Medtronic Aktie

Good morning, and welcome to our fiscal '26 fourth quarter earnings webcast. I'm Ingrid Goldberg, Head of Medtronic Investor Relations. I'm joined by Geoff Martha, Chairman and Chief Executive Officer; and Thierry Pieton, Chief Financial Officer. Geoff and Thierry will provide comments on the results of our fourth quarter, which ended on April 24, 2026, and our outlook for fiscal year '27. After our prepared remarks, we'll take questions from the sell-side analysts that cover the company.

Earlier this morning, we issued a press release discussing our quarterly results and several financial schedules. We also posted an earnings presentation that provides additional details on our performance. The presentation can be accessed in our earnings press release or on our website at investorrelations.medtronic.com.

During today's program, many of our statements will be forward looking, and actual results could differ materially as explained in our SEC filings. We undertake no obligation to update any forward-looking statements. Unless otherwise stated, all comparisons are on a year-over-year basis and revenue comparisons are made on an organic basis, which excludes the impact of foreign exchange, prior year revenue from the divestiture of the Dutch Obesity Clinic also known as NOK and fourth quarter revenue in the current and prior year reported as Other.

References to sequential revenue changes compared to the third quarter fiscal '26 and are made on an as-reported basis. All share references on its revenue and year-over-year basis and compare our fourth fiscal quarter to our competitors' first 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 will be reported as non-GAAP adjustments to earnings during the fiscal year.

With that, I'm now pleased to hand it over to Geoff.

Okay. Thanks, Ingrid, and good morning, everyone, and thank you for joining us. In our fourth quarter of fiscal 2026, we delivered $9.8 billion in revenue, up 9.9% on a reported basis and 6.6% organically. So for the full fiscal year, we delivered $36.4 billion in revenue, up 8.4% reported and up 5.8% organically, marking our strongest top line performance in 10 years.

And on the bottom line, we delivered Q4 and FY '26 adjusted EPS of $1.55 and $5.53, respectively, ahead of expectations and reflective of our commitment to operational rigor as we invest in durable growth.

These results represent the compounding impact of deliberate choices we've made across strategy, operations and culture. We saw continued strong execution across our largest foundational businesses like CRM, CST and Surgical. And we made material progress on our highest growth platforms. We much toward leadership in CAS, advanced simplicity and Hugo and build momentum in Altaviva and Stealth AXiS, all while supporting our uniquely deep pipeline of innovation.

In Q4, we advanced our commitment to further focus the company, deploying capital in line with our capital allocation priorities and meaningfully increasing our investments in M&A, ventures and partnerships. And I am incredibly proud of our teams. Through a dynamic macro environment, we have executed and we've executed with discipline to deliver an excellent fiscal '26 that will continue into fiscal '27.

And now let's turn to the details of our fiscal fourth quarter, beginning with Cardiac Ablation Solutions. Look, CAS delivered another outstanding quarter with 78% worldwide growth and gaining an additional 8 points of U.S. share. PFA saw exceptional global growth of 145% with Sphere-9 continuing to demonstrate broad versatility.

And we are still in the early innings for Affera. In the U.S., we increased our installed base by 40% sequentially, and we see significant runway for continued expansion. Globally, we're now rolling out PRISM 2, our next-generation mapping software. PRISM 2 unlocks meaningful benefits, including improved navigation, using hybrid impedance and magnetic mapping to better visualize nonsensor based catheters.

As we look ahead, we're expanding our entire EP ecosystem, expanding geographically into new indications and with an exciting cadence of new innovation. In Q4, we launched Sphere-9 in Japan, where we expect to extend our market leadership. We also secured FDA approval for our U.S. VT pivotal trial, which we aim to begin enrolling in the first half of FY '27. This is an important population due to the complexity of these potentially life-threatening arhythmias that are often really difficult to treat.

Now further strengthening our EP offering is our Sphere-360 catheter the only rotation free, large tip, single-shot catheter that's available. Sphere-360 is CE-marked and launching in Europe. Early physician feedback is really strong, and our U.S. pivotal trial is enrolling swiftly. And as you saw in our additional press release this morning, we are continuing to invest in a fully integrated EP ecosystem with 2 targeted investments in ice catheter technology that will give physicians real-time digitalization of the heart. This will further enhance the Affera platform over time to extend our capabilities.

Now through innovation, purposeful investment and global execution, we plan to completely surround the electrophysiology space and offer patients and physicians a more complete end-to-end set of EP solutions.

Next, I'd like to share our progress with Symplicity Spyral, which is a novel onetime minimally invasive approach to treat hypertension. Hypertension represents a massive unmet need. Now despite the use of multiple medications, roughly 18 million people still live with the uncontrolled hypertension in the U.S. alone. Our Symplicity physician finder now spans 200 doctors across more than 300 accounts, connecting patients with physicians as demand grows. We've also seen a significant uptick in prior authorization approvals. And since the NCD, we have doubled average weekly procedure volumes. And now Symplicity Spyral is annualizing at $100 million.

At CRT this year, we presented late-breaking long-term data reinforcing the clinical outcomes of RF renal denervation. In over 2,000 patients, Symplicity delivered sustained, mean systolic blood pressure reductions of 13.3 and 18.1 milligrams of mercury and ambulatory and in office settings at 3 years, respectively, with 90% of patients achieving a meaningful benefit. And as a reminder, a 10-point reduction in BP is proven to show a greater than 20% reduction in major cardiovascular events like heart attack, stroke and heart failure. So this is critical and underscores the impact of Symplicity on patients and the health care system itself.

Importantly, we stand apart as the proven platform in a category with enormous unmet need, and we intend to lead it. We are confident in the foundation we've established with robust and growing clinical evidence, a broad label, expanding reimbursement and growing demand from both physicians and patients. We are well positioned and in the early stages of this ramp to redefine the standard of care in historically drug-based setting with a new option for managing hypertension.

Now we're also starting to see meaningful impact from Hugo, our surgical robotic system. Our worldwide procedure volume growth is 2 to 3x the market and utilization is increasing. Last quarter, we launched Hugo for Urology in the United States, placing systems at leading institutions and treating our first patients. Feedback from surgical teams has been positive, both in terms of their experience, and early clinical outcomes.

We are pleased to announce that in late April, we submitted to the FDA for 510(k) clearance for general surgery and gynecologic indications, as well as for our LigaSure RAS vessel sealer. We also recently received FDA clearance for our Pro Grip Advanced, a new mesh optimized for robotic-assisted ventral hernia repair procedures. And our Touch Surgery Digital Ecosystem, well, it continues to represent a clear advantage with over 1,400 installations, up 30% plus sequentially.

We are complementing our strong foundation with data and analytics driving a more precise, intelligent and a predictable future in surgery. Digital is creating real value in the OR, and we are investing and innovating to lead in this space. We are building our robotics program deliberately. We are driving utilization and procedure growth globally, making steady progress in the United States and investing to strengthen our broader surgical franchise over time. Hugo is having an impact on our MedSurg portfolio, and we are pleased with the early progress.

Now moving to Altaviva. Momentum here continues to build. And we are encouraged by the strong physician feedback and early patient demand. Altaviva redefines what is possible for patients with urge urinary incontinence with same-day activation, up to 15 years longevity and full body MRI access, while the device remains on patients start therapy sooner and live life with fewer disruptions. We've trained nearly 1,000 physicians since launch, and that investment is starting to translate into commercial momentum.

Sequentially, active implanters are up 3x. And patients treated are up 2.5x. Importantly, as physicians gain more experience and move through prior authorization more swiftly, implants are accelerating.

Finally, we executed our focused portfolio strategy. In early March, we completed the MiniMed IPO, establishing it as a stand-alone publicly traded company. We also advanced our M&A and venture initiatives, targeting higher growth segments to accelerate innovation in markets where we have a right to win.

In our coronary portfolio, we closed on the Cath works transaction. Cath works FFRangio system uses a combination of AI and advanced computational science to improve decision-making in the cath lab. The company recently presented positive 1-year data from the all RISE trial, validating FFRangio as a noninvasive technology poised to disrupt the gold standard traditional wire-based FFR, which is a $1 billion segment growing in the low double digits.

We announced plans to acquire Scientia, an SPR Therapeutics as well as investments in Beluga Medical and CardioACC. Scientia will meaningfully expand our neurovascular platform with differentiated guidewire technologies for stroke, enabling every neurovascular procedure to start with Medtronic. SPR Therapeutics for P&S will build out our portfolio of chronic pain management therapies. And Beluga Medical and CardioACC will advance development of next-generation ICE catheters that will further advance our EP toolkit.

In our venture portfolio, we invested in emerging technologies, including Pulnovo, a first of its kind minimally invasive system designed to address pulmonary artery renovation. And we entered into a distribution agreement with Merit Medical for ViaVerte which brings an FDA-cleared solution for chronic tibolgenic back pain. Now both of these transactions will expand our reach into new and high-growth adjacencies where we hold leadership positions.

These investments are deliberate and tightly aligned to our strategy of reinforcing leadership positions, building scalable ecosystems and extending our reach in attractive markets. Together, these meaningful tuck-in investments position us to drive sustainable growth for the near and the long term.

Now these are just a few highlights from the quarter. Looking across the business, multiple operating units contributed to the strength in Q4, like CST with Stealth AXiS or CRM with OmniaSecure and Micro and many others, which Thierry will cover in more depth.

So to close, I want to start with thanking our teams not only for delivering a strong year but embracing the changes that have enabled this performance. In a world with many moving pieces, we are executing. We are delivering. We are delivering on our strategic priorities and accelerating access to life-changing therapies, all while creating meaningful value for patients, for physicians, for health care systems and for our shareholders.

Now with that, I'm going to turn it over to Thierry. He's going to walk through the financial results of both the quarter and the full year before turning to guidance. Thierry?

Thanks, Geoff, and hello, everyone. I appreciate you joining today. Let's start with cardiovascular, which delivered 10% revenue growth this quarter, led by 14% in the U.S. and 7% in international markets. Driving this performance was 78% growth in CAS, including 124% in the U.S. In a $14 billion market that grew about 20% in Q4, we're now annualizing over $2 billion in revenue and are on track to reach $2 billion trailing in the first quarter of fiscal year '27.

Cardiac Rhythm Management delivered 5% growth in both U.S. and international markets. Defibrillation delivered mid-single-digit growth, including high teens in ICD and mid-60s in EV ICD. We saw strong momentum in the recently launched OmniaSecure defibrillation lead following our indication expansion that allows for conduction system pacing.

Cardiac pacing therapies delivered mid-single-digit growth, driven by mid-teens in micro and high teens in the [ Select Secure 3830 ] lead for CSP.

Turning to Structural Heart. Performance in the quarter was flat. We saw strong international performance, while the U.S. was softer in part due to the lowest data. We're encouraged, though, by the trajectory we've seen in the field as weekly U.S. procedure volumes have stabilized over the last 8 weeks. Structural Heart clearly remains a strategic priority for us, with internal programs in mitral and tricuspid replacement and targeted external investment in TAVR, including paving the way forward.

Coronary declined in the quarter but was offset by strength in renal renovation as described by Geoff. Importantly, we saw a clear acceleration of simplicity in the back half of the year. We're pleased to see the sequential lift and feel well positioned to drive momentum going forward. Finally, Peripheral Vascular Health delivered low single-digit growth and cardiac surgery was up mid-single digit.

Moving to neuroscience. Our position in neuroscience is strong. We have the most comprehensive portfolio and are the #1 player and category leader across each of our segments. We're investing across the portfolio to advance pipeline innovation and accelerate long-term growth. This quarter, we delivered 3% revenue growth globally, driven by 6% in international markets.

Cranial and Spinal Technologies was up 3% in both U.S. and international markets. Core Spine gained share this quarter, growing 6% on continued module X expansion and distributor conversions. In Neurosurgery, results improved sequentially, supported by low double-digit growth in navigation following the launch of Stealth AXiS late in the quarter. Stealth AXiS platform is an important growth driver for our CST business. The early commercial launch is progressing well. Physician feedback has been very positive and sales are off to a very strong start.

This quarter, we achieved FDA clearance across spine, cranial and ENT indications as well as CE Mark for spine and cranial broadening the platform's reach across our portfolio. [ Luxtelth ] is a force multiplier, driving across planning, robotics and our broader able ecosystem. It promotes the adoption of robotics in spine surgery, creates efficiencies that allow more physicians to integrate it without disrupting workflow. All of this makes our installed base stickier over time.

With robotics penetration still in the high single digits, we see significant runway ahead. Specialty Therapies delivered 3% growth. Neurovascular was up 6% driven by 11% growth in hemorrhagic, including healthy adoption in Euro garden RTs. We are actively investing in Neovascular as evidenced also by our planned Scientia acquisition. Scientia represents a significant advancement in navigation, enabling euro interventionalists to reach areas of the brain that were historically extremely difficult to get to.

ENT delivered another quarter of mid-single-digit growth, including high single-digit in international markets. In Pelvic Health, results were flat as solid growth in Altaviva was offset by broader market softness in sacral nerve modulation. Given the progress our teams have made, we look forward to seeing Altaviva continue to scale into 2027.

Finally, neuromodulation was up low single digit. This is another area of strategic focus and investment as demonstrated by our expansion in BVNA and planned acquisition of SPI Therapeutics, an attractive space growing over 20% annually.

Now turning to Medical Surgical, which delivered 5% growth globally, including 8% in the U.S. Surgical revenue increased 3% globally split evenly between the U.S. and international markets. Performance was driven by high single-digit growth in both Advanced Energy and Wound Management as well as an increased contribution from Hugo. This was partially offset like in prior quarters by continued pressure in bariatrics.

Endoscopy delivered high single-digit growth, driven by strong adoption of Endoflip in the U.S. and Western Europe and market share gain in Nexpowder in the U.S. And then acute care and monitoring was up including high teens growth in the U.S. Results were driven by mid-teens growth in Nalcor post oximetry, high single-digit growth in respiratory and airways as well as mid-single digit in perioperative. The outsized strength we've seen in ACM was a positive tailwind to the quarter. Looking ahead, we anticipate this growth to normalize as we head into fiscal year '27. Overall, we are very pleased with the finish Medical Surgical had to close the year.

Rounding out with the diabetes business, we completed the MiniMed IPO during the quarter, marking an important milestone in establishing MiniMed as a stand-alone publicly traded company. For the quarter, the Diabetes business delivered 15% reported growth or 8.1% organic, driven by strong international execution and continued momentum in U.S. CGM and new patient starts as the team prepares for the commercial launch of MiniMed Flex during the summer. Look, we're excited to see the MiniMed team share more detail on their first earnings call later this morning.

Before we move into the details of Q4 and guidance, I'd like to remind everyone that the diabetes financials as reported by Medtronic are prepared on a different basis than the stand-alone MiniMed ones. Accordingly, you cannot precisely estimate Medtronic remainco financials by subtracting one set of financials from another. As with prior similar transactions post split, when Medtronic is no longer the majority shareholder of MiniMed, we will provide Medtronic guidance that will reflect updated operational performance metrics and share count.

Now turning to financials. Revenue this quarter of $9.8 billion grew 9.9% reported or 6.6% organic. This represented a 60 basis points acceleration from last quarter on a far more challenging comp. This caps the strongest annual performance we have seen in 10 years. Geographically, performance was balanced with 7% growth in the U.S. and 6.2% internationally.

Before I turn to the P&L, I want to pause and take a moment to acknowledge our Medtronic colleagues, especially those in the Middle East and impacted countries who despite the ongoing conflict have remained focused on serving our customers and our patients. Their performance under tremendously difficult circumstances reflects their commitment, resilience and the strength of our mission and culture, so thank you.

On that note, I will now turn to walking us through the fourth quarter P&L. Our adjusted gross margin was 65.4%, up 30 basis points year-over-year and up 50 basis points sequentially.

Let me walk you through the elements shaping gross margin this quarter, as I usually do. Similar to Q3, our disciplined pricing provided 30 basis points benefit. Net of inflation, cost down contributed 60 basis points, driven by COGS efficiency programs as our portfolios, global operations and supply chain teams delivered material savings, improved efficiencies and higher yields. Mix was unfavorable by 60 basis points, largely reflecting the diabetes business as well as higher mix of lower-margin capital to higher-margin catheters in our CAS business. While a near-term headwind to gross margin rate, this represents a favorable leading indicator as it reflects further penetration of the market and strong pull-through potential for future catheter sales.

Tariffs impacted the business by $74 million or 80 basis points, in line with expectations. And finally, foreign exchange was an approximate 80 basis points tailwind.

