Medtronic Plc (MDT) — Q3 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 Third 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 third quarter, which ended on January 24, 2025, and our outlook for the remainder of fiscal year ‘25. 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 third quarter revenue in the current and prior year reported as other. References to sequential revenue changes compare to the second quarter of fiscal ‘25 and are made on an as-reported basis. All share references are on a revenue and year-over-year basis and compare our third fiscal quarter to our competitors' fourth 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 joining us today. We delivered another quarter of mid-single-digit revenue growth for the ninth quarter in a row. We had strong performances in several areas, starting with 22% growth in cardiac ablation solutions powered by our PFA portfolio. Leadless pacing, neuromodulation, and diabetes all grew double-digits. And structural heart excluding congenital and U.S. cranial and spinal technologies both grew high-single-digits. We advanced our innovation pipeline and are opening up the largest total addressable market in MedTech with renal denervation. It's an exciting time as we're stacking growth drivers on top of growth drivers with groundbreaking innovation in some of the most attractive markets in MedTech. We overcame a short-term U.S. distributor dynamic and delivered strong earnings power with high-single-digit EPS growth coming in ahead of both consensus and the high end of our guidance range with strong improvements in both our gross margin and operating margin. And as we look ahead to our fiscal fourth quarter, we expect our revenue and EPS growth to accelerate as we build on momentum in important growth markets and continue to drive earnings leverage. We expect our formula of delivering durable revenue growth, leveraged earnings, and generating strong free cash flow to create significant value for our shareholders. Now let's turn to the details of our Q3 business results and discuss our performance. Starting first with our cardiovascular portfolio, which grew mid-single digits overall. The highlight was our Cardiac Ablation Solutions business. Now we forecasted strong double-digit growth this quarter and CAS delivered meaningful acceleration, growing 22%. Our Pulse Field Ablation products are driving rapid growth. We've hit a new gear on supply, and demand for our PFA portfolio continues to accelerate. We are the only company with two PFA platforms, Affera and PulseSelect, which gives us flexibility. Affera has separated itself from the pack as the most desired workhorse platform with its integrated high-density mapping, as well as both PF and RF capabilities in a focal catheter. This is increasing our revenue per case as we replace competitors mapping and RF catheters. We also have PulseSelect and as customers use this single shot PFA catheter, they want to use it more and more. PulseSelect gives us just a ton of flexibility to grow the market globally and compete. Across both our Affera and PulseSelect platforms, customers appreciate their ease of use, precision, durable efficacy, and now increasingly their differentiated safety profile. We believe the safety profile of our PFA technology is a significant point of differentiation competitively, and it is one of several factors that gives us high confidence in our outlook. Now looking ahead, we expect this rapid growth trajectory to continue. For Q4, we expect CAS to accelerate its growth rate and deliver another strong double-digit growth quarter. This will be a $1 billion business for us this fiscal year, and we have line of sight to $2 billion as our PFA portfolio expands into new accounts around the world. Next in structural heart, we grew high-single digits excluding congenital. We continue to see good adoption of our Evolut FX+ TAVR system in the U.S., and the international launch is off to a very good start. As we look ahead, we have some important upcoming data catalysts as we continue to share long-term evidence on the benefits of our Evolut platform. Our five-year low-risk data will be presented as a late breaker at ACC next month and two-year data from our smart trial, which is a head-to-head versus our largest competitor, will be shared later this spring. Look, we're at a moment now where we've really solidified this business. With product improvements, important clinical data, and strong execution by the team, it's now in a really good spot. Next in cardiac pacing therapies, we grew 9%. This business has grown upper single-digits for 10 quarters in a row now on the strength of our leadless pacemaker franchise and conduction system pacing technology. In April, we will mark the 10th anniversary of our first micro leadless pacemaker receiving CE mark. And now, a decade later, our micro franchise continues to set the standard, delivering outstanding 24% growth in Q3, and we expect this strength to continue. Now turning to hypertension and our simplicity blood pressure procedure. We're poised to change the standard of care for uncontrolled high blood pressure. Medicare coding and payment is now in place and just last month we had a pivotal development when CMS opened a national coverage analysis. This is exciting news, as we will now have Medicare coverage in place within the next eight months. We're activating new accounts across the U.S. and helping them set up simplicity clinics and establish care pathways, so they're prepared to quickly ramp procedures when coverage is in place. And upon coverage, this will be an immediate growth driver and will become a significant source of growth for the company. Nearly half of U.S. adults have hypertension, and one in four of those with hypertension just don't have it under control, despite the broad availability of numerous generic medications. So as we take a step back, the patient population is large. The current standard of care just isn't working. Patients want this new therapy. Physicians can easily do the procedure, and health systems support it. The opportunity here is just massive, and we're poised to be the leader in addressing this large and unmet need. And as we look at the overall cardiovascular portfolio, taking all of these growth drivers together, we expect its growth to meaningfully accelerate in the quarters ahead, starting with Q4. Turning to our neuroscience portfolio, which also grew mid-single digits this quarter, in cranial and spinal technologies, we had another strong quarter with 5% global growth, including 8% growth in the U.S., as we won another point of share. I've been saying for some time now that the basis of competition in the spine market is rapidly changing. And you saw yet another example last month when a major competitor decided to get out of the spine business. We're causing this disruption. We're causing this disruption with our arsenal of differentiated enabling technology, including AI-driven preop planning software, imaging, robotics, navigation, and powered surgical instruments. And we recently expanded into pre- and post-op imaging through our partnership with Siemens Healthineers. Look, surgeons have to make a choice and they're standardizing with the company that can offer them this full complement of innovative technologies. And those competitors that can't or can only offer certain pieces, well, we're seeing them either struggle or just exit the market altogether. Our differentiated best-in-class AiBLE ecosystem is attracting the best spine surgeons, as well as the best reps and distributors from competitors. And as these dynamics continue to play out and we continue to expand our innovation lead, we expect our CST business to deliver sustained above-market growth. Next, neuromodulation grew 13% well above the market. And just like in spine, our game-changing innovation and strong commercial execution is disrupting the competitive dynamics. The closed-loop sensing technology that we've developed for both pain stimulation and brain modulation has been a big engineering feat. We now have therapies that can be personalized at scale, which is better for patients and can lessen the load on the healthcare system. And it raises the bar on what it takes to compete, which is evident in our Neuromod growth. In Pain Stimulation we grew 12%, including 17% in the U.S., on the strength of our Inceptiv closed-loop spinal cord stimulator. On top of being the smallest and thinnest SCS device, Inceptiv instantly adjusts based on neural responses to keep the therapy at an optimal dose. And it has the best full-body MRI conditional access on the market, which is a very important feature for patients with chronic pain. In brain modulation, we grew 15%, including 26% in the U.S., driven by the adoption of our Percept DBS systems. Percept and its brain-computer interface technology is transforming treatment for patients with movement disorders like Parkinson's, essential tremor, dystonia, and epilepsy. Last month we received CE mark clearance for our BrainSense adaptive DBS for people with Parkinson's. With this groundbreaking technology, Percept devices through a software upgrade can become personalized, fully closed-loop systems with real-time automatic therapy adjustments based on brain activity feedback. We expect this launch to drive continued, above-market growth for our brain modulation business in the quarters ahead. Now turning to our medical surgical portfolio, let's discuss our performance in surgical. This quarter we experienced a change in U.S. distributor buying patterns, which had a couple of hundred basis point impact on our surgical performance. We expect this to resolve as we start fiscal ‘26. Apart from this distributor dynamic, our U.S. hospital customer purchasing, direct from us and through distributors, has been stable. And while we continue to see market and competitive pressures in our stapling franchise, we're offsetting this by winning share with our LigaSure Advanced Energy Products globally, and by driving strong, high-single-digit growth in emerging markets. With our Hugo Soft-Tissue robotic platform, we're approaching some important milestones, including entering the U.S. market, expanding indications, adding features, and enhancing system performance. In international markets, utilization continues to increase, and we've more than doubled Hugo procedure volume year-over-year. In the U.S., we are on track to submit for FDA approval for Hugo with urology indications by the end of next month. I also have some new information to share with you today. We have finished enrollment in our hernia and benign GYN studies. Further, we recently received FDA approval to initiate our GYN oncology ID study and are actively moving that forward. We're also making progress adding features and instrumentation. We just completed our first cases using our ICG fluorescent imaging, and we expect to add our LigaSure Vessel Sealing technology to Hugo later this calendar year. So in total, we are confident in our path forward. Hugo will be a growth driver for our surgical business in fiscal ‘26 and a meaningful growth driver for Medtronic in the mid-term. Finally, in diabetes, we had our fifth quarter in a row of double-digit growth. We printed 10% growth on top of 10% growth in the prior year. Our growth is driven by one, the overall move of the market from standalone CGM with MDI, to AID systems; and two, the strength of our MiniMed 780G system within the AID category. We continue to grow our 780G installed base, and we're seeing very high CGM attachment rates, as well as strong growth in consumables. In Europe, we're getting excellent user feedback on our Simplera Sync sensor, which is half the size and much easier to apply than our previous sensor. In the U.S., we've submitted Simplera Sync for FDA approval, and we're also continuing to make progress on the integration work with the Abbott-based sensor. We expect these two new sensors to really accelerate our U.S. growth when fully launched. Beyond sensors, we're also investing heavily in our robust diabetes technology pipeline, including next-gen durable pumps, patch pumps, smart pens, and algorithms. We're also seeking expanded labeling for the 780G, including Type 2 diabetes, which is a meaningful new opportunity. We expect to file this with the FDA here in the first half of the calendar year. So across Medtronic we continue to drive mid-single-digit growth and you're now seeing this translate into strong earnings power. We're delivering leveraged earnings as we focus on disciplined pricing, holding our SG&A growth below sales, and realizing the benefits of our scale, including more than doubling our underlying COGS productivity.

