Q2 2026 Earnings Call Transcript

Hello, everyone. And thanks for joining us today for our fiscal 2026 second quarter video earnings webcast. I'm Ryan Weispenning, vice president and head of Medtronic investor relations. Joining me here today are Geoffrey Martha, chairman and chief executive officer, and Thierry Pieton, Chief Financial Officer.

Geoff 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 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 exchange, second-quarter revenue in the current and prior year from our this quarter of the Dutch Obesity Clinic, also known as NOK, and second-quarter revenue in the current prior year reported as other. References to sequential revenue changes compared to the '20 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 competitors' 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, Geoff.

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 med tech. 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. In 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. 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% CAS 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 Ferra mapping system and our Sphere nine 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 Afera, 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 in the early, we're still in the early parts of this rollout.

And we expect revenue acceleration to continue with an even higher CAS growth in Q3. We remain on track to double the revenue of this business soon, adding an incremental $1 billion off the $1 billion FY '25 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.

So the EP ablation space we're expecting to start in Q3 is now over $12 billion. It's growing mid-twenties, 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 in two 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, Regions, 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 multi-billion 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. 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 a 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 Ultaviva 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's dancing to Jingle Bell Rock.

I was getting that 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 on new product introductions. Getting products to market ahead of schedule, and ensuring strong commercial follow-through.

So with that, I'm gonna turn it over to Thierry to cover the details of our business performance, financials, and our guidance.

Hey. Thanks, Geoff. Hi, everyone. Appreciate everyone joining us today.

So I'll start with our cardiovascular portfolio, where we grew 9%. This was our strongest growth over a decade, excluding the easy comparisons we had after the pandemic. The growth acceleration was driven by our building momentum in CAS, which Geoff 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 casts. The rest of our cardiovascular portfolio grew a combined mid-single digits. Cardiac Rhythm Management grew 5%, with 18% growth in Micra leadless pacemakers and nearly 80% growth in Aurora EVICDs.

In Structural Heart, we grew 7% on the strength of the Evolut TAVR platform. In peripheral vascular, we grew low single digits, and we expect growth to improve as we continue to launch the NeuroGard 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 U.S, and 5% in neurosurgery capital equipment. Our SpineABLE 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, also expect an increasing growth contribution from the NeuroGard 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 Arteviva launch that Geoff outlined. In 7% both pain stim and brain modulation grew high single digits as we continue the rollout of our Insemptiv 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 MedSurg 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 will start our entrance in The U.S. 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.

We kicked off our Embrace Gynecology U.S. Pivotal study last month. This builds on the momentum from the positive results of our international GUIN study, which we shared at SRS in July. Given our experience in international markets, we have 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 LigaSure 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 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 G.I.

Genius, our AI-powered solution used to detect polyps during colonoscopies. Wrapping up our business performance, our diabetes business or MiniMed, as it will be called post-separation, grew high single digits. We had particular strength in international markets, which grew 11%. As expected, The U.S. 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 Simplera Sync 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 preorders in The U.S. during the last month of the quarter. And we expect to begin shipping in late November. We accumulated more than 35,000 U.S. customer orders for Simplaris Inc, and preorders for Instinct.

Around 25% of these orders are from new pump users or our Medtronic pump users who were 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 HCPs in The U.S. 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 installed base. We expect the demands our new sensors to accelerate our U.S. 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 780 gs 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 780 gs for people with type two diabetes. And they cured our smart guard algorithm 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. 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. Look, 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 geographic 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 Afera are now behind us. So together, we drove a 70 basis point operational improvement in gross margin in the quarter, was offset by business mix, which represented a headwind of 80 basis points. Split roughly equally between cardiac ablation and diabetes. 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 Cast business and separate the diabetes business. Next, tariffs were a 20 basis points headwind, and finally, FX was about a 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. Have 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 Geoff mentioned, we proactively took the opportunity to increase spending to accelerate our PFA and RDN launches in light of the considerable market demand and compelling near and medium-term outlooks. At the same time, we delivered disciplined leverage on G&A, with growth at under half the rate of our revenue growth. Our adjusted ARP 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 percent and $0.05 above the midpoint of our guidance. 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 full-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, now expect fiscal 2026 revenue growth of approximately 5.5%. A 50 basis point increase from the prior guidance.