Moving to overhead. Adjusted R&D was roughly 7% of revenue in the fourth quarter and fiscal year R&D grew $150 million as we march towards higher investment goals. Q4 today we closed or announced nearly $2 billion of additional investments as we executed on M&A and venture capital strategy. We expect recent M&A to contribute approximately $150 million to inorganic revenue growth in fiscal year '27 and to be a healthy contributor to our organic base in the out years.

Within our venture portfolio, we also made 16 venture investment this fiscal year, totaling approximately $250 million. Each of these investments are in growth accretive adjacencies and should generate strong returns and potential acquisition opportunities in the years ahead. We're committed to accelerating our pace of innovation and top line growth through a prudent and strategic combination of organic and inorganic investment.

Adjusted SG&A was 30.5% of revenue in the quarter, up 30 basis points year-over-year. With favorability below the line, this quarter, we made a deliberate decision to accelerate investment in our commercial firepower to support our key growth areas. Our adjusted operating profit was $2.5 billion, resulting in an adjusted operating margin of 25.5%. This included impact of 160 basis points from the MiniMed Blackstone payment and 80 basis points from tariffs. Our adjusted tax rate was 17.7%, slightly better than expected. All in all, adjusted EPS was $1.55, above the midpoint of our guidance range and above the street expectations.

Free cash flow was $5.4 billion in fiscal year '26, the strongest it has been since 2022 and ahead of our expectations. We've made solid progress in working capital over the year. The team delivered notable progress in accounts receivable and controlled the inventory effectively. Our CapEx spend was up roughly $50 million and grew at a significantly lower rate than revenue. Because of this, we ended the year with a $9.2 billion in cash and investments, positioning the company very favorably to execute on M&A opportunities.

Look, our performance this year underscores the strength of our portfolio and the consistency of our execution. While we faced headwinds like tariffs and the transitional product mix, we made meaningful progress in our efficiency initiatives, driving COGS improvements and achieving gross profit leverage ex tariffs. Importantly, we remain disciplined in balancing performance with investment. We purposefully increased investment in SG&A, R&D and M&A to support innovation and commercialization in some of the most attractive and durable growth markets in med tech. I'd like to thank our teams for all the progress made this year, and I look forward to seeing this momentum carrying into the next fiscal year.

Speaking of '27, now turning to the guidance. I want to note that our full year guidance continues to include the diabetes business as Medtronic remains the majority shareholder of MiniMed through this spill-off process. Today, we're guiding fiscal year '27 organic revenue growth of 6.75% to 7.25%, including approximately 11.5% to 12% organic growth in the first quarter. This guidance includes a roughly 25 basis points tailwind from the diabetes business. It also incorporates the benefit from the additional selling week which is recognized in the first fiscal quarter. We expect it to contribute approximately 125 basis points to the full year growth and 500 to 600 basis points in the first quarter.

Additionally, based on recent FX rates, we expect the foreign exchange to be neutral to roughly $100 million headwind for the full year. with an approximate neutral to $50 million tailwind to the first quarter.

Moving down the P&L. We expect our fiscal 2017 margin to be roughly in line with the previous year, excluding tariffs. Pricing and COGS efficiency programs are expected to offset the impact of business mix primarily from diabetes. This pressure point will disappear upon separation. We anticipate a tariff impact to COGS of approximately $250 million in total, including $75 million in the first quarter. Including tariffs, we expect fiscal year '27 gross margin to decrease by roughly 20 basis points.

We continue to invest in innovation to accelerate the launch of key products. This includes incremental spend as we integrate several acquisitions. Overall, we expect our fiscal '27 operating margin to be up 60 basis points, driven by the absence of Blackstone milestone payments we saw this year and operating leverage.

Below the operating profit line, we're expecting an approximate 200 basis points headwind, driven by an increase in net interest expense as well as a slightly higher tax rate. We're guiding '27 EPS of $5.90 to $6. Fiscal year '27 incorporates several dynamic components, and I would like to be explicit around our assumptions on the inputs.

We have included an approximate 150 basis points benefit from the extra selling week to the full year. Because we do not yet know the timing of the MiniMed separation, we're taking a conservative approach and including the full year of the diabetes business and our estimates, including the associated monthly dilution and assuming no separation share count benefit in fiscal '27. Should we separate prior to year-end as per our intent, we could see potential upside from our current guidance.

We're factoring 2% dilution from M&A, which is roughly 1 point higher than what we shared last quarter as the timing of several of our deals actually occurred earlier than anticipated. We're taking the full tariff impact of $250 million, as mentioned previously, an increase of $65 million versus prior year. We have not taken into consideration any government refund. We've embedded also a roughly 1 point headwind from increased fuel and transportation costs due to the conflict in the Middle East. And finally, based on recent FX rate, we expect foreign exchange to have a neutral to 1% accretive impact for the full year.

For the first quarter, we would expect EPS in the range of $1.38 to $1.40, including a 600 to 700 basis points benefit from the extra selling week as well as roughly neutral impact from foreign exchange at recent rates. Look, all of this taken together, our approach to guidance for the full fiscal year positions us well for a strong performance in 2027.

And with that, back to you, Geoff.

Okay. Thanks, Thierry. Now as we come to a close, I'd like to take a step back. The macro backdrop, as you know, has been challenging and dynamic. But MedTech is structurally resilient because the fundamentals are durable, people are living longer, chronic disease is rising, and the demand for medical procedures will only grow. AI, digital, robotics as well as advanced electronics are meaningful accelerants. And at Medtronic, we are uniquely positioned to integrate these technologies for safer care, improved outcomes and stronger health care economics that scale globally.

I also want to take a moment to recognize Brett Wall, who will be leaving Medtronic this summer following an extraordinary 25-year career. Brett has been an integral part of our leadership team and played a defining role in shaping our neuroscience portfolio, including helping establish interventional stroke as a global standard of care and advancing innovation across neuromodulation. His impact on patients, on our strategy and our culture, it's been significant, and we are deeply grateful for his contributions.

As part of this planned transition, Dr. Kweli Thompson will step into the role of Executive Vice President and President of our neuroscience portfolio. Kweli is a proven leader with a strong track record of execution, deep clinical and operational experience, most recently leading our CRM business. He is well positioned to lead neuroscience into its next phase of growth. Again, we want to thank Brett for his leadership, and we look forward to Kweli's continued impact.

So we delivered a strong finish to the year, powered by the breadth of our portfolio and disciplined execution across the business. And look, we are not letting up. We are investing in the future. We are building momentum in our key growth areas, advancing innovations across the portfolio and deploying capital through targeted M&A, ventures and partnerships. Together with strong commercial execution and market development, these actions give us confidence in our ability to deliver durable innovation-led growth for FY '27 and years to come.

With that, let's turn to Q&A. Ingrid, can you please provide the instructions and queue up the analysts.

[Operator Instructions] We'll take our first question from Vijay Kumar at Evercore.

Geoff, congrats on a nice print share. Maybe Geoff, I'll start with the guidance question fiscal '27, excluding the extra week, I think, underlying 5.5 to 6, that's an acceleration in line with the prior assumptions. I think as CAS slows down, that's been a concern for the market, right? Can you just talk about what are the offsets which segments accelerated to offset of CAS and drives the confidence in this 5.5 to 6 organic?

Well, thanks for the question, Vijay. Maybe I'll -- let me just start with the cash comment you made, and then I'm going to turn it over to Thierry to answer the ins and outs and puts and takes of the guidance question. But on CAS, look, the impact of CAS to our growth will be very similar next year to this year. I mean we see the market in FY '27 in growing -- well, first of all, in Q4, we think the CAS market grew around 20%. In FY '27, we're thinking mid- to high-teens market growth and we're going to grow north of 2x that of the market rate. And again, the business has gotten a lot bigger, so its contributions to our growth or even more because of the size. And yes, so we're annualizing -- that business is annualizing now $2 billion. We're going to hit that $2 billion backward-looking revenue mark that I laid out there. We're going to hit that in Q1. That implies -- we're about 15% share right now and marching towards market leadership in CAS. So I don't -- we're not -- look, we're not talking about CAS slowing down its impact on our growth. I just laid out what I think it will grow, but the impact is strong. So I just want to clarify that first. And then maybe, Thierry, you talk about the guidance.

Sure. Vijay, so look, just maybe to give you the couple of components of the growth rate here. So the cardiovascular business should have a performance next year that's pretty much in line with what we've seen in '26. So it's in a -- it's got really, really strong momentum. Geoff just talked about CAS where clearly still in the early innings of the CAS development here. You probably saw in the commentary that from an installed base perspective, the installed base was up 40% in the fourth quarter alone. So that gives us a ton of headroom to grow the catheter sales going forward.

CRM will continue to be strong mid-single digit. We have a lot of strength coming from innovation, from Micra, from Omnia, from EV ICD, and that's going to carry into '27. And then staying in the cardiovascular portfolio, we expect to continue to see some strong lift coming from Ardian. So Ardian is now annualizing about $100 million revenue a year, and we expect that to continue to grow significantly into '27 and beyond.

And then we've incorporated a prudent guidance for structural heart. As we mentioned in the commentary, the business has been pretty stable over the last weeks, and that's what we've incorporated in the guidance going forward. So strong continuation in cardiovascular.

Then we've got the neuroscience portfolio. Hey, look, in neuroscience, we're leading in every segment we're in, and we're gaining share. And on top of that, we've got meaningful innovation in almost every segment out there. If you take CST, we have Stealth AXiS. Stealth AXiS is off to a really good start. About 50% of the revenue we get in CST is coming from consumables. And the more we sell Stealth AXiS, the more we're going to have pull-through on the consumables side and we're super excited about that.

In the Neurovascular business, you saw that we made progress this quarter that's going to continue into '27. We've got a ton of innovation coming there with Neuroguard product and with MMA, and that's going to continue going forward. And on top of that, we'll have the inorganic impact coming from the acquisitions. But expect neuroscience overall to continue to grow.

To accelerate.

To accelerate, yes. Continuing in neuroscience, in pelvic Health. Look, Altaviva is off to a good start, and it's going to continue to grow into next year. So you can see every single franchise in neurosciences is going to accelerate going forward.

And then if you look at MedSurg, Look, MedSurg had a great quarter in Q4 with Surgical being pretty strong, around 3%, both U.S. and OUS. We had great performance from ACM and from Endo. Look, I think that business has great momentum. But we expect that growth to normalize a little bit or we haven't reflected, I would say, the run rate that we see in Q4 fully in the guidance that we taken into consideration for '27.

And then to finish with MiniMed, the team will comment more in detail on the following call after this. But MiniMed had a strong Q4. We expect our continued strength into '27. And MiniMed should bring about sort of 20 to 25 basis points of growth in the construction next year.

So look, all in all, if you look at what happened in '26, we started the year with a 5% guidance. Gradually, we increased it to 5.5%. We ended the year at 5.8%. The midpoint of our guidance this year is -- for '27 is right at that level, 5.8%. So I think we're positioning the business for success going into this year.

And our next call comes from Larry Biegelsen at Wells Fargo.

Geoff, congrats on a strong finish here. Geoff, I'm going to ask the one question. I think that one area of people are concerned about, which is your TAVR business. The Evolut 6- and 7-year data did get a lot of attention this year. What do you see or earlier this year, sorry, what did you see from a share standpoint in your TAVR business in fiscal Q4? Was there any difference in U.S. versus international? And what are you assuming for your TAVR business in fiscal '27?

No, thanks for the question, Larry. I'd say -- I know there's been a lot of talk on TAVR and Evolut. I'll say this, just to repeat what Thierry said to go, the business has stabilized, right? Over the last 8 to 10 weeks, it's been stable. We did experience a slowdown in growth, and it really was tied, we believe, to the low-risk data that came out. It's more of a U.S. dynamic, I would say. I mean, again, I just want to emphasize it's kind of -- it's an older technology. It's an old procedure, the procedure tactics we've changed. And it's limited to a large size valve, which is more used in the United States. So it's not really impacting us outside the U.S. like it is in it's stabilized, and we're moving forward now, right? So we're heavily investing into this business. We announced a big investment last quarter. We're investing in this software, where we've got mitral and tricuspid. And so we're feeling good going forward. We've got some new fresh leadership there that's running fast. And -- so I don't know if you have anything to add to that, Thierry, in terms of next year?

I would just say, look, in Q4, we grew 6.6% despite the headwind that we had from TAVR, in particular in the U.S., as you said, Geoff. And what we've seen over the last 8 weeks is a stabilization of that business, and that's what we've modeled going forward.

Our next question comes from Travis Steed at Bank of America.

I'll start with MedSurge grew 5% this quarter, surgery grew 3% this quarter. Maybe just how you factor these businesses and as you talked about accelerating growth next year into the guidance and to keep these businesses at kind of these higher growth levels? And on Hugo, when does that start to show up on the surgery growth? And when do you expect Hugo to start contributing positively to the margin and EPS profile versus being an R&D investment and how to think about the return on that program?

Well, look, I'd say, first of all, on MedSurg, it was a great quarter, and it was pretty much across the board, right? The surgical business accelerated to 3%. As Thierry just pointed out, you have ACM at nearly 11%. Our endo business at 9%. I mean, Mike, Mariner and the team have done a great job building to this. And like I said, it was a great quarter. And in there, Hugo contributed, right? We had told you that we thought Hugo would have an impact towards the end of FY '26 and it did in Q4. It's -- we're feeling really good about the feedback we're getting on the launch. We announced this morning the submission to the new indications, General Surgery, and LigaSure RAS, so we've got those submitted. And the feedback we're getting on the early cases is good.

We're seeing the smooth case rate is up. That means how many cases, everything goes well in a case that's really important, especially in the U.S. where the physicians really test the system. Our procedures are meaningfully up and utilization continues to be strong. We've got additional placements, installations in the U.S. out outside of the U.S. And complementary to this is our Touch Surgery platform is -- installs are up 30% sequentially. We're now in over 1,400 ORs globally. This is going to be a real differentiator. I want to get to the point where we're talking about the enabling technology, not just Hugo, but all the enabling technology, including the digital piece, kind of like we do with in spine with Able, that's what we're building to. Obviously, Hugo is a big piece of that. So we're feeling very positive right now. You have anything to add to that?

I think you said it all.

Our next question comes from Ryan Zimmerman of BTIG.

Can you hear me okay?

Yes, we can hear you right.

Wonderful. So a lot of directions to go here, but I'm actually going to ask a little bit of a margin question to Thierry. Assuming you lap some of these tariff dynamics kind of midway through fiscal year '27, potentially MiniMed is coming off, and again, I appreciate that you're including it for the full year, but it would seem that there is opportunity potentially for a gross margin step-up particularly in the second half of 2027. And so is there anything else that we should be considering in terms of constraining gross margins as we think about it in the context of the 2027 guide?

No. So look, I think you -- the dynamics in the gross margin are pretty similar to what we've seen so far. So kind of peeling through the different parts, we'll have negative impact from the carryover of the tariffs issue or the tariff topic, I should say, in the first half to the tune of -- someone else that's on the line, sorry. So yes, so we'll have about $65 million of carryover coming from tariffs in the first quarter and the second quarter.

To your point, we'll lap that in the second half. And then if you look at excluding tariffs operationally, we expect to continue to see pricing lift as we did in '26. We expect to continue to see good traction from our cost of good sold, net cost out perspective. The team is gradually netting out better and better performance of cost out net of inflation, and we expect that to continue.

Then we've got the mix topic. And as you know, there are 2 drivers behind that. One is diabetes. To your point, if we are to separate diabetes before the end of the year, which is our intent, then we should see some lift in the gross margin rate coming from that.

And then the other dimension of the mix impact is coming from CAS, it's actually getting better because the margin of CAS is improving. And so we should see that being sort of a headwind going into the second half. So look, all in all, what we've embedded in the guidance here is a gross margin that's basically flat, slightly up, excluding tariffs. So I would say, very slightly up, excluding tariffs with a better performance in the second half than in the first half.

And then the good news is our growth is accelerating and growth we're getting operating margin leverage with better absorption of the overhead. And this will come primarily from the SG&A line going into this year. So yes, we'll have accretion in operating margin, in particular, in the second half of the year.

Our next question comes from Josh Jennings at TD Cowen.

I was hoping to just get a beat on the China franchise, not the [ sexiest ] question here, but historically, China has been a growth channel. There have been some headwinds with VBP for a couple of business years. But what's the outlook for for 2020. Maybe help us think about exposure there as a percentage of revenue? And is that -- is the China franchise going to be accretive or dilutive to the organic revenue growth guidance?

Look, thanks for the question, Josh. I haven't got a China question in a while. Look, China is -- we still view China as a growth market. So when we think about China, we think about it as a growth -- as an end market. We don't have a whole lot of exposure in terms of manufacturing in China for export outside of China. So we don't really have much exposure there. That's very small. It's really about how it continues to be a profitable growth market for the company.

