Medtronic Plc (MDT) — Q1 2025 Earnings Call Transcript

Good morning and welcome to another Medtronic Earnings Day. I'm Ryan Weispfenning, Vice President and Head of Medtronic Investor Relations, and I appreciate that you're joining us this morning for our Fiscal 2025 First Quarter Video Earnings Webcast. Before we go inside to hear our prepared remarks, I'll share a few details about today's webcast. Joining me are Geoff Martha, Chairman and Chief Executive Officer, and Gary Corona, Interim Chief Financial Officer. Geoff and Gary will provide comments on the results of our first quarter, which ended on July 26, 2024, and our outlook for the remainder of fiscal year 2025. After our prepared remarks, the Executive VPs from each of our four segments will join us, and 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 containing our financial statements, divisional and geographic revenue summaries, and non-GAAP reconciliations. We also posted an earnings presentation that provides additional details on our performance. The presentation can be accessed in our earnings press release or on our website at investorrelations.medtronic.com. During today's program, many of the statements we make may be considered forward-looking statements, and actual results may differ materially from those projected in any forward-looking statement. Additional information concerning factors that could cause our actual results to differ is contained in our periodic reports and other filings that we make with the SEC, and we do not undertake to update any forward-looking statement. Unless we say otherwise, all comparisons are on a year-over-year basis, and revenue comparisons are made on an organic basis, which excludes the impact of foreign currency and first quarter revenue in the current and prior year reported as other. References to sequential revenue changes compared to the fourth quarter fiscal 2024 are made on an as-reported basis. All references to share gains or losses are on a revenue and year-over-year basis and compare our first fiscal quarter against our competitor's second calendar quarter. Reconciliations of all non-GAAP financial measures can be found in our earnings press release or on our website at investorrelations.medtronic.com. And finally, our EPS guidance does not include any charges or gains that would be reported as non-GAAP adjustments to earnings during the fiscal year. With that, let's head into the studio and hear about the quarter.

