Medtronic Plc (MDT) — Q4 2025 Earnings Call Transcript

Hello, everyone, and thanks for joining us today. As you can see in our Q4 results released this morning, we had a strong finish to our fiscal year, growing 5.4%. Our growth drivers are having an impact and are still building momentum. We've proven to you that our growth is durable, as we've now delivered mid-single-digit revenue growth for 2.5 years. Our Cardiovascular growth accelerated, as forecasted, growing 8% on broad strength across the portfolio, including nearly 30% growth in Cardiac Ablation Solutions. We also delivered double-digit growth in Neuromodulation and Diabetes and high single-digit US growth in Cranial and Spinal Technologies. Two of our businesses, Cardiac Ablation Solutions and ENT, reached important milestones entering the $1 billion annual revenue club alongside 10 of our other businesses. And we've had a number of important clinical and regulatory updates during the quarter as we continue to advance our pipeline. Operationally, we translated our revenue growth into leveraged earnings with high single-digit operating profit and low double-digit EPS growth. Coupled with our Q3 results, we delivered a very strong 9% EPS growth in the back half of the year. And for the full year, we delivered at the upper end of the commitments that we laid out a year ago. We shared with you this morning our view on the potential impact of tariffs, which we have included in our newly issued guidance. Thierry will walk you through this later in the broadcast, but you can see from the significant amount that we've already been able to offset that we are extremely focused on mitigating actions. You also see from our guidance that the underlying fundamentals of the business are strong and they're getting stronger. We had also announced this morning that we have decided to separate our Diabetes business as we continue to execute on our active portfolio management. Look, we see this as a win for both Diabetes and for Medtronic, and I'm going to touch upon this a bit later. So, we have several details to cover today, and let's start with our Q4 performance highlights. Starting first with the Cardiovascular portfolio, innovation drove broad-based growth in the quarter, which accelerated to 8%. We delivered double-digit growth in Cardiac Ablation Solutions, Structural Heart, and Cardiac Surgery, and high single-digit growth in Cardiac Rhythm Management. Cardiac Ablation Solutions' growth accelerated, as forecasted, to nearly 30%, with high 30s growth in the US and low 20s in international markets. Our portfolio of pulse field ablation products, the broadest in the space, continues to drive rapid growth around the world. We're opening up new accounts as our supply continues to quickly increase and demand for our Affera PFA products is extremely high. This quarter, I spent a lot of time talking to electrophysiologists, and we're hearing great feedback. Physicians are saying that our Sphere-9 focal catheter is the most desired PFA catheter on the market. And we're seeing large centers switch to Medtronic. Electrophysiologists appreciate the efficiency that comes from fewer catheter exchanges, given that Sphere-9 can do mapping, PFA, and RF ablation, all from the same catheter. Now, across our PFA platforms, customers appreciate their ease of use, precision, durable efficacy, and, of course, safety. Now, if there's a PFA catheter that is driving even more customer excitement than Sphere-9, it's our next-gen Affera Sphere 360 single-shot catheter. Sphere 360 is an integrated mapping and ablation catheter where the entire lattice tip delivers pulse field energy. So, the electrophysiologist doesn't have to rotate the catheter. One-year data for Sphere 360 was presented last month at the HRS meeting, which showed excellent efficacy, durability, and safety as well as very fast procedure times. We plan to start our US pivotal trial for 360 later this calendar year. So, the Cardiac Ablation Solutions business has a lot of momentum and its contribution to total company growth continues to increase, including 70 basis points this quarter, and we expect CAS’s growth rate to accelerate again next quarter. The business reached $1 billion in revenue in FY '25, and we have near-term line of sight to doubling that as we continue to enter new accounts globally with Affera and with PulseSelect. With the cardiac ablation space now at roughly $10 billion and growing double digits, this is a huge growth opportunity for Medtronic. Our focus is to be the leader in this space. Next, our Cardiac Rhythm Management business had a very strong quarter, growing 7% with high single-digit growth in both Defibrillation Solutions and Cardiac Pacing Therapies. With Defibrillation Solutions, we're seeing strong customer adoption of our Aurora EV-ICD, with its revenue doubling year-over-year as we're taking meaningful share from the incumbent. We are seeing our customers placing larger and faster repeat orders for Aurora. Now, in pacing, we continue to have strong growth in leadless pacing and conduction system pacing. Our Micro leadless pacemaker had strong 17% growth and our 3830 conduction system pacing lead grew 19%. In Structural Heart, we grew 10% and with strong growth of our Evolut TAVR platform in the US, Japan, and emerging markets. We continue to differentiate Evolut with positive clinical evidence. Our five-year low-risk data was presented at ACC during the quarter, showing outstanding valve performance for Evolut. And our two-year data from our head-to-head SMART trial was presented at CRT, showing continued superior performance versus the leading competitor's valve. The SMART data and FX+ launch continued to have an impact. To give you just a few examples. A large nonprofit system in the upper Midwest that does over 200 TAVR implants a year recently reviewed their own patient data and found that SMART was consistent with their outcomes, better valve performance with Evolut. As a result, we went from a low single-digit share to Evolut being their valve of choice. Another example would be an East Coast academic center that implants about 200 valves a year, and whose physicians participated in the competitor's first balloon-expandable TAVR trials. Well, now they've moved from using the competitor's valve almost exclusively to using our Evolut valves in a majority of their patients. Now, I could keep going with such examples. The point is that our data, our technology, and our sales execution are having a significant impact, giving us confidence that we can continue to grow Structural Heart at or above the market. In hypertension, we continue to ramp our market development activities for our Simplicity blood pressure procedure as we await reimbursement coverage from CMS. CMS has indicated that they will finalize the NCD on or before October 11. And ahead of this, they will issue a draft on or before July 13. Many large healthcare systems are establishing outpatient Simplicity service lines today, so that they're prepared to rapidly scale to meet the large demand, and we're right there with them. We're hiring market development managers, clinical specialists, and healthcare economics managers to supplement our existing coronary sales force. So we expect Simplicity revenue to meaningfully ramp when it's covered. Just like PFA, over time, it will become an important contributor to overall Medtronic growth. Nearly half of US adults have hypertension, and one in four of those with hypertension don't have their blood pressure under control, despite the broad availability of numerous generic drugs. Look, the opportunity here is massive, and we will be the leader in addressing this large unmet need. Now, turning to the neuroscience portfolio. Our Cranial and Spinal Technologies business grew mid-single digits, including 7% growth in the United States as we continue to win share. We've changed the basis of competition in spine to one where enabling technology drives spine implant decisions. Our differentiated AiBLE spine ecosystem, including AI-driven preop planning software, imaging, robotics, navigation, and powered