Medtronic plc

Hello, everyone, and thanks for joining us today for our Fiscal 26 First Quarter Video Earnings webcast. I'm Ryan Weissfenning, Vice President and Head of Medtronic Investor Relations. Joining me here today are Jeff Martha, Chairman and Chief Executive Officer, and Thierry Piertone, Chief Financial Officer. Jeff and Thierry will provide comments on the results of our first quarter, which ended on July 25, 2025, and our outlook for the remainder of Fiscal Year 26. After our prepared remarks, we'll take questions from the sell-side analysts that cover the company. Today's program should last about an hour. Earlier this morning, we issued a press release discussing our results and containing several financial schedules. We also posted an earnings presentation that provides additional details on our performance. The presentation can be accessed in our earnings press release or on our website at investorrelations.medtronic.com. During today's program, many of the statements we make may be considered forward-looking statements, and actual results may differ materially from those projected in any forward-looking statement. Additional information concerning factors that could cause our actual results to differ is contained in our periodic reports and other filings that we make with the SEC, and we do not undertake to update any forward-looking statement. Unless we say otherwise, all comparisons are on a year-over-year basis, and revenue comparisons are made on an organic basis, which excludes the impact of foreign currency and first quarter revenue in the current and prior year reported as other. References to sequential revenue changes compare to the fourth quarter of fiscal 25 and are made on an as-reported basis. All share references are on a revenue and year-over-year basis and compare our first fiscal quarter to our competitor's second calendar quarter. Reconciliations of all non-GAAP financial measures can be found in our earnings press release or on our website at investorrelations.medtronic.com. And finally, our EPS guidance does not include any charges or gains that would be reported as non-GAAP adjustments to earnings during the fiscal year. With that, over to you, Jeff.

All right. Thanks, Ryan. And hello, everybody. Welcome to the call. Welcome to the new look. And as you've seen from our press releases, we have a lot to talk about today. So why don't we just jump in and I'll get going on our Q1 results here. So we started the fiscal year by delivering another consistent quarter of mid-single digit revenue growth. And look, we remain confident in our ability to accelerate growth. as we move through fiscal 26. Our top line growth for the quarter was in line with our guidance, and EPS came in ahead of guidance. Look, the entire organization is working with laser focus to execute on the incredible set of opportunities Medtronic has in front of us. And we're pleased to be able to raise our EPS guidance for the full year on the back of this strong start of the year. And as you're going to hear today, Medtronic is, we're at the forefront of MedTech innovation across product categories, and we're on the cusp of an acceleration in our financial results and our strategy. So let me take you through some key portfolio highlights before I turn the call over to Thierry, who's going to walk through the results across all of our businesses. So I'm going to start with cardiovascular, which grew high single digits again this quarter. And that's off a high single digit comparison in the prior year. And this is driven by our innovative product portfolio and a relentless execution in what is a core right to win area of the market for us. We achieved double-digit growth in cardiac surgery, in ICDs, and in leadless pacing. And critically, we reached nearly 50% growth in cardiac ablation solutions on the rollout of our PFA systems. This performance is reflective of our execution capabilities. And we're excited that our growth momentum in this pivotal area is only really just beginning. Look, this past quarter, I've witnessed Afera and our competitors in action in several ablation cases. And I can tell you firsthand that the advantages that we're bringing to the market in terms of procedure time and ease of use are truly differentiated. Physician feedback and utilization levels of our equipment are phenomenal. And we have more conviction than ever that we have the right technology and the product pipeline to catapult us to category leadership in cardiac ablation. Now in neuroscience, we grew 3%, supported by high single-digit growth in both neurosurgery and neuromodulation. Look, as I mentioned last quarter, our spine-able ecosystem is driving differentiated share gains. As health systems, they're not just updating one piece of capital equipment when they upgrade. They're upgrading to the full-able ecosystem, which is a powerful thing for us and creates a real moat, a competitive moat around that business. In NeuroMod, our innovative closed-loop sensing