Hello everyone and thanks for tuning in today. As you saw in our results, we're exceeding our commitments and increasing our outlook for the rest of the year. This is now our seventh quarter in a row of delivering mid-single-digit revenue growth. And we drove earnings growth, increasing adjusted EPS to 3% on a reported basis and 8% on a constant currency basis. And we're tracking to deliver high single-digit EPS growth on a reported basis as we exit the fiscal year. Our underlying markets are healthy. We're driving operational rigor, and new product innovation is fueling our diversified growth across many large secular growth markets that matter. At the same time, we continue to invest in our pipeline, which we expect to drive growth in the short, medium, and long-term. We are at the front end of many new product cycles, in markets like diabetes, pulse field ablation, TAVR, neuromodulation, hypertension, and robotics. We're focused on driving scale across our manufacturing, technology, and commercial organizations, and making progress on our ongoing portfolio management work. As we deliver innovation and continue to execute on our transformation, this will lead to strong returns for our shareholders. Now let's turn to the details of our Q1 results and discuss our performance. Looking first at our highest gross businesses, combined they grew 8% and made up 21% of our revenue. We expect their contribution to our overall growth to increase in the coming quarters, as we continue to launch new technology. Starting with cardiac ablation solutions, we're at one of those moments in med-tech, where a new technology is causing a rapid shift in the treatment of a disease. In this case, PFA is that technology for AFib. We've been investing in and developing this technology for many years. We're well positioned here, and we're confident in our ability to execute and take advantage of this opportunity. In line with what we said last quarter, our CAS growth rate accelerated in Q1, growing over 6%. We're seeing rapid market adoption of our PulseSelect PFA catheters, and its growth is more than offsetting crowd declines. The PulseSelect launch has been successful, with more than 550 physicians in 20 countries having treated over 10,000 patients. To meet the strong market demand, we're dramatically increasing our PulseSelect catheter manufacturing capacity and expanding into new accounts. As a result, we expect PulseSelect to meaningfully accelerate our overall CAS growth rate through this fiscal year, including a strong acceleration in Q2. Then we have our differentiated Sphere-9 focal catheter. This all-in-one catheter can perform high-density mapping as well as pulse field and RF ablations. We expect Sphere-9 will allow us to capture more revenue per procedure, as it will take the place of other competitors mapping and RF catheters. We're in limited launch in Europe, and we've submitted to the FDA for approval earlier this calendar year. As we launch and scale Sphere-9 and our fair mapping system, we expect our cash growth will accelerate even further over time, as we reach and then exceed market growth in this large and fast-growing $9 billion cardiac ablation space. In Structural Heart, we continue to deliver high single-digit growth excluding the impact of our Harmony Pulmonary Valve that we relaunched last year. During the quarter, we started with the limited US launch of our Evolut FX plus TAVR valve and have now begun full market launch this month. FX plus is important for two reasons: one, it allows for easier coronary access due to the large windows in its frame; and two, it creates an additional opportunity to reiterate our positive SMART trial results with our customers. SMART showed our superior valve performance in small annulus patients who are primarily women, and this was just another proof point in our broader focus on health equity. The SMART patient population is sizable, making up about 40% of the TAVR space. With this combination of FX plus, our superior four-year low-risk data and SMART data, we expect to continue to grow at or above the market in the quarters ahead. In Surgical Robotics, we are investing in building a foundation for future growth. In Q1, our installed base continued to grow and utilization per system steadily increased. In the US, we've now achieved the targeted enrollment for the EXPAND EURO trial. This is a meaningful milestone. And beyond that, enrollment in procedures in our other two US indication studies: hernia and gynecology are going well. We also continue to make progress bringing our advanced surgical technologies to Hugo such as ICG fluorescent imaging and LigaSure vessel sealing. Next in Diabetes, we had another strong quarter, growing 13%, with double-digit growth in both the US and international markets. In the US, we reached the one-year milestone of the launch of the MiniMed 780G AID system. We are driving high single-digit growth in pump revenue and over 30% growth in CGM revenue with our high CGM attachment. In international markets, we initiated the full market release of the Simplera Sync sensor, and we're just getting great feedback on the ease of insertion and its usage. This adds to the already high satisfaction of our 780G system, where we've been the Number One rated AID system by DQ&A for the past two quarters. So we are confident in Simplera and our CGM pipeline. And to add to this, two weeks ago, we announced our global partnership with Abbott, where we'll bring to market an integrated CGM based on Abbott's most advanced CGM platform. The sensor will integrate exclusively with our AID and SMART MDI systems. It will also allow us to offer more choice to patients, increase our installed base and grow our diabetes revenue. We expect to do this while maintaining the same revenue per patient and being neutral to diabetes gross margin. We are committed to being Number One in the fast-growing AID and smart MDI space, and this partnership will help ensure just that. Now turning to hypertension. Securing broad reimbursement remains key to unlocking the opportunity to our simplicity blood pressure procedure. We were pleased that CMS has finalized the inpatient payment and has now proposed an outpatient payment. We continue to engage with CMS at the national and local levels to establish coverage, a key enabler so that this therapy can reach patients. This is important as hypertension affects more than 1 billion people globally and nearly half of all US adults. Despite the availability of numerous classes of pharmaceuticals, only one in four adults in the US have their hypertension under control. Furthermore, more than 700,000 deaths in the US every year are directly attributable to hypertension. The burden of hypertension costs the US healthcare system between $100 billion and $200 billion a year. You can see why there is just an important role for our simplicity procedure to cost-effectively improve public health. Now turning to our synergistic businesses. Neuromodulation was a highlight this quarter, growing 10%, well above the market. This is a business where the investments we've made over several years in sensing technology in the brain and the nervous system are now paying off. Sensing and closed-loop technology is becoming foundational for the Neuromod space. It's reinvigorating these markets, and we have a clear lead. First in Pain Stim, we grew 11%. This was the first quarter of our Inceptive launch in the US. Inceptive is our first closed-loop spinal cord stimulator and it is transforming the way we treat chronic pain. The device automatically senses and adjusts stimulation 50 times a second, 24/7 with no required interaction from the patient. The therapy is delivered from the smallest and thinnest closed-loop SCS device on the market. It also has the best full body conditional MRI access. The other big driver of Neuromod growth was our brain modulation business, which grew 14% on the continued launch of Percept RC with BrainSense technology. Percept transmits electrical signals to specific brain targets affected by debilitating neurological disorders like Parkinson's. It then captures and records these signals equipping physicians with the valuable data and insights needed to personalize the therapy. Just last week, we became the first and only DBS company to receive FDA approval to offer DBS surgery while the patient is asleep. This innovation means a less stressful surgery for the patient and potentially shorter procedure times. We look forward to continuing to advance our leadership position in brain modulation. Looking at our established market leaders combined, they made up just under half of our revenue and grew 5%. Collectively, we can depend on this diversification not only for reliable revenue growth but also their disproportionate contribution to our profits and cash flow that we can then invest in higher growth areas. Cardiac Rhythm Management grew high single digits with high single-digit growth in Defibrillation Solutions and low double-digit growth in cardiac pacing therapies. Our Micro leadless pacemaker franchise grew over 20%, as the market continues to adopt our latest generation of devices. In Surgical, we grew low-single digits. This was lower growth than prior quarters, primarily driven by the difficult comparison from back order fulfillment in the first half of the last fiscal year, as well as the Korean market slowdown from the ongoing physician strikes. We expect that Surgical will return to more normalized growth in the back half of the fiscal year as these comparisons ease. In Cranial and Spine Technologies, we grew mid-single digits. Our spine business continues to really outperform the market with 7% global and 9% US core spine growth. This sustained share capture is driven by our AiBLE ecosystem. AiBLE's differentiated features and sheer scale around the world is a winning formula for our Spine business. It's good for patients and surgeons, and it's changing the competitive dynamics in Spine. AiBLE is helping us win share and attract the best sales reps and distributors to join our Medtronic team. With that, I now want to welcome Gary Corona, our Interim Chief Financial Officer, to his first Medtronic earnings broadcast. Gary has taken over for Karen Parkhill, to whom we wish all the best as she starts her next chapter. Gary joined us a little less than two years ago after an impressive career with General Mills. He's been leading our corporate finance team and has been instrumental in enhancing both our capabilities and our rigor, which has been a key enabler to our beats and raises. As he stepped into the role, we haven't missed a beat. So I want to welcome Gary.

