Medtronic - Earnings Call - Q1 2026

Executive Summary

• Q1 FY26 delivered revenue of $8.58B (+8.4% reported, +4.8% organic) and non-GAAP EPS of $1.26 (+2% YoY); Medtronic raised full-year non-GAAP EPS guidance to $5.60–$5.66 and reiterated ~5% organic revenue growth.
• Results were above Wall Street consensus: Revenue $8.58B vs $8.37B*, EPS $1.26 vs $1.23*; EBITDA also exceeded consensus ($2.40B* vs $2.26B*). Bold beat driven by broad portfolio strength and lower tariff impact. Values retrieved from S&P Global.
• Cardiac Ablation Solutions nearly +50% with +72% in the U.S. on Pulsed Field Ablation adoption; Diabetes +11.5% reported (+7.9% organic); GAAP operating margin expanded +70 bps, although non-GAAP operating margin compressed -80 bps with mix and early launch investments.
• Near-term catalysts: CMS proposed NCD for renal denervation (final expected by Oct 8, 2025), governance/board changes following constructive engagement with Elliott, and advancing Hugo robotics and neuro innovations; management flagged Investor Day in mid-2026 to outline a new financial framework.

What Went Well and What Went Wrong

What Went Well

• Pulsed Field Ablation momentum: “Cardiac Ablation Solutions revenue increased nearly 50%, including 72% in the US” on PFA portfolio strength.
• Multi-portfolio growth: Cardiovascular +9.3% reported (+7.0% organic), Neuroscience +4.3% reported (+3.1% organic), Medical Surgical +4.4% reported (+2.4% organic), Diabetes +11.5% reported (+7.9% organic).
• Guidance upgrade and execution: “As a result of our Q1 EPS outperformance and improved tariff impact assumption, we are raising our full year EPS guidance” (CFO Thierry Piéton). CEO highlighted “accelerate our revenue growth in the second half” with growth drivers including PFA, transcatheter valves, neuromodulation, diabetes, leadless pacing.

What Went Wrong

• Margin mix pressure: Non-GAAP operating margin fell to 23.6% (-80 bps YoY) even as GAAP operating margin rose to 16.8% (+70 bps); non-GAAP gross margin was flat 65.1% (-80 bps YoY).
• Specialty Therapies decline and pockets of slower growth: Specialty Therapies -1.5% reported (-2.7% organic); U.S Surgical & Endoscopy -1.3% YoY, reflecting competitive and mixed dynamics.
• China VBP and recall headwinds linger in Neurovascular; management noted recall recovery and VBP impact with acceleration expected as replacement products ramp.

Transcript

Speaker 2

Hello everyone and thanks for joining us today for our fiscal 2026 first quarter video earnings webcast. I'm Ryan Weispfenning, Vice President and Head of Medtronic Investor Relations. Joining me here today are Geoff Martha, Chairman and Chief Executive Officer, and Thierry Piéton, Chief Financial Officer. Geoff 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 2026. 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. First quarter revenue in the current and prior year is reported as other. References to sequential revenue changes compare to the fourth quarter of fiscal 2025 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 competitors' 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. 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, Geoff.

Speaker 1

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. Why don't we just jump in and I'll get going on our Q1 results here. 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 2026. Our top line growth for the quarter was in line with our guidance and EPS came in ahead of guidance. 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.

As you're going to hear today, Medtronic is 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. 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. 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. 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. This past quarter I've witnessed Affera 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 AiBLE spine surgery 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 AiBLE 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 stim 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 MedSurgical, MedSurg grew 2% this quarter in line with our current expectations and Diabetes continued to grow above the company average on the strength of our MiniMed 780G system and Simplera Sync CGM sensor in international markets. 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 CAS business. With our continued rollout of our PFA portfolio in Q2, we expect our CAS 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 2025 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 8 and we expect the U.S. launch of our Symplicity Spyral renal denervation system procedure for hypertension to ramp after that. In our Peripheral Vascular business, we'll 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. 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 2026 and beyond.

Importantly, ahead of our tibial launch this fall, we took the opportunity to make some significant changes to our commercial organization of Pelvic Health in Q1. While this had some short term impact in the quarter as we expected, 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 BBP and product recall comps. We also have some new products ramping in carotid stenting and our hemorrhagic portfolio. In Surgical, we have the U.S. launch for Hugo in the back half of the fiscal year, which we expect to be accretive to growth.

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 overtape. With Instinct, our customers will get access to Abbott's most advanced CGM platform. 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, like we discussed, PFA and Artian and others.

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. 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. 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 at 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. 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. Over to you, Thierry.