And look, we've had to navigate a number of these VBP and I think VBP is here to stay, but we have the worst is behind us. And we've -- the teams navigated it well. We've been able to increase the procedures and lower our cost because we're on these big contracts, these big tenders and we'd be able to pull out costs, increase volume, even though pricing is down. And it remains growing at the corporate average right now and that average for the company is improving, as you see. And profitability is also strong. For years, there's been this misconception that China is not profitable. Prior to VBP, I admit it was even more profitable, but it's still accretive from a profitability standpoint, and it's a growth region for the company.

Next up, we have David Roman from Goldman Sachs.

I wanted just to come to the comment you made on CAS during the prepared remarks. I think you talked about visualizing, other catheters on Affera? And how you're thinking about integration of some of the investments you're making on expanding the accessory business within CAS as well as the potential to integrate some of the other established technologies on to Affera?

And then maybe I'll just ask my follow-up front here. I know, Thierry, you talked about tariffs as you reflected in the guidance, but there do seem to be a lot of other unresolved considerations on tariffs such as USMCA and then 232. So maybe just your latest updated thoughts there would be helpful.

Well, first, on CAS, I mean here Affera platform, like we look at it as a 3 in 1 kind of -- we view it as the premier platform out there, right? And I think the numbers are bearing that out. And we've worked hard to get to this point, and we're still in the early innings of the launch of Affera in the U.S., as Thierry pointed out, and globally.

And there's a couple of vectors of growth. One is the innovation you pointed out. We're really surrounding electrophysiologists. So we have more catheters coming out, Sphere-336 in Europe. We started the trial in the U.S. for a single shot that was right at our biggest competitor. The mapping, we just launched our second-generation mapping software. And as you pointed out, David, it's got this ability to sense other -- pick up other catheters. And then we're bringing in -- we made 2 investments in ICE catheter companies. So we're going to build out our ecosystem and surround the EP.

In terms of -- if your question is about are we opening the system, I don't think we have plans for that right now. I mean, it's -- we're really building out our proprietary technology and ensuring that we have that tight workflow. That is our plan to have that tight workflow and get the best clinical outcomes and the best experience for the physicians.

Yes. And on the tariff side, I think we mentioned it in the commentary. Look, we continue to monitor the environment there, which is still a little volatile, as you mentioned. I think we continue to look at the 232 situation. On the flip side, we've incorporated sort of a status quo in tariffs. So we haven't incorporated any potential upside for reimbursements that could occur in which we have applied for. So we we took a balanced approach on it, I would say.

Our next question comes from Robbie Marcus at JPMorgan.

Great. Two quick ones for me. First, Jeff, I wanted to ask on MiniMed. I see consensus numbers have strong organic sales growth, margin and free cash flow improvements over the coming years. If that's the case, can you just remind us what's the rationale for separating it here? When do you want to keep a business with strong improvements and inflections in profitability and growth going forward?

Look, I mean, we're separating it not because of our confidence in the outlook of the business. I mean, to your point, we think it's going to do really -- it's doing well today, and it's going to accelerate from here with the product pipeline that they have, which I'm sure Kweli will give updates on the call after this. I mean -- but it's the best we've seen, and it's comprehensive across all aspects of managing insulin independent -- or insulin-dependent patients. So we feel really good about that.

I think as we focus, we have a lot of growth drivers to focus on. And these other growth drivers that we talked about today, whether it be CAS or RDN, Hugo, Altaviva, Stealth AXiS, all of them, I think, take more advantage of and benefit from either technology platforms that cut across the company, especially in robotics, in areas like that or our commercial footprint, where MiniMed does not really capitalize on that as much.

And the second is, look, we are very disciplined around capital allocation. And it's hard to constantly allocate capital to something even though the growth is there, but the rest of Medtronic is growing much faster now. So the gap between MiniMed and the rest of Medtronic isn't as much as it used to be in terms of growth. And profitability, though, it's just a structurally lower profitable segment. And so it's kind of hard to allocate capital that way. I think both businesses will do better separated. And we've -- for our own reputation and patients, we did not -- we think we're separating at the right time. We've put a lot of time and money into the business. It's ready to go. It's got a great management team. And it's going to do well for patients. It's going to do well for physicians, and it's going to do well for shareholders. And the rest of Medtronic, we're accelerating and we're going to do well as well. So we're feeling really good about that decision and excited about the future of both organizations.

Fantastic. Maybe a quick one, Thierry, I look at consensus I realized you just guided to fiscal '27. I look at consensus for 7% EPS growth for 2028, realizing there's one fewer selling week, which is 150-plus basis points to EPS this year. Should we be thinking about a similar headwind next year? And how do you want people to think about year-to-year there just so we could get it correct at this update. Appreciate the questions.

Yes. Thanks, Robbie. Look, we'll give '28 guidance, when we give '28 guidance, it's kind of early, but just kind of directionally, some of the headwinds that we've got like tariffs, et cetera, disappear going into '28, and we expect the growth to continue, right? So we went through all the growth areas that we've got in the portfolio today. And a lot of these are in early innings, right? CAS is still going to continue to accelerate. Ardian is very early at development. Altaviva is also very early. And then we've got a long list of innovation that's kicking in, in the rest of the portfolio. So yes, there will be pressure coming from the 53rd week going away, but we have a lot of things going the other way. So we look forward to talking about that later in the year.

And our last question, we have time for one more, it's going to come from Mike Kratky at Leerink Partners.

Can you hear me right?

Yes.

Congrats on the strong quarter. Maybe just one quick one. But in terms of your commercial strategy and mechanical thrombectomy, to what extent is Leburn bringing differentiation to this market? How are you thinking about your ability to carve out share of the market with 2 well competitors and what could that opportunity look like?

Yes. Look, we're not -- we don't -- we try not to guide at a product level. So I can't get too specific there. But I do think we have a strong commercial footprint out there in our Peripheral Vascular business. And this is a product we've worked on for a while, and it's gotten -- we're getting great clinical results. Physicians feedback is good. And I think we're putting that product in the bag of our Peripheral Vascular business, plus it's got -- we got this agreement with Contigo that's also helping that business and help me with -- no, this is Peripheral Vascular. So we've got a number of new products there. It's not just one thing. So I'd look at the business and the direction of travel of the overall business, putting more competitive products in that scaled sales force.

And it's -- I appreciate the question, Mike. We don't get a lot of questions around Peripheral Vascular, but it's kind of sneakily kind of improving their growth profile, which is part of the exciting story of Medtronic. As we -- you've got these 3 groupings. You've got these big growth drivers that we are all talking about like CAS and now you're going to hear more about Ardian and Hugo now, but both those guys had good fourth quarters. And then you got Altaviva and Stealth AXiS, these thorough breads coming out of the gate hot. And then you've got our big businesses CST, which we kind of just talked about, Surgery is doing well, and cardiac rhythm is just crushing it.

Like where other companies see a mature market. Our cardiac rhythm management sees opportunity and innovates and drives to market. We're not worried about competition, it's about innovation and growing that market, lowering any kind of bar for pacing and CRM, and it's a wonderful story. But then the rest of the company is also doing well. There's puts and takes, but it's also doing well. Peripheral Vascular is part of that story of adding new products to the business. And it all comes back to our capital allocation strategy of feeding the big markets in the hot hands, but also making sure that there's the right amount of capital for the rest of the businesses. And hence, focusing the portfolio to enable that, getting back to the diabetes question that Robbie had. So I appreciate the question, Mike, and I'm sure the Peripheral Vascular team does as well.

Great. Thanks, everyone So with that, I think I'm going to turn the call back over to Geoff for some final remarks.

Okay. Well, first of all, thank you for joining the call and all the questions. It was a really important moment for the company as we are really accelerated and really well positioned, putting up big numbers and really well positioned for the future and particularly in a tougher market backdrop. So I appreciate your support and your continued interest in Medtronic. And with that, I'd say you have a great rest of your day, and thanks again.

All right. I think we can kick things off. But thank you all for joining. My name is Mike Kratky. I'm our Senior MedTech Analyst at Leerink and thrilled to be joined today by Medtronic's CFO, Thierry Pieton. So thanks so much for joining.

Yes. Thanks for having me.

You just passed the 1-year mark at Medtronic. We'd love to maybe kick it off by hearing from your perspective, how the business has evolved over the last year. And as you look out over the next 12 months, what gets you most excited?

Yes. Look, first of all, it's been an interesting 12 months. I mean we've had a lot of things going on between sort of accelerating some of the new product launches and some of the portfolio actions that we've taken that I'm sure we'll talk about, the IPO of MiniMed and we're going back on offense in M&A, and we've done a couple of things in the last 3 or 4 months. So it's been pretty busy. Look, I think the business has growing confidence.

I think a lot of the work that has been done for several years in the past few years to build the portfolio and to reinforce some of the operating mechanisms in the team and to work on R&D on some of the innovations that we're launching now, it's starting to pay off. And I think there's a lot of excitement in the company. Performance has been improving from a top-line perspective over the last few quarters. And so I think it's confidence building, and I think the mood of the team is super positive and leaning forward.

Understood. And yes, talking about M&A, I mean, last 3, 4 months and even the last 3, 4 days, the Scientia acquisition. So maybe actually to kick off, would love to hear how you think about that business and why it might be a good fit for you guys?

Yes. So I think Scientia is the perfect example of what we want to do, right? So what it brings in -- so first of all, stroke is a massive condition out there. Millions of people have strokes every year. And time is really of the essence when you have a stroke. So every minute that you wait to fix the issue costs you millions of brain cells. So for us, having in the portfolio a very differentiated access guidewire is really critical. So we have good equipment for the thrombectomy piece of the business, so treating the blood clot or the hemorrhage, but we didn't have access. And I think now this is bridging that gap.

And what we're seeing is because of how crucial it is to have access as quickly as possible, the access equipment actually dictates what equipment is going to be used afterwards to treat the problem, right? So for us, it generates a lot of synergy. They have a unique technology, which is a great balance between the stiffness of the catheter and the flexibility to access different tortuous parts of the brain as quickly as possible.

And so it's -- yes, it's great to add that to the portfolio. And so they have their own base of customers. Some of the customers are common. We have our own -- they have their own. So there's going to be a commercial aspect to this. Our sales reps are going to be able to carry their product in addition to the existing range. And the financials look good. So for us, it's the exact type of example of deal that we want to be doing on a go-forward basis.

Perfect. And I might have more on M&A later, but I did want to jump in on your guidance and some of the most recent color during earnings that you provided. So I'm curious how you'd kind of characterize some of the top and bottom line growth expectations that you've set forth for next year and to what extent that kind of factors in the extra selling week?

Yes. So first, and I'm sure we'll go through some of these things in detail afterwards, but it starts with accelerated growth, right? And what we've said in the 3Q earnings call is that the organic growth that we're going to experience in '27 is going to be higher than the organic growth of '26. So right now, for '26 -- or fiscal year '26, we're calling 5.5%. So we should be north of that. And that's excluding the impact of the 53rd week. So it's true organic incremental growth. And I'm sure we'll go into the details, but it's on the back of CAS continuing to accelerate in the business because we're still in relatively early innings of the growth of that business, and we can drill into the details.

But in addition to that, in the third quarter, we did 6%. In the fourth quarter, we'll do about 6% and the next generational growth drivers, so Ardian, Altaviva, Hugo haven't really kicked in yet. So what you'll see in fiscal year '27 is starting to see the impact of these other growth drivers, plus a whole bunch of innovation that we've got in the rest of the portfolio in peripheral vascular health, in neurovascular, et cetera, that are going to help as well.

So we feel confident that we've got a great roadmap to continue to accelerate growth in '27 and beyond and again, in '27, excluding the impact of the 53rd week. If you look at the income statement, gross margins are getting better. So right now, the pressure that we've got from diabetes and CAS mix is going to get better. As that gets better, the progress that we're making operationally through pricing and cost out to improve gross margin is going to show up, right? And we'll get some leverage on the overhead part of the income statement. We'll keep investing in R&D, but we'll more than offset that with leverage on SG&A. So that's how operationally we're going to generate some leverage at the operating margin level.

Below that, there are a few moving parts that I tried to explain in the Q3 earnings. We're going to have some dilution from the M&A activity that we've had. There is some dilution that's coming from the diabetes deal, in particular between the IPO and the split. And we'll have some carryover from the tariff effect going into '27. And we're going to use the 53rd week to offset part of that at the EPS level. And when all is said and done, net-net, we're committing to the high single-digit EPS growth for next year.

Very helpful. So maybe a good segue to the CAS business. Obviously, it has been a huge source of momentum for you, fifth straight quarter of accelerating organic CAS growth, close to 80% in fiscal 3Q. So would love to hear how you're thinking about the elevated growth rates for that business moving forward as you kind of lap some of these tougher comps, the durability of growth and how you can sustain some of that momentum?

Yes. So first, it's a growing market. So in Q3, the overall market was $13 billion, it grew 20%. We see it continue to grow in the high teens going into '27. So the pie is getting bigger. Within that pie, we've got a very unique offering now with the versatility that Sphere-9 brings. It's the only catheter that integrates the mapping, PFA and RF, which is a big deal for the physicians because in a lot of procedures, you don't know if PFA is going to be enough. And so having the security of being able to do the complete treatment without putting the catheter out and putting another one in is a big deal.

And our data shows that in 50% or 60% of the procedures done with Sphere-9, there is actually utilization of both PFA and RF, right? So it's a big security. The physicians love it. And so that business is taking off. And it's -- again, it's in the early innings. We're still building the installed base of capital equipment. We're still working primarily on key accounts. So in the U.S., 70% of the business is with 30% of the accounts, and we're focused mainly on those. So we haven't really started going to the rest of the customer base at this stage. And even the key accounts, today, they have 1 or 2 pieces of equipment, and they want to get a second or a third or a fourth. So we feel there's a lot of runway.

At the same time, we're expanding geographically to countries like Japan. We're expanding the indication to VT, and we're about to launch the next generation. So we just got CE Mark for Sphere-360 in Europe, and we started clinical trials in the U.S. So we should be able to launch that product sort of in 18 months from now. So yes, so we see continued increased growth from that business going forward. Obviously, the percentages at one point will not be the same because the base is growing bigger and bigger. But in absolute dollar values, it's becoming a bigger and bigger contributor to our growth, which means growth acceleration for Medtronic.

Understood. Yes, really, really helpful there. And I guess just digging in on specifically the PFA side within U.S. ablations. How do you think about where overall market penetration is today and where that could be, call it, in the next 12 to 24 months?

Yes. So I think today, it's in sort of 50% to 60%. And we think ultimately, it will get to 80%. So there's still a lot of margin for growth there.

Got it. And then maybe within that, you obviously talked about some of the Affera Sphere-9 dynamics has been gaining significant market share. So how do you think about that continuing over time? And what do you think Sphere-360 could ultimately mean for your business in terms of further market share?

Yes. So on Sphere-9, as I said, the reality is it's a very differentiated product today, and it's still a market where technology counts, right? So the physicians want the best technology, and that's what Sphere-9 is today. We know that the competition is working on competitive products. But from our -- from the data that we've got, it's still 1 or 2 years out. In the meanwhile, we're working on 360. 360 is a large tip rotation-free single-shot catheter. It's going to cut the procedure time even versus Sphere-9 by 2/3. So it's an incredible product from a speed of procedure perspective and in particular, adapted to more simple procedures, et cetera. So we're very excited to the incremental contribution that we're going to get from 360.

Understood. And maybe just one of the last ones on PFA. But as you think about potential bottlenecks in the market, whether it's capacity or otherwise, is there anything that you see as kind of a key point of sensitivity for market growth over the next 12 or so months?

For market growth, I don't know. But for our growth, manufacturing is not an issue at all. We've got plenty of capacity now to produce both the capital equipment and the catheters. The long pole in the tent, so to speak, is the mappers. And so we're hiring hundreds of mappers. But we're on track. And if you're a mapper today, part of your remuneration depends on the number of cases that you do. And so you typically want to be with Medtronic because that's where the growth is. So we're able to attract mappers. But again, that's -- if there was going to be a bottleneck at one point, that would be it. But today, we don't see that as a problem.

Got it. Very helpful. I'd love to shift to your renal denervation business. Could you share some of the early takeaways from the commercial launch so far and just the level of demand you've seen?

Yes. So first, so we look at the entire funnel, right? So from the very top, how many customers are interested in the procedure. And for that, we look at the number of clicks we've got on the Internet, and we look at every stage of the funnel down to the number of cases that we actually do. At the top of the funnel, the traction is tremendous. So in between Q2 and Q3, we went from 50,000 clicks on the website to 2.2 million, right? So there are a lot of people out there that have this problem and that are interested in this kind of life-changing procedure.