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 2026 revenue, of $625 to $725 million, including a $150 to $200 million tailwind in the third quarter. Moving down the P&L, we expect our fiscal 2026 gross margin to be slightly up ex 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 2026 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 will still deliver SG&A leverage on the full year by rigorously managing our G&A line. Taking all of this together, we expect fiscal 2026 adjusted operating profit to grow approximately 5% or 7% excluding tariffs.

Our fiscal 2026 operating margin is expected to be roughly flat ex tariffs and down about 50 basis points including the tariffs impact. Now coming to EPS. Second quarter EPS came in $0.05 above the midpoint of our guidance. $0.03 5 of this beat was from reduced tax expense, 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 2026 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 of 100 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 2027 driven by accelerating revenue growth, a lesser impact of business mix from cats 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. Geoff, back to you.

Okay. Thank you, Thierry. Before we go to Q&A, let me share a few quick thoughts. So when you look at our top line, you can really see the focus we've had on allocating capital and executing on our pipeline is all now coming together to drive meaningful acceleration in our growth.

We're on an incredible trajectory with PFA and we're just getting started. With some big new opportunities with Simplicity and Altaviva. At the same time, our newly formed board committees are helping as we act decisively and with increased speed. We're executing on margin enhancement programs to fuel our enterprise growth drivers, the future pipeline, and earnings leverage.

We continue to evaluate the overall portfolio at every level as well as tuck-in M&A, and we are committed to growing above our WAMGR while also raising the WAMGR of the company over time. And I'm looking forward to diving deeper into all of this with you at our Investor Day next year. So bottom line, we're executing on our commitments. You can see it in our numbers.

And with every quarter, we're picking up more momentum. We're pleased with the progress, but eager to continue proving Medtronic has turned the page and entered a new period of greater revenue and earnings growth. Finally, I want to thank our employees who are watching today around the world. Thank you.

Thank you for your steadfast commitment to the Medtronic mission. And to the patients that you and our customers serve every day. I also appreciate your continued execution, which allows us to collectively deliver on our total company performance. So thank you.

Okay. Now it's time to move on to Q&A where we're going to try to get to as many 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.

So Ryan, can you please give the Q&A instructions and queue up the analysts?

Sure, Geoff. For the sell-side analysts 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. Let's take the first question from Patrick Wood at Morgan Stanley.

Please go ahead, Patrick. Patrick, can you hear us?

There we go. Nailed it. Thank you so much for taking the question. Thanks, guys.

I'll keep it to one, of course. I'd love to start with simplicity. You mentioned the commercial discussions happening faster than kind of expected. Obviously, diving into any individual payer, how are those reflective relative to the NCD?

Like, are there restrictions being put on? You know, what is the sort of tone of the conversation and, you know, how the payers looking to introduce this within their patient pool? Thanks.

Yeah. Thanks. Thanks for the question, Patrick. Yeah.

The commercial payers, you mentioned in the commentary, they are coming online faster than I believe we anticipated. They're getting a lot of push from patients as well. In terms of restriction, I would say first of all, I'd say, look, the NCD is, you know, the Medicare NCD is broad. And it's better than we anticipated.

It's better than the proposal. So we're comparing it to that. The one area that I've heard in addition on the NCD, they've incorporated, you know, physician, you know, for lack of a better word, physician discretion, patient discretion on hey. As a patient, can I tolerate these meds?

Does the physician feel like the patient cannot tolerate the meds? That gives them that avenue to move to, to move to Ardian. To simplicity. In the commercial payers, we're seeing where there is one difference that I know of is around the medications.

More of an emphasis on, you know, being on a few medications for a while. So that's the one area that I'm aware of, Patrick. And, you know, we'll keep you keep everyone posted as we get more commercial payers online.

Okay. Thanks for the color.

Thanks, Patrick. We'll take the next question from Travis Steed at BofA Global Securities. Go ahead, Travis.

Hey. Congrats on a good quarter. I guess, first of all, the implied second half guide around 6%. And I kind of think about it two buckets, the pipeline and then kind of the base business.

And maybe talk about kind of what you're assuming on RDN in the second half. And then also the base business, you know, why confident in the slight rebound in med surge and kind of the confidence that to keep the base business humming. And then on the margins in the second half, you know, this quarter, we didn't see quite as much margin flow through. Just assuming that changes in the second half.

Revenue upside leads to more margin upside in the second half.

