Medtronic Plc (MDT) — Q2 2025 Earnings Call Transcript

Good morning. I’m Ryan Weispfenning, Vice President and Head of Medtronic Investor Relations and I appreciate that you’re joining us for our Fiscal '25 Second 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 second quarter, which ended on October 25, 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 will 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 second quarter revenue in the current and prior year reported as other. References to sequential revenue changes compared to the first quarter of fiscal '25 and 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 second fiscal quarter against 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, let’s head into the studio and hear about the quarter.

Hello, everyone, and thank you for joining us today. We are gaining momentum as we continue to fulfill our commitments, achieving another quarter of strong results that exceeded expectations and another increase in guidance. This marks eight consecutive quarters of solid mid-single-digit organic revenue growth. We converted that 5% organic top-line growth into 8% EPS growth on a constant currency basis, and we are on track to deliver high single-digit EPS growth on a reported basis for the latter half of the fiscal year. We recognize the significance of innovation, which is currently fueling our growth in various areas. We are witnessing robust performance from franchises such as TAVR, PFA, leadless pacemakers, diabetes, spine, and neuromodulation, to name a few. We are confident that this diversified growth will continue, especially given the strength of our pipeline in high-impact markets like hypertension, which presents a significant opportunity for us. Our recent performance clearly shows that the foundation of the company is stronger than ever. We have implemented a real performance mindset in addition to our mission-driven culture, and it is making a difference. As we maintain our durable top-line growth, leverage our scale for earnings, generate strong free cash flow, pursue strategic tuck-in acquisitions, and increase our dividend, we are positioning ourselves to deliver strong long-term returns for our shareholders. Now, let’s delve into the specifics of our Q2 business results and analyze our performance. Looking first at our highest growth sectors, collectively they grew 8% this quarter and accounted for 20% of our revenue. Starting with Structural Heart, we experienced high single-digit growth, primarily driven by the TAVR franchise. In the U.S., we launched Evolut FX+, and customer adoption has been strong. We also received CE Mark approval for FX+ last month and began commercialization in Europe last week. FX+ is significant not just for its lifetime management benefits but also because it provides us with an additional opportunity to reinforce our positive SMART trial outcomes. You may remember that SMART showcased our superior valve performance among small annulus patients, predominantly women, who represent approximately 40% of the TAVR market. With the combination of FX+, low-risk data, and now SMART data, we anticipate maintaining growth at or above market levels in the upcoming quarters. Next, in Cardiac Ablation Solutions, our technology is propelling the rapid shift in the market toward pulse field ablation. We have been significantly increasing our manufacturing capacity to meet this rising demand, and we are uniquely positioned as the only company offering both single-shot and focal PFA catheters. We continue to expand our PulseSelect PFA single-shot catheter, which is counterbalancing declines in cryoablation, and our rate of sequential decline in cryo has improved notably compared to Q1. This quarter, we nearly doubled the number of physicians utilizing PulseSelect and more than doubled the total number of patients treated with this catheter in Q2. However, our overall CAS growth did not accelerate as expected this quarter due to a delay from a third-party component supplier, which has now expanded capacity, allowing us to ramp up PulseSelect availability and onboard new accounts. Additionally, we were excited to receive FDA approval late last month for the Affera mapping and ablation system, along with the Sphere-9 focal catheter. This all-in-one catheter was meticulously designed for high-density mapping as well as pulse field and RF ablations, replacing competitor mapping and RF catheters and enhancing our revenue per case. We are currently ramping up our commercial availability, having already started in some of the highest volume U.S. centers, and this will accelerate over the coming weeks and quarters to meet significant demand. We are also rapidly hiring mapping specialists in preparation for entering new centers, which gives us confidence in our ability to boost account activations. Given the strong customer response to our diverse new PFA portfolio, we expect our overall CAS growth rate to pick up through the latter half of the fiscal year, including robust double-digit growth in Q3 and anticipate surpassing market growth in the extensive and rapidly expanding $9 billion cardiac ablation sector. In surgical robotics, our investments in the Hugo platform continue to establish a strong foundation for future growth. In the U.S., we have completed data collection for our urology submission and expect to file with the FDA in the first quarter of calendar 2025. We are also experiencing fast enrollment in our upcoming U.S. indication studies for hernia and gynecology. In digital, we have launched the commercial rollout of our Touch Surgery live stream and remote connectivity solution across the U.S. and Western Europe as we advance the digitization of operating rooms globally. We are also progressing in integrating our advanced surgical technologies into Hugo. We anticipate that ICG fluorescent imaging will be available in certain countries soon, and we will add our leading LigaSure vessel sealing technology to Hugo next calendar year. In diabetes, we achieved another quarter of double-digit growth, increasing by 11%, despite tougher comparisons from the 780G U.S. launch last year. Our CGM sales grew over 20% in both U.S. and international markets, driven by high attachment rates to the 780G. Furthermore, our Simplera Sync sensor, which is half the size and easier to apply than our previous sensor, is gaining strong acceptance in international markets. On the SMART MDI front, we recently secured FDA clearance for our InPen app, paving the way for a limited U.S. release of our SMART MDI