surgical instruments, has by far the largest installed base with over 10,000 capital units, well ahead of our competition. Now, this is important because when a customer upgrades one of our pieces of capital, they're not just upgrading one product, they're upgrading to the full AiBLE ecosystem. So, you don't go just from O-arm to new O-arm or navigation to new NAV or robot to new robot; you go from one of these pieces of equipment to the entire AiBLE ecosystem. AiBLE is not only appealing to spine surgeons around the world, it's also attracting the competition's best sales reps and distributors to join Medtronic. Some of the world's leading spine and neurosurgery centers, including large iconic teaching institutions, are moving to Medtronic. Combined with the investments we're prioritizing to even further enhance the AiBLE ecosystem, we expect our strength in Cranial and Spinal Technologies to continue. Another business that continues to win share is Neuromodulation, which grew 10%. Our closed-loop sensing technology is driving strong growth in both Pain Stim and Brain Mod. In Pain Stim, we grew 12%, including 15% growth in the US on the continued strength of our Inceptiv closed-loop spinal cord stimulator. We continue to win share and have now reached the number one global position in SCS. Inceptiv is changing patients' lives as they no longer have to adjust their therapy throughout the day, and they aren't having to come back to the doctor's office to have their device settings changed. So, Inceptiv is reducing the burden for the patient and for the physician. In Brain Modulation, we grew mid-single digits, including 9% growth in international markets on the continued adoption of our BrainSense Adaptive DBS for people with Parkinson's. Look, this is groundbreaking technology, a fully closed-loop brain-computer interface that automatically provides personalized real-time therapy based on brain activity feedback. In the US, we received FDA approval for BrainSense during the quarter. Following stories on adaptive DBS technology on Good Morning America, the BBC, and several other media outlets, we are seeing patients now proactively talking to their doctors and requesting adaptive devices. The early results are very exciting, and we're now entering full market release in the US and Europe with Japan launching next month. So, in Neuromod, we have near-term growth drivers, we're the category leader, and we're well positioned to capture the future innovations that are coming. Now, turning to our Medical Surgical Portfolio and our Surgical business, which improved and grew 2%. We continue to drive strong growth in emerging markets and advanced energy. Our market-leading LigaSure vessel sealing technology continues to attract strong surgeon adoption, resulting in our 11th straight quarter of winning share in Advanced Energy. Now, we expect our Surgical growth to improve over time as we expand and launch our Hugo soft tissue robotic platform. Hugo continues to reach important milestones, like last quarter, we filed with the US FDA for urologic indication. The pivotal data from the urology trial, which met its primary safety and effectiveness end points was presented last month at AUA. We expect to follow our urology indication in the US with hernia and benign GYN indications. We will begin enrollment in our GYN oncology trial in the coming months. We also continue to expand instrumentation, having conducted our first cases with LigaSure on Hugo this past quarter. We're expanding Hugo's installed base and are now in 30 countries around the world. We continue to see strong increases in Hugo procedure volumes and utilization. In Surgical, we are also driving impressive expansion in our AI-powered Touch Surgery ecosystem. Touch Surgery is a foundational intelligence technology used across both robotic and laparoscopic surgery. We're leading the industry in establishing this digital surgical ecosystem globally. We see our growing digital footprint as a long-term strategic advantage for our Surgical business. This will apply to other businesses across Medtronic over time. Finally, in diabetes, we grew 12%, our sixth quarter in a row of double-digit growth. The growth was broad-based with strength in pump CGM and consumables. We continue to grow our MiniMed 780G installed base in both the US and international markets. People with diabetes are attracted to 780G's highest timing range of any commercial AID system, giving them the ability to achieve more control with less burden. In Europe, the launch of our Simplera Sync sensor is driving strong mid-teen CGM growth. Simplera is half the size and much easier to apply than our previous sensor. Now in the US, we received FDA approval for Simplera Sync just last month and expect to begin the launch this fall. Regarding our Abbott-based sensor, back-end integration and development work is progressing well. We submitted our interoperable pump and controller for FDA clearance, which paves the way for bringing our AID system with this sensor to the market. We also submitted to the FDA for a 780G label expansion, including for Type 2 diabetes and rapid-acting insulins. Looking ahead, we expect to submit for our 8-Series next-generation pump, the MiniMed Flex by the end of the fiscal year. So, as you can see, we've significantly turned around our diabetes business, and it's very well positioned. This morning, we announced our plan to separate diabetes into a standalone public company with a capital market separation through our preferred path of an IPO split. This is a win for both companies. For Medtronic, our portfolio becomes more focused on high-margin growth markets like PFA and renal denervation. At the same time, the independent new diabetes company will be a scale leader, the only diabetes company to commercialize a complete ecosystem to address intensive insulin management. Today's announcement marks a significant milestone in our ongoing active portfolio management efforts, an important lever to delivering on our long-term strategic and financial objectives. Look, there is a clear strategic rationale for diabetes to be a standalone company. Diabetes is predominantly B2C whereas Medtronic, our businesses are predominantly B2B. We sell different types of products to different types of customers. Medtronic's commercial, manufacturing, and technology platform synergies are less applicable to the diabetes business, given their distinct customer go-to-market and supply chain infrastructure. For Medtronic, we will continue to have leading franchises in attractive med tech markets. This separation shifts and simplifies our portfolio to have even more intense focus on our highest margin growth drivers. These growth drivers are already building momentum, and this increased focus will ensure that they reach their full revenue growth potential. Our portfolio also shifts to higher profitability, allowing us to pick up both margin and earnings. The shift increases our exposure to markets where we demonstrate our strongest core capabilities and have scale and synergy benefits, which importantly lowers the overall risk profile of the company. Now, taken all together, we'll be in a great position to continue delivering mid-single-digit or higher organic revenue growth as well as accelerating our earnings leverage. So, our direction of travel here is clear. This is about greater focus on significant opportunities in high-margin growth markets where we are well positioned and we believe that this will result in a win for Medtronic. Look, I'm also excited about what the future holds for the diabetes business. And now, I'd like Que Dallara, who will become the CEO of the new diabetes company, to share some of her thoughts. Que joined Medtronic in 2022 and has been instrumental in turning the diabetes business into what it is today. She is an inspirational transformative leader, who is also strategic and pragmatic. Her impressive track record in driving growth and innovation has set the diabetes business on a path to continued success, ensuring the needs of people with diabetes are met around the globe. So, over to you, Que.