Do you want to take that one? So maybe I start with the margin. Hey. Hi, Travis.

Thanks for the question. Hey. Hey. Look.

You know, the momentum that we had from a commercial perspective in the second quarter. And, you know, pretty early on in the quarter, we saw the order intake being pretty strong. We also saw that we were gonna have a little bit of upside from a tax perspective even though that's timely, but we did see it coming early on in the quarter. And so we just made a decision to go invest in the places that are gonna drive the growth going forward.

So, you know, we made some significant investments in the mappers structure, for example, in cardiac ablation. We started to build up the capability from a direct marketing on the simplicity side. So we took the opportunity that we were gonna see upside on revenue and a little bit on the tax line. Just to lean into the investment to make sure we fully capture the opportunities that are ahead of us.

And so you saw that in R&D. You know, it's the second quarter where we have R&D growth that's pretty significantly higher than the revenue growth. And this quarter, specifically, you saw it on the SG&A line. Where we put, as I said, quite a bit of investment especially in sales and marketing, while keeping the G&A line pretty constrained.

So going forward into the rest of the year, we'll keep investing in these growth areas. You'll see R&D continue to ramp up. As you know, we're targeting to get over time to roughly about 10% of our revenue on the R&D line. On SG&A, though, you should expect to see leverage in the second half.

So SG&A together, so we'll start seeing a lift there. And so ex tariffs, we'll have gross margin and operating margin leverage in the second half. And we will have to contend with the tariff impact. So all in all, on the full-year basis, you'll see gross margin slightly up before tariffs.

Down about 50 basis points post tariffs. And at the operating margin level, you'll see operating margin roughly flat year over year ex tariffs and slightly down with the impact of tariffs. So, look, it's all about capitalizing on the opportunities that we've got ahead of us. Second half, leverage.

And that's what we'll keep doing. But, again, on both those lines.

So on the revenue, as you see from the guidance, we're seeing we're looking at a back half ramp here that will extend into '27. And the way I'd break it down, I mean, a big piece that is these growth drivers that are kicking in, these multibillion-dollar opportunities. In terms of the back half, though, most of that is really coming from PFA. So, in terms of the new big ones. Right?

When you think about PFA, simplicity, Altaviva, and we have Hugo coming, those are we would say our big, you know, multibillion-dollar, you know, up market opportunities. In the back half, the contribution will be more from PFA in that category. PFA is, I mean, you know, is cranking right now. We've got a lot of momentum there.

When it comes to Simplicity, and obviously Simplicity and Ultaviva are approved in The U.S., you know, on simplicity, I'd say we're gonna see it start to, you know, tick up in the back half of the year. And then ramp, you know, in the quarters following that. You know, like I said, between the NCD, and the commercial payers coming online, you know, this market is, you know, really a best-case scenario. It's as big as what we said it is, it's not about, you know, if or even how big.

Like, it's as big as we said as it's really how fast. And we're measuring that speed of adoption in quarters, not years. Altaviva, you know, again, just approved a lot of great leading indicators, physician trainings over, you know, booked, and we can talk more about that if I get questions on why we're so excited. Again, it'll start to contribute in the back half a little bit.

And then Hugo, we don't have too much on, you know, we but we do still expect the approval in the back half of our year. Then there's another getting to the base business, you know, diabetes pops, you know, pops back up, as our new sensors are available. Neuromodulation continues to be strong. CST will be continue to be strong.

CRM, had two really good, you know, a really good Q2, you know, I don't know if we're gonna have that same level of growth there, but still, you know, strong growth there. And then you've got two other businesses that'll I'll call it, tick up, you know, incrementally increase their growth. Peripheral vascular with the carotid stent. Mechanical thrombectomy coming.

And then neurovascular, again, it's also selling like carotid stent. Some hemorrhagic products coming, and they're just lapping some issues. A recall and then, lapping VBP here. So the base business is a big contributor.

PFA is a big contributor. Then you're gonna start to see Simplicity, Altaviva, and a little bit of Hugo. Great. Thanks a lot.

Thank you, Travis. We'll go to the line of Vijay Kumar at Evercore ISI. Please go ahead, Vijay.

Hey, guys. Congrats on a nice sprint here. And Geoff. Thanks for taking my question.