technology in both pain stem and brain modulation, combined with our strong commercial execution, is also winning share. That said, our neuroscience growth was a bit below trend due to our specialty therapies businesses, which was the result of some deliberate changes we'll discuss in a few moments. But we expect to improve starting in Q2 and further accelerate in the back half of the fiscal year. Switching to MedSurg. MedSurg grew 2% this quarter, in line with our current expectations. and diabetes continue to grow above the company average on the strength of our 780G system and Simplera Sync Sensor in international markets. So looking ahead, we're well positioned to accelerate growth in each of our segments in the second half of the year. In our earnings deck that we posted earlier today, we outlined several milestones that we have coming over the rest of the fiscal year that will drive this acceleration. The largest, of course, being our cash business with our continued rollout of our PFA portfolio. In Q2, we expect our cash business to grow even faster than the nearly 50% growth we posted this past quarter. And we continue to have near term line of sight to adding an incremental $1 billion in revenue off of our fiscal 25 base. demand remains extremely high, and we're executing against our plans to quickly ramp mapping system and catheter supply. And CAS is just one of several upcoming growth accelerators for cardiovascular. Let's talk renal denervation. We're expecting the final national coverage from CMS on or before October 8th, and we expect the U.S. launch of our simplicity procedure for hypertension to ramp after that. And our peripheral vascular business will start the launch of our contigo carotid stent system this quarter and our liberant mechanical thrombectomy system in the second half of the fiscal year. Now in neuroscience, we're poised to accelerate growth starting this quarter with further acceleration in the back half of the fiscal year. First, we expect our pelvic health business to be a key driver for this segment in fiscal 26 and beyond. Importantly, ahead of our tibial launches fall, we took the opportunity to make some significant changes to our commercial organization of pelvic health in Q1. Now, while this had some short-term impact in the quarter as we expected, it sets us up. It sets us up to capitalize on the large opportunity ahead as we anticipate accelerating growth from this business as we go through the year. In neurovascular, we expect growth to accelerate each quarter as we go through the remainder of the fiscal year and as we lap China VBP and product recall comps. And we also have some new products ramping in carotid stenting and our hemorrhagic portfolio. Now, in surgical, we have the US launch for Hugo in the back half of the fiscal year, which we expect to be accreted to growth. And in diabetes, we expect performance to accelerate as we launch two new sensors, Simplera Sync this fall and the Abbott-based sensor, which we're calling Instinct, in the coming months. Simplera is half the size of our current sensor. It's disposable, and it's much easier to put on with no overtaping. And with Instinct, our customers will get access to Abbott's most advanced CGM platform. And when you combine these improved sensors with our MiniMed 780G and its exclusive meal detection technology, we expect to see a positive inflection in our installed base and revenue growth. As for the separation of our diabetes business, MiniMed, we're calling it, is proceeding according to plan. MiniMed is entering a strong innovation cycle in its own right. The separation will sharpen Medtronic's focus on our core businesses, including high growth opportunities like we discussed, PFA and Ardian and others. And it will also allow Medtronic to grow revenue and earnings faster without diabetes than we do with it today. We continue to expect the separation to be immediately EPS accretive, even with conservative valuations, and this portfolio move will be a value-creating separation for Medtronic shareholders. Clearly, look, there's a lot to be excited about at Medtronic in the next few quarters. And as a result of the strength of our product pipeline, we're confident that not only will our revenue growth inflect in the near term, but we'll also achieve higher earnings growth over time. This will come through a combination of natural P&L leverage and decisive urgent action we're taking to improve efficiency in both COGS and our operating expenses. We're creating an environment in Medtronic where innovation fuels growth, and growth in turn creates the oxygen needed to fuel more high ROI investments into innovation. We've already started increasing these investments, as you saw this quarter, with our high single-digit increase in R&D. And it is these investments that will make our earnings power durable. Now, with that, I'll turn it over to Thierry, who's going to cover the details of our business performance, our financials, and, of course, our guidance.