system alongside our Simplera CGM. We are continuing to attract new patients to the 780G system, with the majority coming from MDI, and our competitive switch programs are also proving successful. Patients are drawn to the 780G's record of highest time in range among commercial AID systems, achieving this control with less burden. A survey of over 1,500 AID users in the U.S. showed the 780G received the highest user satisfaction score of all AID systems, beating the Tandem DexCom combination by 20 percentage points and the Insulin DexCom combination by 25 points. We are heavily investing in diabetes to expand manufacturing capacity and advance our robust technology pipeline, including our partnership with Abbott for an integrated sensor. These efforts support our strategy to become number one in the rapidly growing AID and SMART MDI sectors, focusing on providing better control with reduced burden. Now shifting to hypertension and the considerable growth potential of our Symplicity blood pressure procedure, which boasts a proven record of long-term efficacy and safety, this innovative solution is primed to revolutionize hypertension management. We are pleased that CMS finalized the outpatient transitional pass-through payment earlier this month, set to take effect on January 1st. With the coding and adequate Medicare payment now established, the next critical step for broader adoption is standardizing coverage. On this front, we are actively engaging with CMS to enhance patient access to this vital therapy and are collaborating with private payers to improve coverage as well. Hypertension is a global health crisis and a leading cause of cardiovascular disease and premature death worldwide, affecting over 1 billion people globally, including nearly half of all U.S. adults. Despite the availability of numerous medications, only one in four adults with hypertension in the U.S. has it under control, incurring massive direct costs ranging between $100 billion and $200 billion annually for the U.S. healthcare system. Therefore, our Symplicity procedure can significantly improve public health in a cost-effective manner. Turning to our established market leaders, these sectors represented nearly half of our revenue and grew mid-single digits. In many instances, we have innovated on technology and business models to revitalize these businesses over recent years, and we continue to invest in them to ensure sustainable growth. They play a crucial role in our financial model, consistently contributing to top-line results and generating a disproportionate amount of profit and cash flow. In Cranial & Spinal Technologies, we achieved 6% growth worldwide, with 7% growth in U.S. Core Spine and Biologics. In a market that rewards scale, we are continuing to succeed, driven by our leading AiBLE ecosystem of differentiated spine implants and enabling technologies, including AI-driven preoperative planning software, imaging, robotics, navigation, and powered surgical instruments. Our large global AiBLE installed base is shifting the competitive landscape in spine, and we are consistently expanding its features and capabilities. At the NAS conference in September, we announced a new partnership with Siemens Healthineers to co-market and integrate their imaging technologies for spine care. We expect CST to continue delivering sustained above-market growth with AiBLE and its distinguished best-in-class solutions, attracting spine surgeons worldwide as well as top sales representatives and distributors who continue to leave competitors to join our successful team. Next, in Surgical, we reported flat results. As I mentioned last quarter, we faced challenging year-over-year comparisons due to supply recovery last year and the slowdown in the Korean market from ongoing physician strikes. Notably, on a sequential basis, Surgical experienced strong high single-digit growth both globally and in the U.S., driven by robust performance in advanced energy, particularly the accelerated adoption of our LigaSure XP Maryland vessel sealer. Overall, we anticipate Surgical will return to more normalized growth starting next quarter as these comparisons ease. In Cardiac Rhythm Management, we achieved another strong quarter, growing in the mid-single digits, with high single-digit growth in both defibrillation solutions and cardiac pacing therapies. Our Micra leadless pacemaker franchise grew in the high teens, with broad strengths worldwide. Focusing on our synergistic businesses, which grew collectively in the mid-single digits and comprised over 30% of our revenue, Neuromodulation was a highlight this quarter with growth accelerating to 12%, continuing to surpass market growth. We are seeing broad growth across product lines, including Pain Stim and Brain Modulation. In Pain Stim, we achieved 10% growth, with 12% growth in the U.S., driven by the continued launch of the Inceptiv closed-loop spinal cord stimulator. The innovations in Inceptiv are transforming chronic pain treatment for patients by automatically maintaining therapy at optimal doses and enabling patients to focus on daily life rather than managing chronic pain. Additionally, it offers the best full-body MRI conditional access in the market, as competitors do not come close. Given that over 80% of these patients will require an MRI within five years and nearly all will need one within ten years, this is critical. In Brain Modulation, growth accelerated to 17%, marking the third consecutive quarter of double-digit growth. This innovation-driven growth stems from the ongoing launch of our Percept RC with BrainSense technology. Percept is making a significant impact on patients with movement disorders, such as Parkinson’s, essential tremor, dystonia, and epilepsy, delivering therapy to specific brain targets, and it is the only DBS system that captures and records brain signals. This provides physicians with valuable data and insights needed to personalize therapy. Similarly, our DBS devices have unique MRI advantages over the competition. In addition to Neuromodulation, we also observed strong results in other synergistic sectors, with Cardiac Surgery growing by 10%, driven by innovative products including our Avalus Ultra surgical valve, Penditure LAA Exclusion System, and VitalFlow ECMO system. Acute Care & Monitoring grew by 3%, including 9% in Nellcor pulse oximetry, while Pelvic Health accelerated its growth to 5%. Now, let’s turn it over to Gary, who will provide a more detailed look at our Q2 financial performance and outlook. Gary, the floor is yours.