Thanks, Geoff, and I too want to thank Karen for all her contributions to Medtronic and her support of me personally. I'm energized to step into this role and continue the momentum that we have as a company. I'm honored to lead our talented global finance team and want to send a big thank you to the entire Medtronic organization for your support. I've been able to hit the ground running, and I'm excited to work together with Geoff and the leadership team to drive performance and achieve our financial commitments. I'm looking forward to having conversations with many of you in the investment community over the coming weeks. Now I'll recap our Q1 financials and give you some additional details on our outlook. We started this fiscal year by continuing to deliver on our commitments with revenue growth at 5.3%, a full point above the midpoint of our guidance. This translated into EPS that was $0.03 ahead of our guidance midpoint. We are driving diversified growth, and you can see this strength come through when you look by business or by geography, as both new product innovation and commercial execution are fueling our results. Our cardiovascular portfolio accelerated to high single-digit growth, and we saw continued momentum in neuroscience and diabetes. Our US growth also accelerated on contributions from cardiac rhythm management, PFA, and neuromodulation. Our international markets grew in the high single digits, including mid-teens growth in emerging markets. Moving down the P&L, our adjusted gross margin was 65.9%, down 50 basis points but ahead of expectations. As expected, the decline was entirely driven by the 80 basis point impact of currency. However, we continue to make progress on our underlying margin improvement activities. In Q1, pricing from our new innovation and our cost-out programs offset inflation, resulting in a 30 basis point increase in our gross margin on a constant currency basis. Our adjusted operating margin was 24.4%, in line with expectations. This was a decline of 40 basis points versus last year but up 60 basis points in constant currency. Turning to capital allocation. Our philosophy hasn't changed. We continue to balance investments for future growth, including tuck-in M&A, with returning capital to shareholders primarily through our dividend and from time to time, through opportunistic share repurchases. This calendar year, we've seen a significant value opportunity in our shares and allocated more capital to share repurchase. Since our Q4 earnings call in May, we repurchased an incremental $1.5 billion of our shares and in total $4 billion over the past two quarters. We believe these buybacks will have an attractive return given the conviction we have in growing our revenue, earnings, and free cash flow. As we go forward, we'll continue to focus on tuck-in M&A. Now let's cover guidance. Given our Q1 outperformance and positive momentum, we are raising our full year revenue and EPS guidance. We now expect fiscal 2025 organic revenue growth of 4.5% to 5%, an increase from the prior range of 4% to 5%. For Q2, we are expecting to deliver another quarter of mid-single digit growth in the top line. We'd have remodelled organic revenue growth of approximately 4.5%. Based on recent rates, FX would have an unfavorable impact on fiscal 2025 in the range of $110 million to $210 million, including $10 million to $60 million in the second quarter. Moving down the P&L, we continue to expect our operating margins to expand this year as we drive efficiencies while also investing behind our product launches and in our long-term pipeline. Based on recent rates, currency becomes much less of an impact on our margins and bottom line after the second quarter. Taking this all together, we are raising our fiscal '25 non-GAAP diluted EPS guidance to a new range of $5.42 to $5.50, an increase from the prior range of $5.40 to $5.50. For the second quarter, we expect EPS of $1.24 to $1.26. The fiscal year '25 guidance range continues to include an unfavorable 5% impact from foreign currency, including an 8% impact in Q2. Further details on our annual guidance can be found in the guidance slide in our presentation. To wrap up, I want to emphasize that we are laser-focused on driving top-line growth and restoring the earnings power of the company. You saw that in our Q1 results, and you see it in our outlook for the rest of the year. We expect our EPS growth to accelerate in the back half as the impact from currency lessons, exiting the year with high single-digit growth. Geoff, back to you.