Speaker 0

Hey, thanks Jeff. Hello everyone. I'll start first with our cardiovascular portfolio. CV grew 7% this quarter, led by Cardiac Ablation Solutions. CAS growth continued to accelerate to nearly 50%, including low 70% growth in both the U.S. and Japan and low 30% growth in international markets. This rapid growth is being driven by high demand for our pulsed field ablation systems, including our PulseSelect anatomical catheter and especially our Sphere-9 focal catheter and Affera mapping system. Utilization is high and the Sphere-9 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 go 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 Affera Sphere-360 catheter. We hear from many EPs that Sphere-360 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 Sphere-360 this calendar year. Next, in Structural Heart, we grew 6%. We continue to gain traction with our Evolut FX 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 Symplicity system that they issued last month, as well as the positive comments that came in during the public comment period. Last week we received the news that the ACC and AHA issued updated guidelines recognizing RDN as a treatment option for hypertension. These are very important steps to providing patients access to our innovative Symplicity procedure. Nearly half of U.S. adults have hypertension and 1 in 4 are uncontrolled despite the broad availability of numerous generic drugs.

CMS now expects to finalize the NCD on or before October 8 and we expect procedures to ramp following that. Ahead of this, we're working with healthcare systems across the U.S. to train physicians and help them establish Symplicity 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 RDN 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 Spyral 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 Geoff mentioned, we had a strong capital equipment quarter as our differentiated AiBLE spine surgery ecosystem continues to win share. Several categories of our enabling equipment grew double digit globally including Mazor, O-arm, Midas Rex, and StealthStation. In Neuromodulation we had another very strong quarter growing 9% in pain stim, we grew 10% globally including 11% in the U.S. Our Inceptiv 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 Deep Brain Stimulation technology is launching in the U.S., 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 MedSurg 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 LigaSure 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 LigaSure technology on Hugo.

This was an important step for our robotic offering, given that LigaSure is the most preferred vessel sealing technology in the world, having been used in over 35 million procedures. Robotics and the ecosystems that robotic-assisted surgery enables are important for our surgical business. 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 U.S. 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 U.S. 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 Minimat 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 gross 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 Cardiac Ablation Solutions (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 Affera that we incurred last year. The net of these items was a 50 basis points headwind, and finally, foreign exchange was a 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 continue to drive leverage, growing it 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 adyen. 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 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, $0.03 above the midpoint of our guidance. Now let's move to our guidance on the top line. We continue to expect fiscal year 2026 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 Geoff 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 million to $650 million in fiscal 2026. This is over a half a billion dollar positive increase versus three months ago in Q2. FX is currently a $50 million to $100 million tailwind based on the recent rates moving down the P&L.

We're continuing to drive pricing discipline and to deliver savings on our comms 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 2026. 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 2026 operating profit to grow materially faster than revenue. Given our Q1 results, we're raising our underlying fiscal 2026 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 2026 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 2027 driven by accelerating revenue growth, improved business mix from CAS 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.

Speaker 1

Okay, thank you, Thierry. Before we go to Q and A, I want to make a few brief remarks on the shareholder value creation initiatives we announced this morning in partnership with Elliott Investment Management and on the opportunity that we both see ahead for Medtronic. Today, we've announced a series of governance enhancements that will help capitalize on the enormous opportunities in front of us and unlock the full, full extent of Medtronic's potential. To start, we've appointed two new independent board members, John Groetelaars and Bill Jellison, each of whom bring deep operational expertise in Medtech and fresh perspectives to the table. The Board and I are excited to welcome both John and Bill to Medtronic.

As part of our inflection, the leadership and I are reinvigorating our laser focus up and down the organization on two key fronts, growth and creating oxygen to fuel that growth and drive earnings power. These two focus areas need to be linked from the frontline employees of Medtronic, up through senior leadership, including me, and all the way to the Board. Today we announced that we've created two new board committees to support management. The Growth Committee, which will oversee our portfolio management and capital allocation decisions to accelerate growth, and an Operating Committee which will provide oversight of our efforts to drive efficiency gains in our operations and expense base. This will enable a higher level of organic investment back into our business while also delivering improving margins and accelerating EPS growth.

We'll have a fresh perspective from our two new board members and these two committees will give us support and focus so we can execute with both speed and urgency. Finally, we look forward to sharing the culmination of these initiatives at an Investor Day sometime mid calendar year 2026. At this event we intend to provide a comprehensive update for investors on our strategy post diabetes, the value proposition of our go forward portfolio, and new long term financial targets for sustained value creation. To conclude, here's what we want you to take away from today's announcement with Elliott. Medtronic is turning the page and will be entering a new period of greater revenue and earnings growth.