Thanks, Geoff. We delivered a strong top line performance again this quarter with revenue growth of 5%, 50 basis points above our guidance. On the bottom line, adjusted EPS was $1.26, $0.01 above the midpoint of our guidance. We continue to invest in our pipeline and behind our emerging growth drivers while also delivering bottom line growth, which was up 8% on a constant currency basis. The EPS beat was driven by $0.02 from greater operating profit on the revenue beat, partially offset by $0.01 from tax. The sources of our revenue growth continue to be diversified, both by business and geography, which gives us confidence in its durability. From a segment perspective, we had double-digit growth in diabetes, high single-digit growth in neuroscience and mid-single-digit growth in cardiovascular. The low single-digit growth in our medical surgical portfolio was expected, given the comparisons in surgical that Geoff addressed. It's worth noting that Med Surg grew 7% sequentially and we expect to return to more normalized year-over-year growth starting next quarter. From a geographic perspective, our international markets grew revenue high single digits, including mid-single-digit growth in Western Europe and Japan and low double-digit growth in emerging markets. Moving down the P&L, our adjusted gross margin was 65.2%, down 70 basis points, but in line with our expectations. The decline was entirely driven by foreign currency as our adjusted gross margin was up 40 basis points on a constant currency basis. Our adjusted operating margin was 24.3%, also in line with our expectations. The 90 basis point year-over-year decline was entirely driven by FX. On a constant currency basis, operating margins increased 100 basis points. The organization remains extremely focused on improving our margins. We're more than doubling our underlying productivity in the COGS line through centralizing operations, consolidating factories and suppliers, and driving the Medtronic performance system across our manufacturing network. We are also laser-focused on our pricing, discipline, and optimization, particularly behind our new innovation. At the same time, we're very early in a number of new product launches that aren't fully at scale, including Affera, Simplera, and Hugo, which can create a mix headwind for us. That said, on the SG&A line, we're focused on growing at less than sales like we did again this quarter as we drive efficiency and productivity gains, particularly in our back office functions. Given all the levers we have, we have line of sight to improving our margins over time, while continuing to prioritize and make significant investments in our organic pipeline and product launches. Now, regarding capital allocation. We continue to make choices and invest to drive future profitable growth, while also returning capital to shareholders, primarily through our dividend and from time-to-time opportunistic share repurchases. As I mentioned last quarter, we've increased our focus on tuck-in M&A. We're also continuing to work to evaluate our portfolio. Overall, we view active portfolio management as an important lever to delivering on our long-term strategic and financial objectives. Now, turning to guidance. Given our continued outperformance and positive momentum, we're raising our full year revenue and EPS guidance. We now expect fiscal '25 organic revenue growth of 4.75% to 5%, an increase from the prior range of 4.5% to 5%. For Q3, we're expecting to deliver another quarter of mid-single-digit growth on the top line and we'd have you model organic revenue growth of approximately 4.75%. Based on recent rates, FX would have an unfavorable impact to fiscal '25 in the range of $225 million to $325 million, including $100 million to $150 million in the third quarter. Moving down the P&L, we expect our third and fourth quarter gross margins to improve sequentially as currency becomes much less of an impact. We also continue to expect our full year operating margins to expand as we balance driving efficiencies with investing behind our product launches and in our long-term pipeline. On the bottom line, we're raising our fiscal '25 non-GAAP diluted EPS guidance to a new range of $5.44 to $5.50, an increase from the prior range of $5.42 to $5.50. For the third quarter, we expect EPS of $1.35 to $1.37. The fiscal year 2025 guidance range continues to include an unfavorable 5% impact from foreign currency including an unfavorable 1% impact in Q3. Further details on our annual guidance can be found in the guidance slide in our presentation. So, to conclude, we remain focused on restoring our earnings power having just delivered another quarter of leveraged EPS growth on a constant currency basis. We continue to expect to report high single-digit adjusted EPS growth in the back half of our fiscal year in line with our long-term commitment to deliver durable mid-single-digit organic revenue growth with EPS leverage. Geoff, back to you.