All right. Thanks, Gary. Now before we go to the analyst questions, I want to close with a few thoughts. Since becoming CEO, we've made a lot of changes to this company, all designed to improve performance. Chief among these strategies is how we allocate capital to disproportionately focus our R&D, our venture and our M&A investments on the highest growth market opportunities, while still making sure our other businesses are competitive. Now you are seeing the payoff, as we are at the front end of some exciting new product cycles. You're seeing it in diabetes and in neuromodulation, in TAVR and PFA. As I look at our pipeline, I expect this momentum to continue as we invest heavily in future growth opportunities like hypertension and surgical robotics. We've also been working on the fundamentals. The foundation of this company is now much stronger. Quality and operations are in a better spot. We're investing in enhancing our digital capabilities across the company to improve our speed. We're playing more offense. We're building capacity in strategic growth areas. We're looking to further increase organic investments and are on the hunt for the right tuck-in M&A opportunities. We've integrated a performance-driven mindset and an incentive structure that reinforces this. In some cases, we've changed leadership, to add increased operating rigor to our mission-driven culture. Taken all together, this is now translating into the top-line growth momentum and improved earnings power that you are seeing in our results. As we continue to execute, this will create meaningful value for society, and for shareholders. Finally, I would like to thank all of our employees around the world. I realize that we've driven a lot of change, and that can be uncomfortable. I appreciate all that you've done to embrace these changes, and it is rewarding to see your efforts paying off. As we look to the next 75 years of Medtronic, I'm excited about the possibilities before us. Together, we are building a stronger and more resilient company. So thanks for all that you do to fulfill our mission and to serve patients. So with that, let us move to Q&A where we are going to try to get as many analysts as possible.

Hi guys. Thanks for taking my question. Geoff, congrats on a really nice quarter here. Maybe my first question here is the organic execution in the quarter, well above your guidance expectations, I think north of 100 basis points. It is also about your annual guidance, right? It seems like it was pretty broad based. Based on your current outlook, it implies like your back half should be below what your Q1 performance was, right? So maybe just talk about sustainability of Q1, and why these trends can sustain in the back half? Were there any one-offs that drove Q1 performance?