Thanks, Geoff. I want to start by thanking you for your leadership and vision. Your decision a few years ago to double down on the diabetes business and significantly increase investment has positioned us well, setting us up to generate significant returns for stakeholders. We wouldn't be where we are without your unwavering support. I'm very excited to be leading this large-scale direct-to-consumer diabetes business. We have over 8,000 employees and two global manufacturing facilities and a lot of innovation in the works. Our innovations are driven by the desire to improve outcomes while reducing burden. And as an independent company, we will have a shareholder base that is aligned to our business and financial profile. This will enable more focused investment in innovation as well as manufacturing scale and automation, positioning us for success in Automated Insulin Delivery and SMART MDI while also driving margin expansion over time. Our $2.8 billion diabetes business has strong momentum in a large $16 billion global addressable market. We've delivered double-digit growth now for six consecutive quarters, along with several recent product approvals and the strategic partnership that we have established with Abbott Diabetes Care, and we have a deep pipeline as we've been investing in CGM options, insulin delivery options such as a pain patch and durable pump, a fully automated algorithm and a unified digital customer experience. This full ecosystem not only enables people with diabetes to have a seamless transition between therapies without changing companies, but it also allows them to achieve better control with less burden. Finally, I want to thank and celebrate the dedication of our diabetes team. Their passion and perseverance is transforming diabetes care to give people the freedom to forget about diabetes and live their best lives. Back to you, Geoff.

Thanks, Que, I couldn’t agree more. Next, I’m going to turn it over to Thierry to share some additional transaction and financial information on the diabetes separation, as well as take you through a deeper look at our Q4 financial performance and our guidance for the coming year. Before I do that, I want to officially welcome Thierry to his first earnings call with Medtronic. He’s now in his 12th week and has already hit the ground running including playing a critical role in preparing for today’s announcement. Thierry is a proven, experienced CFO, having most recently been in the automotive industry, where he created significant value for shareholders by increasing margins, earnings power, and free cash flow. His extensive experience with M&A, divestitures, and forming innovative partnerships is proving to be highly relevant to work here at Medtronic. His presence is already having a significant impact on our organization. He’s brought forward many new ideas on how we can further invest in innovation, accelerating R&D while also driving operating leverage, and he brings with it the expertise to ensure we get it done. It’s great to have you onboard, Thierry.