I had maybe a new product question, a two-parter, if you will. One on Effera, Geoff, do you feel like we have enough mappers now? And if is supply in a place enough where you can hit the $2 billion, you know, how are you thinking about supply and mapping? Then on TBL, we've got some good feedback on cannibalization of, you know, whether TBL could cannibalize Botox procedures.

Could TBL be, you know, a billion-dollar product for you guys down the road? Thank you.

So, you know, I'll start with the PFA questions. You know, on the supply that, you know, we are that that's not holding us back. So, supply is in a good spot. And then on the mappers, the mapper hiring is going well.

Right? We're staying ahead. You know, but I wish the buffer a little bit more because the growth is tremendous. But we are staying ahead on the mappers and the supply is not an issue.

And like I said, our PFA business is really humming, you know. I was just with a big customer yesterday. They got two systems. They will hit laid out three more that they're gonna buy and just talking about, you know, once they put, you know, especially Afera, once they put that in one of their hospitals, how it kind of, you know, takes all the market share or the majority of the market share there.

For all types of cases. There's just all these benefits there. So feeling really really good about that. And, again, this mapper hiring has been a Medtronic, not just our cardiac ablation business, but a Medtronic effort.

And our HR team's doing a hell of a job there. And then on tibial, you know, look, tibial is something I think everyone needs to invest a little bit of time in here. It's a huge market, 46 million people in The U.S. with overactive bladder and of that 16 million with urinary urge incontinence, where this really shines. And it takes the therapy versus sacral which works really well.

It's been a great market for us. You know, there's been some channel disruption in the market lately, but it's still a great market. You know, and, like, works really well for patients. But it does take, you know, weeks or months to get that therapy to a patient from when they start.

Versus tibials left less than a day. So what you're seeing here is with tibial, right, you have to do, I mean, with both with the sacral nerve, you have to do a trial, then you have to go in for the implant. Then the patient leaves without the therapy turned on, has to come back to get it activated. Versus tibial.

This all happens in a day and the procedure is easier. And when patients, to get to your core, your question, when they're presented with options, all of their options, sacral nerve, tibial, Botox, they choose they tend to choose the tibial. So we do think it will take share from Botox. And I would emphasize that this we believe, look, there's a very strong place for sacral nerve.

There definitely been this is an incremental opportunity on top of our sacral business. And so this that sacral combined with tibial given that it's gonna be incremental, this is gonna make that business, that pelvic health business, a growth driver for the company. That's what I'll say about that. It's gonna meaningfully improve the growth rate of that business.

Okay. Thank you, Vijay. Next, let's go to the line of Robbie Marcus at JPMorgan. Please go ahead, Robbie.

Great. Good morning and nice quarter. Thanks for taking the questions. I wanted to ask you talked about strategically reinvesting into SG&A and over time, materially increasing R&D, I think up to 200 basis points.

How are you thinking about where those dollars are going? How soon should we be thinking about that? And, you know, just help us think about the cadence and the ability to still grow operating margin in the face of higher investment.

Yes. Hi, Robbie. Thanks for the question. So, you know, first, where the dollars are going.

So there are really two different categories, I would say. One is to, as I said, to capitalize to the maximum extent possible on the growth drivers that are ahead of us. So there is a significant amount of investment that's going to cast to Ardient to Altaviva and to, and, obviously, to Hugo with a profile that a little bit more long term. There are other growth drivers that we're funding.

At the same time, such as structural heart and neuromodulation, for example. The second category of where we're putting investment is to make sure that we keep the leading edge from a technology perspective in the key franchises that are our bread and butter. So, you know, there's overinvestment compared to the average of the business in CRM. For example, in the next generation of micro, there's significant investment going in CST to continue to develop the ecosystem that that business has created around Able that has enabled us to, you know, make the CST business more sticky with our customers from a device perspective and gradually improve the margins.

So it's really those two areas capitalize on the growth drivers on one hand, and keep the edge on innovation in the key franchises on the other side. From a sequence perspective, look, you know, I would say third quarter, we made a pretty deliberate strong investment because we saw the coming. You know, you'll see a bit less of that already in the second half. So as I said, you know, you should see leverage on the SG&A line in the 40 basis points of pricing and about 30 basis points or 40 basis points of cost out.

That's been sort of a recurring performance over the last quarters. And we expect that to continue. Over time. Right?

So we're generating between those two lines 70 to 80 basis points of gross margin improvement. Right? And this quarter, you had about 80 basis points of negative mix. And 20 basis point of tariffs.