Hi, Vijay, it's great to hear from you. Let me address your question directly. There were no one-off events that influenced our performance. Overall, I believe it is sustainable because, as I mentioned in the commentary, we're just starting some really exciting product cycles. In our first quarter, I noticed a couple of things, like neuromod reaching double digits. This is largely due to new technology that was missing in the first quarter. We had our pain stim closed-loop therapy Inceptive and DBS closed-loop therapy available simultaneously. That growth is driven by the new foundational technology in the neuromod market, which is strictly the result of demand for these new products and the pricing benefits that came with them. Regarding Structural Heart, there are many questions about the market, but we are experiencing consistent growth, as indicated by our high single-digit numbers. We're also launching FX+ from a limited market to a full market release, which is very exciting. Moreover, the accumulation of data from studies like SMART and low-risk trials is a significant advantage for us. There were two businesses that had particularly strong performances in Q1 that may not maintain that level throughout the year; one is Diabetes, which should continue to grow above the company average. We are now annualizing the US launch of 780G, but I'm uncertain if we can sustain that growth throughout the entire year. CRM also had a strong quarter, as we have a robust product portfolio across all CRM segments. However, we are not expecting CRM to grow 8% every quarter. Both of these performances were not one-time occurrences but a result of solid execution. Overall, I could continue listing examples, as there is a lot of new product activity in the early stages. We feel optimistic about our underlying fundamentals and our direction, and we're focused on fulfilling our commitments and positioning ourselves for success.

Yes. Thanks, Vijay, and it is nice to meet you. Let me tackle your question about buyback first. I will take you through the puts and takes of the first quarter EPS. Our EPS starts with our top-line. As Geoff mentioned, our revenue growth was really strong, a full point higher than the midpoint of our guide. The midpoint of our guide, $0.02 of the $0.03 was really driven by the top-line strength that he mentioned. Gross margins were strong, about 40 basis points ahead of consensus, and operating margin was in line. Below the line, there were some moving pieces, and that netted to about $0.01 with the benefit that you mentioned from the share count helping. We also had lower interest income and some pressure on the tax rate. So that's a little bit more visibility into Q1. As we think about the leverage first half, second half, the underlying leverage we are driving is pretty similar on a constant currency basis with high single-digit every quarter. The ramp is really an FX story. Significant pressure on the first half due to FX, and that will wane in the back half. Constant currency growth ticks up slightly, as we drive stronger revenue growth as a number of our therapies get to full market release. We tend to have a strong fourth quarter on the margin front. So that's the story on how the leverage will play out throughout the year.

Thanks, Vijay. Take the next question, please, Brad.

Great. Thanks for taking the question. And congrats on a good quarter. With my one, I wanted to ask about Diabetes. This is a pretty big shift in strategy for you. You've always been the provider with both the pump and the algorithm and the CGM, all in one. Now with Simplera about to launch, maybe just walk us through the strategy of why partnering with Abbott was in your best interest. Does this change your strategy at all? And how do we think about external versus internal investment in Diabetes moving forward?

Yes, Robbie. I'll let Que answer that question. Go ahead, Que.

Thanks, Robbie. I would say our strategy hasn't changed at all. I think what's really changed in the market is really a widespread recognition that AID really does provide better outcomes than CGM alone or MDI alone. We always knew that there was a large installed base of users that wanted access to our technology, our AID system. We still believe in the system benefits exceeding the sum of the parts, as you mentioned, wrapping it all together with our algorithm, the CGM, the pumping devices. The typical integration you see in the market puts a technology burden on the part of patients. We wanted to find a way to provide the one Medtronic experience, the one phone number you can call for patients that may prefer a different sensor. We are pleased to say that we found a path that works for patients from an experience standpoint, as well as for Abbott and for ourselves. That's what I would say would be in response to your question. The strategy hasn't changed. We've just found a way to expand access to a broader installed base. What hasn't changed is really our commitment towards the system, our confidence in our CGM. The Simplera launches, Simplera and Simplera Sync launches in Europe have gone very well, and we are very pleased with the early experience. We're pleased that we now have FDA approval for Simplera in the US, and we are working with the agency to get Simplera sync approved as well for integration with the 780G system.

Great. Thanks for that.

Hi guys. Congrats on the quarter. I'll ask my one question on TAVR. I just wanted to get kind of what you're sensing in the market today given some of the comments from the competitor there? Looking forward, when you think about the FX Plus launch, how do you expect that to impact the market and impact the share? Is that going to help you with some of the smart data, and how do you see the TAVR market playing out?