Thanks, Geoff. Our Q3 revenue of $8.3 billion grew 4.1% organic. On the bottom line, adjusted EPS was $1.39, up 6.9%. This was $0.03 above both consensus and the midpoint of our guidance. The EPS beat was driven by better-than-expected operating profit on stronger gross margins and a better-than-expected tax rate. We like the shape of the P&L this quarter, with mid-single-digit organic growth on the top line, improved gross and operating margin, strong investment behind our growth drivers resulting in leveraged earnings growth. We continue to see breadth and diversification in our revenue growth with double-digit growth in diabetes and mid-single-digit growth in cardiovascular and neuroscience offsetting medical surgical. We continue to see stronger overall growth in our international markets, which grew 5%, including high-single-digit growth in Japan. Emerging markets grew high-single-digits, including high-teens growth in India, mid-teens growth in Eastern Europe, and low-double-digit growth in Southeast Asia and the Middle East and Africa. Moving down our P&L, our adjusted gross margin was 66.6%, up 50 basis points versus last year, and ahead of our expectations. We continue to execute on our COGS efficiency programs, and that's helping to drive margin upside. We also drove the upside with our focus on better pricing and business mix. The improved gross margin translated into an operating margin that was also ahead of our expectations. Our adjusted operating margin was 26.2%, up 100 basis points versus a year ago. The organization remains extremely focused on improving our margins over time. We're also prioritizing investments in our pipeline and important product launch capabilities, like hiring hundreds of mappers to support PFA growth and market development specialists in renal denervation to accelerate Ardian growth. At the same time, we're returning significant capital to our shareholders, primarily through our strong and growing dividend and from time to time, opportunistic share repurchases. Regarding our portfolio, we've increased our focus on finding tuck-in acquisitions that can enhance our growth and margin profile. We're also continuing to actively evaluate our portfolio at the business, product line, and geographic level, all through the lens of maximizing shareholder value. Now turning to guidance. We're reiterating our full-year revenue and EPS guidance today and both our revenue and EPS growth will accelerate in the fourth quarter. On the top line, we continue to expect FY ‘25 organic revenue growth to be in the range of 4.75% to 5%. For Q4, given the strong trajectory of our growth drivers and expected acceleration in the cardiovascular portfolio, we're comfortable with current street organic revenue growth consensus and expect to deliver our 10th quarter in a row of mid-single-digit revenue growth. Based on recent rates, FX would have an impact to fiscal ‘25 in the range of $275 million to $325 million, including $125 million to $175 million in the fourth quarter. On the bottom line, we continue to expect fiscal ‘25 non-GAAP diluted EPS in the range of $5.44 to $5.50 and are comfortable with current full-year street consensus. Based on recent rates, our EPS guide factors in a five-point impact from foreign currency, and we will have a significantly smaller impact than that in fiscal ‘26. In Q4, we expect our restored earnings power and strong operating margin expansion to continue, resulting in high-single-digit adjusted EPS growth in the back half of our fiscal year, consistent with the commitment that we have been sharing all year. Further details on our guidance can be found in the guidance slide in our presentation.