Thank you for the warm welcome, Geoff. This is certainly an exciting time to join Medtronic. I’ve had the pleasure of visiting many of our facilities and meeting our employees, and also starting to meet with many of you in the investment community. A common question from many of you has been, why did I come to Medtronic? For me, healthcare is a special industry given the connections to patients, and I’ve always wanted to return since working in healthcare earlier in my career. In addition to the sector, there were two specific things that stood out about Medtronic. First, I saw an opportunity to apply my background to enhance the operations of the company. And second, Medtronic has a few large, exciting growth opportunities that don’t come around very often, and the company is at an inflection point. I’m energized by the opportunities for durable growth and value creation that are ahead of us, and I’m really looking forward to hopefully making a difference here. Now, let’s cover our plan to separate the diabetes business, which represented about 8% of our revenue and 4% of our segment operating profit in fiscal year ‘25. We intend to separate Diabetes through a series of capital market transactions. Our preferred path involves two steps. First, we plan to execute an IPO of up to 20% of the diabetes business. The proceeds are expected to appropriately capitalize the New Diabetes Company and provide the ability to retire Medtronic shares. Second, we intend to execute a split-off, where Medtronic will exchange our remaining New Diabetes Company shares for Medtronic shares from willing shareholders. We plan to retire those shares, resulting in a lower Medtronic share count. We’re targeting completion of the entire separation within 18 months, and taking this preferred path should result in a tax-free impact to Medtronic shareholders for US federal income tax purposes. From a financial standpoint, there are several benefits to Medtronic. Diabetes has lower gross margins and operating margins than overall Medtronic. So, upon full separation, we’re expecting our adjusted gross and operating margins to improve by approximately 50 and 100 basis points, respectively. Given the share retirement, this separation is expected to be immediately accretive to Medtronic EPS upon completion. We don’t expect any change to our dividend policy. So financially, there are some clear short-term financial benefits. But the most important aspect is what Geoff mentioned earlier: this separation will allow us to increase our growth-accretive investments in our core businesses where margins are structurally higher. This is all about capital allocation and creating the conditions to fuel our future growth. So clearly, this separation will be beneficial for both Medtronic and the New Diabetes Company, unlocking both strategic value and shareholder value. With that, let’s now come back to Medtronic overall and recap our Q4 results. As Geoff mentioned earlier, Q4 revenue of $8.9 billion grew 5.4% organic. On the bottom line, adjusted EPS was $1.62, up 11%. Both revenue and EPS were ahead of expectations, driven by outperformances in CRM, Structural Heart & Aortic, Diabetes, and Neuromod, among others, along with better-than-expected interest and tax expenses. Our revenue growth was broad-based from a geographic perspective. We grew 5% in the US, our strongest quarterly US growth in 15 quarters, as we accelerated on the strength of new technology. Japan grew high single-digits, and Western Europe and Emerging Markets grew mid-single digits, with strength in India, Southeast Asia, and Eastern Europe. Moving down the P&L, our adjusted gross margin was 65.1%, down 70 basis points year-over-year as a result of mix from Diabetes and CAS, as well as foreign exchange. Our gross margin was actually unchanged on a constant currency basis. On the positive side, we continued to see the benefit of increased pricing, particularly in areas where we introduced new products such as Neuromod, CRM, and Structural Heart, and we continued to improve our ability to offset foreign exchange with price in Emerging Markets. This quarter again, the savings from our COGS efficiency programs more than offset the impact of inflation. Our Medtronic Performance System, which we implemented across our manufacturing network, resulted in high single-digit improvement in labor efficiency. We insourced three of our distribution centers to drive cost savings and further improve supply. Finally, we were able to significantly reduce our scrap and obsolescence charges. With SG&A, we drove significant leverage, particularly with G&A, while at the same time increasing investment in R&D. More to come on that later. The net of this was leverage on our adjusted op profit line, which grew 7.6%, or $175 million. Our adjusted operating margin was 27.8%, an increase of 90 basis points, or 200 basis points on a constant currency basis. Below the operating profit line, our adjusted tax rate of 16% was better than expected due to favorability in our actual jurisdictional mix of profits for the year, which also resulted in a modest pick-up from prior quarters. All in all, as stated, in Q4, we delivered EPS of $1.62, up 11% and 16% at constant currency. This was a strong close to the year, where in fiscal year ’25 we grew revenue 5% organic and EPS 6%, or 10% on a constant currency basis. From a capital allocation perspective, we returned $6.3 billion to shareholders in ‘25 through share repurchases and through our dividend. This morning, we announced that we’re increasing our dividend for the 48th consecutive year. Now, let’s move to our ‘26 guidance. We’ve now delivered mid-single-digit organic revenue growth for 10 quarters in a row, and we expect this to continue through fiscal year ’26, with an increasing contribution from our key growth drivers. We expect organic revenue growth of approximately 5% in fiscal year ’26, including 4.5% to 5% growth in Q1. Based on recent FX rates, we would expect a tailwind from FX of $0 to $100 million in the total year, with a roughly neutral impact in Q1. Moving down the P&L, I’ll first talk about our underlying business, excluding the impact of tariffs. Like we saw in the fourth quarter, we expect continued mix headwinds within gross margin from CAS and Diabetes, with an increasing impact from Diabetes as we are early in the manufacturing ramp of the Simplera sensor. We will continue to drive pricing discipline, particularly on the back of new product introduction and to cover foreign exchange. We will also accelerate our COGS efficiency programs to significantly outpace inflation. Given my background, this will be a key area of focus for me, together with our businesses, and Greg Smith and our global supply chain team. In fiscal year ’26, we will significantly increase investment in our growth drivers to maximize future growth. For the first time in four years, we are planning to grow R&D faster than revenue. We will also invest in sales and marketing. These investments will be deliberately focused on areas like Cardiac Ablation, as well as in Surgical Robotics and RDN, as we prepare for scaling the US launches of our Hugo robot and Symplicity hypertension procedure. On the flip side, we do expect to drive significant leverage with G&A expenses. The net of this will be an operating profit line that grows materially faster than revenue. Below the op profit line, we are expecting increases in both interest and tax expense, which combined results in a 300 basis point impact on EPS growth. On the interest, this is driven by the fact that any debt we refinance will likely be at higher rates given the current higher interest environment, whereas the pressure on the tax side derives primarily from the effects of Pillar Two. This leads to our expectation for approximately 4% EPS growth in fiscal year ’26, excluding the impact of tariffs. Foreign exchange is a neutral impact on fiscal year ’26 at recent rates. For Q1, we would expect EPS in the range of $1.22 to $1.24, which includes minimal expected impact from tariffs, along with a 1% to 2% headwind from foreign exchange at recent rates. Next, I’ll share with you our thinking on tariffs, which we laid out in our earnings presentation this morning. We built our expectations based on two potential scenarios. The low end of the potential impact assumes that the current bilateral US/China tariffs that are in place during the 90-day pause remain throughout fiscal ‘26, while the high end assumes they resume at the higher levels following the 90-day pause. Through focused efforts from teams across Medtronic, we already have visibility to offsetting a good portion of this headwind, and we have high confidence in our ability to execute additional mitigation efforts. As a result, we forecast a net tariff impact to COGS in fiscal year ’26 of approximately $200 million to $350 million. From a quarterly breakout, we would expect minimal impact in Q1 as I mentioned earlier, and then approximately 10% in the second quarter, and approximately 30% and 60% in Q3 and Q4, respectively. All that said, it’s highly likely that the impact from tariffs will change, and we’ll keep you updated periodically as we go through the year. So, combining our underlying performance with our current tariffs expectations, we would have you model fiscal year ’26 EPS in the range of $5.50 to $5.60. We’ve shown you that we can deliver high single-digit EPS growth, as we did with the 9% growth in the back half of fiscal year ’25. As we look beyond next year to fiscal year ’27, we expect to return to high single-digit EPS growth upon the diabetes separation, driven by several factors, including strong revenue growth, and further underpinned by FX tailwind at recent rates, and the margin and share retirement benefits of the separation.

