Medtronic plc

Hello, everyone, and thanks for joining us today for our Fiscal 26 Second 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 Piatone, Chief Financial Officer. Jeff and Thierry will provide comments on the results of our second quarter, which ended on October 24, 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 exchange, second quarter revenue in the current and prior year from our divestiture this quarter of the Dutch Obesity Clinic, also known as NOK, and second quarter revenue in the current and prior year reported as OTHER. References to sequential revenue changes compare to the first quarter of fiscal 26 and are made on an as-reported basis. All share references are on a revenue and year-over-year basis and compare our second fiscal quarter to our competitor's third 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.

Okay, thanks, Ryan. And hello, everyone. Last quarter, I told you that Medtronic is on the cusp of an acceleration in our financial results and our strategy. Well, today I'm pleased to share that because of our organization's relentless focus, that acceleration is indeed underway. We delivered a strong second quarter. Both our revenue and EPS beat expectations. Looking across our business, procedure volumes and end markets are robust, and we're bringing Medtronic's full capabilities to bear as we launch innovative technologies and execute ahead of plan in some of the most attractive and fast-growing end markets in Medtech. We're glad to be able to raise our revenue growth and EPS guidance for the full year on the back of this building progress. This quarter, we accelerated our growth with significant contributions from our cardiac ablations business as promised. Looking ahead, there's even more that Medtronic is capable of. We're positioning ourselves for even greater acceleration in revenue growth in the back half of the year and beyond. And our momentum is fueled by our enterprise growth drivers, including our PFA franchise for AFib, Simplicity for Hypertension, Hugo and Soft Tissue Robotics, and AltaViva for Incontinence. Look, these are game changers, and they'll power our trajectory. And at this pivotal inflection point in our growth journey, we recognize the need to capitalize on the incredible market opportunities before us. So we've scaled manufacturing to support our acceleration. And this quarter, we took the opportunity to increase OpEx investments to support our revenue growth momentum. We did all this while still delivering outsized EPS growth relative to our guidance. Overall, we shifted to a growth mindset. Besides our organic programs, we're focused on pursuing tuck-in M&A and executing strategic portfolio management. Now let's get into the details on our enterprise growth drivers. One of them powered our growth acceleration this quarter. And together, all of them will fuel our total company revenue growth in the quarters ahead. In cardiac ablation, our PFA franchise is generating just a ton of momentum. We grew 71%, which is a strong acceleration from last quarter's nearly 50% cash growth. This is the highest growth rate of any company in this large and fast-growing space. We're winning share as our PFA franchise grew over 300% in the US, as well as in international markets. This was based on the strength of our Farrah mapping system and our Sphere 9 dual energy and high density mapping catheter. Look, physicians tell us that they appreciate not only the shorter procedure times that they're seeing with the Farrah, but increasingly they're calling out its outstanding durability as well. And demand continues to be extremely high as we hear repeatedly from customers that they want to purchase additional affair systems to expand into even more of their labs. And in the vast majority of instances, when a new affair system goes into a lab, we take the majority of the AF procedure share in that lab. You know, our plants have scaled, as I mentioned earlier, to meet the challenge, and our mapping hiring is going really well. And as a result, we've doubled our installed base of affair mapping systems during the quarter. And given the economics of this business with capital and consumables, our mapping system sales are a strong leading indicator of future revenue growth and margin expansion. So we're still in the early parts of this rollout, and we expect revenue acceleration to continue with an even higher cast growth in Q3. We remain on track to double the revenue of this business soon, adding an incremental $1 billion off the $1 billion FY25 base. Look, and we're not stopping there. With our pipeline, we're bringing a fair technology to the single shot segment with Sphere 360. EPs tell us that 360 is the most anticipated PFA catheter out there, given the strength of its early clinical data. We've submitted the IDE to the FDA to get approval for our US pivotal trial, which we're expecting to start in Q3. So the EP ablation space is now over $12 billion. It's growing mid-20s, and with our low double-digit share and the high demand I just talked about for the current portfolio and our pipeline, we see a long runway to gain significant share and add meaningful growth to Medtronic. Now, on top of that growth, we're launching as the clear market leader into very large end markets. Our simplicity procedure for hypertension and AltaViva for incontinence. And we're excited to have received the final Medicare NCD for simplicity three weeks ago. So now, in addition to a broad label from the FDA, we have an excellent coverage outcome from CMS. The final NCD enables broad access and removes certain patient pathway barriers that were in the original proposal, including reducing in-person visits, removing