Perhaps thanks for the question. Look, the TAVR market, we think, is pretty solid. I think we're growing in line with the market in high single digits right now. Of course, the data momentum we have, the low-risk data versus surgery has been very compelling, and we're going to read out 5-year on that data in the coming year here as well. SMART Day has really gotten a lot of attention for the right treatment strategy for small annulus and particularly in women, and that's resonated really globally as small annulus is sort of a function of body habits as well. FX Plus has done exceptionally well and its early launch. We did a full limited market release in the month of July, and we saw that momentum really pick up. I think that will afford continued growth in that segment. People really like those bigger windows that allow you to align onto the native coronary anatomy. Overlapping the costs ensures that you get that material alignment and preserving future access, all without trade-off in deliverability. It's got the features of FX which really improve the usability of that device. The US is moving into full market launch right now, and within this year, we'll also obtain approvals in other geographies which will keep the momentum going. For us, I think the market is working really well, and we're excited to bring this new technology.

Thanks, Travis. Next question please, Brad.

Great. Thanks so much for taking the question. Good morning everyone. Congrats on a good start to the year here. Que, I just wanted to follow up on diabetes. How should we be thinking about this partnership with Abbott? Appreciating you're not giving timelines here, but how are you thinking about it and how it could grow the installed base? What are you thinking about? Abbott has a pretty large installed base today. So should we be thinking about that as low-hanging fruit for the pump side of the business? Any more color you can give on how we should think about this changing the trajectory for the Diabetes business?

The most obvious opportunity is for a very large installed base of users that prefer the Abbott sensor to now have access to our technology. Unfortunately, I can't give you timelines, but rest assured that we're working as fast as we can to incorporate that sensor into our system, providing that one Medtronic experience where there's one single app patients can choose between two sensor options, but still experience our AID system and the automation that comes with our algorithm. We think that's pretty differentiated, and it allows us to tap into the largest CGM installed base in the world in addition to our own, thus growing our own installed base.

Thanks, Danielle. Next question please, Brad.

Good morning. Thanks for taking the question. For my one question, I wanted to ask about the progress with Hugo for Mike and Geoff. It sounds like you've reached the targeted enrollment in EXPAND Euro, the pivotal US trial. When are we going to see the data? What's the timeline for US filing? Could we see a potential launch this year or next year? Geoff, there are still questions around your commitment to Hugo. Just maybe put any of those concerns to rest here.

Yes, good morning, Larry. So on Hugo, we are happy with the progress we're making in the clinical work. As mentioned, we have reached targeted enrollment. There is still work to do as we reach the final endpoints and then complete the filing. We won't be giving a specific date in terms of submission, but we are making good progress in the enrollment of both hernia and the gynecology clinical series that will allow us to then have a cadence of indications, which will be critical to the US launch.

As Mike mentioned, there are several key milestones we need to achieve for Medtronic to feel the impact, specifically the US approval and integrating our leading instrumentation onto the robot alongside other capabilities. We are making headway on both fronts. This initiative is expected to be a midterm growth driver for us, extending beyond this fiscal year. We are fully dedicated to this effort and believe that robotics is a significant factor across various surgical areas, including orthopedics, where our involvement in Spine is a major contributor. We aim not just to participate but to take a leadership role in this field, just as we are doing in Spine. We have multiple strategies at our disposal. Over the years, we've gained valuable insights into robotics; it encompasses more than just the robot itself. It integrates various technologies such as imaging, navigation, instrumentation, AI, and digital elements. We have numerous strategies we can implement, and we are committed to this path. I would like to remind everyone that a few years ago, there were doubts about our ability to compete in areas like spine, diabetes, or neuromodulation. We focused on these areas, and you've witnessed significant improvements thanks to that focus and investment.

Thank you.

Thanks, Larry. Next question please, Brad.

Great. Thanks for taking the question, and congrats on the strong start to the year here. Geoff, I heard your comments on being on the hunt for M&A. I'm curious if you could help us kind of understand maybe what areas strategically you think make the most sense in the portfolio. When you think about the size of the Medtronic portfolio, how do you balance that near term, what can be needle-moving versus what can move the needle over the two-year to three-year period and three-year to five-year period?

Our M&A strategy is a crucial component of our broader capital allocation strategy, where we focus on directing our investments toward the areas that offer the highest growth potential. The strategy integrates with our organic growth plans, both targeting high-growth sectors. For instance, in the area of Ablation, with the AFib ablation market, we made strategic acquisitions like Affair and a needle crossing firm. We are concentrating on value-creating tuck-in acquisitions that enhance our growth and margin profiles. While I won't specify particular areas, our focus remains on high-growth opportunities, whether through product additions to existing business lines or expanding into adjacent markets. Over the past year and a half, we have prioritized operational improvement, and our operational foundation is now stronger, allowing us to dedicate more resources to M&A. Thanks, David. Next question please, Brad.