So over to you, Thierry. Hey, thanks, Jeff, and hello, everyone. So I'll start first with our cardiovascular portfolio. So CV grew 7% this quarter, led by Cardiac Ablation Solutions. Cast growth continued to accelerate to nearly 50%, including low 70s growth in both the US and Japan, and low 30s growth in international markets. This rapid growth is being driven by high demand for our pulse field ablation systems, including our pulse select anatomical catheter, and especially our SPHERE9 focal catheter and a ferramapping system. A ferramapping system utilization is high, and the SPHERE9 catheters are being used in a wide variety of cases. Our teams are quickly ramping supply, and our mapper hiring is on track. This is allowing us to enter new accounts as well as going deeper into more labs in our established accounts. We're still early in the rollout and we continue to execute with urgency to capitalize on this massive opportunity. We expect to continue to win share in this 11 billion space that is now growing over 25%. As we look forward, we're advancing our PFA pipeline, including our next-gen Afera Sphere360 catheter. We hear from many EPs that Sphere360 is the most anticipated single-shot catheter in this space, driven by very positive early clinical data. We're expecting to start the pivotal trial for Sphere360 this calendar year. Next, in structural heart, we grew 6%. We continue to gain traction with our Evolute FX and TAVR device and our differentiated clinical evidence. We're getting our fair share of international revenue from Boston Scientific's market exit. We're also gaining momentum in several geographies, including Japan. We expect all of this to drive continued strength in our TAVR franchise in the quarters ahead. In cardiac rhythm management, we grew 3% with 6% growth in defibrillation solutions and 3% in cardiac pacing therapies offset by cardiovascular diagnostics. We continue to see strong adoption of our premium innovative products, including 83% growth of Aurora EV ICD, 14% growth in Micra leadless pacemakers, and 21% growth with our 3830 conduction system pacing lead. In hypertension, we were very pleased with CMS's proposed NCD for our simplicity system that they issued last month, as well as the positive comments that came in during the public comment period. And then last week, we received the news that the ACC and AHA issued updated guidelines recognizing Ardian as a treatment option for hypertension. These are very important steps to providing patients access to our innovative simplicity procedure. Nearly half of US adults have hypertension, and one in four are uncontrolled, despite the broad availability of numerous generic drugs. CMS now expects to finalize the NCD on or before October 8th, and we expect procedures to ramp following that. Ahead of this, we're working with healthcare systems across the US to train physicians and help them establish simplicity service lines. We're rapidly hiring clinical specialists and market development and healthcare economics managers to drive the future growth. They will work alongside our existing coronary sales force to provide support for this important new treatment. We also continue to invest in next-gen Ardian technology, including our next-gen catheter that will provide radial access. And we enrolled our first patient in our multi-organ denervation pilot study, which is called Spiral Gemini. Now turning to the neuroscience business, which grew 3%. Our cranial and spinal technologies business grew mid-single digits, including 5% U.S. core spine growth and 8% U.S. neurosurgery growth. As Jeff mentioned, we had a strong capital equipment quarter as our differentiated able spine ecosystem continues to win share. Several categories of our enabling equipment grew double-digit globally, including Missouri, OARM, Midas Rex, and Stealth Station. In neuromodulation, we had another very strong quarter, growing 9%. In pain stim, we grew 10% globally, including 11% in the US. Our inceptive system, with its responsive real-time therapy adjustments, is giving patients greater freedom. And in brain modulation, we grew high single digits as our groundbreaking BrainSense Adaptive DBS technology is launching in the US, Europe, and Japan. BrainSense is a fully closed-loop brain-computer interface that automatically provides personalized, real-time therapy adjustments based on brain activity feedback for patients with Parkinson's disease. Next, turning to our med-surg portfolio, which grew 2%. Our surgical business also grew 2% this quarter. The business had high single-digit growth in advanced energy, where our market-leading ligature vessel sealing technology won share again for the 12th quarter in a row. This, combined with high single-digit growth in emerging markets, helped offset two ongoing but stable market pressures, One is in bariatric surgery, and the other is from the shift to robotic surgery. And both are primarily in the U.S. We continue to expect our surgical growth to improve over time, starting in the back half of the fiscal year, as we begin to expand the launch of Hugo. Earlier this calendar year, we filed for FDA approval for Hugo, and we're looking forward to launching it in the important U.S. market. In international markets, we're making good progress in surgical robotics, as our revenue and procedure volumes continue to grow. Last month, we received CE mark for Ligashore technology on Hugo. This was an important step for our robotic offering, given that Ligashore is the most preferred vessel sealing technology in the world, having been used over 35 million procedures. Robotics and the ecosystems that robotic-assisted surgery enables are important for our surgical business. And as we look ahead, we see robotics and our world-class digital and AI capabilities as an important strategic differentiator that will benefit many of our franchises at Medtronic. To wrap up our business performance, in diabetes we grew 8%. This included 11% growth in international markets, where our Simplera sensor technology is already available. We've heavily invested in diabetes over the past few years, and now we're entering a strong innovation cycle with both new technology and new indications. Last month, we received CE Mark for expanded indications for the 780G for