So we're continuing to do some direct-to-consumer marketing to continue to build that. But really, it's all about creating the capacity to do the procedures down in the treatment centers. So we're opening accounts. We've opened more than 200 accounts. We're putting physicians in -- helping put them in Physician Finder so that people can be connected to them on the Internet. We've got more than 150 in Physician Finder today. But the -- again, the longest pole is getting the first -- getting the reimbursement done. And it's a new procedure. And so what we see is once a treatment center has done one procedure and successfully gotten reimbursement, then the second, the third, the fourth happen pretty quickly, but they don't want to take the risk of not getting reimbursed.

So a lot of the resources that we're putting are dedicated to facilitate the reimbursement to help the customers get it as quickly as possible. But we're getting tons of traction. I mean the procedure volume is going up. The accounts are going up. The physicians are happy with it. The feedback that we're getting from the procedure is excellent. Competitively, we're very, very well positioned. So we're excited about it. But it's a new therapy, so it takes a little bit of time to build that market.

Yes. And I'd love to dig in on some of that. But have you quantified how large that business is today? As you think about your guidance and what you're factoring in for next year, generally, how large you expect it could be by the next 12 to 18 months?

So for Q4, it's still a relative -- a small number. Going into '27, it starts being noticeable, but it will take time. And we haven't given any specific guidance. And as it becomes a bigger business, we'll get more details, but it will start to be noticeable in fiscal year '27.

And then the other point you made is just on the competitive landscape and how you've been tracking above expectations there. So I'm curious what factors really seem to be driving that.

Yes. So look, so first of all, I think Medtronic, it's been a long time coming. So we have 15 years of clinical data. So we have far more data than any competitor out there. And what we're seeing is that we're the only OEM that provides a therapy that keeps having a positive impact after the procedure. So you do the procedure, hypertension goes down. And in the months afterwards, it keeps going down. And even up to 3 years afterwards, you keep seeing a benefit from having the procedure done with simplicity. What we're seeing is that's actually not the case with ultrasound. What we see is actually the reverse. You have an initial kick from a hypertension perspective when the procedure is done, but then it creeps back up.

So for us, from a technology perspective, it's very encouraging. But we're not standing still. So we're developing radial access to make the procedure quicker. We're looking at using simplicity to do ablation in other organs to further increase the impact. So we want to lean forward and capture that business opportunity in the biggest way possible. It's 18 million patients in the U.S. with uncontrolled hypertension. So that's a massive pool.

Yes. Yes, no question. So maybe switching to TAVR. I mean this has maybe been one of the businesses that's been a little bit more variable. You talked about some of the competitive pressures as one of the main culprits recently. So how do you plan on navigating some of the recent challenges you've seen there? And what's the right way to think about the growth rate for your U.S. TAVR business moving forward?

Yes. So look, I think we had several good quarters in TAVR, in particular, in fiscal year '25. It was high single digit, and I think the business was performing well. I think it's been a bit slower in the last few quarters. And I think, candidly, we need to do better, right? So there's -- it's one of the performance areas that we need to continue to improve. I'll take a second to hit on the low-risk study on Evolut because there was some, obviously, news around that. For us, -- it's a valve that we stopped making a long time ago.

Now we sell Evolut FX. It's the fourth iteration of products since the one that was concerned with the study. We've changed the procedure. There was a part of the procedure that -- where some physicians were using balloon expansion after the implant to expand the valve, which is part of the root cause of some of the issues that have been highlighted. And so for us, old procedure, old products, now we're on Evolut FX new procedure. So we're still positive about the performance of that valve. I think it's highly possible that we'll see some short-term disruption while people get the terms with the data.

But long story short, this is a great space for us. Structural heart, generally speaking, is a great space. Medtronic has good market share, good reputation. We made the investment in Anteris recently because Anteris provides a great short valve that's balloon expandable. Balloon expandable is about 70% of the market now. So that's us showing that we want to go in that part of the business as well. And we're investing in mitral. We're investing in tricuspid. So again, we're committed to Structural Heart. It's a great franchise. It delivers great margins, and we need to go back up to the performance levels that we should be at.

Very helpful. Another area within cardio that I feel like maybe we got less color on sometimes is mechanical thrombectomy. We've seen that this has been a really attractive market. So I am curious how you think about your place in the market ahead of the Liberant full market release and the commercial strategy there?

Yes. So Liberant, for us, combined with Excipio, which is the mechanical thrombectomy catheter, brings the incremental benefit of having the suction. And so it's a key unlock for us from a product perspective. And the physicians are delighted to be able to have those 2 combined together. Medtronic also has a good reputation in this area. So we're excited about what Liberant brings actually both in the peripheral vascular health segment of the business and also in neurovascular. So it's sold by the 2 teams, and we're excited about that.

And maybe switching over to neuro. Altaviva, another product that has been clearly a big source of enthusiasm. So curious in terms of as that scales, what investors should be keeping an eye on to gauge how large this commercial opportunity could be for you?

Yes. So in a way, it's very similar with Ardian because you have to build awareness to the therapy on one end. And on the other end, you need to train the urologists and the physicians to do the procedure. It's a very simple one. And you also need to help them get the first reimbursement and get through the VAC process. And that's what we're seeing now. So we're sending clinical specialists and sales reps to the accounts and opening a lot of new accounts and helping them get the first reimbursement.

And afterwards, we see the cases take off. And again, whereas Ardian is 18 million potential patients in the U.S. alone. For Altaviva, it's 16 million. 5 million of those 16 million are actually at a severity of the condition that they're already kind of applying or eligible for that type of procedure. So it's another massive, massive opportunity for us that will start being visible in '27 and will contribute significantly after that.

Understood. And it's a space that there's a few other potential products and competitors out there. So how do you think you'll be able to build market leadership here just based on the product profile that you have?

So look, the product is dramatically different from the competition. One, it's activated right away. So you don't need to come back several times in the weeks after the procedure to have it adjusted, et cetera. You come into the office, you have a small incision, it's inserted above the fascia. It takes a small amount of time, and then it's immediately effective, right? Second, the battery lasts 15 years. where the competition is like 2 to 3. So you don't have to remove the device for 15 years.

You come once a year to the urologist, have your checkup, do the recharge of the battery by induction and you're good to go for a year, right? It's also MRI compatible, fully MRI compatible, which is a big deal because for the category of patients that have UUI, typically at one point, you're going to have an MRI exam done for something. And so the fact that you could do the full MRI without having to remove the device is actually a big deal, right? So yes, I mean, I think there's -- it's a very differentiated product on the market today. So good to have it in the portfolio.

Yes. Understood. And maybe another product that I feel like we're hearing more about recently is the Stealth Access platform. So, curious about where the differentiation comes from there and how large that could be really over the next kind of 2027 type time frame?

Yes. So 70% of procedures that are done in CST today are -- depend on the navigation element, right? So having the best navigation system is really key to being sticky with the customers. The CST team has been on this journey for several years now. And what we've seen is by integrating imaging, mapping and now robotic assistance with Stealth Access, you basically give much better patient outcomes, give a lot more information to the surgeon so that the procedure can be successful, help with the workflow of the hospital. And so it's made our CST business a lot more sticky, and I think you've seen it in the competitive dynamics. And we've been growing healthy mid-single digits for several years. The margins keep improving. And so Stealth Access takes that ecosystem formula to the next level, right?

And so the AI is going to relieve the surgeons from a portion of the mental load that they have to deal with. The mapping is going to help them figure out the best way to actually carry out the procedure. And the robotic assistance is going to further improve their skills. So we're very excited about that product. And it's what's going to help us build the overall franchise. It's not just that product for that product, but it's also the impact it's going to have on the pull-through of the implants.

Yes. And maybe that's a good segue to your MedSurg business and talking about what Hugo might mean for that business, both stand-alone revenue contribution and then also kind of a balanced MedSurg, broader offering.

It's a great parallel. And I think Hugo brings to MedSurg exactly that what Stealth Access is bringing to CST. So it's the opportunity to provide an ecosystem that makes the outcomes and the workflow better for the hospital. Look, now Hugo is FDA approved in the U.S. It's a massive step because 90% of robotics are in the U.S. from a procedure perspective. We're the only OEM that can offer open surgery, laparoscopic, and robotically assisted. In an area where it tends to be partnerships. So people go with J&J or with Medtronic for the instrumentation, and they tend to stick to one of the two. So having that full offering is a big deal.

And so now we've started commercializing Hugo in the U.S. We've done the first installations, and we did the first procedure just before we had the earnings release and the outcome was very positive. And look, it's a great step forward. There's a second player in that area now, and we're excited about that. But I want to stress that it's -- we want to be very successful with our key partners with Hugo. So it's not about flooding the market as quickly as possible. It's about picking the customers that want what Hugo brings to the table because Hugo is differentiated. And we want them to be super happy with the outcome so that we continue to build on the partnerships that we've established over time.

Understood. And just under 5 minutes remaining, but I would love to hear kind of the perspective, the latest thoughts on Diabetes business and MiniMed and what that might mean just in terms of financial implications for the business?

Yes. So look, we're happy that we successfully completed the first phase of the separation of MiniMed. We had committed that we would separate the business by the end of calendar year '26, and I think now we made a significant first step there. Obviously, when we launched the IPO, we didn't know that the conflict in the Middle East would erupt. And so it did create some market disruption.

But at the end, we got a good deal. It's the second biggest MedTech IPO in history. And I think it's a testament to the turnaround that has been carried out in that business. It's got a great management team with Que as a leader. It's got a fantastic product roadmap ahead of it, which puts it in a position where it can really guarantee time in range for diabetic people in a very differentiated way. And so I think it's got a lot of runway. And we look forward to the second step of the transaction, which is the split. I think we should target sort of 6 months after the IPO, market conditions providing, and then we will have completely separated the business. It will be an accretive deal for Medtronic over time.

The impact on '27 depends on the timing of the split because the EPS accretion that you get is based on the number of shares -- share reduction that you get. So when we do the split, we exchange Medtronic shares for MiniMed shares; that reduces the number of Medtronic shares and, therefore, increases the EPS. But the number of shares is calculated on a 13-month rolling average. So you only get the full impact of the accretion after 13 months.

So in a way, the earlier we do it, the bigger impact we will see in '27. But at the end, this is about the strategic move that we're making, right? It will be accretive, but more importantly, it puts both Medtronic RemainCo and MiniMed in a position where both businesses will have their own capital allocation, their own investors, et cetera, and are poised to be successful. So yes, I think we're on track, and we're happy to see it move.

Understood. Well, we started the conversation on M&A, and I'd maybe love to wrap up there. So in terms of how you think about your appetite for business development, the size of the deals that you might be looking at moving forward -- is yesterday's Scientia deal a good way to think about what you might be interested in the near-term, what a larger deal might look like for you?

Yes. So as I said, Scientia is the perfect example. There's complementarity from a product perspective; from a commercial standpoint, we can help at one point, scale the manufacturing. And so there are a lot of synergies. And so that's the poster child of what we would be doing. Another example would be Affera. We had PulseSelect that was an organic development on one side and Affera, which was an acquisition, gave us 2 shots on goal. It turns out both of them are successful, which is great.

And so that's what we're looking for. Anything that can help us create ecosystems in our portfolio that make our products more sticky and accelerate our WAMGR, right? So that's kind of the -- those are the criteria for the type of business. And then from a financial perspective, we have high thresholds from a return perspective. And from a size standpoint, we're looking at medium-sized tuck-in. So basically kind of $3 billion to $4 billion max in terms of deal size, but around $1 billion to $3 billion is probably the sweet spot. But we'll also do venture investments for more upstream type of ventures, et cetera. But we're going back on offense, and it's great to see.

Understood. Well, certainly a lot to be excited about. I know we're up on time. Thank you so much for joining us, and thanks all for coming.

Yes. Thanks, everyone. Thank you.

Good morning. Thanks, everybody, for joining us. I'm very pleased to have with us this year, Medtronic and in particular, Thierry Pieton and who's CFO and EVP. My name is Matt Miksic. I cover U.S. medical devices. So thanks, Thierry.

Thanks for having me.

Yes, of course. Our pleasure. So I wanted to start with question that we're starting a lot of the sessions, not every session with is just the events of the last week. So maybe the 2 key questions are exposure to Middle East, to the extent you can put some shape or size around that and then potential implications, not so much of what we've seen in the last week, but if price of oil were to remain higher for longer and maybe drawing on the experience that you had in 2022 and how this might be similar or different?

Yes. So look, the Middle East region for us is kind of 2% to 3% of our overall revenue for the year. So it's a relatively minor portion. And I would say within that 2% to 3%, there's a large portion that's kind of health care necessary products. So we don't anticipate a large impact. What could have caused an impact would be logistics issues. So if you're unable to ship. But it feels like today, we've got a good grip on how to fix those.

So I would say, short term, we don't see a very large impact coming from the conflict from that perspective. On the price of oil, it's the sort of petroleum derivative content in terms of raw materials and our products is less than 1% of our cost base. So -- and we've got sort of contracts that are in place for the year to come, generally speaking, with productivity commitments, et cetera. So again, we don't foresee that as a strong negative. We did launch the IPO of the MiniMed business just before the conflict erupted, I want to say. And so the result is that there was some pressure on the pricing of the IPO.

That being said, we made a commitment from a strategic perspective to separate that business because we think strategically, both MiniMed and Medtronic are better off living their life separately and having their own investor base and having their own capital allocation, et cetera. So we had committed to getting the overall separation done by the end of calendar year '26.

And so we decided to move forward with the IPO within that context. And we're happy we did it. At the end, we got a good valuation for that business, and we're very confident in the way forward. And so we've set the first steps or path to completing that separation, and I think it's a very positive one.

Okay. That's helpful. So -- and back, just to clarify on the percent of your cost base, you're talking about the percent of your P&L or your percent of your COGS?

Percent of the cost.

Of COGS manufacturing. Got it.

Small portion.

Sure. No, that's helpful. And then shipping and logistics, any -- there were some rising shipping costs, much different situation in '22 because there was also componentry shortages and all kinds of other things that were making it more difficult to get parts globally to where they need to be. Any sense that extended period of time where shipping costs are more expensive?

No. Look, and again, shipping would be, again, a relatively minor portion of our cost base. But I think back in '22, the issue was accessing certain raw materials, and there's not really that problem in this case other than, again, petroleum-derived products, which is small for us.

So no, we don't anticipate a major impact from that. In the regions, there are several countries where we work for distributors. So we're able to make sure that they have the right level of inventory to be able to cope with some fluctuation in access from a logistics perspective. But at this stage, we're able to ship in the region.

Okay. And then finally, the timing, like things have to work their way through work in process and cost of goods and inventory. Is that if there were an effect now, would this be a '27 event?

It would be. I mean, typically, our inventory cycle is about 35 weeks, right? So it would take 7 or 8 months before we would see the impact in the income statement.

Got it. Okay. Well, we -- there's a limit to how much I can dig into the MiniMed transaction, given our involvement in that transaction. But I would ask from a Medtronic perspective, this wasn't sort of just to put that -- underscore the fact this wasn't a one-and-done event, right? So it priced at lower than was expected. But your -- the time frame for your divestiture, if you could talk about the second stage and the benefits that you expect to.

Yes. So look, so first, again, the main rationale behind the deal is, first and foremost, a strategic one, right? It's about focused capital allocation, and it's about making sure that these 2 businesses are going to be as successful as possible on their own. And I think clearly, MiniMed is B2C. Most of the rest of Medtronic is B2B.

The margin levels are pretty significantly different. So MiniMed represented about or represents about 7% of our revenue, but kind of 3% of our EBIT. So it's less profitable than the rest of the business. The R&D intensity in MiniMed is a lot higher than in the rest of Medtronic. As a percentage of revenue, it's about twice the spend of the rest of the portfolio.

So it's a relatively minor part of our business that took a significant portion of our capital and of management attention. And so the decision was made to separate and all those criteria remain obviously completely the same. So the path going forward is -- so we just did an IPO on 10% of the capital. If we were to exercise or if the underwriters were to exercise the green shoots, that would go up to something north of 11%.

The big part of the deal is the second part, which is the split of about 90%. So what's going to happen there is we will offer the option for Medtronic shareholders to either keep their Medtronic shares or opt for a conversion into MiniMed shares with a discount to incentivize them. And so the intent is to do this. I would say, I would target roughly 6 months from the IPO from an ideal timing perspective. The result of that will be that we'll have a share count reduction as people convert from Medtronic stock to MiniMed stock. It will mechanically reduce the number of shares that Medtronic has, which will mechanically increase the EPS.

And so net-net, we view this as an accretive deal for Medtronic shareholders. And again, it gives access to MiniMed to its own capital, to its own shareholder base and investors, et cetera, and enables us to redeploy a portion of the investment and a portion of the capital towards elements of the portfolio where we have an even stronger right to win and better economics, candidly.