Thank you, Gary. And I want to thank you for stepping in as CFO over the last few quarters. I know you're going to help ensure a smooth transition as we welcome Terry, and I look forward to your continued contributions to Medtronic. Now, Terry will be joining us in a couple of weeks. And as I've heard from several of you in the investment community, it sounds like your checks are confirming what led us to hire him. He has a very strong reputation for his operational focus and ability to lead organizations to drive margin improvement, portfolio management, and earnings power to create shareholder value. Now before we go to analysts' questions, I'll share a few final thoughts. Look, we've made a number of changes to the company, and the turnaround definitely hasn't been overnight. It's been building, it's been building with nine quarters in a row of mid-single-digit growth. And now we're clearly entering a new phase with the growth drivers kicking in. And these are big growth drivers. As I said earlier, we're stacking growth drivers on top of growth drivers. We're in the moment with 780G and diabetes, closed-loop technology and neuromodulation, and of course, PFA in our Cardiac Ablation Solutions business. And we're about to start a massive growth driver with our simplicity procedure and hypertension. And there's even more to come with opportunities like Tibial Stim for Overactive Bladder, our Hugo robot, and our transcatheter mitral and tricuspid valves, among many others. And at the same time, our earnings power is now kicking in with high-single-digit EPS growth this quarter and next. So look, it's a very exciting time to be here at Medtronic. And I want to close by thanking our employees who are listening today and make all of this possible. You're making a difference every day for patients around the world, innovating and advancing healthcare technology and improving healthcare access. You're inventing, developing, and deploying meaningful technologies that will change standard-of-care and create whole new markets. I appreciate your dedication to the Medtronic mission, and I'm really looking forward to what we will collectively accomplish in the days ahead. With that, let's move to Q&A where we're going to 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. So with that, Brad, can you please give the instructions for asking a question?