Thank you, Thierry. Now before we go to Q&A, I’ll make a few closing remarks. Starting with that we had a strong close to the fiscal year, with 2.5 years of mid-single-digit revenue growth that is now also translating into strong operating profit and EPS leverage. We have durable growth drivers that are taking hold, and we also have a clear line of sight to improving growth drivers in other businesses. For example, Peripheral Vascular, where we are working with Contego Medical in the carotid market, and we will soon enter the peripheral thrombectomy segment as well. In Pelvic Health, we are working to open a large new market when our revolutionary Tibial stimulation device is approved. And as for Hugo, procedures and utilization are growing, and the cadence of key milestones is accelerating. We’re also working aggressively to manage external factors that are impacting our ‘26 guide. As Thierry pointed out, we’ll be back to high single-digit EPS growth in ’27. So, as I assess the overall business, the underlying fundamentals are strong, and they are getting stronger. We’ve been working on a number of changes to the company, and those changes are making a difference. We streamlined the operating model and implemented performance-driven incentives. We brought in outside leadership with accretive skill sets, which are enhancing execution and improving operating rigor. We prioritized investments in groundbreaking innovation that are now paying off and accelerating company growth. We centralized global operations, supply chain, and quality, resulting in improved KPIs. We’re adding a performance culture to this mission-minded company and transforming our portfolio. Today’s diabetes announcement accelerates our speed of travel to higher, profitable growth, aligned around our core strengths, giving all of our stakeholders increased conviction in our ability to deliver. I want to thank our employees around the world who are listening today. You’ve truly embraced our AND culture, our culture of driving both our Medtronic Mission and Performance. This is directly leading to our strong financial outperformance. It’s making a difference for the millions of people around the world that depend on Medtronic to alleviate pain, restore health, and extend life. We’ve made a lot of progress this past year, and your efforts have laid the groundwork for the inflection point that we’re now entering. I couldn’t be more excited about what we’re going to accomplish here in the new fiscal year. Finally, as you may have seen in our earnings press release this morning, Sean Salmon is moving on, and this will be his last earnings call with us after more than 20 years of service to Medtronic. Sean has been responsible for leading a number of our successes. He leaves a legacy of having developed strong, capable leaders in our Cardiovascular businesses, as well as a robust technology pipeline, both of which are responsible for driving the CV growth acceleration you saw this quarter. Sean departs with our Cardiovascular portfolio in a leading position. To lead CV going forward, we're promoting Skip Kiil. You've seen Skip's impact in driving above-market growth in our Cranial & Spinal Technologies business, and he had success in other parts of MedTech prior to joining Medtronic. Skip will augment our deep CV leadership team with his strategic mindset, broad global expertise, strong customer focus, and demonstrated track record of developing new markets and driving commercial success. So I want to thank Sean for his service, and we're looking forward to Skip leading our continued success in Cardiovascular.

This is Travis. I didn't hear anything. Thank you for taking my question. First of all, congratulations on all the good news this morning. I wanted to ask about the guidance philosophy with the new CFO. The confidence to project a 5% growth without a range is notable. What assumptions are being made regarding the revenue pipeline? Additionally, I'm interested in the 4% EPS growth excluding tariffs. How are you incorporating conservatism regarding certain below-the-line items? Is there an opportunity to mitigate some headwinds throughout the year if revenue exceeds expectations? Lastly, regarding fiscal year '27 and the anticipated high single-digit EPS growth, could you discuss the framework and the visibility that supports giving that outlook two years ahead?