We've put in place a stronger foundation for the company and over the last few quarters we've discussed how we have an incredible product pipeline that is poised to accelerate our organic growth. With our renewed focus on aligning our portfolio and capital allocation for higher growth as well as enhancing operational excellence, we're putting the pieces together in place to translate that accelerating top line into a period of sustained outsized earnings growth, rendering a new phase of our transformation to act more boldly and more decisively to deliver the strategic clarity, growth profile, operational rigor, investment strategy, and shareholder returns that this company is capable of. As I wrap up, I want to thank the Medtronic employees watching today. We've gone through a lot of change together to better position the company to deliver improved performance.

I appreciate that you've accomplished this while also keeping the Medtronic mission front and center. You're striving without reserve for the greatest possible reliability and quality in our products, and you're doing so with dedication, honesty, integrity, and service. Your work is benefiting millions of patients around the world as we alleviate their pain, as we restore their health, and we extend their lives. Thank you. Now it's time to move on to Q and A where we're going to try to get to as many of you analysts as possible. We ask that you limit yourself to just one question and only if needed, a related follow up. If you have additional questions, you can reach out to Ryan and the investor relations team after the call. Ryan, can you please queue up the Q and A instructions?

Speaker 2

Sure, Jeff. For the sell-side analyst that would like to ask a question, please select the Participants button and click Raise Hand. If you're using the mobile app, press the More button and select Raise Hand. Your lines are currently on mute, and when called upon, you will receive a request to unmute your line, which you must respond to before asking your question. Finally, please be advised that this Q&A session is being recorded. We'll pause for a few seconds now to assemble the queue. Okay, we'll take the first question from Travis Steed of BofA Securities. Please go ahead, Travis.

Hey, thanks for taking the question. I guess first of all on the pipeline, you know, see it's coming through this quarter. CAS, you know, 72% U.S. growth sounds like supply is ramping up nicely there. Love an update on CAS. Also, you know, it's not showing up in the total U.S. growth. U.S. growth, you know, 3.5% this quarter, 1% structural heart growth. Just want to hear your confidence. Like you've talked about being confident in ability to accelerate growth, you know, over FY2026, but how do you get confidence in kind of the base business still kind of growing mid single digits so that the pipeline can kind of be on top of that?

Speaker 1

Sure, yeah. Thanks for the question, Travis. You know, look, let me start with just some context on the quarter. Like I said, we had another mid single digit quarter, 4.8% organic revenue growth coming in within our guidance of 4.5% to 5%. EPS coming in $0.03 above the midpoint. To your point, the growth drivers are accelerating. You highlighted CAS. I'll come back to that. We got other ones coming already, and we talked about the tibial coming in the back half of the year. There are a couple of areas that came in a little below trend, like in Neuroscience, for example, Pelvic Health, Neurovascular. We'll get to Diabetes. Demand is strong there, but the U.S. growth came down a bit. There are a couple areas, and I'll turn those over to Thierry in a second, that are going to be bouncing back and accelerating.

That'll impact us, but also on the U.S. growth a lot. All the new technology that's coming, the continued acceleration in CAS, as I mentioned, Diabetes, Pelvic Health, plus the rebound of these, they all will have an outsized impact on the U.S. growth. I mean, Thierry, you want to talk about the.

Speaker 0

Hey, no, I think you hit the main points. As you said, some of the pieces of the business that had a relatively slower growth in the first quarter were mostly U.S. impacting. If you take a couple of these examples in pelvic health, we made some changes in the commercial force, as we said in the commentary, to prepare for the launch of Tibule. That's primarily a U.S. impact, I would say. The second element, I would say, is diabetes. Diabetes grew very strongly outside of the U.S.; we were up 11% in the international market. The U.S. was a bit slower, and that's mostly a product topic. We have the demand for Simplera, but the ramp up is only starting, and that's impacting the U.S. as well. As this ramp up occurs, we'll see those things start kicking in the U.S.

and changing the profile that we mentioned between U.S. and international markets. Positive going forward in the U.S., yeah.

Speaker 1

As you know, we showed in the earnings presentation, that's going to continue to accelerate. As you highlighted, Travis, we're getting the capital systems out there, the utilization is off the charts high. Everyone's excited about the catheters we have. They're also the catheters that are coming, you know, Sphere-360 and the single shot space. It's great. I was just in Japan the week before last, was there for 50 years of Medtronic in Japan, spent a lot of time with physicians, a lot of conversations on CAS, and there we're the number one market share and Affera is approved but not even launched there. This is on PulseSelect and I know our competitor highlighted that they felt they were the number one, talked about how many cases they've done. We've done meaningfully more in Japan and I know we're the number one there.