type 2 diabetes, children as young as 2 and during pregnancy. Looking ahead, in addition to launching the two new sensors that Jeff mentioned, we're expecting type 2 approval in the US in the coming months. And we also continue to make progress with our new insulin pump systems. We intend to submit our next generation durable pump, the MiniMed Flex, to the US FDA by the end of the fiscal year. Flex is much smaller than 780G, as the screen is your phone, allowing for more discrete placement while still using the same reservoirs and infusion sets. And Flex will work with both Simplera Sync and Instinct sensors. Finally, as mentioned, our planned separation of Minimed is on track. Our preferred path continues to be a two-step IPO and split, which we expect to have fully completed within 15 months from now. Upon separation, we continue to expect approximately 50 basis points of growth margin improvement and 100 basis points of operating margin improvement. Now turning to the financials, Q1 revenue of 8.6 billion grew 8.4% reported and 4.8% organic, in line with our guidance. Our adjusted gross margin was 65.1%, down 80 basis points year over year. This was expected and stable when compared to Q4. I'll walk you through the four main components that drove the gross margin this quarter. First, We continue to benefit from pricing as we launch new products and maintain pricing discipline on contracting, and this had a 30 basis points benefit. Second, business mix, as I noted last quarter, continues to be a near-term headwind. Approximately 70 basis points this quarter split roughly equally between CAS and diabetes. Cas today is impacted by the mix of lower margin capital to higher margin catheters, and diabetes is early in its manufacturing ramp of the Simplera sensor. Over time, we expect both of these to improve as we scale our Cas business and separate the diabetes business. Third, our COGS efficiency programs, net of inflation, continue to benefit gross margin as our global operations and supply chain organization execute to deliver savings on materials and drive efficiencies in our manufacturing plants. This quarter, this was more than offset primarily by the manufacturing ramp of Afera that we incurred last year. The net of these items was a 50 basis points headwind. And finally, foreign exchange was 10 basis points tailwind to gross margin. Moving down the P&L, adjusted R&D was up 7.7%, 100 basis points ahead of revenue growth. We're allocating significant capital to high growth projects across our businesses, including large increases in both cardiovascular and diabetes. With SG&A, we continued to drive leverage, growing at 170 basis points below revenue growth. Importantly, we drove the significant leverage while also increasing investment in growth areas, including CAS as we hired more mappers, and Ardian as we developed the market. We are extremely focused on making sure we fuel our growth drivers to maximize the opportunities from these technological breakthroughs. Our adjusted operating profit was $2 billion, resulting in an adjusted operating margin of 23.6%. Below the operating profit line, our adjusted tax rate was 17.8%, about 70 basis points better than expectations due to a jurisdictional mix of profits. The FX impact on EPS was neutral in the first quarter, a couple cents better than anticipated given rate movements throughout the quarter. The net result was adjusted EPS of $1.26, three cents above the midpoint of our guidance. Now let's move to our guidance. On the top line, we continue to expect fiscal year 26 organic revenue growth of approximately 5%. In Q2, we're expecting 4.5% to 5% organic growth, similar to what we just delivered in the first quarter. As Jeff covered earlier, we're expecting revenue growth to accelerate in the back half of the fiscal year. Based on recent FX rates, which have moved substantially over the past quarter, we now see a tailwind of revenue of 550 to 650 million dollars in fiscal 26. This is over a half a billion dollar positive increase versus three months ago. In Q2, FX is currently 50 million to 100 million tailwind based on the recent rates. Moving down the P&L will continue to drive pricing discipline and to deliver savings on our COGS efficiency programs. These will be offset in the near term by continued business mix, primarily in CAS and diabetes. Regarding tariffs, You'll recall we outlined two scenarios when we gave our annual guidance last quarter. Given where we are in the year, we can take the worst case 350 million scenario off the table for this year. And the 200 million scenario has modestly improved, driven by our execution on mitigation efforts. As a result, tariffs are now expected to be approximately 185 million for fiscal 26. We also remain committed to increase investment in our current and future growth drivers, resulting in increased R&D and sales and marketing spend. At the same time, we are confident in our ability to drive leverage with our G&A expenses. Accordingly, there is no change in our expectation for fiscal 26 operating profit to grow materially faster than revenue. Given our Q1 results, we're raising our underlying fiscal 26 EPS growth expectation, which excludes the impact of tariffs, to 4.5% versus the prior 4%. FX is now a flat to 1% benefit to fiscal 26 EPS. including the impact of tariffs, we're now guiding EPS in the range of $5.60 to $5.66, a raise from our prior range of $5.50 to $5.60. For Q2, we would expect EPS of $1.30 to $1.32, which includes an approximate 1% benefit from foreign currency based on recent rates, as well as an approximate 18 million negative impact coming from tariffs. As I mentioned last quarter, we're expecting high single-digit EPS growth in fiscal year 27, driven by accelerating revenue growth, improved business mix from cash and diabetes, as well as the other financial benefit of the diabetes separation. To conclude, our confidence is building. We're advancing our growth drivers to accelerate revenue and growth. And we're executing on efficiencies in manufacturing and supply chain and operating expenses to drive earnings growth. At the same time, we're increasing our growth investments in R&D and sales and marketing, all with a deliberate focus on creating long-term shareholder value. Jeff, back to you.