Perfect. Thank you so much for taking the question. I promise I'll keep it to one. You know, as you guys are moving into fiscal ‘26, obviously, there's Hugo, CAS is accelerating, you know, Inceptive doing well, Micra, etc. So there's a lot of moving parts, I know it's only Q3, but would it be fair to assume that the base algorithm would call it mid-single-digit-ish growth and then high-singles in the bottom line, that that's a fair assumption moving into fiscal ‘26. Also can we go back as an exit rate in Q4? Is that a fair assumption?

Sure, Patrick, thanks for the question. Yes, you know, we'll obviously like you've been, we'll give FY ‘26 guidance on our Q4 call, but yes, our objective is unchanged. We're committed to doing the things that we need to do to drive profitable growth and operating leverage at Medtronic. So, you know, as Gary pointed out in the commentary, we reiterated our guidance for this fiscal year of 4.75% to 5% organic revenue growth and high-single-digit realized EPS growth in the back half of the year. And as we look into the future, you know, we think that we’re still committed to that LRP that you outlined.

Thanks, Patrick. Next question, please, Brad.

Hey, I'm here. I'm here guys. Can you hear me? Yes, can you hear me? Sorry about that. Sorry I forgot to unmute. So thanks for taking the question guys. I wanted to ask Sean a question on AF Solutions, which was obviously a bright spot in Q3. So, Sean, talk about the drivers of the acceleration in Q4? And how you're thinking about fiscal ‘26 and, you know, specifically the ramp of the Affera where you are with supply and your ability to get mapping in the field and that $2 billion line of sight, how quickly can you get there? Thank you.

Larry, I'll start by addressing that and then have Sean provide some details. It’s encouraging to see the positive impact PFA is having on patients, as well as how it’s enhancing physician and hospital productivity due to its speed, effectiveness, and safety. We're thrilled about our market position, which is reflected in our recent quarterly results. We view this as a major growth driver, and we believe we're just beginning. Regarding the $2 billion target, the market is exceptionally strong, and we expect continued growth. We see PFA as a market worth around $9 billion, growing in the high teens. Both our platforms, PulseSelect and Affera, are in high demand, offering us great flexibility as we expand globally. Affera, in particular, is receiving outstanding feedback, and it's a name that has gained recognition worldwide. Our supply situation has improved, and our new factory in Galway is significantly benefiting Affera. I want to emphasize that our focus is not solely on the $2 billion target; that’s not our endpoint. It’s a short-term goal as we look beyond next year. Don't overlook that Affera will also be entering the single-shot market, which reinforces our confidence in both the near and long-term prospects with PFA and our platforms. Sean, would you like to add anything? I know Larry had some additional points as well.

Yes, Geoff, you've covered it well. We are actively expanding our capacity both in the factory and in the field. It's crucial that we stay ahead as we implement mapping. As Geoff mentioned, we are experiencing strong demand for Affera, which launched in the third quarter in the United States and has contributed significantly to our growth. Additionally, we are actively engaging with hospitals and addressing many of the paroxysmal cases using PulseSelect. This reflects a dual-platform strategy that effectively penetrates various accounts. We also observe significant utility in certain regions that do not utilize mapping, where PulseSelect is favored for its precision, proven durability, and increasingly impressive safety profile. Looking ahead to next year, we anticipate substantial growth as we expand our field presence and ensure our capacity exceeds demand. We expect continued success in the post-op ablation sector, and our team is enthusiastic about the technology we are offering, which is well-received by physicians.