Thank you for your question. I apologize for the connection issue, but I understand your inquiry. To begin, as Danielle noted, this is a great question. I will address the initial part and then pass it to Thierry for the earnings details. Regarding growth, we remain optimistic about our growth drivers, even within our current markets. For instance, in Q4, our markets experienced a 7% increase, excluding diabetes. We hold strong positions in these markets and anticipate mid-single-digit growth, and more, from our primary three portfolios. We are operating with higher expectations than currently guiding. To illustrate, our cardiovascular business is accelerating to an 8% growth rate, with CAS nearly reaching 30% growth, contributing an additional 70 basis points to the overall company growth, all while excluding Ardian, which will begin to ramp up through 2026. In neuroscience, we're seeing double-digit growth in Neuromod, and CST is distinguishing itself. Additionally, Tibial is making progress in Pelvic Health. In surgical, Hugo is gaining momentum, and we expect it to have a more significant influence on med-surg next year. Importantly, our data, technology, and sales execution are making a substantial difference, bolstering our confidence that we can maintain structural heart growth at or above market levels. In hypertension, we are increasing our market development efforts for the Simplicity blood pressure procedure while waiting for reimbursement coverage from CMS. Overall, we remain very positive about our growth drivers.

No, thanks. I think, Geoff, you were pretty complete on the growth. So we feel comfortable that we've got a good opportunity from a growth perspective. From a profitability standpoint, what the construction has, as you may have seen in the details that we've given in the commentary, is actually still getting quite a bit of leverage before tariffs that we operated at level. So we've got a construction that has operating profit that's growing around 7%, so significantly in excess of revenue. And that's despite making a significant investment for the future of the business here. For the first time in four years, we actually have a plan that has R&D growing quicker than revenue, and that's even with revenue up 5%. So, our R&D spend should be increasing around $200 million next year, which is about 7% versus the 5% growth rate. Despite that, we have significant leverage at the op profit level. We’ll keep working on it.

I was going to ask, is the 7% operating profit, including or excluding tariffs, is there an extra week this year? And then why is there a diabetes EPS headwind this year if it's 18 months away, those are just sort of a few quickies.

So, yeah, so the 7% is excluding the impact of tariffs. And the impact of tariffs, again, as you probably saw in the commentary, it's $200 million to $350 million of cost at the cost of goods sold level. So from an impact on the op profit growth, I guess it's something between 2.2 and 3.2 points depending on the outcome on China. And then the pressure on diabetes, I think it's primarily driven by the rollout of Simplera. So it's the launch of this product. As we grow it, the cost is going to go down, but initially it does put quite a bit of pressure on our margin rate to the tune of about 60 basis points at the GM level, which will translate into the earnings. And again, that will get better as the manufacturing ramps up.

Helpful. Thanks a lot.

Great. Good morning, everyone. And, Thierry, welcome. Maybe a question for you and I'll just have one. You said you'll be back to high single-digit EPS growth in fiscal year ‘27. That's with assuming currency remains the same and favorable and you execute the diabetes spin and resulting share buyback, which aren't really quite sustainable in nature. So, without those benefits, which are kind of one-time, would fiscal ‘27 EPS still grow high single-digits? Thanks.

Hey, look, I want to insist on the fundamentals here. And I think the first thing to look at, if you think about the construction for ’27 is to come back to the performance that we're showing for Q4 here and to the second half of the year. This is with no FX tailwind and with diabetes in the portfolio. We just delivered a quarter that's up 5.4% organically on revenue that has an operating margin up 90 basis points, which is 200 basis points if you actually exclude FX, and we've got EPS that's up 11%, which is really 15.8% if you exclude EPS. That earnings growth is actually 9% in the second half of the year. So that's the fundamentals of the business that we're trying to build on. Now, back to '27. As I said, we're looking at a growth rate that should continue to be positive with all the momentum that Geoff mentioned.

Good morning, thanks for taking the question. So, Geoff, I wanted to focus on the decision to spin diabetes. I guess a couple of questions. One, did you consider breaking Medtronic up into four separate businesses? One could argue that the remaining pre-business have scale on their own and have different customers and capital allocation requirements. So, why not go further in breaking up the company? And the pushback I think you're going to get on diabetes is that it's growing above Medtronic's corporate average. So, why spin it off if your focus is on accelerating top-line growth? Thank you.

Well, look, yeah, good question, Larry. Like, why diabetes, why now? First of all, on the diabetes business, we believe this is a win-win for both diabetes and Medtronic. We're well down the path of the turnaround, it's ready to stand alone, and we think it's well suited for public markets. This move is going to ensure that they get really both the funding and the focus the franchise needs to reach its full potential. As much as we've made progress, we talked about six quarters in a row of double-digits and there's more to come here. The product pipeline is very robust. We submitted several files to the FDA for approvals on multiple products here in the last couple of months. We believe with this focus and funding, the business will be a top-tier diabetes franchise well into the future. For Medtronic, it allows us to focus more on our high-margin growth drivers that we just walked through. We're even without diabetes; we're in great markets, and stable, and higher-margin sectors for us.

Hey, guys. Thanks for taking my question. Geoff and Thierry, maybe one sort of on the earnings and margins kind of question. You look at the guidance, a 4% EPS growth ex tariffs, right? Q1, it's implied as like flattish earnings growth. Why is earnings growth back-end loaded? Is this a mix impact on margins? I think Q4 gross margins came in below. Was there a product mix issue? And, Geoff, sort of when you look at the earnings algorithm, can you commit to EPS growing above revenues irrespective of the FX environment? Thank you.