Hi, thanks for taking the question. I guess I wanted to double-click on some of the comments that you made on the Structural Heart market. I'm really curious about your thoughts on capacity now and going forward. I know you said that you haven't seen signs of a slowdown in the market. But do you have concerns about capacity there longer-term or more broadly? Is that a limiting factor in that business or any of your businesses? How would you deal with that as an organization to help free up more capacity to help your therapies run through?

Overall, I believe the structural heart space, including TAVR and Mitral, as well as tricuspid, remains significantly underpenetrated. There is a substantial opportunity, and the benefits for patients are evident. Sean referred to the data, which is clear whether it concerns low risk or our SMART trial. It's still an underpenetrated area, and I remain optimistic about its growth potential. I'll let Sean elaborate on our current position in the market, including capacity and our observations.

We're not hearing from our customers about capacity constraints, of course. Our sample size may be a little smaller than our competitor. But we ask about the future with the service line as they add additional things into the Structural Heart component of it. It doesn't seem like, at the operator level, there are concerns in the US. Of course, the freedom of beds for post-procedures goes beyond TAVR, and that has been a challenge. We are seeing some shifting of procedures to lower acuity settings to make room. The valve clinic works these patients up. That's something you just add capacity to when you need future capacity to expand it. Hospitals have a long enough runway to plan for the space that they need it. I don't think it's a constraint on the future growth prospects of Structural Heart in total.

I agree with you on this one. When we encounter situations with capacity issues, we have stepped in to assist our hospital partners. For instance, a few years back, we supported the expansion of several catheterization labs when there were capacity constraints across Western Europe. I can envision us doing something similar in the ambulatory surgery center space in the US to facilitate growth. We collaborate with imaging companies since much of the capacity is linked to imaging, and we work with our healthcare delivery partners to enhance that capacity.

Great. Thank you guys. Appreciate it.

Thanks, Matt. Next question please, Brad.

Thank you. And good morning. I was hoping you could go into a little more detail on Affera. Geoff, you mentioned that it's still pending FDA review and that you're in limited market release outside the United States. Can you maybe give us a little bit of perspective of what you've seen in Europe now about a year post CE Mark and whether we should use that as a proxy for thinking about how this product ramps in the US?

A lot of interest, obviously, in our cash business and Afib right now. Maybe I'll go back to Sean on this one.

The demand for PFA has been unbelievably strong, and we're ramping up our capacity to meet that stronger growing demand right now. Those gains are more than offsetting the Cryo business, of course. We are in a unique position with both a single-shot approach with our PulseSelect and the point-by-point approach with Affera. PulseSelect has more case volume so far as we're moving that launch both within Europe and the United States. What customers are hearing is the precision and predictability of the handling of the catheter. This is important because you have to put the electrodes in the right spot of tissue to get good ablation in isolation without doing extraneous injury. We are also excited about the point-by-point approach with Affera, which is unique and differentiated for us as well. The same catheter can create this beautiful map, and you can use either energy source, depending on where you want to be anatomically. On the technology side, everything is going really well. You're asking about ramping in Europe; there are more cost constraints in Europe, of course, than what we see in markets like the US and Japan, where new technology even at a higher price seems to get adopted. The uptick of PFA would be relatively slower but still robust as we proceed with this technology.

Yes. Just to emphasize something Sean said, we're really excited to be the only player with differentiated offerings in both the single-shot and point-by-point segments of the market. Both PulseSelect and Affera have differentiated features. PulseSelect is doing really well.

Okay. Thanks, David. We will take the next question please, Brad.

Can you hear me okay?

Yes, we can, Jayson.

Maybe just to follow on just on the CAS question. One, do you find that folks are waiting for in the US for Affera/Sphere-9? Two, you did talk about an acceleration in CAS revenue going forward and an acceleration in growth. Do you expect to be in a position to grow faster than the market exiting the year?

Of course, people really, really want Affera. The vast majority of the ablation market favors point-by-point solutions, particularly in the United States. The appeal of that product is strong, but no one is waiting for it. We're getting as much usage, maybe even more from traditional point-by-point users, as we are from single-shot users. I think we have the opportunity to grow faster than the market within this fiscal year, depending on the launch timing.