a kidney function exclusion, and cutting in half the time requirement for adherence to meds. It also highlights patient quality of life as an important consideration. So the NCD gives physicians many avenues to bring simplicity to patients. Additionally, we are currently the only company to meet the full NCD criteria with an approved continued evidence development plan. And on the commercial payer front, we picked up significant momentum with wins during the quarter. including HCSC, Regence, and several Blue Cross Blue Shield plans that collectively cover 30 million lives. Shifting to efficacy, Medtronic is the runaway leader with Ardian clinical data, and we continue to add to it. Only Simplicity RF Ardian has consistently shown sustained and improving blood pressure reductions in the long term. This is definitively unique to us as we've not seen this with the ultrasound devices. This sets the standard that all other devices must now meet. And last month at TCT, we shared three-year data from our OnMed trial that continue to show the procedure is effective over the long term. Patients who underwent the simplicity procedure experienced an 18.5 point average drop in systolic blood pressure. We also completed enrollment in our Spiral Affirm trial, which aims to expand Simplicity into high-risk subgroups, including people with isolated systolic hypertension. The first data from a subset of this trial was also shown at TCT with very strong results. We're using these results in ongoing discussions with the FDA. So Simplicity represents a massive, multibillion-dollar opportunity for Medtronic. with an addressable market of 18 million people in the US with uncontrolled hypertension. And now with a broad NCD in place and commercial payers coming online faster than anticipated, this isn't a question of if or even how big, it's a question of how fast. Now we have not incorporated much simplicity revenue into our back half guidance, but we are sprinting after this opportunity. We have supply. We've ramped up physician training and market development activities with many hospitals initiating simplicity programs across the country. And now we're increasing our consumer awareness programs. And as a result, we expect our revenue to pick up in the back half of the fiscal year and ramp over the next few quarters and meaningfully contribute to Medtronic for years to come. Now shifting to AltaViva, we're seeing very positive signs in the first several weeks of the US launch. Physician training programs are oversubscribed, and we're expanding training capacity to meet this demand. Physicians are stacking cases, and early media coverage has driven a surge in consumer search activity. AltaViva is a simple option to treat urinary urges and involuntary leaks, which affect 16 million people in the US. This small device is inserted just below the skin, but above the fascia near the ankle. The procedure is minimally invasive, doesn't require sedation, and the patient goes home with the therapy activated. So they're not waiting for follow-up appointments to feel the results. The device is only recharged once or twice a year, eliminating the need for daily at-home charging equipment. And it has a 15-year battery. So we believe AltaViva will add meaningful growth to our pelvic health business and be a Medtronic growth driver again for years to come. And more importantly, it is meaningful for patients. This is our first patient in South Carolina. who is dancing to Jingle Bell Rock. It's getting to be that time of the year, and it's a wonderful video. In addition to these enterprise growth drivers, we're seeing improvements in many of our other businesses as we execute our new product introductions, getting products to market ahead of schedule, and ensuring strong commercial follow-through. So with that, I'm going to turn it over to Thierry to cover the details of our business performance, financials, and our guidance.

Hey, thanks, Jeff. Hi, everyone. Appreciate everyone joining us today. So I'll start with our cardiovascular portfolio, where we grew 9%. This was our strongest growth in over a decade, excluding the easy comparisons we had after the pandemic. The growth acceleration was driven by our building momentum in CAS, which Jeff walked you through, and it's worth noting that PFA is now 75% of our cardiac ablation revenue. Our PFA growth significantly offset the 40% declines we had in cryo, and 90% of our remaining cryo revenue is in markets outside of the U.S., And look, it wasn't just Cas. The rest of our cardiovascular portfolio grew a combined mid-single digits. Cardiac rhythm management grew 5%, with 18% growth in micro-leadless pacemakers and nearly 80% growth in Aurora EVICDs. In structural heart, we grew 7% on the strength of the Evolute TAVR platform. In peripheral vascular, we grew low single digits, and we expect growth to improve as we continue to launch the NeuroGuard IEP carotid stent and begin the launch of our liberant mechanical thrombectomy system. Next, in our neuroscience portfolio, our growth returned to mid-single digits, as expected, with growth of 4%. In cranial and spinal technologies, we grew 5%. That included 8% growth in core spine, both globally and in the US, and 5% in neurosurgery capital equipment. Our spine-able ecosystem, which includes AI-enabled preoperative planning software and enabling capital equipment, including robotics, navigation, imaging, and powered surgical instruments, continues to attract strong spine surgeon adoption and drive meaningful share gains. And this is enabling strong pull-through of our core spine hardware. Our specialty therapies businesses had flat results in Q2, an expected improvement from last