Thank you, Gary. Now before we go to analyst questions, I want to close with a few thoughts. We're delivering durable mid-single-digit revenue growth, which we've been doing consistently now for two years. This is the direct result of all the changes we've made to the company over the past few years from the resiliency of our operations and supply chain to our performance incentive plans, to our culture and our people. We've also been investing to position ourselves in high-growth markets, and this has led to a wave of recent product approvals across many of our businesses. Look, it's exciting, and it creates a tailwind that this company hasn't had in a while. We've been working hard to put ourselves in a position to win with revenue growth tailwinds on top of a strong foundation. And now it's up to us, it's just up to us to execute and deliver on these opportunities, and then as we go down the P&L, the significant work that we've been implementing to drive cost savings and earnings power will start to show up in our reported results in the back half of this fiscal year, and when our organization delivered strong earnings, we translate this into strong free cash flow. This creates a virtuous cycle with incremental firepower for investment and returning capital to our shareholders. And when you combine all of this with the work that we've been doing with portfolio management, we expect to deliver significant long-term value for our shareholders. Finally, I want to thank all of our employees around the world. I know many of you are watching today and it's because of your efforts and those that came before you that Medtronic has accomplished so much in the 75 years since this company was founded. Your work directly benefits the lives of over 78 million people this year. That's an incredible accomplishment. And when I think about the work you're doing to create our future, the innovations that you're inventing, engineering, manufacturing and preparing to sell, this work has the potential to alleviate pain, restore health and extend life for hundreds of millions of people and create tremendous value for many other stakeholders. Thank you for everything that you do. With that, let's move to Q&A where we're going try to get to as many analysts as possible, so 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. With that, Brad, can you please give the instructions for asking a question?

Good morning. Thanks for taking the question. Congrats on a nice quarter here. I heard you guys talk about the hypertension opportunity a few times on this call. I think we saw video before the call highlighting Renal Denervation. So I wanted to ask Sean about that. Sean, you have the TPT for Ardian beginning in January. How much of a benefit are you expecting from that? And when are you anticipating the national coverage decision? And are you planning to use new TSAT process for that? And Sean I think it's been a while since we've heard you talk about just your overall thoughts on the Renal Denervation opportunity. Thanks for taking the question.

Okay. Thanks, I appreciate the question. Look, we continue to make really great progress on the reimbursement front. As you mentioned, TPT or the outpatient coverage for devices, and what that really addresses is a proportion of the patients in Medicare, roughly half of the Medicare patient population, those on fee-for-service would now be covered with this transitional pass-through payment, which is certainly going to be an accelerator for the therapy. But as you noted, getting broader coverage will get us out of the prior authorization loop, allowing you to just build to the codes that have already been established. So making that headway is important. We also have to go further with the private payer universe. That does take longer. You go payer by payer, state by state. In terms of the efforts on coverage, what we're doing is going for coverage with evidence development, there are numerous pathways that, and we'll be giving an update on that in the future. But I've got no incremental update today.