Thank you.

Thanks, Larry. Next question, please, Brad.

Oh, hi. Good morning and thank you very much for taking the question. There's talk of all these big growth drivers with the post-field ablation and Hugo, especially now with the trials and rolling and submission coming at the end of the month? And also renal denervation, how do you think about balancing the spend of investing in these programs to make sure they're successful versus being able to continue driving margin expansion like we saw in this quarter? Thanks a lot.

Thank you for the question, Robbie. We have several growth drivers that present investment opportunities. Our aim is to balance both investment in these areas and achieving our financial goals. Improving gross margin is a crucial part of this strategy. Over the past few quarters and years, we have made progress in growing sales at a mid-single-digit rate without significantly increasing our general and administrative expenses. This trend will continue, and coupled with gross margin improvements, it provides us with greater flexibility. Additionally, we plan to focus on tuck-in acquisitions. With a solid balance sheet, these acquisitions serve as a form of research and development. Thus, increasing tuck-in M&A and continuing to improve margins is key for us. Gary, do you have anything to add?

No. You hit it, Geoff. It's been our focus. We grew gross margin in the first half of the year on a constant currency low basis, and we'll grow gross margin on an AFX basis in the second half of the year. And that's really what's going to be key to us being able to deliver the high-single-digit EPS while we fund the growth drivers like investing in mappers as I talked about in my prepared remarks.

I mean, but the goal here, we've got some of these growth drivers, we've got to continue to make the investment. We want to play offense at this point in time.

Hey, thank you, Robbie. Next question please, Brad.

Hey, guys. Good morning and thank you for taking my question. Geoff, I think I had a two-parter. When it comes to large companies, this is exactly what we wanted to see. Diversified portfolio, we have some moving parts, but would you still have the ability to manage the P&L and drive earnings, right? I feel like that's what we got here. You know, when I look at the print here, U.S. Surgical, I think you called out a distributor timing impact. But what gives you the confidence this is not a share loss? And I think related to that P&L management rate, this gross margin stood out. Any one-timers in gross margins, maybe talk about what drove the sequential step up in gross margins and sustainability? Thank you.

Sure. Well, thanks for the question. I'd say on the surgical question, first, like I said in the commentary, the performance there was driven by a couple of our larger distributors stepping down their carried inventory levels of Medtronic inventory below their normal levels. Like I said, this dynamic cost us about a 200 basis points in Q3 growth. However, we do expect these dynamics to resolve as we enter Q1, when these distributors reach their target inventory levels. So when they get to those inventory levels that they communicated that they want to get to us, that's when this resolves and that's going to be as we enter Q1. Now your question about share, we do have the ability to see through, we track this very closely, the end customer purchases. And one, we know they're stable and two, you know, we're not losing share. You know, we continue, I think to outperform slightly in the non-robotic space. You know, robotics in the U.S. obviously is a headwind for us. So that's what I'd say to that one. And on the second one, I'll let Gary handle the gross margin question.

Thanks. And Vijay, thanks for your comments on balancing the puts and takes. You know, as Geoff and I have talked about, we're really focused on delivering the earnings power. On gross margin specifically, we were pleased with the performance, a 40 basis points sequentially and 50 basis points year-over-year on an AFX basis. You know, the drivers, as Jeff talked about, you know, continuing our COGS efficiency programs, you know, and really improving our operating efficiencies. We continue to be disciplined on pricing. And we did see some, actually in the gross margin line, foreign exchange favorability. I will say our second half gross margins will be up, both on a constant currency and an AFX basis. And we're really focused on it to not only drive the earnings power but also to fund the investments, as Geoff talked about.

Yes, I think, as Gary mentioned, we are concentrating on margins in all their aspects, including pricing, mix, and our cost-reduction programs, which are positively affecting and improving margins. Regarding your question about share loss in surgery, I would also point out that the business is performing well outside the U.S. with mid-single-digit growth, and we are experiencing high-single-digit growth in emerging markets. We are also gaining market share globally in areas like LigaSure and barbed sutures. Our goal is to bring this business back to our corporate average as we look to fiscal year 2026, where we expect Hugo to accelerate and become a more significant growth contributor at the surgical level. As I noted earlier, Hugo is nearing some crucial milestones, and some of you have inquired about these. We are observing solid progress on Hugo, as indicated by a thorough set of leading indicators that give us confidence. Mike Marinaro might be in the best position to elaborate on these leading indicators for Hugo, so I’ll ask him to comment on that.