quarter, driven by ENT and neurovascular. We have clear line of sight to continued improvement in specialty therapies next quarter as we accelerate growth in both neurovascular and pelvic health. In neurovascular, growth will improve as we anniversary the vast majority of China VBP in January. We also expect an increasing growth contribution from the NeuroGuard carotid stent launch, which is being sold by both our peripheral vascular and neurovascular businesses. In pelvic health, we expect growth to accelerate on the AltaViva launch that Jeff outlined. In neuromodulation, we grew 7%. Both pain stim and brain modulation grew high single digits as we continue the rollout of our Inceptive SCS and BrainSense ADBS systems. The market continues to appreciate our differentiated fully closed-loop technology with responsive real-time therapy adjustments that's available in both of these products. Next, our med-surg portfolio grew 1% as expected. Our surgical business also grew 1%, impacted, as we anticipated, by the timing of certain tenders in emerging markets and the ongoing but stable market pressures from bariatric surgery and the shift to robotics. We expect a slight rebound in surgical in the back half, and over time, we expect growth to continue to improve as we enter new markets with Hugo. In the back half of this fiscal year, we expect the FDA to approve Hugo with a urology indication, and we'll start our entrance in the US. We also continue to make progress on expanding indications. During the quarter, we presented our Enable Hernia Repair Study, which met its safety and effectiveness endpoints. And we kicked off our Embrace Gynecology US Pivotal Study last month. This builds on the momentum from the positive results of our International Gyne Study, which we shared at SRS in July. Given our experience in international markets, we've developed a clear understanding of the differentiated features that will make our robotics program successful. This includes Hugo's modularity and open console. It also includes continuously adding advanced technologies such as our ICG imaging and instrumentation like Ligashore RAS. Our touch surgery digital ecosystem is a force multiplier for robotics and for laparoscopic surgery. Adoption is building momentum and bringing AI into operating rooms in over 30 countries. Beyond the features, we're also leveraging our deep partnerships with customers through our training, support, and through our service. We look forward to robotics becoming a more meaningful growth driver over time. Next, our endoscopy business grew 8%. This was driven by double-digit growth in our esophageal products, as well as in GI Genius, our AI-powered solution used to detect polyps during colonoscopies. Wrapping up our business performance, our diabetes business, or mini-med, as it will be called post-separation, grew high single digits. We had particular strength in international markets, which grew 11%. As expected, the US was lower this quarter, in large part due to a decline in new orders as customers anticipated the launch of our new sensors. As we've started accepting orders, we're seeing this pent-up demand materialize. There's a lot of excitement behind both the SimpleraSync and Instinct sensors. Look, with the SimpleraSync, we continue to ramp manufacturing volume to support its European launch. As that ramp continues, we plan to roll it out more broadly to U.S. consumers later this fiscal year. And ahead of that, we started accepting orders during the quarter. With the Instinct sensor, we started taking pre-orders in the US during the last month of the quarter, and we expect to begin shipping in late November. We accumulated more than 35,000 US customer orders for SimpleraSync and pre-orders for Instinct. Around 25% of these orders are from new pump users or our Medtronic pump users who are not using our CGM. The rest of these orders are current customers in our install base upgrading to the new sensors. We also saw over 9,000 HTPs in the US who are new Medtronic prescribers. Look, for those of you who follow this space, you know how big a deal these numbers are and the impact they're expected to have on increasing our install base. We expect the demands for our new sensors to accelerate our US growth in the back half of the fiscal year. Our diabetes business is in a strong innovation cycle. We've had a lot of great news in the last few months as our teams execute on the pipeline. In July, the 780G system received CE mark for three expanded indications, including for type two, for children as young as age two, and during pregnancy. In September, the US FDA also approved 780G for people with type two diabetes. And they cured our smart guard algorithm that enabled integration with the instinct sensor. Earlier this month, we received FDA approval to start the U.S. Pivotal for Vivera, our third generation algorithm. We also continue to make progress with our new AID systems, MiniMed Flex and MiniMed Fit. We remain on track to submit Flex, our next generation durable pump, to the U.S. FDA. And with Fit, our AID patch system, we intend to submit to the U.S. FDA by the fall of next year. Finally, our planned separation of Minimed is on track. Our preferred path continues to be a two-step IPO and split. We continue to expect the separation to be complete by the end of calendar year 26. So we have a lot of momentum with diabetes given the order inflection and progress on the pipeline and separation. And you're hearing today that this momentum acceleration extends across the enterprise as we advance our pipeline and deliver growth. Now turning to the financials. The second quarter revenue of $9 billion grew 6.6% reported and 5.5% organic. That's an