Thanks, Larry. We’ll take the next question. Please, Brad.

Hello, Robbie? The next question comes from Travis Steed at Bank of America. Travis, please go ahead.

Hi, thanks for taking the question. I guess, I wanted to just talk about your ability to grow earnings high single digits longer term, despite maybe some potential for, you've got maybe a stronger dollar tariff potential, it sounds like some of the initial Affera Ardian and launches could be negative on margins initially, but is there enough upside on some of those programs to offset potential headwinds? Is there a potential cushion on some of the COGS productivity? I just want to know your flexibility and your commitment to continue to grow earnings despite some of those potential headwinds that investors have been starting to worry about?

Yes, Travis, thanks for the question. And yes, we are definitely committed to the earnings. I'll let Gary walk you through some of your specifics of your questions.

Thanks, Geoff. We're pleased to raise our guidance on both revenue and EPS for the year as we continue to move, kind of, build momentum. There's a lot to be excited about and we're focused on driving durable, both revenue growth as well as restoring the earnings power of the company. On the margin front, what I want you to hear from us is there's no change to our margin expectations. In Q3, we expect margins of 25.6%, up 30 basis points year-over-year. Full year, we expect operating margins to be 25.7%, up year-over-year by 10 basis points. Gross margins will be up sequentially in both Q3 and Q4, and that will deliver our guidance. On the SG&A front, we'll drive leverage through a focus on our highest priorities, leveraging what we talked about before automation and digitization, we'll make some structural changes, and we have strong discipline on our discretionary expenses to help drive that margin expansion. You mentioned the early launches, and we're committed to investing behind those, both commercially and in R&D. So taken together, that mid-single-digit revenue growth will deliver upwards of 10%, EPS on a constant currency basis. You mentioned the foreign exchange. That will be a five-point headwind in line with what we've talked about before. And that will get us to the $5.44 to $5.50 guidance that we gave today. So overall, we feel good and worth mentioning wants to set guidance up that sets us up for success.

Great. Thanks a lot.

Yes. Can you hear me this time?

Great. Sorry about that. I forgot to unmute before. So thanks for taking the question. I wanted to ask kind of as a counter to Travis' question. Some of the products you mentioned that were important growth drivers on sales, but early in their life cycle on margin expansion, renal denervation, both PulseSelect, which had the supplier issue this quarter, and the upcoming or ongoing Sphere-9, Affera launch, and Hugo robotic and renal denervation. Maybe you could just talk about, especially over the next six to 12 months as some of these products start to launch and progressively launch how you're thinking about the cadence of growth for them and then also margin implications as we think about some of these lower-margin products, maybe adding some of the most incremental growth? Thanks a lot.

Yes. Thanks, Robbie. Thanks for the question. Yes, I mean, look, on the margin side, obviously, you're asking a question around mix. That's a piece of it. But in addition to that, the pricing continues to be an opportunity for us. I think that's been a positive here over the last couple of quarters. And I think there's more upside for us there in pricing, and our cost-down programs have kicked in and are helping as well. So those are, I think, both tailwinds for us. So on the mix side, it is a bit of a mixed bag. And Gary give you some details, but some of the programs like Hugo and Affera that involve capital can be a little lower, especially earlier in the cycle, as you're ramping them up. But then we have some others like Ardian and Neuromod, which are Neuromod's out there now having a pretty big positive impact on price and on our margins. and our mix and Ardian would do the same. I don't know if you - how you want to add to that, Gary.

Yes, not much to add, Geoff. I would just say, first of all, all of the - all of this is contemplated in our guidance. And for 2025, we're expecting gross margins to be flat on a constant currency with foreign exchange driving about 0.5 point of headwind. I talked about the sequential improvement that we expect in both Q3 and Q4 and our focus on stabilizing and improving from there. Geoff talked about some of the headwinds, but I also say we're really laser-focused on cost reduction on price, especially behind our innovation across the board, to fund the investment to ensure commercial success of these critical launches.

Thank you very much.

Thanks, Robbie. Next question, please, Brad.