I was probing as to why and they talked about the precision of PulseSelect and that, but really the safety profile of our catheters, both the publicized safety of PulseSelect but also Affera in our ID trials. They did their own, the largest centers there in Japan did their own ID, their own trials and that safety profile came through and I think that safety message, obviously it means a lot in Japan, they really prioritize it. I think that as PFA grows and becomes more ubiquitous, that's going to become a bigger kind of driver here in the U.S. as well. That plays to our favor. I think CAS is in a really good spot to continue to accelerate. Not only did it grow year over year, but it accelerated meaningfully sequentially.

We saw strong sequential growth in CAS, especially in Affera which was I think like near 60% sequential. Any way you slice it, our CAS business, from technology to commercial execution, geographic expansion, safety profile, data, physician experience, et cetera, is doing really well.

Speaker 0

Jeff, as you mentioned, the sequential growth is going to continue, right? You saw that on the chart. We're going to have both higher growth rate in Q2 than we did in Q1 in CAS, and we're also going to have an absolute value significant sequential growth between the first quarter and the second quarter.

Speaker 2

All right, thanks, Travis. Appreciate the one question. Next, we'll go to Larry Biegelsen at Wells Fargo Securities. Larry, please go ahead.

Speaker 0

New board committees, you know, one focused.

Speaker 1

On growth, one focused on operations. What can these committees do that you couldn't do before?

Speaker 0

You know what would success look like.

How long before investors start to see an impact?

Speaker 1

Thank you. Yeah, thanks, Larry. Look, the two committees, I think like I mentioned in the comment, they're going to provide focus to support management. I think particularly where there's the two committees, one on growth, one on operational, operational performance, think margins, continued focus on our supply chain. One thing they're going to do a couple things. One, we're bringing on these two new directors with deep medtech experience. That'll be a strong voice on the board. I believe we had MedTech experience in the past and recently not as much. Bringing in John and Bill will help a lot and they'll be on those two committees. The other thing is just the frequency. We've rearranged our committees. We didn't just add two committees, we're going to rearrange them so that we keep the same amount of committees and these will be very focused on those two topics.

The amount of the intervals with management will be higher. It'll be, I think, quite a bit higher than we've had in the past. A lot of off cycle discussions that will help drive this. That's what I think. It's the focus, it's the interval and it's the touch points with management and I think the MedTech voice on those two committees.

Speaker 0

Thank you very much.

Speaker 2

Thanks, Larry. Next question we'll take from Mike Kracke at Leerink Partners. Mike, please go ahead.

Speaker 0

Hi, everyone.

Speaker 1

Thanks very much for taking our question. Maybe just going back to the CAS business. During your last call, you talked about CAS growth accelerating from 30%. You put up another great quarter of nearly 50%, expecting that to accelerate again. I'm curious, in terms of the ramp that you've seen, is that $2 billion that you've talked about in annual CAS sales now squarely on the table for fiscal 2026, or what reservations would you have about committing to that? Yeah, no, thanks for the question, Mike. When I said that, we're sticking to that. Nothing's changed. I said it's near term. I think getting it in fiscal 2026, and just to be clear, it's another $1 billion on top of our FY25 base. Right. That's what we're anchored on. Sticking to that. I said near term. Near term, it could be FY26.

I think it'll go into FY27, but it won't be far. That's on track. Like I said, accelerating sequentially as well, and things are looking good. No change there. Got it. Thanks very much.

Speaker 2

Thanks, Mike. We'll take the next question from Robbie Marcus at JPMorgan. Robbie, please go ahead.

Speaker 1

Oh, great. Thanks a lot for taking the question.

I wanted to follow up on Larry's question on the new directors.

Formation of the committee. Geoff, Thierry, maybe you could give us a little more besides, you know, more touch points and communication.

Is this something where maybe the size?

Of the company, the dividend, the capital allocation might be up for.

Discussion, how to create more EPS growth.

I'm just trying to understand how much of this is, you know, more a continuation, Geoff, of your strategy since you became CEO.

I know you've talked a lot about portfolio optimization versus maybe evaluating something more of a wholesale change.

Thanks a lot. Yeah. Look, Robbie, I'd say first of all, I think we're entering, like I said in the call, a new chapter here for the company. I mean, when I came in immediately, was met with a couple of challenges that we had to work our way through, some of our own making, some market like VVP and things like that, but we've got a stable foundation, we've worked through that. Our growth drivers are kicking in and we're going to execute to that. You'll see this growth inflection in the back half of the year. On top of that, I think we feel confident, our board feels confident, and this is something that was in place before we started engaging with Elliott, that we can turn the page to a new chapter and be more aggressive on some of these other drivers that we talked about.

These are the same things that Elliott has talked to us about. It's all about value creation and some bold decisions around a couple of areas. One is more M&A. The Affera deal is looking great and like I said, we feel like the team has the bandwidth to integrate more such deals like that, not necessarily in AFib, but across the company in these high growth areas. More M&A, reinvigorated laser focus on the portfolio to reorient the whole portfolio between M&A and any kind of portfolio moves towards higher growth. Our Wamger diabetes deal is a good proof point, but there's other opportunities we can look at here. That's one big area. The second is investing more in the company.