Yes. Thanks, Jeff, and thanks, Vijay, for the question. I think you've commented on some of these in your commentary, Geoff. But when we look at a complex program like Hugo, there are many elements that come together to really to make it go, the system, the indications, instruments of course, and getting into markets around the world. So, we're now in over 25 markets around the world. Our procedure volume has more than doubled on a year-on-year basis. We're seeing utilization improve in current programs, which is a really important measure of success. We track external publications, independent publications; there's been over 170 now at this point. So looking at the performance and utility of HUGO compared to the market leader, and what we see is that the commentary is broadly comparable, both in procedure times and functionality, so that's obviously a great external measure. We're making progress with our advanced capabilities. So we just completed our first ICG cases. LigaSure is obviously critical for Hugo. We expect to introduce that this year. And then I think as Geoff mentioned in the commentary, we are on track to submit to the FDA for the urology indication by, I think, at the end of next month. But as importantly, we're increasing our capability and driving the clinical evidence to support multiple indications in the U.S. having now completed hernia, benign gynecology, moving into Gyne Onc here near term, which will then give us a cadence of indication opportunity to really have a fully featured product. So, we take all of these things together and you can see that it comes together and really drives the progress and optimism that we see as we're preparing to enter the U.S. market in FY ‘26.

Helpful comments. Thank you.

Yes. Thanks, Vijay. Next question please, Brad.

Hey. Thanks for taking the question. I just wanted to push a little more on the surgical side since it was kind of the one area that was a little bit different this quarter. I guess curious, why do you think the distributors destocked in the quarter? And when didn't you have kind of visibility in that ahead of time? And did you talk to the distributors? And did they say they would kind of return back to normal buying patterns in the quarter? I guess, I'm just looking at this U.S. surgery business and it's kind of been below Medtronic corporate average for about five quarters now. And there's been a lot of one-time things going on there. But I just want to kind of get investors' confidence that this business can return back to growth next year. And is Hugo required, do you think to get this business back to kind of mid-single-digit plus growth?

Yes. Okay. Travis, thanks for the question. As I mentioned that this distributor issue that came up, it is temporary, came in late in the quarter for us. And the distributors' reasons for bringing down their inventory, it's really to hit their goals. I'm not going to get into that. It's specific distributors and two of our larger ones. But that's their own goals. And but as they get down to very specific inventory levels, that's when and then they'll be getting back to that normal trajectory. And like I said, that will happen as we enter Q1. Getting back to your point on the U.S. surgical business, just taking a step back, the competitive issues facing our really, it's our stapling franchise over the last, call it, several quarters as you've outlined, has brought the surgical growth levels down below the corporate average as you've pointed out. However, these pressures aren't new. And we're committed to returning the surgical business to a stronger growth profile more aligned with the corporate average. Mike walk you through our confidence in robotics. You know, and that's becoming a growth driver for the surgical business itself in FY ‘26. And then beyond, it will become more of a, in the mid-term, a more growth driver at the Medtronic level at the $33 billion revenue level, you'll start to feel it. In addition, you know, we just got to maintain our strength in emerging markets where we're seeing the high-single-digit growth. We need to continue to take share with LigaSure and barbed sutures on a worldwide basis, and I already talked about Hugo. So we have confidence in this because the progress, you know, we feel we have confidence in this because of progress we're making and how we're holding in other parts of the business. Mike, anything you want to add to that?

I think you've outlined it really well, Geoff. We are focused on our areas of growth that you highlighted, where we can gain share. This dynamic that we experienced this quarter was a bit unique, and it did come in late, although we have had conversations, we understand what the objectives are, we expect that when we hit those levels that we then see more normalized performance moving forward. So that really should address that issue and then we get it back into our normal sort of rhythm focusing on the areas of growth that you described?

And the guidance that we've given, you know, implies both the top and bottom line acceleration in Q4, even though we still have this distributor issue in Q4. And this is driven largely by, you know, acceleration of CV, because, you know, cardiovascular will accelerate and drive upside going forward. So when you think about cardiovascular, we've had about 10 quarters in a row of mid-single-digit growth without much of any contribution from CAS or Ardian. And, let's refer to this as like the CV based business, you know, without CAS and Ardian. And we'll continue to see this performance in the base business driven by above market performance in CRM, think leadless, conduction system pacing, EBICD. And, again, as I mentioned, the commentary structural heart's in a great place and with strong evidence and that we'll keep building upon and product improvements that have come out and Evolut FX plus and, you know, I think just better commercial execution against the main competitor there from our team. I mentioned cardiac surgery, where we've, you know, revamped the product lineup, refreshed it over the last two years, and now it's been growing at high-single digits. So you have all that in this base business that we don't see changing going forward, that mid-single-digit growth that we've seen over the last 10 quarters. And now you add the contributions from CAS and RTN on top of that, that you, you know, you'll accelerate in Q4. And then as you enter into Q, you know, FY ‘26, you pick up the Ardian piece as well and CAS keeps going.