Hi, everyone. Thank you for addressing my question, and congratulations on maintaining steady execution. Geoff, I wanted to specifically discuss ablation. You mentioned that growth was relatively flat this quarter due to some disruptions. What was the cause of that, and when was it resolved? What gives us confidence in achieving strong double-digit growth in the third quarter? Is that related to some revenue catch-up from the second quarter? When do you anticipate cryo will reach its lowest point—could that be in the third quarter? I also found it interesting that you mentioned the revenue per case in Affera; is that a threefold increase compared to cryo? Thank you.

As I mentioned in the commentary, our ablation business did not accelerate this quarter as we had anticipated due to a disruption from a third-party component supplier. That supplier is now back on track and has resolved the issue while also expanding their capacity. This allows us to increase the supply of PulseSelect and activate new accounts. PulseSelect is performing well, and we are in a good position regarding supply moving forward. We saw nearly double the number of physicians using PulseSelect, and we are now confident in opening more accounts, which should continue to increase. Additionally, we more than doubled the number of procedures and patients treated. On the cryo front, the declines have improved sequentially, meaning that cryo was not a problem from Q1 to Q2; in fact, the declines in Q2 were better than in Q1 due to the resolved supply issue. We expect continued ramp-up for PulseSelect, especially with the addition of Sphere-9. Considering these factors—the resolution of the supplier issue and the demand for PulseSelect and Affera—we are confident in achieving strong double-digit growth in Q3. This area is a key focus for us, and we believe we are well positioned as the only player offering both single shot and focal treatments moving forward.

And sorry, the revenue per case on Affera is that 3x versus cryo?

So Vijay, when you do cryo is really just the balloon catheter that you're using and when you're doing thermal with RF or non-thermal with PFA, there's additional components that can be used, including like a mapping catheter, the patches that you use for a navigation system. So the case revenue goes up. And there's also the use of other technologies like crossing needles that we sell as well. So the revenue per case does go up. I don't think it's 3x quite, but it's certainly more, and that correlates to too, is with the Sphere-9 catheter since you don't need a dedicated mapping catheter, it actually saves them money per case for the hospital. So, it's the value proposition of having one catheter that can do the entire job with a single stick across transseptal is really appealing to physicians.

Thank you guys.

Better workflow and better workflow for them. And even though as excited as hospitals are about PFA, they are still conscious on the price. And so the fact that if you can save them the catheters, like Sean just mentioned, that helps.

Thanks, Vijay. We go to the next question, please, Brad.

Great. Thank you so much for taking the question. Geoff, I was wondering if you could share your thoughts on the MedTech landscape, under the Trump administration. Specifically, what are your thoughts on tariffs? How do you plan to navigate your supply chain? And perhaps you can touch on your exposure to imports from China?

The MedTech landscape is healthy, with good procedure growth expected to continue, driven by innovation. This includes the rise of minimally invasive procedures, advancements in pacing technology, and transitions to MedTech solutions. Overall, this innovation, along with demographic trends, is fueling growth in the market. Healthcare remains a crucial priority for governments regardless of the administration, which provides us with confidence. Regarding the upcoming election, it's early to speculate on policies related to healthcare or tariffs with President Elect Trump assuming office. While we are preparing for various scenarios, it's premature to delve into speculation. Our exposure to imports from China is minimal, comprising less than 1% of our revenue.

Thank you.

Thanks Shagun. Go to the next question, please, Brad.

Thanks. I wanted to ask about the Diabetes segment and your upcoming FDA submission for a Type 2 label expansion. How much of your current insulin pump installed base maybe in the U.S., that's easier, is made up of Type 2 patients? And how do you think about your opportunity in that segment without a more discrete on-body form factor, which seems to be a priority for many of those users?

Thanks for the question. On Type 2, we finished enrollment. We expect to submit to FDA with expanded indication in the first half of next calendar year. So, that's progressing very well. Today, as a percentage of our installed base, we are still largely a Type 1 business. We do see Type 2 as being quite a large opportunity, and the clinical data that we've generated for Type 2 is extremely good. So, we are actually quite optimistic about the Type 2 opportunity.

Okay. Thank you, Chris. Next question, please, Brad.

Hi. Good morning, guys. Going back to the 2025 guidance, in your updated guidance, you're absorbing more FX headwinds on increasing our EPS guidance. I think you told Travis that your margin guidance is 25.7% for the year. I think it was 25.8% last quarter or so with revenue guidance up a little bit, FX headwinds increasing, EPS moving up, is tax rate a positive tail end of the back half of the year versus the previous guidance? I'm just trying to bridge the moving parts into the EPS guidance raise? Thank you.