We've talked about capital allocation within the company, where we're investing our R&D, in our G&A, where our growth-oriented G&A, where's that going, but making sure we're investing more in the company. Are we investing enough behind these big growth drivers? We think no, we'd want to invest more. You see it in our R&D this quarter growing almost 8%. We'd like to keep that trend going, invest more behind these growth drivers because they're secular growth drivers. Talking to Elliott, they call them transformational growth drivers that we haven't seen in decades. That's their words, not mine. These are the themes: reorienting the portfolio for even higher growth that's durable, and then reinvesting more behind our growth drivers.

We've got the confidence, we've got the stable operational base to do this, and we can work on those things as these other growth drivers that we've been working on for the past couple years are taking us, you know, are accelerating our growth. We can do both of these at once, and these committees are going to help with that. I'm super excited to have, you know, both John and Bill on the board. We talked about, you know, their med tech background, but specifically, you know, operators, strong financial acumen, experienced in doing portfolio moves, M&A, and they're just a good fit. They went through our normal process through our, you know, Nominating and Corporate Governance Committee. It was unanimous that everyone felt it was a good fit. We want them, they want us.

I think they're going to do a great job, not just supporting management, but also representing all of our shareholders. That's how I'd answer that question, Robbie. It's all about value creation. We're going to do what it takes to get there. There's a big opportunity in front of us, and it's about capitalizing on this opportunity and accelerating it. Great. Thanks, Geoff.

Can't wait to see what comes.

Appreciate it.

Speaker 2

Thanks, Robbie. Appreciate the question. Next, we'll go to the line of Matt Mickseck at Barclays. Matt, please go ahead.

Hey, thanks so much for taking the question and congrats on some of the progress here that you're making in these major growth drivers. On that subject, you've been investing in the groundwork for these major growth drivers now for several years. Diabetes, ablation, RDN, and they're just starting to really come through. We get excited. I think everyone gets excited about seeing the growth come through and hearing about rates like 50% growth in cardiac ablation. It'd be super helpful if you could try to square, not to temper the enthusiasm because they're great programs, but try to square what these can mean on an annual basis to sort of overall Medtronic portfolio growth.

Just because I think the perception becomes we're accelerating growth, which means we're not going to do 5%, maybe we'll do 6% growth or something like that, which to take that off the list for the long term. Maybe help us walk through a cadence of, say, 25 or 50 basis points over the next 12 months. Is it another 25 or 50 basis points, maybe in 2027? Just some way of gauging what this means to overall portfolio growth would be super helpful. Thanks.

Speaker 1

Okay. Mike Terry, do you want to take that one?

Speaker 0

I guess I'll take a shot at it. Jeff, you can comment. First, you might have seen in the announcement that we'll do an investor day sometime in mid 2026 to take you through the next step in our financial profile. I'm not going to give you very specific targets until we get to that point, because that'll be the whole purpose of that discussion. When we have that discussion, we'll show you where the company is going, we'll show you the steps to get there, and we'll show you what it means from a financial profile perspective, the new framework, financially speaking, and we'll give you the indicators that you can use to see that we're tracking towards that path. That being said, to be a little more short term, Jeff mentioned the magnitude of the opportunity that we've got in Cardiac Ablation Solutions.

We're talking $1 billion of incremental revenue over the 2025 run rate within a relatively short time frame. You could see the type of impact we're going to have there. On Ardyn, it's also a secular change for us and a massive transformation in terms of run rate, and you can see the size of the opportunity that this represents. These two things alone are going to have a pretty significant impact on our growth rates. Jeff mentioned all the other elements such as Tibio and Hugo that are going to kick in, et cetera. It's very clear that we're talking macro level impacts, growth opportunities. To be clear, we're not giving up on the rest of the business. We've made the underlying changes to make them run smoother.

We're addressing with product and innovation some of the businesses that have been slower growth businesses or franchises for us in the past. You should see these large opportunities as being incremental, and that's what we're targeting. For the exact quantification, I'm afraid you're going to have to wait a little bit. You'll start seeing the signs in the second half, and then we'll show the new framework when we talk to you in the middle of 2026.

Speaker 1

Yeah, no, the only thing I'd add to that is look, why now we've got this growth coming, this inflection in the back half of the year and very tangible new product innovation coming, even from like this quarter, and that you have some businesses that were growing below trend that also have, you know, nice products coming or lapping an issue like BBP and Neurovascular that also contributes at least to a nice back half growth that will continue. That higher growth allows us, gives us more just through some natural leverage and our cost control in our operational efficiencies. It gives us more oxygen to reinvest, which allows us to do more innovation. There was that chart of that cycle, and the only thing I think is missing from there is portfolio. Right.