And that was offset with FX. Going forward, we expect that negative mix to start getting better towards the '27. So for the rest of the year, it's still gonna be, pretty significant headwind as CAS and diabetes continue to accelerate. And in the second half of, of twenty-seven, diabetes will be deconsolidated, and then on the CAS side, we'll start seeing the shift between the capital equipment and the catheters, which will make that an accretive business as opposed to being dilutive. So what's what you're gonna see there is the 70 to 80 basis points of gross margin improvement operationally start to show up more as the mix becomes a gradually smaller and a positive effect over time.

And then outside of that, we've got some external factors, so we have to contend with the tariffs. So for the second half, we've got, you know, about 90% of that $185 million of tariffs that's gonna show up. In the income statement. The bigger portion is in Q3. Then we'll have a carryover of tariffs going into '27. And we expect foreign exchange, which is the last item there, to be a slight tailwind going into '27. So if you go it's a long it's a long answer.

Apologies. But I think it's important that you understand the algorithm. Going into '27, we'll keep investing in R&D. To get to the 10% over time.

But you should expect to see leverage on the SG&A line in '27. So, look, we're confident that with the growth with what we're doing from our gross margin performance in a sustainable fashion and COGS and pricing, and the leverage on the overhead, we'll have a leveraged P&L on the operating profit line in 2027. And that's why we hold on our commitment to have high single-digit EPS growth going into next year.

Yeah. You know, just to just to add to that, you know, there's more oxygen here. To create for the investment. You know, it's good to see the improved pricing.

And as we go forward, we're not, you know, assuming much incremental, but pricing, but at least holding the improved position that we have. But there's more oxygen in our cost down. You know, as we there's opportunities in scrap, obsolescence, and over time, you know, continue to optimize our network. So these are areas I think these are the incremental opportunity and cost down.

And, Rob, you have read some of your stuff in the past that you don't think there's much to do for us on SG&A. There but there's more. There's more to go on SG&A for the company, and that's where the scale of the company should benefit us here. And, you know, it's not gonna be, you know, easy on the company, but there's opportunities there.

And we're committed to doing what it takes to fund these growth drivers because, you know, what we're seeing out there with patients on these different growth drivers and what we're hearing clinicians, the impact on them and their staff. It's, you know, this is a big opportunity for the company we haven't seen in decades. We're gonna make it happen. Right?

And so there's still, you know, room to go on SG&A as well. And like I said, COGS, to make this happen.

Great. That was a fantastic answer. Maybe just one, quick follow-up. Geoff and Thierry, I know even since the beginning of this year, you've talked more and more about tuck-in M&A. Are you thinking about the environment today? Do you see a lot of opportunities and any areas you see more interesting than others to help flush out the portfolio? Thanks a lot.

No. Look, we're very focused on the tuck-in M&A. Don't wanna tip our hat in terms of, you know, exact segments, but we definitely are prioritizing some of the, it's again, it's tuck-in. We're prioritizing these higher growth segments.

A lot of that is in cardiology, some in neuroscience as well. We like that affair profile, right, where you're close to market or just you're on the market early stage or close to market would be ideal. Not afraid to, you know, to make the investment that it takes. To get those type of companies.

But as Thierry said on your earlier question on, like, where's the R&D going, you know, doesn't the tuck-in M&A, I wouldn't rule out some of our other, you know, key franchises that may need, to augment their R&D with a little M&A. But we are more focused on these higher growth segments. And then the, you know, the board committees we've set up help with the speed enable us to move faster. So, we'll see where it goes.

But it's definitely a big focus.

Hey. One thing, that, you know, we don't communicate a lot about but we've got a pretty active ventures. That's good. And that arm's been pretty active.

So it's got, you know, over 50 companies in which we have a stake right now. We like to use that arm to make investments in sort of early-stage companies. And, you know, it helps with some of the dilution, etcetera. Typically, you know, we always make these venture investments with a view of going higher into the capital over time.

So it's never a venture for venture. And, again, it's been it's the pipeline there is pretty strong. We'll keep working that angle too because it's helpful to feed the pipeline for future M&A.

A lot. Appreciate it.

Yeah. Thank you, Robbie. Looking at the clock here, I think we've got time for about three more questions. So next, we'll go to the line of Larry Biegelsen at Wells Fargo Securities. Larry, please go ahead.