Gary, do you want to take that.

Yes, happy to take that. What I would say is FX on an EPS basis is very much in line with what we've been sharing all year, and that's really the power of our hedging program, giving us good visibility. Revenue is up, gross margins are essentially in line with our expectations. And we are, as I mentioned, investing behind the power of these launches, both commercially as well as R&D. Tax is up a little bit. We're navigating Pillar 2. But all-in-all, EPS up $0.01 at the midpoint, and we're pleased we've taken our guidance up today.

Thank you, Pito. Next question, please, Brad.

Thanks, and congrats on the quarter here. Back to Renal Denervation, just looking at some data. CMS is quoting 16 million patients, 65 plus that have uncontrolled hypertension, but they're also on medication. So just maybe a recap here, with the NTAP and TPT in place now, how much of that population can you go after and how much is still out there that you would need an NCD to sort of address that patient population? Thanks.

The PAIR mix is approximately equal between Medicare patients and those not on Medicare, including Medicaid. The TPT focuses on the fee-for-service segment of Medicare-eligible patients, excluding those on Medicare Advantage, and is similarly divided between these groups. The base population for uncontrolled hypertension is quite significant, especially among patients taking medication yet still experiencing high blood pressure. As Geoff pointed out earlier, only a small percentage of these patients achieve control with available medications. For Medicare, the figure is approximately 16 million, but our estimates suggest around 18 million patients with drug-treated uncontrolled hypertension exceeding 150. The addressable market for both inpatient and outpatient settings encompasses about half of the Medicare demographic. Medicaid will depend on state-specific regulations, similar to commercial insurance, but it's clear that many patients could benefit from this therapy. The demand isn't the challenge; the focus will be on securing coverage and setting up centers capable of performing the procedures.

Thanks, Anthony. Next question, Brad.

Hi. Thanks for taking the question. Maybe just going to Spine. That continues to be a strong business for you guys. You're growing above market, especially in the U.S. I guess, can you parse out a little bit, the market has been stronger here. So I'd just love to hear how much of the underlying market strength or pickup in recent quarters or years is attributable to that? And I'm just trying to get a sense for how sustainable a high single-digit growth profile for your U.S. core Spine franchise could be?

Yes. First of all, look, it is a bit of – we're seeing a bit of market expansion here. We're also seeing a bit of market consolidation. There's a large tail of spine companies out there that are going away. And as I said in the commentary, this market is leaning towards those with scale and technology. But I'll let Brett go into some of the details here.

Yes. Thanks, Rich. The market itself still remains strong. And as Geoff said, it really benefits companies with scale because of the consolidation and technology with the AiBLE system. And if you look at the technology that we're bringing to this, it recruits the best reps, it recruits the best physicians, and brings together more market opportunity, much more significant opportunity across the world. So we see this as sustainable and we see this as a platform that we will continue to take share and continue to grow this business.

Okay. Maybe just as a follow-up to that. You have a competitor, the other main consolidator right now in the space who's approaching the anniversary of what feels like it could be the worst case for disruption in the marketplace. You talked about opportunity to take share as consolidation disruption is unfolding. Can you just update us on what you're seeing on that front? Thank you.

Yes. You bet, Rich. We have a good pipeline there, and we have had a good pipeline there of strong growth and good consolidation with more high-quality reps and other people coming towards Medtronic. And we're continuing to see that develop, and we have a pipeline and significant opportunity into the future. And once again, it benefits companies with scale and benefits with technology, and we see that continuing to occur and continuing to happen.

Thanks Rich. Next question please, Brad.

Thanks so much. Good morning, everyone. Thanks for taking the question. Just a question on TAVR. There's been a lot of data over the last few weeks here in TAVR, you guys still are benefiting from the SMART trial. I'd just love to get a state of the nation on the TAVR market. And where do you see that going from here, especially with a recent asymptomatic data that we saw. And also one of your potential competitors at the very least delayed from entering the U.S. market. Thanks so much.