More growth leads to more oxygen, which leads to more investment, which leads to more innovation and more growth, and then you've got the portfolio in there. I do think it creates opportunities for a different algorithm here. That's something we're not going to really talk too much about until we get to that investor day. I'd like to think there'll be some milestones along the way, but the broader strategy and algorithm, all that we'll talk about on that investor day.

Speaker 0

If I can just add one comment, Jeff, on that, we're talking about reinvesting more, but I want to be clear that we're not talking reinvesting to the detriment of EPS. It has to be, and we're very clear on the fact that the growth will allow us to invest more while continuing to generate leverage in the income statement and improving EPS. I just want to be clear about that.

Speaker 1

Good, good point.

Speaker 2

Okay, thanks Matt. Next we'll go to the line of Anthony Petrone at Mizuho. Anthony, please go ahead.

Speaker 1

Great. Congratulations on the announcements this morning. Maybe I'll zone in on one of the growth initiatives, which is renal denervation. We're looking at the targeted date of October 8 for the NCD. Maybe just frame for us what you would view as the best case outcome in terms of the targeted population and uncontrolled hypertension. When you sort of think about this new structure growth initiatives, where would you stack rank renal denervation on transforming the growth profile of this company? Can this be a multibillion dollar product category over the next few years? Thanks. Yeah, thanks for the question, Anthony. First of all, there was an update already in this quarter, which I don't think we talked about in the commentary, but we did get through the comment period.

That 30-day comment period ended with CMS, and there was, I think, a record—I'm told from our reimbursement folks—a record number of comments, overwhelmingly positive in support of Arden and the guideline and the way CMS framed reimbursement and what's required. Like we said in our last call, that is a very good case for us that opens up this market. In addition to that, you're seeing physician societies—we already saw it in Europe a few months ago—now in the U.S. incorporating renal denervation and our, you know, I gotta start saying our product name here, Symplicity, you're going to hear a lot more about that, into the care pathway. All these puzzle pieces that we've been working on for so long: breakthrough FDA device designation, a nice indication for this, the CMS proposed reimbursement, the comments.

Now you're seeing the physician societies incorporate Symplicity into the care pathways, how you take care of these patients. Strong demand from hospitals to say, okay, we need to get serious about this. How do we—we need to build these care pathways. We've put out—we've deployed a lot of market development specialists to support them in this training of the physicians, although that's not a huge burden. A lot of the interventional cardiology community, this is not a big stretch for them. That's not a huge burden, like something completely new. They got the catheter skills, and all the dominoes are falling, the puzzle pieces snapping into place, that this is going to be a massive market now. We're looking at cash right now. It's very tangible. You see the transition from drugs to ablation and within ablation from one technology over PFA. We've got a great technology there.

It's growing like crazy. It's very tangible. I still think Arden has a chance to even be bigger. The patient population is massive. You know, we've talked about how many hundred million people in the U.S., you know, 100 to 200 million people in the U.S. that have hypertension. Of those, is that right? About 100 million?

Speaker 2

I've got a million at eight. I'll chime in, Geoff. 18 million that are uncontrolled hypertension. It's a massive population.

Speaker 1

One in four people with hypertension have, you know, it's a huge number that's uncontrolled. We think this is going to be a, could be the biggest thing that we ever do. This is one of those areas that we talked about, investing behind this to really make this market develop and grow and be a driver for us and create a moat around our franchise, our Symplicity franchise, to protect it against competitors. We've got already our next generation of catheters ready to go. We've got new clinical trials ablating different places that we think, in the early work, meaningfully helps the blood pressure reduction. There's a lot of work going on here and just really pleased with the way it's all coming together. Anything else?

Speaker 2

Great, thanks, Anthony. Next, we'll go to the line of Josh Jennings at TD Securities. Josh, please go ahead.

Speaker 1

Hi, good morning. Thanks for taking the question. Got to change that picture, update it. Sorry about that. Wanted to just check back in.

Speaker 0

With the increased focus on the diabetes franchise with the IPO split separation strategy.

Speaker 1

Just in the U.S., it sounds like the slowdown may have been driven by patients and physicians waiting for next generation CGM and Instinct, the collaboration with Abbott. Multi part question. First, I just wanted to check and make sure there hadn't been disruption that's leading to a slowdown. Second, just to set expectations.

Speaker 0

In terms of how we on the sell side investors should be thinking about the ramp from here in that U.S. Diabetes business.

Speaker 1

Lastly, what's left for the approval and launch of Instinct in?

Speaker 0

The integration with 780G. Sorry, three parter there, but I hope.