Great. Thanks a lot for that.

Hope that helps.

Yes, it does. Thank you.

Thank you, Travis. Next question, Brad.

Thanks so much. So I wanted to just follow up on the other sort of soft spot in the quarter here, for full vascular. That went from like a mid-single-digit growth in previous quarters to this low-single-digit decline. And I guess similar to the questions around distributor stocking is timing for turning that around confidence that can kind of turn the corner here since that really was the only business in CV that pulled down a little bit on a pretty solid mid-single-digit growth portfolio average? Thanks.

Yes, Matt, there was a moment of disruption in your connection. I believe you were discussing peripheral vascular. Yes, it is primarily an issue related to China's Value-Based Pricing that we are addressing. While we've navigated most of the challenges there, some obstacles remain, leading to some volatility in our China operations. Overall, we have managed to do well and maintain profitability, but the volatility impacted the peripheral vascular segment this quarter. Is there anything Gary or Sean would like to add?

Thanks, Matt. Next question please Brad.

Thanks so much for taking the question. I was hoping that you guys talked about the massive global opportunity for the renal denervation franchise and you laid out the path to unlocking the U.S. I was hoping to just get an update on the international opportunity, just where the business stands should we be thinking or could we be seeing some coverage and announcements in different countries? And then what do you expect needs or what needs to happen in order for that international ramp for the spiral unit going forward? Thanks for taking the question.

Thank you for the question, John. I'll let Sean address the international aspect, but I want to highlight that RDN has been a significant journey for us. As we sit here today, we're really excited about the NCA, which represents a major milestone for us. We're focused on changing the standard of care for hypertension, the leading cause of death, and transitioning from an NCA to an NCD gives us a lot of confidence. Over the last decade, we have not seen a case where an NCA has failed to convert to an NCD, and both the FDA and CMS have provided clear timelines for the July announcement and the October implementation. This opens up a major opportunity in the U.S. and we believe it will also have a positive impact globally. With that, I'll turn it over to Sean to discuss our international progress and opportunities.

Yes, sure. Thanks, Josh, for the question. So, you know, like a lot of these reimbursement efforts, you have to do them country by country by meeting, you know, the individual expectations and across Europe, mostly that's the health technology assessment. And we've published numerous cost-effectiveness studies which would support those analyses. The other thing that really drives payment decision at the country level is going to be the guidelines that get published. All those society statements have been very supportive to the European guidelines and ESC guidelines. So we're seeing country by country increases, including France, which has established reimbursement. And then, you know, outside the United States and Europe, we've recently gotten approval within China, and then we have to go to the hospital listing price process there, so we'll start in big cities and then go beyond that. And of course, the only outstanding country for approval is Japan, and we're working on that to getting regulatory approval, and then, you know, typically it's six months from the time of approval to when you get reimbursement for those products. So we're making, you know, a good push in every country where we can, but make no mistake about it, the U.S. is going to be the dominant growth driver for renal denervation given both the prevalence of the disease and the setup we have for both Medicare payment as well as the building commercial insurers' interest in covering this device as well.

Okay, thank you, Josh. Next question, please, Brad.

Oh, great. Thanks for taking the questions. I wanted to ask on FX. Geoff, I think you called out the opportunity recently to more actively manage the FX risk exposure. Maybe could you help us understand exactly how you can do that, maybe the kind of level or magnitude of control these factors ultimately could have on FX? And then over what period you think you could start to mitigate some of that FX risk? Thank you.

So thanks for the question, David. I mean, I'd say on that, on your last point, the actions we've taken have already started to mitigate this, and it's been something we've been working on now for quite a while in a couple of quarters, and you'll start to see the effect. I let Gary outline exactly what we're doing and the opportunity here.

Yes, David. I'll begin with your second question and then return to our actions. Your second question was about our observations. This year, what we've observed has been quite consistent, so there's no new information for fiscal year 2025. As I mentioned in my prepared comments, we anticipate significantly less of a negative impact from foreign exchange in 2026 compared to 2025. I appreciate your acknowledgment of our discussions on this topic. As Geoff noted, we are making strides by taking greater ownership and proactive measures. We're adjusting our incentive structure to U.S. dollars instead of local currency in many emerging markets, which leads to commercial changes like dynamic pricing. This may involve updating our prices as frequently as every month, which is a significant shift for us. As Geoff remarked, we are noticing the progress, and these actions will benefit our gross margins. As we've previously discussed, improving these margins is crucial for enhancing our earnings potential while also funding growth investments and meeting our financial commitments. Thank you for the question; I value it, and I want you to know it's a crucial focus area for us.