Yes. Thanks, Danielle. I think the market is in good shape. I think in line with what we've been saying in prior quarters, it's in that high single-digit range for growth, the expansion of patient population, there's continued opportunities for that. As you mentioned, the asymptomatic patient population, which I think fixes as a class effect would increase that. But the bigger unlock would be moderate aortic stenosis down the road, where we get with our trials read out there. And then there's sort of TAVI and TAVR indications that would also help expand that along with continued global growth of the therapy. So look, I think the evidence base that we've got, the strength of our product just gets better and better. And the longer-term data really starts to distinguish what we've got, and we've got certain use conditions like small annulus that clearly, hemodynamics of our valve are better. And what's really opened up the aperture for us as well as really eliminating the concerns of coronary access with the new FX+ product, which we've launched in the United States, just began launching also this quarter in Europe, and we'll be pursuing that technology into other world markets, including Japan within the year. So I think we're well positioned. The market is healthy, and we still see lots of room for growth for a long time.

Hi, thanks, Daniel. Next question, please Brad?

Thank you so much. And good morning. It's been a while, I think, since we've heard an update on your mitral valve replacement and repair programs. Could you sort of just give us an update on where you're thinking about that as well as tricuspid opportunities. Thank you very much.

Well, we'll stick with Sean on the structural heart questions.

Yes. Thanks for the question. So the Intrepid valve which is used in both the mitral position as well as in the tricuspid position continues in its trial for U.S. and European approval APOLLO trial. We're doing well in that study. I think the acceleration for the trial is really had by going to a 29 French version of the transseptal side of that. And we've seen really, really good results when we completely eliminate the regurgitation, which is very different than what we see with repair technologies. The clinical outcomes have been really excellent. We've taken on a population of those who are not clippable, those who can't get surgery and patients with severe mitral annual calcification or MAC. So that's really going to be the first indication for that. On the tricuspid front, it is the same valve, we are making some modifications for that in the future. But right now, we're using the existing Intrepid valve and the tricuspid position in the early feasibility study. The iterations that we'll make are, include sizes and just making it more fit for purpose in that location. But we continue to do well. We believe that elimination of regurgitation is better for patients. And that's been our primary focus. And we have some other investments in repair technologies as well.

I think, overall, to recap the last two questions, our Structural Heart business is doing well. As Sean mentioned, we have enhanced our TAVR franchise with data and product improvements, and regarding the pipeline, he outlined the progress with mitral and tricuspid using Intrepid. This aspect positively contributes to our mix and is a very profitable franchise for us. It's encouraging to see its success alongside a strong underlying market.

Thanks, Joanne. I think we have time for two more questions. So Brad, we’ll take the next question, please.

Beautiful. I'll keep it tied on this one. Given the focus on tuck-in M&A, I'm just curious, the kind of assets you're most interested on that side. And then obviously, there's language around looking at the portfolio of assets that you're running. Should we expect the potential for any slightly more radical repositioning of the business over the next coming years? Thanks.

Thank you, Patrick. Regarding mergers and acquisitions, we discussed this in the last quarter, and it's a key element of our growth strategy. We're primarily interested in tuck-in acquisitions. While I won't specify our exact priorities, our leadership team is focused on identifying key areas for M&A. This includes our high-growth markets and segments, as well as well-established businesses that occasionally need additional support to sustain growth since we rely on them for steady growth and significant profits and cash flow. It's vital to keep these businesses healthy. However, I won't go into more specifics on that. As for portfolio management, I want to stress how ongoing it is; it's not a one-time event. We consistently evaluate our portfolio to ensure it aligns with our mission and leverages our strengths. In a competitive market, we need to focus on our strengths, and we've got many. The portfolio must also be structured to achieve reliable, mid-single-digit, innovation-driven growth. This has implications for profitability and cash flow, which ultimately contribute to dividends and double-digit returns for our shareholders. We're actively analyzing our portfolio to ensure it is set up to deliver consistently on these fronts. That's about all I can share on portfolio context.

Thanks, Patrick. And we apologize, if we weren't able to get to everyone in the queue this morning. So feel free to follow up with me or anyone on the IR team after the call. So with that, Geoff, please go ahead with your closing remarks.

Okay. Well, thanks to all the analysts for the questions. And to all of you that joined us today, and like always, we certainly appreciate your support and your continued interest in Medtronic and, we hope you'll join us for our Q3 earnings broadcast, which we anticipate holding on Tuesday, February 18, where we'll update you on our continued progress against our long-term strategies and our commitments. So with that, again, thanks for joining us, and have a great rest of your day. And for those of you in the U.S., wishing you and your families all a very Happy Thanksgiving next week. So thank you and have a good day.