Speaker 1

You got all that. Okay, we'll answer the three parter and change the picture if you want. Why don't I do two things here? I'll have Thierry update you just on the deal. It is on track, and let him talk about that. I will bring Q on to talk about the business specifics. Thierry, do you want to update us on the deal?

Speaker 0

Just on the deal, I would say the process is perfectly on track. There are really two sides. One is the operational separation of the business and the other is the transaction itself. On both fronts, the teams are making progress exactly in the way we anticipated. The first investor engagements have been very, very encouraging. We said three months ago we thought we'd complete the separation within 18 months. It's three months later now. It feels like 15 months. Everything on track. That's all I would say on this front, Geoff.

Speaker 1

Okay. Que, do you want to answer the business questions that Josh had?

Speaker 3

Yeah. Yes, Jeff. Thanks, Josh. I think you got it right. It's really a matter of timing. In the first half, we're really excited about Simplera. You can see that we're achieving double-digit growth in the international markets where Simplera has been launched. In the U.S., the demand is absolutely there. We have this dynamic where patients are waiting for the new CGMs. To give you a sense of how we're ramping up production, we're going to be producing double what we made in Q1, and in the second half, double what we're making in the first half. Production is ramping up really nicely. In parallel to that, the Abbott Instinct CGM, we expect to launch in the coming months, not too far behind Simplera.

To put it in context, it's actually a very big moment for us because we're now going to have two competitive sensors on the market, giving patients choice, significant improvements in form factor and days of wear. It's really a matter of timing and why I'm actually extremely confident that we'll see growth acceleration in the second half. You asked about what's left to get Instinct over the line. We told you that we submitted for ACE and IAGC back in April. We got ACE approved in July.

Speaker 1

You.

Speaker 3

Our expectation is that we'll be in a very, very strong position to launch in the coming months.

Speaker 1

Yeah, look, I summarize it. There's a way, however you want to phrase it, a super cycle of innovation here that Diabetes has. It's on the very front end of and we think this transaction is going to be a value creating, significant value creating event for shareholders. In the meantime, you know, we still, Medtronic is the owner of this company for, you know, a year plus and we're very focused on it. This is an important part of the company and you know, we're committed to making this, capitalize on this cycle of innovation that we've been building towards and this, making this transaction a meaningful value creator for investors.

Speaker 0

Great.

Speaker 2

Thanks, Josh. We'll take two more questions here before we wrap up. We'll go to the line of Matt O'Brien at Piper Sandler. Matt, please go ahead.

Maureen, thanks for taking the question. I'd love to ask a little more about renal denervation, but I think the other thing to think about here is the overall business as you spin off Diabetes. You've got half the business that's doing really well, growing very quickly, but another half that's a little softer, not growing quite as quickly, maybe some structural headwinds. You do have a couple of new products in tibial and robotics that may be able to help some of these softer areas. Are there other products on the organic side of things that can help bring some of these softer businesses up to the other half of the business that's doing so well, or do we need to wait for more inorganic additions to really help with that side of the business? Maybe post the Elliott contributions? Thanks so much.

Speaker 1

Yeah, thanks, Matt. No, the short answer to your question is some of the businesses that came in below trend or lower growth in the portfolio have very specific growth accelerators already, organic. We talked about Neurovascular, for example. That's been a good grower for us in the past and it has to get through probably the biggest VBP impact we've had on any one business. Neurovascular for us is huge in China, and so we are moving through that. It also had a recall, which we're not technically lapping, but the replacement product now is ramping up, so that's going to accelerate. I mentioned through the Contigo partnership some products that we'll be putting in our Neurovascular and our peripheral vascular bag. I'll come to PV in a second; that'll help with its growth.

Finally, we've got some hemorrhagic products in Neurovascular, so Neurovascular, you're going to see a meaningful acceleration. We talked about pelvic health, and I think this is an underappreciated one. This overactive bladder is a huge market, it's millions of patients, and the idea of going from basically an implantable device in your upper buttocks, the sacral nerve modulation, to something that's above your fascia on the ankle. It's not quite a wearable, but it's pretty close to a wearable. It is really going to open up that market. We'll take market share, which will be fun, but the bigger thing is we're going to grow this market like crazy. That's another one. Neuroscience has, over the years, been a consistent performer for us and it's very well positioned competitively and it will be that way. I think these two will help accelerate it. Peripheral vascular as well.

Again, the Contigo transaction will put those carotid stenting products in their bag. They have some other organic products coming in, aspiration, liver on, and so there's another example as well. Those are some of the slower. We talked to you about diabetes. The other two things are big. Surgical, we've talked about, there are those headwinds. They're stable but consistent headwinds that we're dealing with there. In our other two big franchises, Spine and CRM, we're in great shape. Spine had a mid single digit revenue overall and it was like 4.5%. I think we had over 8% in capital worldwide. I know our competitor said some of their capital was lower or a lot lower and there was concerns about capital in that area. Now our capital's growing like crazy, you know, globally over 8%, 13% in large capital.