Thierry will take the first part there.

The construction is back-end loaded for a couple of reasons. First, the first quarter typically generates lower revenue compared to the fourth quarter and the rest of the year, leading to reduced factory absorption. This results in a dip in performance during the first quarter. Second, we are investing in growth areas, particularly in research and development for cardiovascular projects and in sales and marketing to seize growth opportunities. Therefore, in the fourth quarter, you will notice some of this investment taking place ahead of expected growth returns. We anticipate a growth rate of about 4.5% in Q4, which is slightly below the annual average of 5%. We're making these investments now with the expectation of benefits in the second half of the year. Additionally, there is a minor foreign exchange headwind affecting the first quarter that should shift to a tailwind for the remainder of the year, which accounts for the improved performance anticipated towards the end of the year.

Regarding your question about the leveraged profit and loss and leveraged earnings per share growth regardless of foreign exchange, I believe I understand what you're asking. First, in relation to Thierry's earlier point, I want to clarify that I don’t believe this is back-end loaded like last year was. A year ago, we indicated that the latter half of the year would see significant growth, and there was some skepticism about that during the call. Ultimately, we met the guidance we set, achieving the higher end across all metrics. Now, to address your other strategic question, the answer is affirmative. Foreign exchange has historically posed challenges for us, as you know, but we and many economists we've consulted believe that foreign exchange will actually serve as a tailwind for us in the next couple of years. However, our approach includes creating natural hedges and reducing our foreign exchange exposure through various methods, such as the significant progress we’ve made in implementing dynamic pricing in countries where currencies are consistently devaluing.

Good morning, and congratulations on all the news this morning. I want to pivot here a little bit to the products. I was curious about your commentary regarding the preparation that you and you're seeing hospitals do for renal denervation and reimbursement. If you could just sort of share a little bit more about what you're seeing, that would be fabulous. Thank you.

Yeah, certainly. Joanne, thanks for the question. As you can imagine, our focus has been about opening centers that are getting ready to take on this new service line. That involves making sure that we train physicians how to do the procedure, of course, and educate them on coding and billing for the current fee-for-service Medicare patients. In addition to that, of course, with the NCD in the frame, that's going to open up a lot of patients, and really, it's about focusing as they build a service line, making sure they are able to work the patients up, rule out secondary causes of the disease, and then get them appropriately to the cath lab for renal denervation, which they perform safely. There's a lot of enthusiasm, as you can imagine, from customers who are looking for new service lines to grow their practices, absorb their cath labs. So it's really about that. It's training, education, and support for their programs as they build that up. Upon getting reimbursement, there's more to do to activate patients more directly. We will channel those patients to a physician finder in geographies where patients can then find their way to the treatment. And as you probably recall from the clinical trials, a large proportion of our patients were self-referred by using social media tools. So, it's a very efficient way to recruit patients to the effort. But of course we'd want to do that when all the reimbursement barriers come down. And that's what we're hopeful for as we move forward into the NCD.

Thank you. And if I could do a follow-up, how do you think about this revenue ramping? You sort of paralleled it to PFA adoption, and I just want to sort of get expectations set of how to think about that. Thank you.

Joanne, I think that's a very different thing, right? PFA is a replacement incumbent procedure. That is a faster, safer procedure that appears to have just excellent efficacy, and is really a pretty easy switch. It's not so difficult to train on our tools and techniques for that. This is a little bit more involved, of course, because there are other reasons why people have high blood pressure. You have to sort those causes out to get patients into the service line. So it's a longer ramp, but it's a long annuity. This is a massive patient population, as you know, and be able to build that practice. I think you got to think about this as one of those really important, durable growth drivers for the company that will set us up well for a lot of success for a long time.

To expand on that point, Joanne, many health systems across the country, not just the larger ones, are actively reaching out to us for partnerships focused on hypertension. We're working together to build clinics, many of which are virtual, and creating patient pathways through joint investments. This initiative is going to be significant for us in the long term, and we will continue to invest in innovation related to it.

All right, thanks for taking the question. I was wondering if you could expand on some of the pipeline ideas that you had for diabetes and about their differentiation and timelines if you can.

Sure. I'll pass that to Que. To start, we recently received approval for Simplera Sync in the US, and we're gearing up to launch it in a limited capacity this fall. In Europe, the product has already been commercially launched. To illustrate the volume increase compared to last year, we expect our volume to grow at least fivefold. We are just beginning to realize the potential of Simplera for our business. Additionally, we submitted an ACE pump with an iAGC algorithm to the FDA in April. We're collaborating closely with Abbott to prepare for the launch, expected soon after we receive clearance. This will enhance our continuous glucose monitoring (CGM) options by addressing some significant shortcomings in our current CGM lineup. We have several insulin options available as well. InPen is currently in the market, and we anticipate submitting our next-generation durable pump by the end of this fiscal year, followed by the patch. The improvement in our product design is notable, as we've received feedback indicating that the new form factors make them more wearable. All these pumps will feature phone control, which many customers have requested. Our third-generation closed-loop algorithm is poised to significantly reduce the burden of diabetes management while delivering the clinical outcomes our customers expect. Overall, we have completely upgraded the form factors and entirely re-architected the software, including the algorithms that power the system. Additionally, the wearability of the entire system addresses the challenges of diabetes management and offers the benefit of having patients deal with just one company when issues arise. Our customer support and service, catering not just to patients but also to physicians, serve as a key differentiator.