Good morning. Thanks for taking the question, and congrats on a nice print here. So, Geoff, I wanted to ask about the ramp of Ardian because as you said, it's a question of how fast. So I'm hoping you can add some precision to your earlier comments.

You know, I think at our conference in September, you know, I asked US already in sales could replicate The US watchman ramp, which is about $400 million in year five. And, you know, I believe you said you'd be disappointed if your US audience sales didn't achieve $400 million by, I believe, year three. So how does the exclusion of isolated system hypertension in the NCD, you know, impact how you think about the ramp? And do you still believe you can achieve $400 million, you know, US sales by around fiscal 2028, which I think would be year three.

And just confirm, Geoff, that the current run rate The US is about $50 million. Thank you.

Well, look. Let me start by saying, yes. I would be disappointed if we're at year five, wherever you said at $400 million. We think it would go faster than that.

And this the final NCD won't hold us back. And like I said, we believe it's an improvement on the proposed NCD. Maybe this is a good time because I know there was, you know, on that NCD, like I said, it's an improvement to the proposed NCD. If you go back a year, it's better than what we thought a year ago.

If you go back five years, and you asked us if we thought we would get this type of NCD, we'd say that's the best-case scenario. You know, so this market, like I said, is as big as we've said it's gonna be. And, we believe that this final NCD as you dig into and really understand how hypertension, today is treated, it actually reduces the requirements for patients to get this therapy and it reduces the. And maybe this is a good time that we have, our chief scientific and medical officer on the line.

Knowing that there'd be, Doctor Laura Mori, who's also an interventional cardiologist, knowing that there'd be maybe some questions on this, on the treatment pathways. Maybe I'll ask Laura to comment, you know, since you mentioned that one systolic, you know, question. Or diastolic question. Laura, can you maybe provide some context here?

Sure. Hey, Larry. As specific to your question about isolated systolic hypertension, those are patients who, you know, don't have an elevation of their diastolic or the lower number of their blood pressure. It's only the top one.

And Jeff said we're continuing to study those patients, but I think the important thing to note is this population is actually pretty small for us overall. If you look at recent studies, people with hypertension over age 60, it's less than 15% of patients who have ISH or this condition. And for patients who are younger than 60, who are half of our patients in trials and then also in practice, it's really very unusual. So as Jeff said out the gate with the NCD, you know, if you just look at that topic, we would estimate that, you know, be less than 10% that would be affected by isolated systolic hypertension, not meet those criteria.

And then overall, you know, just to reiterate what Jeff said is that the overall the final NCD makes access more practical for patients with less time delays to treatment. Less restrictions and the, you know, the couple of things that they've talked about screening for are really things that are done in standard practice, you know, by general practitioners or internists. And you yeah. I think the other port just to mention is that in their response, CMS really reiterated that quality of life a really important consideration for patients.

Because lifestyle changes and being on many medications can be really difficult. And so they specifically said the good faith attempts are reasonable before referral rather than specifying some, like, mandatory minimum doses or number of medications. So overall, you know, whether it's ISH or overall, the workflow for patients to get into, referral for simplicity is not is really not restricted.

Alright. Thank you, Mark.

Yep. Thanks, Larry.

Next, we'll go to the line of Shagun Singh at RBC Capital Markets. Go ahead, Shagun.

Great. Thank you so much. You know, I wanted to touch on the algorithm here. A key message was growth acceleration.

You know, how should we think about the base business? Is it mid-single digits? The $1 billion incremental PDFA sales is about 300 basis points. And then RDN, I don't know if you could put a final point there in terms of the growth contribution.

But as you think about growth should we think about Medtronic moving towards that high single digit on the top line? And then on portfolio management, I was just wondering how you're thinking about or should we expect portfolio pruning beyond diabetes? Thank you for taking the questions.

Well, maybe I'll, you know, Shagun, thanks for the question. I'll start with the last part of it on the portfolio management. And look, this is an ongoing focus, you know, for the company, and it's really making sure that beyond diabetes, right, first of all, that deal is tracking and on track. And going well.

Beyond diabetes, we just wanna make sure that the whole portfolio fits together. We're getting the right amount of synergies. And we can provide the right amount of focus on these generational enterprise growth drivers like PFA, like Ardian, like Altaviva. And Hugo when it comes to The U.S. and others.