Thanks, Jayson. Next question please, Brad.

Good morning, and thank you for taking the question. Can we spend some time talking about the renal denervation market and the CMS NTAP for simplicity? How do you see this market developing now that reimbursement is getting behind the product?

I'm very excited about our simplicity. It's encouraging to see the reimbursement progress. With the outpatient payment set by the CMS and the inpatient payment now also determined, we're approaching the point where reimbursement will be unlocked. Let me hand it over to Sean.

Thanks, Geoff. The payment is one part of it. We have coverage policies that need to come. We have inpatient coding established, but outpatient is going to be more of the kind of procedure volume. We think less than 10% of the procedures are going to be done with more than a single midnight stay in the inpatient setting. Really, it's that TPT or transitional pass-through payment that we're waiting on. We heard from CMS on that this summer where they're supporting our approach for that application. This is a breakthrough device, which helps you get into those payment codes. We expect to see that happen soon. We're excited to ramp this technology up and make it available.

Thank you, Joanne. I think we've got time for maybe two more questions. We’ll take the next question, Brad.

Hi, thanks so much for the question. If I could just do two quick follow-ups on some of the topics that have already been explored here. The first for Sean, on TAVR, I seem to remember that with the FX launching, there was some effect of price premium. There was some period of kind of stocking as we got into the launch. I’m wondering if you could shed light on the sort of shape of the next few quarters, as you really begin to roll out FX Plus. The second for Gary on FX; there are questions around the fact that the top line FX impact actually eased a little bit, but the FX impact on the bottom line, the headwind, 5% remains the same. If you could flesh that out for us again, where some of the impacts of FX are in the P&L, and how we think about those as the year progresses.

We price for value, and we think there's more value. A modest price premium is built into our TAVR launch, but it's really about picking up more volume on cases. The dynamics you typically see when you bring a new product out are customers burning down their shelf inventory as they put a small amount of stocking per valve size. We saw both those dynamics occur in the early launch accounts, with people picking up a little bit of inventory but also taking down inventory for the prior model. That's baked into everything we are forecasting for the continued growth of this product.

As you noted, the US dollar has weakened in the first quarter, and this will reflect positively in our revenue, where we've indicated an improved impact. If current rates persist, we anticipate a negative foreign exchange effect on revenue ranging from $120 million to $210 million, compared to the previous expectation of $275 million to $375 million. However, the benefits on our net income are delayed due to our hedging strategy, and we expect these advantages to be realized in subsequent years. This year, the foreign exchange effects will be more visible in our gross margin. The impact of foreign exchange is expected to decrease in the latter half of the year as our earnings growth on a constant currency basis remains strong.

Thanks, Matt. We've got time for one more question. If we didn't get to your question, if there's any analyst on the line that still has questions, feel free to follow up with me after the call. We'll go to our last question, please, Brad.

Thank you so much for taking the question. Quite a high level one. You guys are now getting the benefit of some heavy investment in previous years in the base business. How does that make you feel about the interplay between reinvesting for growth on the product support side, on innovation relative to margins over the next, I don't know, year or two? Any updated thoughts there would be great.

We are dedicated to improving leverage on our profit and loss statement for a company of our size. We believe we can achieve this, as we have various strategies to generate funds for investment. Our goal is to maintain low overhead and enabling expenses as our baseline, allowing us to reinvest more into our revenue streams. We are focused on capital allocation, as well as managing our workforce and directing our human resources effectively. We aim to keep our general and administrative expenses stable as a starting point and then identify areas for growth investment. We are committed to reinvesting in the business for growth, both in direct sales and research and development. Our organic investment has increased, despite facing challenges in recent years. We view the incremental mergers and acquisitions as a way to support our organic R&D. By prioritizing high-growth areas, we can enhance our earnings leverage while making additional investments. Thanks, Patrick. Look, we appreciate your engagement and interest in Medtronic. We hope you'll join us for our Q2 earnings broadcast. We anticipate holding it on Tuesday, November 19. That's the week before Thanksgiving in the US this year. Again, we’ll update you on our progress against our long-term strategies, and our commitments both short and long-term. With that, thanks for joining us, and have a great rest of your day.