We got a motor on that spine business that's going to be durable and then cardiac rhythm, you know, it had some tougher comps to deal with. There's a lot of innovation there. Aurora EV-ICD growing well, first of all, leadless is still growing over 14% this quarter. It's over a decade and still growing in the teens even with competition. 14% this last quarter. You've got Aurora EV-ICD growing over 80%. Our conduction system pacing lead was 20 some percent, 21%, I think. We've got a new high power conduction system lead coming, Omnisecure. I think that business is in great shape. You look around the portfolio, you see major growth drivers and you see some, you know, I'll call them singles or doubles coming in.

Some of these lower growth businesses, except for pelvic health, that's more than a single or that's a big one that are going to get the rest of the company up and really support this back half ramp and keep it durable. Did I miss anything?

Speaker 0

Oh, I think that was very comprehensive.

Speaker 1

Yeah, thanks, Matt.

Speaker 2

Yeah, thanks, Matt. We'll take one more question. We'll go to the line of Joanne Wenck at Citi. Joanne, please go ahead with your question.

Speaker 1

Thank you and good morning. I like the new background look at SRS. Earlier this summer, Hugo had a really significant showcasing. I'm curious, what are your thoughts on what you've learned in the European market and how that could translate to when it comes into the U.S. market? I'm also curious if you can give us any sort of metrics on revenue, robots placed, anything that helps ground us to the progress that's being made in that segment.

Thank you.

Thanks, Trina. I'll call Mike Marinaro to answer those questions. I'll start by saying, you know, Hugo continues to make, you know, progress. This is a, you know, core program for us. We're counting on it being one of our growth drivers, particularly when it gets into the U.S. we talked about in the back half of the year. I'll turn it over to Mike to answer those specific questions. Mike? Yeah, thanks, Geoff.

Thanks, Joanne. Maybe first to answer the questions around what we've learned in the international markets. Importantly, we've learned that we have a form factor that's been received very well, particularly the open console, the modular design, which is now really starting to play out in a very meaningful way in general surgery. We're seeing that general surgery applications are really a place where the modularity of this system really shines because you can take a true lap-like approach. We're learning that partnership really matters. We're not really selling, you know, we're selling robots. The performance of the robot obviously is critically important, but we're really building partnerships and so training, education, how we surround the robot, how we come to customers as a full surgical business.

These are all critical lessons that we've learned so far and also lessons that we're borrowing from our spine business, which I think Geoff just talked through, that there's really a whole ecosystem play here that we're thinking about as we come to the U.S. market from a performance perspective. We're now in over 30 countries, in markets around the globe. We've logged tens of thousands of procedures, Tom, and we're seeing significant double-digit growth in our current accounts on a year-on-year basis. Very good progress there, and we're tracking that momentum very carefully because how those accounts perform on a year-on-year basis obviously is a good indicator for what we should expect moving forward. As you know, we filed them as you talked about at SRS. Joanne, I think you were there. We filed for FDA approval for our urology study, our urology indication rather, here this year.

We're progressing well in talks with FDA. We're preparing to launch or rather submit hernia and GYN shortly thereafter. Those are all submitted by very large data sets that we're presenting at major conferences. We presented urology at AUA, a very large data set at the European Urology Society, GYN data at SRS, we're presenting the Hernia Enable hernia, which will be the data to support our U.S. approval at the American Hernia Society here coming up in September. We're taking a very sort of forward-leaning public approach to really displaying the safety and efficacy of the system so that customers and the community can see what that looks like. We are shortly preparing to enroll our first patient in our Gyne ONC study so that we can pursue that indication as well.

There is a whole series of progress that's being made here, in addition to our digital ecosystem, which grew significantly last year both in LAP and robotics, including in competitive systems, and is poised to more than double again this year. I think Geoff said it, you know, we are making very good progress. We've seen now, you know, the performance of the system. We've learned from that. We've seen how critical it is to really come in as full partners. You know, we're expanding the number of countries and significantly increasing the number of procedures on a quarter by quarter basis. Thanks for the question.

Okay. Thank you, Mike. Thank you, Joanne, for the question. I think we're going to bring the call to a close here. First, I want to thank all the analysts for their questions and all the support. Thank you for joining us today. I'd like to announce our next Q2 earnings call is going to be broadcast the week before Thanksgiving, actually Tuesday, November 18th. That's the week before Thanksgiving. We'll update you on our progress. With that, I'll bring the call to a close. Thanks for joining us and have a great day.