The only other thing I'd mention is that Gary's team, along with our global operations and supply team, is working hard to create natural hedges in our supply chain with our suppliers. We are taking a comprehensive approach, which is beginning to yield positive results.

Hey, thank you, David. Well, I think we've got time for two more questions, Brad.

Thank you for the question. Geoff, I found your comments about stacking growth drivers on top of each other very interesting. Could you clarify some of these drivers and their potential impact? Specifically, could you provide insights on the growth contribution in the first year compared to the fifth year? Also, what is the timeline for reaching the $2 billion target? You've mentioned it's just the first stop, so what are your long-term expectations? Regarding Hugo, you noted it would contribute to growth in FY 2026 and continue to grow in the medium term. Could you elaborate on that? Lastly, you indicated that RDN would be an immediate growth driver once coverage is established. Can you provide more details on the near-term outlook and what it entails? Thank you.

Thank you for the question. When we consider our growth drivers, we focus on areas where we have strong confidence in a rapidly expanding and sizable market, along with assurance in our position within that market. Currently, three key growth areas come to mind. First, diabetes has been a significant focus for us, with consistent double-digit growth over several quarters. We anticipate further growth as we await FDA approval for Simplera Sync and explore expanded indications for 780G. Secondly, we are making progress with our PFA and CAS initiatives, and we believe we are on track to achieve our near-term goal of $2 billion as we unlock supply capabilities. We've also made strides with Affera, and our new factory in Galway, Ireland, has significantly enhanced our operational capacity. Thirdly, in the Neuro Mod sector, we are experiencing growth in the teens, possibly being the only player in that space. While it may not be as large as other markets, it remains significant, with the potential for technological advancements in sensing for various therapies, which we believe will drive competition and growth in this area. Looking ahead to FY 2026, Hugo is expected to be a substantial contributor to our surgical business. Although we cannot quantify the short-term impact of Ardian until the Q4 call, recent developments have positioned us favorably, particularly after the NCD approval, and we're seeing promising efficacy and positive feedback from physicians. As growth drivers continue to evolve, we're also optimistic about tibial stimulation for overactive bladder, which we believe could significantly expand that market. With a compelling product story and the potential to meet pent-up demand, we see this as another crucial element in driving growth. Overall, we have a solid growth narrative in front of us and feel confident in our ability to sustain it, especially with improved gross margins and available resources for acquisitions to support our initiatives.

Okay. Thanks for that, Shane. We've got time for one more question, Brad.

Hey, good morning, guys. And I'll make this one quick at top of the hour. A follow-up question just to Travis' on Medical/Surgical. Is there any risk that this is from distributors that are pushing their own privately manufactured products and displacing Medtronic products? In general, as you look at your portfolio in that division, is that a potential risk to the future?

No, I'll let Mike answer that question, but I think the short answer is no. But Mike, why don't you tell them why?

Yes. We've been given no evidence of that at all. We have very active conversations and specific agreements with them around the products that we sell and that they distribute for us. And we're very clear, Pito, on just how that all comes together in the marketplace. And so there is no indication that there's any pressure at all from that front as based on our work together with them.

I would like to add to that answer by saying that we do work with distributors because there are many products in the surgical business. However, much of our contracting is done directly with the hospitals. We have strong contracts that have proven to be effective over time. For instance, if we experience a supply shortage and a competitor steps in, once we regain that supply, we return to our original position based on the contract. These contracts with hospitals are also very firm. As Mike mentioned, while we have solid agreements with distributors, we also maintain robust contracts directly with the end-user hospitals. So, while this is the first time I've received that question, it is not something we are worried about in the business.

Okay. Thank you, Pito. Geoff, please go ahead with your final remarks.

Okay. Well, thanks to all the analysts for the questions and to all that you've joined us today. We appreciate your support and continued interest in Medtronic, and we hope you'll join us for our Q4 earnings broadcast, which we anticipate we're going to be holding on Wednesday, May 21, where we'll update you on how we finish the fiscal year, including all of our growth drivers and margin expansion and how that's all tracking and give you guidance, of course, for FY '26. So with that, thanks for spending time with us today, and have a great rest of your day.