acceleration from last quarter and 75 basis points ahead of the midpoint of our guidance. Our revenue from a geographic perspective was balanced with double-digit growth in Japan and mid-single-digit growth in the U.S., in Western Europe, and China. In China, we're driving growth even as we go through ongoing, but very manageable volume-based procurement in a few businesses. Our adjusted gross margin was 65.9%, up 70 basis points year over year. Similar to last quarter, I'll walk you through the main components. So we got 30 basis points again from pricing, as well as 40 basis points from our COGS efficiency programs, net of inflation. Importantly, margin headwinds from ramping up our manufacturing capacity on Efera are now behind us. So together, we drove a 70 basis point operational improvement in gross margin in the quarter. This was offset by business mix, which represented a headwind of 80 basis points, split roughly equally between cardiac ablation and diabetes. As I noted last quarter, CAS is impacted by the mix of lower margin capital to higher margin catheters, and diabetes is early in its manufacturing ramp-up of Simplera. Over time, we expect both of these to improve as we scale our CAS business and separate the diabetes business. Next, tariffs were a 20 basis points headwind, and finally, FX was about 100 basis points tailwind. Adjusted R&D was 8.4% of revenue and increased 8.9%, which is 230 basis points ahead of reported revenue growth. We've increased R&D investments in our core right-to-win franchises, where we've identified opportunities to accelerate top-line growth and improve our share in the near, mid, and long term. SG&A was 32.7% of revenue, up 20 basis points versus last year. As Jeff mentioned, we proactively took the opportunity to increase spending to accelerate our PFA and RDN launches in light of the considerable market demands and compelling near and medium term outlooks. At the same time, we delivered discipline leverage on G&A with growth at under half the rate of our revenue growth. Our adjusted out profit was $2.2 billion, an increase of 6%. This resulted in an adjusted operating margin of 24.1%, down 20 basis points year over year, but an increase of 50 basis points sequentially. Our adjusted tax rate was 16.4%. Q2 tax expense was lower than expected, which is largely due to timing, and which we expect to offset in the fourth quarter. All in all, adjusted EPS was $1.36, an increase of 8% and $0.05 above the midpoint of our guidance. Now let's cover our guidance. Given our outperformance in the first half of the year, as well as the confidence we have in our revenue growth acceleration, we're raising our four-year revenue guidance today. Year to date, we've delivered 5.2% organic growth, and we expect this to further accelerate in the back half of the year. As a result, we now expect fiscal 26 revenue growth of approximately 5.5%, a 50 basis point increase from the prior guidance. In the third quarter, we're also expecting approximately 5.5% growth, and Q4 will be even stronger. Based on recent rates, we now see an FX tailwind to fiscal 26 revenue of $625 to $725 million, including $150 to $200 million tailwind in the third quarter. Moving down the P&L, we expect our fiscal 26 gross margin to be slightly up, X tariffs, with pricing, FX, and COGS efficiency programs more than offsetting the negative impacts of business mix, primarily from cardiac ablation and diabetes. We anticipate a tariff impact to COGS of approximately $185 million. including $90 to $95 million in the third quarter. Including tariffs, we expect a fiscal 26 gross margin decrease of roughly 40 basis points. We'll continue to fund R&D to grow greater than sales, With SG&A, in light of the outsized demand and building momentum for our enterprise growth drivers, we're capitalizing on every opportunity to accelerate our top line by strategically increasing sales and marketing investment in key programs. But we'll still deliver SG&A leverage on the foyer by rigorously managing our G&A line. Taking all of this together, we expect fiscal 26 adjusted operating profit to grow approximately 5% or 7% excluding tariffs. Our fiscal 26 operating margin is expected to be roughly flat X tariffs and down about 50 basis points, including the tariffs impact. Now coming to EPS, second quarter EPS came in five cents above the midpoint of our guidance. Three and a half cents of this beat was from reduced tax expense, as I mentioned earlier, that we now expect to occur in Q4. We're flowing through the remainder of the Q2 beat and increasing our fiscal 26 EPS guidance to a new range of $5.62 to $5.66 versus the prior range of $5.60 to $5.66. For Q3, we expect EPS in the range of $1.32 to $1.34. We're expecting margins to be down a couple hundred basis points in Q3, as the quarter includes half the annual impact of tariffs. In addition, the expected growth acceleration in CAS and diabetes will continue to impact business mix, and Q3 is typically our lowest quarter for generating COGS efficiency savings given the holidays. However, we do expect Q4 margins to increase year-over-year and show strong sequential improvement. Looking ahead to next year, we continue to expect high single-digit EPS growth in fiscal year 27, driven by accelerating revenue growth, a lesser impact of business mix from cas and diabetes on the gross margin line, and leverage on SG&A while we continue to drive higher investments in R&Ds and sales and marketing. Look, we remain committed to driving both revenue and earnings growth and believe strongly that our financial algorithm will flow from our current focus on building sustained top line momentum. Jeff, back to you. Okay, thank you, Thierry.