Okay. And obviously, it's a slightly -- it's growing a little faster than corporate average at the moment. So maybe talk about some of the commitments that you've made, preliminary commitments for 2027 in terms of driving leverage to the operating line, leverage to the bottom line and how we can get into and then maybe the first part of the question because there's a lot. And then we'll get into how the composition of your other growth programs can kind of get you to where you want to be on the top line. But first in the leverage part.

So look, first, the impact of the deconsolidation of MiniMed. So MiniMed will be deconsolidated once we complete the second stage, right? So the split. When we made the announcement of the deal, the calculation that we had made was that MiniMed was contributing about 40 basis points of growth for Medtronic, which is less than CAS and less than what we expect from a number of the other growth drivers, which we'll talk about later.

Since then, the growth has accelerated for Medtronic. So you've seen the growth profile get better and better. We were at about 5.5% in the second quarter. We did 6% growth in the fourth quarter. In the third quarter, fourth quarter seems similar. And so we're on an acceleration path. So if you look at the algorithm going into '27, growth is going to continue to accelerate.

So I made this comment in the 3Q earnings call. We expect the organic growth in fiscal year '27 to be higher than the organic growth in fiscal year '26. And that's even excluding the effect of the 53rd week because I know I've had a lot of questions. So on an apples-to-apples basis, you will see an acceleration of growth. We expect the gross margin profile to improve. The things that are hiding the operational improvements that we're making in gross margin today are basically the negative mix coming from MiniMed, and that will solve itself with the split.

And we're seeing mix pressure coming from the growth in the cardiac ablation systems part of the business, which will get better towards the second half of fiscal year '27 with the mix between capital equipment and the catheters starting to go more towards the catheters. So a lot of the improvements that we've made in net cost out in pricing, et cetera, will start showing up in the gross margin. Then if you keep going down the P&L, we've said that we will continue to increase R&D as a percentage of sales. And we'll keep doing that in '27, but we will reinvest only a portion of the leverage that we're getting from the volume growth into the R&D spend, right?

And then on the SG&A line, we'll continue to fund the growth areas. So we'll fund CAS and we'll fund Ardian and we'll fund Altviva and Hugo, et cetera, to capitalize on these big opportunities. But net-net, the leverage that we can get on the G&A line, which is really the functional cost will more than offset the resources that we're putting on the sales and marketing side.

So net-net, we expect SG&A to provide some leverage going into fiscal year '27. So op profit should look better. Below the line, tax will be more or less the same, slightly worse, but we're kind of stabilizing the tax line. On the interest side, we've got a bit of pressure like a lot of the peers coming from the fact that we're refinancing debt that was almost at 0% with debt that's at 3% to 4%. But all things being equal, that puts us in a position to have some EPS leverage going into '27. And then we've got a number of moving parts, right, which I alluded to in the 3Q call. So we will have carryover from tariffs.

So this year, tariffs were about $185 million. We forecast about $300 million going into fiscal year '27, so $100 million to $120 million of carryover. We will have some dilution coming from the M&A activity that we're doing. You probably saw this morning the announcement on Scientia. We've embedded some pressure coming from the period between the IPO and the split on the diabetes deal because a lot of the benefit from the split of diabetes comes from the share count reduction, and that's calculated on a 13-week rolling average.

So we will see that benefit and the deal will be accretive, but it will come gradually after the split. And on the flip side, we'll have a benefit from the 53rd week that we have, which is something that happens every 7 years for Medtronic. Net-net, including all of this, we're committed to high single-digit EPS growth. So that's kind of the algorithm for us.

Okay. Well, then there's a lot in there. And one of the things I think that surprised folks was given the strength in CAS, and of course, you have Altaviva, you've got Ardian, which continues to ramp. You've got other growth programs. But just given the strength in CAS and the comps that folks are anticipating for next year, the concern was, well, how can you grow faster? So maybe there's a few things that are different about the way CAS is growing for Medtronic than, for example, the way CAS grew for Boston.

And I think it has to do with the sort of account wins on the mapping side as well as on the catheter side. So maybe talk about like how has that been, how has that maybe tempered your growth as strong as it's been? And how does that sort of help you drive more sustainable high growth over the next 12, 18 months?

Look, we're -- so first of all, we're the fastest-growing franchise in this incredibly attractive market. And so we're thrilled with that. It's a fantastic franchise. It's dilutive at gross margin, but it's super accretive at the operating margin level.

So we're happy with it. I think what puts us in a different spot is kind of the product portfolio that we've got. We've got PulseSelect single shot, very competitive product. Then we've got Sphere-9. The big advantage of Sphere-9 is that it's dual energy. So it's RF and PFA, and it includes the mapping.

So for a physician, you don't know how all of the procedure is going to go when you started. So having a catheter that enables you to do the mapping, to do the PFA, but also to do some RF if you need to in the procedure is a big differentiator. The alternative is to do the mapping with one catheter, pull it out, do a PFA ablation. And then if that's not sufficient, put it out again and put a third catheter.

So it's not great, it's not as good for the patient. It's not as good for the hospital economics because it's more expensive. It's not as good from a procedure time perspective. And our data says that in the case of Sphere 9, 50% to 60% of the cases that are being done are dual energy. So the physician is having to use both PFA and RF. So it's just a massive differentiator. And originally, we got some comments on, is this a niche product for high-end procedures.

And clearly, the experience of the physicians is that it's not. It's a workhorse that you use when you don't know what the outcome of the procedure is going to be. And then on top of that, we're about to -- we've just received CE Mark for Sphere-360, which is the next-generation single shot. It reduces significantly the procedure time even versus Sphere-9. We started the clinical trials in the U.S. So we should be able to commercialize that product in about 18 months from now.

We're continuing to expand the usage of Sphere-9. We're launching it in Japan. We're looking at expanding indications to VT. So we're in absolute sort of growth mode for this business. And we're really -- we really feel like we're at the beginning of the growth for this franchise. So we're super excited about the perspective. And clearly, our ambition is to take the lead in this market. And in the third quarter alone, we took 4 points of market share. So we're super excited about the franchise.

Okay. No, it's been a huge, huge win and -- but still constrained. So maybe talk a little bit about some of -- what are the -- not to make a big sort of negative point about it, but the reality is there are some hoops and hurdles that you need to go through to get a new center up and running, let's say, just using another catheter on a biosensor and Abbott system don't face. So maybe talk a little bit about.

Yes. So first, at the beginning, the bottleneck was supply chain and was the production of the catheters. It's 100% fixed. We have ample capacity to respond to the demand. The second, I would say, topic that you need to address is the mappers because you have a mapper that's physically present during the procedures. And since we're growing very, very fast, we're having to hire a lot of mappers. And a large number of those mappers require training.

Typically, it takes a few months before they're fully operational on our products. But again, there, we're on track. So we've hired hundreds of mappers since -- over the last couple of years, I would say, but most importantly, in fiscal year '26, and we'll continue to do that. And so we're in a position to continue to grow the franchise.

Now if you look at the market, today, about 70% of our revenue is coming from 30% of the centers, which are the big established centers. And we feel like we still have a large opportunity to grow in these large centers. Because typically, they have one piece of equipment today, and they're looking to add the second one and the third one. So there's still significant opportunity to grow with the large centers. But now we're starting to look at smaller accounts as well.

And so again, large opportunity to continue to grow from a commercial perspective. And even in the ASCs, which it will take time, but it will, I think, become a larger portion of the market over time. We've got a perfect catheter for them, which is PulseSelect with great economics. So I think that the product range that we've got with Sphere-9 and PulseSelect today and shortly with 360 really puts us in a position where we can address the different parts of the market.

So we could spend another hour talking about cast, but we don't have another hour. But just lastly, on mappers. I think investors and we sometimes think about this as, okay, so it's hard to hire experienced mappers. Some of your competitors are doing their best to lock down those resources and retain them. But I would imagine and what we've gathered is like the ability to hire isn't a constant.

It's changed, right, over time, just as Medtronic has gotten recognition for the success and the adoption and the growth in Affera has recognized in the community. So maybe talk a little bit about is the ability to -- for people looking to join this team improving?

Yes. Look, if you're a mapper, you want to go where there's business. So your salary is going to depend on the number of procedures that you're able to carry out on a weekly basis, et cetera.

So right now, the mappers to want to come to Medtronic. And we know the competition is trying to do retention, et cetera. But look, we're on track. For sure, the mix between experienced mappers and less experienced mappers is gradually going to shift. And we've incorporated that in the way we do the training and the way we do the onboarding. So we pair the less experienced mappers with the more experienced ones, et cetera. But whereas it's an important topic and the team is very focused on it, we don't see this as a roadblock going forward.

Okay. Just a quick one on really important programs, Hugo and RDN in a couple of minutes we have left. So there's different opinions on both. Maybe talk about maybe most importantly, when and how will investors begin to see the sort of the positive benefits either to growth or to size or however you're going to be able to communicate about those businesses? Is that in calendar '27, we'll be talking about those?

Maybe color on when we start to see them moving.

Yes. So Ardian, short answer is yes, there will be impact on '27. I think it's relatively limited still for Q4. So we're not reliant on a large pickup for Ardian in the fourth quarter of this year, but it will start having an impact in fiscal year '27.

Look, it's a huge opportunity. Even yesterday at CRT, I think a lot of you might have seen the comments from the physicians everyone is super optimistic about the number of cases building. But it's a new franchise. So you need to set up the hypertension centers. You need to sort of build the referral pathways between the consumers that want to undergo the procedures and where the physicians actually are.

One of the hurdles is getting through the first reimbursement. So what we're seeing is when a physician has done successfully a case and gotten the reimbursement, then the second one and the third one tend to come quicker. And we're going through that buildup. And look, it's -- again, it's an 18 million patient pool.

So 1% of that multiplied by the price of the catheter, which is around $15,000 or $16,000 is a very significant opportunity for us. It's a good margin business. So it's a great franchise. And again, you'll start seeing the impact going into fiscal year '27. Hugo, look, we just got the FDA approval in the U.S. last -- at the end of last quarter. The U.S. is 90% of the global market. So it's a massive open door for us now. We did the first procedures at Cleveland just before the earnings and the way the product is received is very positive. There's someone else in that market now.

Noticed.

If someone has approval and can start selling an alternative. So we're looking forward to it. I will say, though, that it's a huge opportunity for us. So we want to get it right. So the first -- the approach is really to select the right customers, do the installation and the setup of the system in an optimal fashion so that there's perfect sort of customer satisfaction.

Our goal is to be the only OEM that can do open surgery, laparoscopic and robotic surgery. It's super important for our customers because they want to have that full solution. And now we're able to do it. And so we're in setup mode and starting to do the first installations. We'll take our time, but it's a big opportunity.

Okay. And the compulsion is, of course, to count boxes and talk about systems and things like that. But is the right way to think about this as entering a segment, entering an indication, if you will, within surgery that's going to show up as improvements in the overall Advanced Surgery business. Is that the right way?

It will help for sure, especially as we expand the indications. So today, it's mostly urology. We'll go to gyne and then we'll go to hernia and then general surgery. And our goal is to improve the coverage with these key accounts. And as this happens, you'll start seeing the effect in the financials.

Exciting times.

It is. Yes.

Well, thanks so much for taking the time.

Thank you. Appreciate it.

I'll leave it there.

Thanks very much.

Thank you.

[Audio Gap]

beyond cash, we're also making material progress with Simplicity Spiral for hypertension and Ulta Viva for urge urinary incontinence. Symplicity delivers a onetime durable minimally invasive treatment for hypertension and represents one of our largest growth drivers. Now this is going to be a contributor for years to come given the 18 million U.S. patients with uncontrolled hypertension. We're seeing strong patient outcomes in the field and the already in value proposition, it resonates with both physicians and patients.

Now we've got strong and growing clinical data, a broad label and expanding reimbursement all in hand Look, we've built the foundation. Now we're focused on growing this new segment and transforming the hypertension treatment paradigm.

We've recently activated our direct-to-consumer Go Beyond campaign in key markets around the U.S., which is resulting in a 50x increase in website visits versus the prior quarter. So a lot of interest coming in from patients. Building a new market, it does take time, but that is something Medtronic knows how to do exceptionally well. And in parallel to building out this new market, we're innovating for the long term. First, with our Transradial Catheter, which is on track to launch in the second half of fiscal year '27 and with our Spiral Gemini trial evaluating multi-organ ablation to further boost efficacy.

Now similarly, we are scaling Altaviva, our tibial neurostimulation device. Altaviva is a simple yet transformational option for treating urge urinary incontinence, which is a condition that affects 1 million people in the U.S. Altaviva is a very small device that requires no imaging, no sedation, activates the same day, is MRI ready and offers up to 15 years of battery life, the longest in its category. Again, we are receiving great early interest and feedback from both physicians and patients. And we are training doctors. We're educating and supporting hospital staff and investing in omnichannel consumer activation.

Look, it's early days for both of these launches, and we are focused on disciplined execution to convert early traction into procedures.

Now pivoting to Hugo. This quarter, our Hugo robot received FDA clearance for urologic surgical procedures, enabling us to begin our purposeful U.S. launch. And today, I'm excited to share that we've already completed our first installations and initial cases. As noted in our release this morning, last week, we completed our first cases at Cleveland Clinic, where surgeons echoed the strong feedback we continuously receive on Hugo's differentiation across multiple areas. This includes its flexibility, portability, open console and of course, our trusted instrumentation. Hugo is especially compelling when paired with our Touch Surgery Digital Ecosystem, an AI-powered data connectivity and analytics technology that is unique to Medtronic. This quarter, Touch Surgery installations increased over 20% sequentially and have now surpassed 1,000 systems globally.

Further, we continue to evolve our Hugo system with the fourth-generation software release and continuous system improvements. We are planning to expand into additional indications in the U.S. like hernia, part of our broader general surgery indication where this system really shines. Customers value. I mean they really value having a partner that spans the full continuum of surgical care. And Medtronic is the only company that has approved offerings across open, laparoscopic and robotic-assisted surgeries, which matters as hospitals build and expand their surgical practices.

Now we are thrilled with these 4 generational growth drivers, but our innovation pipeline is far broader. And we are committed to driving sustained innovation across our portfolio and advancing a steady cadence of new technologies across high need, high-growth categories, where we are well positioned, like MMA, carotid stenting, thrombectomy, coronary DCB, cardiac rhythm management, spine surgery as well as many others.

And to that point, I am extremely excited to highlight a major milestone in our Neuroscience business. Just last week, we secured FDA clearance for our Stealth AXiS surgical system for spinal procedures. Stealth AXiS is a new transformative platform that unifies AI-powered planning, robotics and navigation into 1 seamless system, elevated by the entire able ecosystem. Stealth AXiS was designed around navigation, which is paramount to surgeons workflow in the OR. Today, navigation, which we pioneered and we lead, drives 70% of U.S. spine procedures. And really, it just dictates the workflow in the spine OR. So Stealth is really 2 things. It's about taking share as a new platform with improved functionality, and it brings down barriers for physicians to step into robotics without disrupting their workflow.

Now building on our 10,000 unit installed base, we are expanding and opening this segment and extending our leadership, and we're not stopping at spine. We anticipate pursuing future cranial and ENT indications for Stealth AXiS. This is an important driver for our CST business and an exciting step forward to improve precision, predictability and personalization of care.

And we're executing our M&A strategy as well with the Cat Works acquisition and CRDN, and we continue to build out our venture and minority investment portfolio with the Enteris investment in structural heart. Both transactions underscore our long-term strategy to digitize, enable and build effective and efficient ecosystems within our core markets.

So before I turn it over to Thierry to walk through the details of our business performance, our financials and the guidance, I would like to close with the following remarks. At Medtronic, we are translating the breadth and the depth of innovation across the portfolio into durable growth. We have businesses at different stages of their growth journey, but the cadence of innovation across our portfolio suggests a steadily improving growth outlook for total Medtronic. We have businesses that are executing exceptionally well today and are positioned to be meaningful contributors for a very long time. This includes CAS its strong PFA pipeline, CST with Stealth my, and of course, CRM, a large and steady growth engine with meaningful innovation in defibrillation, in leadless and in conduction system pacing. We have businesses where the pipeline is now just activating, where we have clear line of sight to meaningful tangible opportunities that will enhance growth from CRDN with the ramp of Simplicity, pelvic health with Altaviva, peripheral vascular health with NeuroGuard and Libero and neurovascular with innovation like Artis, Neurogard and expanding indication for Onex into MMAE, and surgical, where the launch of Hugo in the U.S. is just beginning. These are all real drivers with tangible reasons for improvement and the potential to impact growth in the coming quarters and years.

