast growth without attractive margins would create negative mix. To your point about cross-divisional value, if a combined footprint creates 1 plus 1 equals 3, that's a nice add, but it doesn't have to be present. Those are the primary areas we consider.

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

Bryan, reflecting on your encouraging comments about progress, maybe focusing on MedSurg: help us better understand how the new sales and leadership team are affecting the business, how the new Peel and Place product is going to affect the business as you reorient sales and rethink compensation. Talk through that and help us think about where you expect growth over the next year or two for MedSurg.

Thanks, Rick. This is a good proxy for the entire business because we have a similar approach across functions. To address the revenue underperformance versus market, first do root-cause analysis. That analysis reveals deficiencies that can be in three areas. One, commercial rigor: if you get the right talent in place you can fix that relatively quickly. We've brought in talent and are improving commercial rigor, changing compensation to be more performance-based in 2025. Two, commercial structure: once we pick our growth driver areas and isolate where to specialize or expand the sales organization, we'll hire and train to drive productivity; that takes longer. Three, innovation gaps: those take the longest because you must ideate, develop, get regulatory approval and launch. The new team will focus on all of these. I expect underlying business improvement in 2025 across MedSurg and other businesses. We should benefit from talent upgrades, commercial rigor and compensation changes, plus new launches like Peel and Place. I caution against getting ahead of ourselves — offsets include SKU rationalization, comps, and backlog recovery. But I view 2025 for MedSurg and our other businesses as the tip of the spear to begin changing the underlying business performance and reduce historical underperformance.

Follow-up on ERP: encouraging that you've implemented in four countries. Where are you in that process and what should we expect from those initial efforts as a driver for '25 and beyond?

Rick, ERP is one of the biggest areas of the separation and getting a lot of attention. We've got major project teams and strong executive involvement. We're encouraged to have four countries done, though we started with smaller countries by design to learn the process. A couple of implementations went very well; a couple had bumps that the teams worked through. We're in a much better place after these first four and are moving on to larger implementations, with U.S. and North America being the biggest. We have a lot of planning and work underway. This is important and we are very focused on it.

I'll add that when we hired people in functions like IT and manufacturing, we prioritized those with direct experience in ERP consolidations and spin cutovers. If you've lived through it and been burned, you know where to look. The team is capable, but the work isn't without risk. We'll manage through challenges, and we have a strong team to get it done effectively.

Your next question comes from the line of Ryan Zimmerman with BTIG.

Two questions: Wayde, remind us of exposure to China — I think you have about 11% of revenue there; is that correct? We're two days into a new administration and there's discussion about tariffs. What do you manufacture there and how should we think about tariff considerations? Second, in Purification, given IV shortages, is there any consideration about impact to dialysis filtration or products that use saline in the near term?

I'll start. We have not seen any falloff in demand for dialysis support from purification filtration teams. Dialysis centers and the value chain are working to continue service and we haven't seen demand fall off at this point.

To correct on the China exposure, we have just over 5% of our business in China, not 11%. Regarding tariffs, we need to see what actually happens, but based on what we know today, what we import from China is a relatively small number and I don't see tariffs as a major impact to our business. Anything can change, but at this time I don't see a material impact.

Your next question comes from the line of Jason Bednar with Piper Sandler.

Bryan, a follow-up on Dental Solutions: you had a distributor with cybersecurity issues that affected demand in the fourth quarter of last year, so you have an easier comp in Q4 and a tougher comp in Q3. How are you thinking about pricing and volume dynamics in dental once we get past the comp noise in the second half?

You're right about comps: Q3 was a tough comp and Q4 will be an easier comp in dental. On price versus volume, pricing is normalizing across our businesses and we need volumes to increase because we've relied too much on pricing during the inflationary period. Pricing is now normalizing and that's what we saw in the quarter. I don't see pricing as a big lever in dental going forward; we need to get volume up.

Are you still comfortable viewing pricing in Dental as positive, or is it more neutral going forward? Also, on portfolio management and potential divestitures, I recall there's a threshold where approval or clearance considerations with 3M may come into play. Are there smaller assets you could sell without such clearance?

On pricing, we won't get into specific pricing guidance for individual businesses. On portfolio moves, there are additional considerations due to our proximity to the spin from 3M. Some considerations are within our control and some are not. We're assessing businesses and proactively understanding those considerations so they are not a barrier to transactions if we choose to pursue them. It is not that we will definitely do transactions; we want to ensure there are no barriers. Some decisions will require coordination with 3M and others may not.

On pricing more generally, Q3 was neutral on pricing and consistent with our expectation of normalization. The good news is we are starting to see volume improvement — revenue growth in the first half of 2024 was largely driven by price, and now volumes are beginning to turn, though we are not satisfied with the level of growth yet. It's positive to see volumes start to improve after prior underperformance.

Your next question comes from the line of Christopher Senyek with Wolfe Research.

Two questions: first, in Health Information Systems, organic growth was lighter relative to past quarters. Was anything anomalous in Q3 that we shouldn't expect to recur? Second, on foreign currency guidance, is the Q4 outlook based on spot rates as of quarter end and can you help with revenue/cost mix geographically?

For HIS, revenue cycle management was steady and remains an annuity-like business; that was a positive. We continue to see pressure in clinical productivity solutions — the M*Modal business was not sufficiently invested historically and has fallen behind in a fast-paced market; that pressure may persist in the short term while we work on solutions. Performance Management was soft in Q3 due to some volumes, which I do not expect to continue. On the positive side, our new data integrity product for revenue integrity is interesting and early days, but customers care about reimbursement leakage and this solution aims to help reduce denials and leakage across the patient journey.

On FX, is guidance based on spot rates as of the call date? And how should we think about translation risk given geographic revenue and cost mix?

We typically set FX rates near when we provide guidance, so we used rates close to our earnings call date and recent volatility influenced our guidance. In Q3 FX was a minimal impact, but recent rates suggest FX will be a headwind in Q4 for both top and bottom line. Regarding revenue and cost mix geographically, HIS is primarily U.S.-based, while the other businesses have meaningful exposure outside the U.S. We have manufacturing in the U.S. and internationally, including Europe and less in China and Asia Pacific. Given diversification across businesses, we will be subject to FX moves like other medical device companies, and translation risk should be modeled with that in mind.

Our final question comes from the line of David Roman with Goldman Sachs.

Coming back to capacity: how do we square your comments about capacity to meet demand with the pace of CapEx relative to your original guidance? Should we expect some CapEx that didn't occur this year to flow into next year? You're also retrofitting headquarters — how should we think about future CapEx?

There are different vectors of capacity. In Purification and Filtration, we are investing capital to drive capacity; we saw that in industrial business and expect similar progress with membranes, which will take a few quarters to fully realize. For Peel and Place and Clinpro, capacity constraints are more about demand planning and operational capacity rather than heavy capital intensity; these are lower capital intensity businesses where we underestimated demand and are working to increase capacity. So don't equate all capacity constraints to major CapEx needs.

We guided to $400 million to $500 million in CapEx when we became public and are now thinking toward the low end of that range. We know we'll have to invest for both separation and organic growth. One advantage of our growth driver strategy is focused growth investments and being more planful with CapEx, investing where we expect to grow the business rather than a blanket approach. That will help prioritize and target CapEx effectively. In addition to growth investments, separation requires CapEx for ERPs, manufacturing line moves and distribution center transitions. We have a lot of work to do and CapEx will support separating the business as well as future organic growth.

Seeing no further questions, I'll close the call by saying thank you for joining us, and I hope everyone has a wonderful day.

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