And so it remains a focus and it remains a focus of, like, one of the board committees that we set up, and we're meeting frequently on this and at it. And that's what I'll say there. And I'll have Thierry answer.

Overall, you know, if you think about the guidance that we just gave, five and a half on the full year, we were at 5.2 at the end of the first half. We're guiding at 5.5 in the third quarter. You can do the math for what fourth quarter looks like. And, you know, we don't wanna slow down from there.

And look, what I would say is, you know, it's pretty clear that CAS represents a sizable opportunity. We reiterate the incremental $1 billion coming shortly probably in the beginning of in the '27. Fiscal year '27 for us. And Ardian, you know, we have all these discussions about the speed. It's I think it's important to keep in mind that, you know, 11% of market share that population is, you know, sort of almost $3 billion of revenue for us.

So it's a pretty significant opportunity. And we talked about the size of the Altaviva opportunity as well. It's 20 million patients overall. So those come in increment to the rest of the business, and the rest of the business is not standing still.

So specialty therapies is getting better. You saw a first sign in this quarter, and it's gonna keep going with the product activity that we've got in neurovascular with Altaviva and pelvic. And the key franchises, look, CRM had a great quarter. It's gonna continue to perform for the rest of the year and beyond.

We're investing in that business to keep the technology lead. So we don't intend to go backwards. CST has been improving on the back of, you know, the able ecosystem that the team has created. So look.

You know, we're positive about the opportunities of the company going forward. And we'll keep you posted when we give next year's guidance in at the '4.

Okay. Thank you, Shagun. We've got time for one more question, and I apologize to the analysts that we weren't able to get to. You've got additional questions, feel free to reach out to me during the day. So we'll go to our last question, Pito Chickering from Deutsche Bank. Pito, please go ahead.

Hey. Good morning, guys. Thanks for taking my questions. I'll I have sort of two product, so I'll ask them upfront.

First one is, as AF ablation is moving to the ASC setting, can you talk about how you are positioned in the ASC in terms of mappers, and the fair placements? And on TAVR, can you talk about what you saw The U.S., you know, Europe and Japan? And how market share is looking in those markets. Thanks so much.

Well, thanks, Pito. Look, for, you know, PFA and ASCs, over time, we do see that as an incremental opportunity for market expansion there. It'll be a bit of a shift outside of the tertiary centers to the ASCs over time, but it also, you know, be a market expansion opportunity for us. It is a focus for us.

We have been hiring across the company, quite frankly, particularly in neuroscience, and in cardiovascular. Folks that are specifically focused on market development in the ASCs for us and what our strategy is and how our product portfolio fits there. And the resources we need, including mappers. So this is definitely in the calculus for Medtronic, not just, you know, not just our cardiac ablation business.

Like I said, this I think will represent, you know, an incremental growth opportunity for us there. And then on TAVR, you know, what I'll say is, you know, we had a decent Q2 here growing high single digits on a global basis. We're executing particularly well and getting more than our fair share of that of that Boston exit. You know, as we move forward in PFA, you know, I think, you know, Q3, we may see a deceleration there.

Tougher.

In TAVR. In TAVR. What did I say? PFA. PFA. I'm sorry. No. No. No. PFA, he's gonna keep going. I'm sorry. But in TAVR, a little bit of a deceleration in Q3, but then it'll pop back up in Q4. We've seen due to a phasing we've seen this in prior quarters as well. I don't know if you wanna add anything to that.

No. That's right. We saw the Q4, Q1 effect and, you know, Q2, Q3 looks kinda similar, a little bit slower in Q3, but with a pickup in the fourth quarter. Yeah. And just for, you know, clarity, PFA will continue to go off the 71%. It'll accelerate into Q3 and beyond.

Thank you, Pito. Geoff, if you wanna go ahead with your closing remarks.

Sure. Well, so for thank you for joining and all your thoughtful questions this morning. And like Ryan said, apologize to the analysts. We didn't get to, certainly appreciate your support and your interest in Medtronic.

Please join us again for our Q3 earnings broadcast for more updates, and there'll be more, and our continued progress. And on the long-term strategies. And we expect to hold this on Tuesday, February 17. And for those of you in The U.S., I wish you and your families a very happy Thanksgiving next week. I can't believe Thanksgiving's next week.

With that, enjoy the rest of your day. Thank you.