We also have areas where there is work to do, and we have defined plans underway like in structural heart, where we're taking specific actions to fill out the portfolio and improve the trajectory. So with strong contributors delivering today, business is on the cusp of step change improvement and segments where we're taking deliberate actions to strengthen long-term competitiveness, we are confident in our ability to deliver durably.

So with that, I'll turn it over to Thierry to walk through the details of our business performance. So over to you, Thierry.

Thanks, Geoff, and hi, everyone. I appreciate all of you joining today. Let's start with our Cardiovascular portfolio, where this quarter, we delivered 11% year-over-year revenue growth, with 13% growth in the U.S. This represents the strongest growth we've seen in cardiovascular in the last 10 years, excluding COVID comps.

CAS grew 80% year-over-year, with PFA accounting for 80% of that revenue. Beyond CAS, the remainder of the cardiovascular portfolio delivered combined mid-single-digit growth.

Cardiac Rhythm Management also had a strong quarter. CRM continued to contribute 15% of our total revenue, and it grew a healthy 5%. This was primarily driven by continued double-digit growth in Micra, mid-teens growth in 3830 CSP lead and over 70% growth in Aurora EV ICD. In peripheral vascular health, we posted high single-digit growth driven by broad strength across our endovenous portfolio. We look forward to the continued launch of NeuUrOGARD-IAP carotid stent and the full market release of our Librac mechanical thrombectomy system.

In structural heart, Q3 was a little softer as expected and grew low single digits. We had a stronger quarter internationally and continue to gain share in Europe. This was partially offset in the U.S. where we annualized our Evolut FX Plus launch and saw some competitive pressure.

I'll now pivot to our Neuroscience portfolio, which grew 3%. Growth was a little below our expectations this quarter, but Neuroscience is also where we have 1 of our broadest pipelines and some of our most exciting opportunities. Importantly, we expect that pipeline to begin impacting growth in the fourth quarter.

Cranial and Spinal Technologies continues to be a powerful engine for Medtronic. This large business delivered mid-single-digit growth, including 8% growth from strong pull-through in core spine. We're excited to offer customers our new navigation and robotics platform, Stealth AXiS, which Geoff just mentioned. With FDA clearance achieved, we expect to see Stealth AXiS contribute Neurosurgery and CST overall as soon as the fourth quarter.

Specialty Therapies delivered flat results in the third quarter. This is an area where we expect improved performance in the coming quarters given the series of new product developments. Neurovascular has been challenged over the last quarters due to China VBP and to the recall of Vantage, both of which are now mostly behind us. We also have line of sight to a higher level of growth from the contribution of Onex's expanded indication. The NeuroGuard carotid stent launch will also contribute as it's being commercialized by both our Neurovascular and Peripheral Vascular businesses.

In Pelvic Health, we saw a slightly softer sacral nerve stimulation market environment, but look forward to seeing the increased contribution from Altaviva.

In Neuromodulation, we grew 4%, driven by the continued rollout of our differentiated, fully closed-loop technologies, in septive SCS and brain sends ADS.

Next, our Med Search portfolio grew 3% ahead of expectations. First, endoscopy and ACM had strong quarters. Endoscopy revenue grew 10%, led by mid-teens growth in our esophageal portfolio, driven by Next Powder and strong market adoption of Endoflip 300.

Acute care and monitoring saw a 7% growth, led by strength in blood oxygen management and airway access. And finally, our Surgical business grew by 1%. We saw strength in energy and wound management and hernia with expected softness in stapling. The next phase of growth for this business is the rollout of Hugo, and we're thrilled to see our first installations and first cases so swiftly after the U.S. launch.

Wrapping up our business performance is MiniMed, our diabetes business, which delivered 15% reported and over 8% organic growth. Performance was led by double-digit strength in international markets, but we also saw acceleration in the U.S. with strong sequential lift driven by Simplera Sync and Instinct, which both just launched in December. Our Diabetes business continues its strong innovation cycle, supported by multiple recent regulatory and pipeline milestones.

In addition to introducing Instinct and Simplera to the market, we secured several FDA clearances that further expands 780G's indications. We also announced that 780G system is now available through pharmacy with agreements that cover the majority of commercially insured lives in the U.S. And we submitted MiniMed Flex to the U.S. FDA and began the U.S. pivotal study for Vivera, our third-generation fully closed loop algorithm, which we believe will help maintain our leadership in delivering industry-leading outcomes. Finally, our MiniMed Fit patch pump remains on track, and we intend to submit it to the U.S. FDA by this fall. The planned separation of MiniMed is perfectly on track. Our preferred path continues to be a 2-step, IPO and split. We continue to expect the separation to be complete by the end of calendar year '26.

Now turning to the financials. This quarter, revenue of $9 billion grew 8.7% reported and 6% organic, a 50-basis-point acceleration from prior quarter and 50 basis points above our guidance. Geographically, this performance was balanced, led by high single-digit growth in Western Europe, with mid-single-digit growth across the U.S. and Japan. U.S. growth was 6% year-over-year, the strongest performance we've delivered since fiscal year 2019, excluding COVID compns.

In China, we delivered low single-digit growth while navigating ongoing but manageable volume-based procurement in a few businesses. Excluding DBP, our growth rate in China was mid-single digit.

Our adjusted gross margin was 64.9%, ahead of expectations. As I've done in the last several quarters, let me walk you through the rough breakout of the components. We realized 30 basis points of benefit from pricing. Net of inflation, cost down was negative 20 basis points as the third quarter is typically our lowest quarter for generating cost efficiency savings, and we had some prior year nonrecurring items. Mix was negative 100 basis points, mostly driven by CAS and Diabetes. As discussed in prior disclosures, with CAS in the early stages of launch, this business is currently impacted by the mix of lower margin capital to higher-margin catheters, and Diabetes is in the -- in its early manufacturing ramp-up of Simplera.

Over time, as you know, we expect this mix dynamic to improve as we scale CAS and separate the diabetes business.

Tariffs impacted the business $93 million or 110 basis points, in line with forecast. And finally, foreign exchange provided an approximate 40 basis points tailwind.

Adjusted R&D was 8% of revenue and increased 7.4%. On an organic basis, this outpaced revenue by 50 basis points. Our adjusted SG&A was 32.3% of revenue, which is 30 basis points lower than the third quarter of last year. We continue to fuel our PFA launch and develop and build the markets for Simplicity, Altaviva and HUGO, but at the same time, we delivered disciplined leverage in G&A.

Our adjusted operating profit was $2.2 billion, resulting in an adjusted operating margin of 24.1% ahead of expectations again.

Our adjusted tax rate was 17.3%, about 100 basis points higher than forecast, largely due to jurisdictional mix of profits.

All in all, adjusted EPS was $1.36, and $0.03 above the midpoint of our guidance range.

Now turning to guidance. On the top line, we're reiterating fiscal '26 organic revenue growth guidance of approximately 5.5%. In the fourth quarter, we expect revenue growth similar to Q3, so around 6% off a stronger Q4 '25 comp.

Moving down the P&L, we expect our fiscal '26 gross margin to increase slightly ex tariffs. Pricing, FX and COGS efficiency programs are expected to more than offset the negative impacts of business mix, primarily from CAS and Diabetes. We anticipate a tariff impact to COGS of approximately $185 million, including $75 million in the fourth quarter.

Including tariffs, we expect fiscal 2016 gross margin decrease of roughly 30 basis points. We expect fiscal '26 adjusted operating profit to grow approximately 5% or 7% excluding tariffs. Our fiscal 2016 operating margin is expected to be roughly flat, excluding tariffs, and down about 50 basis points, including the tariff impact.

In totality, we expect these results to deliver gross margin and operating margin leverage ex tariffs in the second half of the fiscal year '26 as we stated last quarter.

Turning to EPS. This quarter, we saw a beat of $0.03. This was largely due to a slightly better-than-expected revenue in the quarter, mainly from CRM and ACM. This was partially offset by the aforementioned tax pressure that we saw in the quarter. As we expect CRM and ACM to normalize and the tax pressure to carry into Q4, we are maintaining our fiscal '26 EPS guidance in the range of $5.62 to $5.66.

Look, we're excited about the quarter, and we think Q4 is going to be another robust quarter and that we will sustain our growth at a high level and into the next year. We're making progress on margin expansion, and the negative mix effect from CAS and Diabetes are going to get better. We're going to continue to invest in growth areas like R&D, sales and marketing and M&A to capitalize on the opportunities ahead of us. And we will also continue to drive efficiency in functional areas.

All told, we are committed to our guidance, and we maintain our expectation for high single-digit EPS growth in fiscal year '27.

Back to you, Geoff.

Okay. Thanks, Thierry. Now before we go to Q&A, let me close with a few final thoughts. So we're encouraged by the progress across the business, as Thierry just said, and we remain committed to stronger, durable revenue and earnings growth. Our PFA trajectory is strong, and we're progressing on multiple billion-dollar opportunities. We're reinforcing our future pipeline, and we're committed to organic and inorganic investment to further bolster the portfolio. Bottom line, we are delivering.

Now to our Medtronic colleagues around the world, thank you for your unwavering commitment to our mission and to the patients we serve. You are delivering for customers and for patients, and you're turning our strategy into performance. So thank you.

With that, let's turn to Q&A. So first, Ingrid, welcome to your first earnings call. And now can you please provide the instructions and queue up the analysts.

[Operator Instructions] We'll take our first question from Travis Steed at Bank of America.

First, I'll start on just the comments on accelerating revenue growth next year and growing earnings, high single digits. When you think about CAS obviously -- can you hear me okay? Can you hear me okay?

There we go.

Yes.

Okay. I just wanted to ask about the accelerating revenue growth for next year and also the the commitment to grow earnings in high single digits. I guess when you think about the overall portfolio, obviously, CAS is starting to hit tougher comps and this quarter, surgical is only growing 1%. So just trying to think about how you get that business accelerating with Hugo and just like the commitment to be able to deliver on the commitments that you've kind of laid out for FY '27?

Well, thanks, Travis, for the question. I'll give it a start and then hand it over to Thierry. I mean, look, on the top line, obviously, as you mentioned, we had a really strong quarter with CAS. We still -- we think that growth is going to continue and become a larger part of the company, obviously. We're well positioned there. And then we -- our other big growth drivers, particularly Simplicity for hypertension and Altaviva for overactive bladder, we see them beginning to kick in here even in Q4. And then you've got a number of other businesses here that are going to start growing faster than they have been here recently. One is CST with the Stealth AXiS. I'm sure we'll get some questions on that. But I do think this is kind of underappreciated, quite frankly, by the Street. This is not just a new robot. It's not just an extension of [indiscernible], it's a whole new platform that has a lot of benefits to it, and I think that's going to create growth for the short and long term for CST.

And then Neurovascular is going to kick up as well. Neurovascular has got a number of new products like the Onyx indication for MMAE as well as our carotid stenting product NeuroGuard. And then it's anniversaries, BBP and a few other things. So you're going to see a kickup in neurovascular as well. So I think we feel good about the growth continuing here out not just in Q4, but into FY '27.

Yes. And on the EPS side, so as I mentioned in the comments, the algorithm is clear, right? So we have the accelerated growth. The things are getting better at the gross margin level, in particular, in the second half, as we'll see the mix effect from CAS getting better and the separation of Diabetes. We'll continue to drive the leverage on the functional areas, in particular, in G&A. And we'll then continue to invest in R&D and in M&A. So we're reiterating the high single-digit EPS growth guidance for '27.

We do have a couple of meaningful puts and takes in the number next year. And as we're getting more visibility, we'll keep you posted on what the impacts are. But to name a few, so we'll have the carryover from the tariffs settlement going into next year. This year, we had about 2.5 quarters of tariffs, and that will carry over into the full year. I think the way to think about that is about $75 million per quarter. So on a full year basis, it means around $300 million of our headwind versus the $185 million we had in -- what we're having in '26.

We'll have a little bit of help from the fact that there's 53 weeks in fiscal year '27 as opposed to 52 usually. And then the Diabetes deal, we fully expect the deal to be accretive. But between the moment we do the IPO and the moment we do the split, you should expect some dilution to the tune of $0.01 to $0.02 per month. The reason behind that is that most of the stock -- the Medtronic stock retirement that we will do that drives the accretion happens only upon the separation. And so we'll see the accretion later. But initially, we've got a little bit of pressure coming from that.

And we've also embedded in the guidance $0.04 to $0.05 of dilution coming from M&A activity. So we've already announced Cath Works and Antares. And so we've embedded that in the guidance. So it's all in as we get more visibility to the timing of Diabetes and the closing of the M&A deals, we'll give you more specifics on the different impacts in the Q4 release. But as you can see, we're committed to the growth acceleration. We're committed to the investment with M&A and with R&D, and we're committed to the guidance.

Yes. And just on [indiscernible] acceleration. Go ahead, Travis.

There's an extra selling week next year. Is that -- is the growth acceleration excluding the extra selling day?

So that will be part of it. That will be part of it. And again, we'll give you the details of the impact as we go into the Q4 announcement.

When I think about the growth acceleration, you mentioned cash in Q3. I mean beyond cash, you saw our CRM business and our Peripheral Vascular Health business, both step up in Q4, like I said and beyond, CS -- think about CST and neurovascular starting to accelerate. And then as you get into FY '27, that's when the Ardian and Altaviva really kick in and also Hugo. So we feel good about that acceleration.

Our next question comes from Vijay Kumar at Evercore Vijay.

Geoff, congrats on a nice spin. I had 1 product question and 1 clarification on the guidance. On the product, you mentioned already in [indiscernible] and Altaviva, those will be growth accelerators in fiscal '26. How should we monitor the progress? Are there any goalposts that we can look forward to in tracking the launch curves for RDN and Altaviva?

It's a good question. I think we'll start to lay out more concrete goal posts as we go forward. Right now, we've been talking a lot about the leading indicators that we're seeing with both, and we're seeing really strong leading indicators like with Altaviva, we talked about training 500-plus physicians. You have strong demand, training 500-plus physicians. And like I said last quarter, I mean, these are -- this is over the weekend often traveling. It just shows the commitment here.

And then things like in renal denervation, I'd say it's things like the opening of new accounts. Like this quarter, we opened 200 -- over 200 new accounts, our physician finders up to 150 physicians. And remember, that's a low -- it's a high bar to get in. You have to do 5 cases and plus opt-in. So there's a lot more physicians doing cases today. And we'll continue to track like the covered lives, like for Ardian. We're already up to like 100 million covered lives. It's about 1/3 of the population here in the U.S. So those are all leading indicators, and we'll start putting more other, as you put, goalpost out there as this starts to mature a little bit, both of these launches. I don't know if you have anything to add to that, Thierry?

No.

Great. And just 1 clarification on the extra week Geoff, we're looking at exit rates of 6% organic, right? And let's assume next year is north of 6%. The extra week is almost 2 points of growth. So are we looking at base organic excluding extra week somewhere in the 5%-ish range or any thoughts on how to think about extra week contribution?

So maybe I'll take that one, and thanks for the question. Look, first, it's a little bit less than 2 points of full growth. And again, we'll give you the specific calculations as we close the year, but the way to think of it is that there's going to be growth acceleration, excluding the extra week, right? So it should be upside. So we should have better growth than we have in fiscal year '26, in '27 and the extra week should be on top of that.

that clear, Vijay?

Crystal clear, yes.

And our next question comes from Larry Biegelsen at Wells Fargo.

Geoff, I wanted to ask about cash and your growth continued to accelerate this quarter to 80% worldwide, which implies the worldwide EP market grew about 20% in calendar year Q4. So my question is, how are you thinking about the EP market growth in calendar year '26, and your CAS growth going forward now that you're lapping the Affera U.S. launch? I think to achieve the trailing 12-month $2 billion goal, it looks like your CAS growth has to kind of sustain about 80% in the next 2 quarters. Is that directionally accurate?

Well, first, I'd say you're -- we agree with you on the market growth in our fiscal Q3 or Q4 here of around 20%. And we think the market will continue to be like that in the near term. And for our fiscal '27, we think it's going to be at least high teens and thereafter, a strong double-digit market. So we see the market growth continuing, and then we believe we're really well positioned with our portfolio of catheters that we have as well as mapping.

In terms of our business growth, we do see it sustaining here in Q4, and we haven't provided guidance beyond that. But again, I'd like to say, I think we're very well positioned here. When you look at the 4 players in PFA, I think we got 2 that are really, their value proposition right now is setting around mapping. And we feel like we're very well positioned against them because we still think the catheter carries the day, and we have integrated mapping. And then when you look at our competitor that's really their value proposition centers around catheters, we believe we have a better portfolio of catheters.