Great, thank you very much.

Hey, thanks so much for taking the question and congrats on the strong finish here. Just to make sure, understand the operating line growth, 7% with about 300 basis points, getting you back to 4% EPS growth of the full year. And that's inclusive of all the investments that you're talking about. That's inclusive of the sort of gross margin headwinds around investments and so on, just to be crystal clear. Is that right?

Yes, that's correct. But it's before the tariffs impact, right? Just to be clear. And again, the tariff impact is about 2.2 to 3.2 points on that.

Congratulations on achieving that leverage. I want to take a moment to acknowledge the challenges in growing EPS beyond sales amidst various headwinds. It's encouraging to see the operating line growth. Regarding tariffs, you expressed high confidence in reaching the mitigations you've outlined. Additionally, I would like to delve deeper into the spine business. Could you provide insights on how your growth compares to that of your pure play peers? Where do you see your performance and the overall market in terms of like-for-like spine growth? Any details you can share would be appreciated. Thank you for recognizing our operating profit growth. We achieved an 8% increase in Q4, and our guidance for next year is 7%. Excluding diabetes, that would rise to 8%. We have strengthened our capabilities, and this momentum will continue. Regarding the spine business, I can confirm that the demand exists. The markets are stable, and technology is what sets us apart. We have transitioned from focusing on products to providing comprehensive solutions. Our AI-enabled technology, branded AiBLE, supports this shift. Our customers are not just upgrading products; they are moving to a more integrated ecosystem. This upgrade is not straightforward but algorithmic, which gives us a sustainable advantage. The market growth remains stable, and we have observed that some competitors have struggled to keep up due to the substantial investment and expertise required to develop capital equipment and related technology strategies. We feel confident about our progress in this area.

Yeah. Sure, Geoff. And, Matt, thanks for the question. We’re just seeing, as Geoff said, good stable demand in the ecosystem is driving that. If you look at our enabling technology growth last quarter, it remains very attractive, very strong. We just see that stability continuing. It's an attractor for not only customers; we're seeing large-scale, important academic centers come to Medtronic for this. We're also getting very good response from other sales reps and other individuals that want to join Medtronic. So, we're comfortable with how this is moving forward.

So I'm glad you asked the question, Matt, because we talk a lot about PFA and RDN and robotics, but part of our growth story is the rest of the company. We talked about CST or our spine business, CRM, with strong growth from leadless, conduction system pacing, and EV-ICD again, these are durable growth drivers for us that are going to go out. And then the other thing we mentioned in the commentary, some of the slower growing parts of the company we have plans for, like Peripheral Vascular as we enter the carotid space with Contego.

Hey, good morning, guys. Thanks so much for squeezing me in here and I’ll echo everyone's congrats on all the news this morning. Just a quick question to clarify on some of the commentary around PFA, obviously a really important growth driver. I think you talked about reaching $2 billion in sales to essentially just about doubling. I'm just curious how to think about the ramp from just over $1 billion to $2 billion in that CAS business. I mean, is that something that based on your commentary, I mean, it seems like that's more near term versus long term. But anything you can add there as far as how we think about getting from that $1 billion to $2 billion?

They did, and we feel very confident about our product portfolio in PFA. Currently, there is an incredible demand for Affera. We need to distribute those capital systems, which we are actively doing. High-volume centers receive one, and I've spent the last few weeks focusing about 80% of my time on PFA, attending the Heart Rhythm Society meeting and visiting leading centers in the Northeast United States. The dynamic we see is that after they acquire one Affera system, there is competition among the electrophysiologists for access to that system. Now, they are getting their second Affera system, which will boost catheter sales. We firmly believe we can double the business. We haven't specified a timeline, but it's approaching, likely in the near term. It may not happen exactly in the fiscal year, but we are in that range and are really excited about it.

Great. Thank you so much. So, a couple of follow-ups on the CAS business. Impressive growth. Can you talk about the mix of cryo? It seems like it's becoming less and less of a headwind. Any color on pricing there? And then on RDN, any updated thoughts on what patient subset you think you could get coverage for?

Sure. The cryo will become less and less part of the mix, but I think that rate of decline will slow and then that will really aid in the growth of that business going forward. It’s a really valued tool and particularly in places that don't use general anesthesia and are more cost-constrained. It really is holding up very, very well. I think it hits kind of a near nadir and it'll stay there and then we'll have growth on top of that. With regard to your question on what we're expecting for coverage with the population of patients, I will front run the CMS decision makers here, but what we've been presenting to them is what is the evidence and what are the guidelines and professional society saying. Those really track pretty closely. To meet the standard of reasonable and necessary for CMS, I think it's going to be very close to what we've studied and what's being recommended by the guidelines. That would be patients that both aren't able to control their blood pressure despite lifestyle medications but also those patients that are unable to take medications due to side effects and such. I think relatively broad. We'll find out soon enough in July. I think just following that evidence and expert opinion and the commentary that was collected will lead to that decision.

Well, we've been at it. We're going to stay at it. Diabetes isn’t an end. We exited ventilation for different reasons, we exited our LVAD business, we exited dialysis, and now diabetes. It really comes down to where do we have these secular growth opportunities along with a financial profile like higher margins that works for us, where we have core strengths.