Our Sphere-9 has, like I said in the commentary, proven to be quite versatile. And I know initially, our competitor here did a pretty good job of putting out a narrative that Sphere-9 was more of a niche. And I think as that's gotten out there, that's proven not to be true as it's being used in across persistent and paroxysmal. It's new cases, redos. It's simple versus complex. It's being used across the board. And then we've got SER-360 got CE marked and it's a single shot catheter. And again, that's probably the one catheter that's got more excitement than Sphere-9, and we started the U.S. trial. And then, of course, we're going to have mapping upgrades on a regular basis.

So feeling pretty good about our position today as well as tomorrow. And like I said, the underlying markets were really strong.

Our next question comes from Patrick Wood at Morgan Stanley.

I'll keep it to one, just given there's so much going on. Obviously, the [indiscernible] deals. I know you were close to [indiscernible] for a long time. How are we thinking about capital allocation and M&A? There's a lot of other companies doing very large deals in the space. I'm just trying to work out directionally, do you guys feel still more that it's kind of bolt-on M&A, technology tuck-ins, that kind of things relative to larger deals? And how are you thinking about capital allocation going forward?

Well, thanks for the question, Patrick. And like as we've stated, we're very committed to accelerating M&A, and you're starting to see that with Cathworks and [indiscernible]. And again, it's very focused tied to our strategy venture investments that might lead to -- ultimately to M&A and then M&A. And we are focused on more like what we would define as tuck-in deals. They can get up to several billion dollars. But tuck-in, in or a close adjacency to our existing business and a number of them though. I mean that's the other thing. I think it's a fairly meaningful amount of capital among several different tuck-in venture and tuck-in opportunities across our portfolio. Again, prioritizing maybe the higher growth areas, and in some cases, maybe having multiple shots on goal, like we did with [indiscernible] ablation, right? We've done an organic program. We went out and got Affera. We may see us do that again in some of these high-growth really must-win markets where, but that's how I would say, a tuck-in across many of our different segments and subsegments as well as venture.

So Robbie Marcus from JP Morgan will be our next question.

Great. Can you hear me okay?

Yes.

Yes.

Great. Two for me. Maybe I'll ask them just as one. Jeff or maybe Thierry. As you think about the fiscal '27 guidance and especially, I imagine you'll have you go in renal denervation and tibial spend to support those launches and continued investment in CAS, how do you think about getting to the high single-digit EPS growth? If you could give us some high-level drivers there?

And then second part, the Street is sitting at 8.5% EPS growth. I know traditionally, you do something like 6.5% to 9.4% as high single. Do you think the Street at 8.5%, is that a good midpoint of the range to start here?

Robbie, thanks for the question. So again, on EPS, the high-level drivers. We talked about the accelerated growth. And obviously, that's going to help from a leverage standpoint. If you look at the gross margin line, what you've seen so far is operational improvements in pricing and cost out that have been offset by the mix effects on CAS and Diabetes, and as I've stated a couple of times already, those are going to get better. So the CAS improvement comes from the mix shifting towards more catheters and less capital equipment, which will help from a margin perspective. And then on the Diabetes side, it comes from the separation, right? So Diabetes has a lower gross margin rate than the rest of the business. And so once that business go away, it will give us a natural lift from a gross margin perspective.

If you start looking at overhead, look, we're going to continue to lean into R&D and sales and marketing to develop the franchises that you mentioned. So we're putting resources in Ardian. We're putting resources in CAS. We're hiring the mappers that are necessary. We're doing the direct-to-consumer marketing on -- in particular, on renal denervation and Altaviva. And we'll continue to do that. But net-net, the SG&A line will provide leverage because we -- as we're having this quarter, for example, Q3, what you see is the leverage that we get on the G&A line more than offsets the resources that we're putting from our sales and marketing perspective. So look, that will provide some improvement on operating margin. And then below the line, we'll continue to have a little bit of a headwind on the interest line because we're refinancing debt that was contracted almost at 0% 4 or 5 years ago with debt that's now sort of 3.5%, 4%. And we'll continue to have some pressure on tax. But the tax line is kind of getting to where it's going to stabilize now.

And then look, I mentioned we have a few puts and takes where we need to understand the timing between now and your ends. One is the timing of the Diabetes separation. And as I said, between the IPO and the split, we get about $0.01 to $0.02 of dilution from the fact that we're losing 20% of the profit of diabetes, but we don't have the benefit from the share count reduction yet. That share count reduction is calculated on a 12-month rolling average. So you'll see that gradually get better. And then we'll have some dilution coming from M&A. So the guidance is all in at high single-digit EPS growth.

Now the second part of your question on the 8.5%, it feels like some of the latter items that I mentioned, so the sort of temporary dilution that we get from Diabetes and and some of the M&A dilution that is maybe not fully embedded in what the Street sees right now. And as we get more visibility, we'll help clarify that.

Our next question comes from Matt Taylor at Jefferies.

I wanted to follow up on the question around capital allocation in TAVR. I guess it was interesting to see the investment in tariffs. I was wondering if you could comment about why you didn't just buy the whole company versus invest? And we also saw over the weekend, the results a longer-term follow-up for CoreValve published in JAK. And similar to the Edwards trials, there was some late catch-up in mortality. I was wondering if you could comment on that in the TAVR arm?

Sure. I think on your first call on [indiscernible], I mean, it's just -- we feel the structural heart space is one of the spaces we help pioneer. We have a really strong position, great reputation, but we want to expand in that. We've got some organic program. Obviously, we have our Evolut platform. We've got mitral and tricuspid replacement programs, but we still think there's an opportunity here to expand. And in the case of TAVR, the balloon expandable is the larger piece of the market and this is an opportunity to get into that market. And again, we may have multiple shots on goal here. But I think [indiscernible] is a good one to invest in and partner with, and we'll see where we go from here there.

And then in terms of the JAK article, I would say here that, look, this is -- I just want to emphasize that this is an old valve that's no longer commercially available, and it's an old procedural technique that we've provided guidance. So basically, all that communication did is reiterate the guidance that we provided back in 2020. And so that's what's happening there. And like I said, we're collaborating with our physicians to make sure they understand all of this and moving forward from here. So that's -- I don't know if you have anything to add there, but bullish on the structural heart space, and I would -- the [indiscernible] investment and who knows maybe more following that.

Our next question comes from Matt Miksic from Barclays.

Great. And congrats on the Antares investment, by the way. So on cash, I'll just ask 1 question. You mentioned generator sales or kind of a headwind to gross margins at this point, the mix is maybe shifting a little more towards capital you can give us a sense of when that starts to normalize? And then also in terms of the runway, I think we understand that hiring mappers is maybe the bottleneck here if there if you want to put it that way. You need more people to open more centers to get more catheter use. Any sense of where you are in that continuum through the academic centers or into the general centers in the U.S. and some sense of the pace that you're able to maintain for hiring centers? So helpful color.

Thanks, Matt. On the last part of it, where are we? I still think we're kind of relatively early in our launch here where we still have a long runway to go, which is good, in penetrating some of these high-volume academic centers as well as getting out beyond that. And to your point, the mappers -- hiring mappers has been critical. It's not the topic, if you will, but it is an important topic here. We've been able to stay ahead of it, but it is the thing that we're probably the most focused on right now is continuing to hire mappers.

And a lot of these mappers tend to be pretty dedicated to the space, and they're seeing where the direction of travel is or to use the Minnesota term where the puck is going. And so that helps a lot as well. So that's how I would comment on there. And what was the first part of the question?

The first part was on the dilution that comes from the capital equipment and when does the mix turnaround? So first what I want to say is CAS is a fantastic business from an operating margin perspective, right? So it is slightly dilutive because of this mix issue at the GM level, but it's driving significant profitability at the total business level at the operating margin level. When it's going to turn around between capital equipment and catheters, I want to say it's almost a good problem to have. So I hope it turns around as late as possible because as we're building the installed base, it's always going to be good news going forward. That being said, I think you'll start to see an inflection in the second half of next year. The mix is starting to improve with the catheter sales increasing. And look, year-over-year, CAS is going to drive gross margin improvement as early as '27.

So look, it's a great business to be in, and it's all good news going forward.

Our next question comes from Chris Pasquale at Nephron.

I wanted to ask about Hugo. Geoff, you talked about the impact of Simplicity and Altaviva really beginning to kick in as soon as next quarter. I don't think you included Huge in that group. So I would love to hear how you're thinking about the time line for Hugo to really begin to move the needle within the surgical business? And any qualitative comments you can make about the system pipeline right now?

Well, first of all, look, super excited about where we are with Hugo. Big quarter for us this past quarter, getting the FDA approval. We just announced this morning we did -- we completed our first cases in the U.S. in February earlier this month in Cleveland Clinic. We got more scheduled this week, got other centers and all the leading indicators of Hugo. And by the way, on those cases, we got great feedback in terms of how the system is performing and and its future opportunity in the U.S. market. The leading indicators are all positive in terms of the smooth case rate, procedure growth globally and utilization, they can both continue to be really strong. We watch those every week. I know the business watches it every day, I see them every week. And we're seeing a pretty meaningful step-up in installations around the world, especially as U.S. kicks in.

And so look, we expect a step up in Q4. Now the surgical business is a big business, has some puts and takes. So you may not move the needle on the surgical business quite yet. But underneath the covers there, Hugo is growing and growing pretty fast now. And it will -- eventually, you'll see -- you'll start to see this move that big $6 billion business. But we like where we sit. Really excited about getting into the U.S. market and the reception that we're getting and the orders that we have.

Next question comes from Danielle Antalffy at UBS.

Geoff, I was hoping you could talk a little bit more about how we should think about renal denervation, Simplicity and the market development that you're talking about? We've talked to some referring physicians who've been involved in renal denervation since the very beginning, and she sounds like she's getting a lot of calls from folks. I'm just curious what goes into actually developing this market, building out -- helping centers build out referral networks, et cetera. And if you any color on actual numbers to date even directionally?

Sure. Thanks, Danielle. I mean, I appreciate that question. I mean, first of all, in terms of physicians getting a lot of calls, that is really starting to kick in. Just to give you -- again, I appreciate that it's a leading indicator, but it's pretty powerful. So on our direct-to-consumer website around Simplicity, I'm just double checking, last quarter, we had maybe 50,000 -- or Q2 rather, we had about 50,000 visits. In Q3, we had 2.5 million visits. So the consumer demand is really spiking here, and we're just getting started. Like I said earlier, we opened up over 200 accounts, the Physician Finder is up, reimbursement is strong, we're getting that strong consumer demand. And most importantly, we're getting terrific patient results, patient outcomes, right, with the blood pressure coming down meaningfully. It's staying patients -- and it's really resonating with patients, and that in and of itself is getting doctors excited.

And so what we're doing is we've been hiring a lot of people in terms of market development. And there are several different roles here, right? One is building that referral pathway from the general practitioners in the hypertensive specialists into the hospital, into that procedure list. We've got a lot of people around health economics, around coding and billing as well helping the hospitals. So it's a number of roles like that, right? Health economics, coding, billing as well as some of the other roles I said in terms of the market development, building those referral pathways. And that's really where things are right now.

I'd say, all the market, like the initial foundational elements have all been like the chips have turned over green, right? The FDA approval is breakthrough approval, and it's broad. The CMS reimbursement, it's a good number and it's broad. We -- the commercial payers are falling in line and the competitive dynamics are way better than we thought. We -- initially here, we're doing -- I saw different analysts' over the last couple of years predictions on the mix between us and the other competitor on the market. We're doing way better than any of those models. And so now we just got to build this market. It's all those things we said, Danielle. But again, where we're really excited where you feel the energy is it all starts with those patient outcomes and how this is resonating with consumers.

So the other thing we're going to do over time besides building the referral pathway, working with hospitals is building the brand around Simplicity, right? So all of the 50,000 to 2.5 million I talked about of site visits, that's all about lead development, lead generation. We'd also like to build the brand of Simplicity and make it synonymous with hypertension management. So that's going to be an investment that Thierry talked about for FY '27. So a lot of exciting -- a lot of excitement right now in Ardian. And It'll start to -- the numbers will be more meaningful in FY '27 for us, the actual revenue, the lagging indicators. And again, it will be -- it's very profitable right out of the gate for us.

And as we reach the top of the hour here, our last question is going to come from Joanne Wuensch from Citi.

And before we move to Joanne, please, of course, e-mail us for any of those we did not reach today. Sorry, and thank you, and we'll look forward to talking to you soon.

I'm going to ask the Stealth AXiS question and what you can share with us about the product and why you're so excited about it?

Well, thanks, Joanne, for that question. I -- first of all, like I said, I do think this is -- has been -- is meaningfully underappreciated in the not so much maybe in the clinical community from spine surgeons, but maybe in the investment community because, look, this robot does 2 things. First of all, it's not an extension of Mazor. It's a new platform with a ton of new functionality that's going to be very value added. But the other thing that's really important here is how it fits into the workflow. So today, 70% -- I mentioned the commentary, 70% of procedures in the U.S. are navigated. That's like navigation and arm, which we invented and we lead by far. And today, robotics doesn't work well with that that workflow. So that's why robotic penetration is a lot smaller than the 70% that we're seeing with navigation. The Stealth AXiS fits right into that workflow. So it's one seamless system from the initial imaging to the AI-based surgical planning, right into the case, navigation, imaging and now robotics, 1 seamless workflow that trust me, surgeons really have been waiting for. So you got a better robot with more functionality and then you've got a much, much, much better workflow that, as you know, is super important to physicians and health systems. And this is just effectively lowering the barriers to step into robotics for spine surgery, and it's going to grow the market, I believe, and we are definitely going to continue to take share. And this really lengthens or extends our lead, in my opinion, from our primary competitor in this space.

The competitive dynamics have dramatically changed over the last couple of years. We're enabling technology and our AiBLE suite is key to winning. And this is, like I said, extends our lead over our competitor. And so super excited about that, but in closing here, I'd say beyond some of the big generational growth drivers we mentioned, we talked a lot about CAS and Ardian in a little bit about Altaviva and Hugo, I would add to that robotics piece, I would add Stealth AXiS. But we've got a breadth of innovation right now in Medtronic, which is why you -- we are getting the excitement here. Whether you saw from this quarter, like I mentioned from CRM and peripheral vascular health, which we didn't get any questions on, their growth has meaningfully improved here from a number of new products like carotid and thrombectomy. We talked about CST accelerating, neurovascular is accelerating with new products, that they've got between the NeuroGuard carotic product as well as MMAE, it's a mouthful. And then you've got these -- like I said, these bigger growth drivers like Ardian and Altaviva that are at the very, very -- and Hugo that are at the very early stages.

So you're starting to see the breadth kick in, which is beautiful to see. I know that in this business, innovation is key. And we've got a depth of innovation with these big generational growth drivers, but we also have the breadth. And as Thierry walked through, I think it was Robbie's question, we're pulling different levers to make sure that we're investing appropriately in these organically, whether it's increasing R&D, funding direct-to-consumer, hiring a ton of mappers, and if you're a mapper out there, hit our website up, and then kicking in the M&A, right?

So we're really shifting our stance, moving into more of an offensive footing here, and it's based on just the momentum that we have and the momentum we see coming.

All right. Thank you, everyone, and I'll turn to Geoff for some closing remarks.

I thought that was the close. Okay. Thank you. Thank you all for joining today, and all of your questions, and appreciate your support and continued interest in Medtronic. And we hope that you'll join us for our Q4 and our full year fiscal '26 earnings broadcast, where we're going to update you on the continued progress that we just talked about against our short- and long-term strategies. With that, have a great rest of your day. Thank you.

Welcome, everyone. I'm Robbie Marcus, the MedTech Analyst at JPMorgan. Very happy to introduce our next session. We'll have Geoff Martha, Chairman and CEO of Medtronic, present, and then we'll be joined up on stage for some Q&A. Geoff?

All right. Thanks, Robbie. All right. Good morning, everybody, and thank you for joining us today. Before I begin, I would like to remind you that today's discussion will include forward-looking statements that are subject to risks and uncertainties, and so we encourage you to please reference our SEC disclosures. Well, I'll start with saying, look, it's an exciting time for Medtronic. For the last several years, we've been working diligently towards this moment through engineering rigor, manufacturing expertise and regulatory know-how. And now we're in the fortuitous position to accelerate our revenue growth and our earnings growth. Today, we're going to talk about 4 key areas: accelerating on both what we call our generational growth drivers like PFA, Symplicity, Altaviva, Hugo and through our continuous pipeline of new technologies in areas like thrombectomy, carotid, spinal navigation and robotics, MMAe or in our case, Onyx, and many more.

And we're focused and hyper-focused on expanding margins, which will help us drive increased R&D to fuel the future growth as well as our EPS leverage. And finally, we're executing on strategic portfolio management and capital allocation. But let's first take a step back, and I'd like to remind everybody of Medtronic's key businesses today. Medtronic is an innovation-driven global MedTech leader, and our focus is on high-growth, high-margin opportunities to improve patient lives. We have a diversified portfolio in cardiovascular, neuroscience and Medical Surgical. And you also see our nearly $3 billion revenue diabetes business on the page here, which, as announced last May, we intend to separate by the end of the calendar year via an IPO. So in total, our 3 focus areas represent a $100 billion market opportunity, and we are well positioned to get -- to execute within these critical areas.

Now this slide has an important message I want to make sure we bring home. Over the last several years, we've been putting the people, the processes and the tools in place to form what we call the Medtronic Performance System. It's changed the way we execute, enabling us to deliver on our promises commercially, operationally and, of course, financially. We've addressed things that have historically held us back -- held our performance back. We've transformed our quality function to yield even greater safety outcomes. We've optimized global operations and supply chain, for example, consistently achieving now 5% gross COGS improvement, and our back order levels are at all-time lows. We've built the foundation to make all of this sustainable as well, and you'll see this start to flow through in the coming quarters. And we've made the hard yet purposeful decisions around portfolio management to drive even greater focus within the organization. And today, as we sit here today, we are focused on growth and innovation.

In the last 12 months, we've unlocked 4 new multibillion-dollar opportunities while accelerating our revenue growth. We're on track to deliver well above $2 billion in revenue for CAS in fiscal year '27, which we'll talk about a little bit later here. And to follow, we have a strong pipeline across the enterprise. And with the top line coming into place, we're now relentlessly pursuing margin expansion. You put all this together, we're driving greater effectiveness across the entire organization to fully realize the benefits of these big new opportunities. All right. The clicker is not working. That doesn't work either. Can I just push the button here maybe, go the old-fashioned way? No, that's not working either. Just going to use this now. Okay. All right. Great. All right. So getting back in the groove here. So we're delivering -- this slide, so now we're in a position to execute on these 4 areas.

So we'll discuss the details of each of these 4 areas in a moment, but all of these are devices that are approved in the early innings of launch and each represent a $1 billion-plus revenue opportunity for the company. And this is going to fuel our growth for years to come, and these are core markets for Medtronic. So like I said, it's a pivotal time for the company, and our teams have anticipated this moment for years, and we're well positioned to execute. Now I'm going to dive deeper into each one of these unique opportunities. We're going to start with electrophysiology and specifically atrial fibrillation, which remains one of the highest growth areas in med tech. Our Cardiac Ablation Solutions business, or CAS, as we call it, represents over a $13 billion market opportunity, growing annually at 25%. We are winning share here in this fast-growing space with our comprehensive portfolio of PFA catheters. We started to see an acceleration of PFA revenue roughly 12 months ago.

And now we are on track to reach $2 billion of trailing revenue and total CAS revenue by the first half of fiscal '27. With the top 30% of the centers performing 70% of the total AF volumes, our teams are really focused on going deeper into these accounts to increase catheter utilization, roll out our next-gen software and add mappers for greater account coverage. So in this space, we have a versatile platform of catheters and will service multiple clinical needs in different geographies. So let's start with Sphere-9, which is our all-in-one really our workhorse catheter. It's a versatile first-of-its-kind dual-energy catheter with integrated mapping that delivers superior safety and durability. PulseSelect, which is our first PFA catheter, offers a leading safety profile and is a strong option for price-sensitive customers and those that lack access to general anesthesia.

So as we look ahead, we're going to continue to innovate and we're going to continue to expand. So adding to our international business, we're excited to bring Sphere-9 to Japan in the first half of calendar 2026. And we're pursuing expanded indication into VT in the first half of calendar '26 as well. And we're really excited about our next-gen single-shot Sphere-360 catheter. So the EU trial demonstrated strong durability, safety, speed and clinical efficacy, and it's a very highly anticipated solution by physicians. Our U.S. study was approved last month and will begin enrolling in the trial in the coming weeks. So this is only the beginning for us in PFA, and we look forward to continuing our market-leading growth rate as we march towards market leadership.

Let's switch to hypertension. So like PFA, renal denervation is a huge potential market. However, unlike PFA, Symplicity is a new market that we are pioneering and developing. Today, hypertension affects 1 in 2 adult Americans, but despite decades of access to numerous medications, hypertension continues to be a problem, causing 50% of heart disease and stroke-related deaths globally. Over 75% of hypertension patients do not have their blood pressure under control and 50% stop taking their medications in 1 year. And now here comes Symplicity. It's a onetime safe and durable treatment that has consistently demonstrated material blood pressure reductions. So as I just described, the unmet need is very clear. And with over 10 years of clinical data and over 30,000 patients treated globally, Symplicity is one of the most researched therapies in cardiovascular.

More than 18 million U.S. patients with uncontrolled hypertension are eligible for Symplicity and just a 1% penetration into this market represents yet another multibillion-dollar revenue opportunity for the company. So we're building therapy awareness with patients. We're training physicians, creating referral pathways and activating new sites every day. And looking ahead, we're also innovating. We're already working towards a trans-radial approach, which we plan to launch in the second half of FY '27. And we're investigating combined denervation of both renal and hepatic arteries for even greater efficacy. So beyond improving the current procedure and increasing efficacy, our plan is to make Symplicity synonymous, the Symplicity brand synonymous with the treatment of hypertension. So we're first to market. We've put in the investment. We've put in the work, we certainly put in the time. And now we plan to capture and lead this space for the long term.

Next up, Altaviva. Altaviva delivers neuromodulation via a small device positioned just above the tibial nerve, providing a simple same-day therapy activation for patients suffering from urge urinary incontinence or UUI. The Altaviva device has an expected 15-year battery life, is MRI-ready and does not require sedation or imaging. These are key attributes that make Altaviva differentiated solution for patients and for the providers. Today, here, there are 16 million patients in the U.S. alone suffering from UUI. So it's a big patient pool. 5 million of these individuals are eligible and actively seeking treatment. And again, roughly a 1% penetration of this 5 million patient pool represents another $1 billion revenue opportunity for the company. So here, education and awareness are the focus. We're seeing significant engagement and interest. Just 4 months post approval, over 500 physicians have been trained in just those 4 months.

And this is a meaningful commitment of their time because it's an in-person training, not virtual and often in a different city, in most cases, in a different city from where they practice, which shows their interest and just as a good leading indicator about the future potential of Altaviva. We're launching also a direct-to-consumer awareness to reach the 5 million patients I just spoke of as well as the balance of the 16 million who just aren't quite ready, aren't quite comfortable seeking care. This will come. The stigma is breaking down. Now let's shift to Hugo, robotic-assisted surgery. But before I jump into Hugo itself, I want to take a step back and talk about surgery. We have an incredible history in surgery with over 100 years in the OR as a category creator and leader in numerous product areas. We have earned the trust of generations of surgeons.

Further, we're the only company to offer solutions across all surgical modalities, open, laparoscopic and now robotic-assisted. Our broad capabilities position us to give our customers choice. And this does 2 things. First, it provides customers with the choice in robotics, a competitive choice in robotics that they've been waiting for practically begging for. Second, it enables customers to get back to their comfort zone, contracting with a true partner for their diverse surgical needs. So now let's get back to Hugo specifically. Last month, we announced FDA clearance for Hugo with the urology indication. We've learned -- outside the U.S., we've learned tremendously from our prior experience in over 35 countries and across 50 different procedure types. And we're thrilled to be launching Hugo in the U.S. and bring this experience with that.

We're getting a lot of good feedback from customers on Hugo's differentiation in 5 areas: modularity for arm range of motion and portability between ORs, open console for improved situational awareness, ergonomics and collaboration in the OR, trusted instrumentation from a surgical leader. Four, our touch surgery digital ecosystem. And this is a key one. It's unique to Medtronic. Digital is a force multiplier for robotics and laparoscopic surgery as it brings actionable data, analytics and AI into the OR. And finally, partnership, partnership across all modalities, open, lap and RAS, which is critical to customers as they build and expand their surgical practice. So our purposeful U.S. launch of Hugo is now underway, and we're ensuring successful first experience for our physicians and their teams. Our teams are also working diligently to expand into additional indications with hernia and gynecology and add advanced instrumentation like LigaSure.

Okay. So beyond those 4 generational growth drivers, as exciting as they are, we are delivering innovation across the balance of the portfolio as well. This slide here represents products that were approved and launched in the last 2 years alone. So products like Inceptiv for SCS or Percept for DBS, next-gen micro leadless pacing, our AiBLE surgical suite for cranial and spinal procedures, carotid and Onyx for MMA, for peripheral vascular and neurovascular, just to name a few. So it's not just the depth of the innovation, those big 4 drivers, but it's the breadth of the innovation across virtually all corners of the company that gives us confidence in our ability to drive durable revenue acceleration. So moving beyond innovation, we're also working on accelerating our earnings leverage. As mentioned earlier, we've made enhancements to drive consistent execution and now we are starting to see the benefits.

We've highlighted our 4 generational growth drivers, and we've talked about innovation across the entire portfolio, and we are starting to see the growth accelerate. And again, with the top line coming into place, we're relentlessly pursuing margin expansion, which will improve with volume and mix shifts over time. All of this enables us to increase investment into the future. And you've seen this in the last 2 quarters as our R&D growth has outpaced adjusted revenue growth. And to supplement these organic opportunities, we're going on the offense with strategic M&A, where we're focused on tuck-in high-growth areas that are close to commercialization.

So taken together, this creates a flywheel that we've depicted on the page, which will begin to spin even faster as we continue to drive on this -- deliver on this algorithm and execute against our goals. So we talked a lot about the depth and the breadth of our innovation. We talked about the flywheel and ensuring this is durable. We also talked about our enhanced capabilities to ensure consistent execution. And this is combined with our Medtronic mission and our world-class reputation with physicians, with health system executives, with governments and most importantly, with patients. Look, Medtronic is a pioneer and a trusted partner. So I'll end where I started, it's just an exciting time to be at Medtronic. So thank you.

All right. Can't see -- we brought up Thierry, the CFO. Thierry, welcome to your first JPMorgan Healthcare Conference. Geoff, between the diabetes spin, which I believe you can't comment on given it's an open SEC filing, but the new operating committees, a lot of the new product launches, there's been a lot of transformation at Medtronic over the past few years. How do you feel about where the business is today, the state of the portfolio? And maybe versus a few years ago, how do you feel about the company's competitive positioning and success in some of these new product launches that are driving the top line?

Well, look, the short answer, we feel a lot better. We feel really good about it. I mean, just like I just went through those big new markets that really just unlocked in the last 12 months. I mean, of those 4, CAS is well on its way, but still in its early innings with PFA. And we've got a lot of opportunity in those other 3 that I mentioned. But it's not just those, right? I talked about innovation across the portfolio. We can go business by business because it's -- and there, whether it be neurovascular or peripheral vascular, these you're going to see growth acceleration here. And underneath it all, I like the operating rigor that we've put in place. I talked about the Medtronic Performance System and how we're operating the company and how we're measuring things and tracking these measurements all the way up to the board. So I feel good about it. I feel like it's durable.

You did put in these 2 committees that you're running. One of them is, I believe, a growth committee and one of them is an operations committee. Any early findings you could discuss from them? What are you focused on? And what should we expect in 2026?

Well, the operations committee is really more focused on the margin expansion plans as well as that Medtronic Performance System. So it's both. The one that's been the bigger, I think, enhancement has been the growth committee and because we are going on the offensive on M&A. And these are -- it's very focused on tuck-in M&A around -- in and around the spaces that we're in. But you need to bring -- the Board need to be brought along in that journey and be part of it. And so that committee is set up with the expectation of focused on portfolio, M&A included. There's frequent touch points, way more frequent than our Board meetings. So it allows us to move with speed and agility. So I think as we're leaning into play to tuck-in M&A and playing offense there, this is helping a lot. I don't know, Thierry, if you want to mention anything on the operations committee or anything else there?

I just think when we introduced those 2 committees, we took an opportunity to eliminate some others, so drive some simplicity in the way we -- the Board has operated. And I think the one big benefit that I see is these 2 committees align with the strategic objectives of the company and they align with the way we run the company on a day-to-day basis, right? So if you look at the operating mechanisms we've got, they're really focused on one side on growth and on the other side on the margin improvement. So having that direct link and that direct synchronization between sort of internal operating mechanisms and the way the Board is run, I think, is helpful. It's helping us make decisions faster. And I think it was a good move.

Thierry, it's been almost a year. I think you started in March last year since you've been at Medtronic. Now that you've had some time to get yourself into the business, you came from an autos industry, very different from MedTech, but you did enact a lot of change at your former company. What are some of the things that you see as the strongest components of Medtronic here, maybe from the CFO perspective and some of the things that you're spending your time addressing?

So look, so first of all, I want to say that I'm thrilled to have joined Medtronic, right? I think it's a fantastic franchise. It's a great team, and it's a privilege to be able to join the company and try to contribute. Look, when you do -- when you take an opportunity like this, you do the due diligence kind of on what to expect. And so we had talked about the growth opportunities the ones that Geoff just went through. And so I knew they were there. I underestimated how impactful they would be, the magnitude of these opportunities and how transformational they could be for the future of the company, in particular, in our ability to use part of that growth and reinvest in the future. The second thing is we had talked a lot about the mission.

And one of the reasons I came back to health care because I had been in health care a long time ago was that the mission side of the business. And I knew it was going to be there. I didn't anticipate to what extent, how deep rooted it is in the company and how it drives the behavior towards the customers and towards the patients. To stay on innovation, we had talked about the 4 big opportunities during the interview process. What I had underestimated is the magnitude and the number of innovations we've got across the portfolio. In the business I come from, you do a couple of launches a year, and it's good here. Geoff just went through all the different opportunities that we've got in spine with AiBLE, in neuromodulation with DBS, in carotid, et cetera.

It's across the portfolio. And for me, it's super exciting to see that level of activity and to see the opportunities that it brings ahead of us. One of the reasons I was brought in was to drive margin expansion, right? Because I come from an industry that's super, super cost competitive with very, very thin margins where every dollar counts. And look, I saw that the team has made a lot of progress that the operations are pretty stable and run sustainably, but that we still have a lot of opportunity ahead of us. And I'm excited about what we could do there. And Geoff talked about driving margin expansion to continue to fuel innovation in the future. And I'm super excited about contributing to that.

Maybe to that point, one of the things that you've announced since you've started is you're committing to investing more in R&D as a percentage of sales over the coming years. I think it's 200 basis points over some in definite time period, but the coming years. MedTech is a very innovation-driven top line-focused growth sector. So as you think about spending more, Medtronic is already in some of these fastest growth end markets. They're also some of the most expensive end markets to be in. How are you thinking about prioritizing these R&D dollars, where they're going? Is it to existing markets, new markets? And how should we think about the time frame for contribution of the increased spend?

Yes. So look, if you look at our R&D spend today, at the end of the second quarter, it was about 8.5% of our revenue. And I think the goal that we set to ourselves is to get gradually to about 10%. So it's quite a significant improvement also because today, diabetes is above average in the portfolio. So when we deconsolidate diabetes, it's going to make the ratio go down a little bit so it will give us the opportunity to invest more. So we've started to increase the spend in the first couple of quarters of the year. You've seen it in the first quarter and the second quarter, we've grown R&D faster than we've grown revenue. So the percentage is starting to go up. So from a prioritization perspective, there's, I would say, 3 -- almost 3 layers. The first one is making sure that we capitalize on these generational growth opportunities that are ahead of us, right?

So the first block is continue to capture the opportunity in cardiac ablation, in RDN, in PVL and in Hugo. So the first 4 big blocks. Then we've got a set of businesses that are really high-growth opportunities for us, such as structural heart, such as neuromodulation, for example. And we take these, and we're going to invest more in those relative to other parts of the business. But we also have large franchises that contribute significantly to our profit and to our cash generation. So the third priority is where we can invest in R&D to continue to drive leadership in those franchises. And there it's mostly CRM, I would say, and CST in particular. So continue to invest in CRM with the next-generation Micra, for example, continue to invest in spine to solidify the ecosystem that we've created. So I would say those are the 3 kind of layers that we use for prioritization.

And what we do is we basically rack and stack all the demands that we've got from a funding perspective. And we look at the opportunity that's ahead of us, the payback that we expect, and that's where we're going to put the funds. If you look at what we're doing with the diabetes separation, look, diabetes is a great business. It's got great opportunities ahead of us. But the reality -- ahead of it, but the reality is we could get a better payback and a better return if we invest in some of the other franchises we've got in the portfolio. So the spin of diabetes, that's what it's about. It's about making that business successful on its own, but it's also simplifying our organization and being able to redirect capital to places where we're just simply going to have a better return.

You talked about -- you called it 4 generational product launches. And I imagine everybody here has heard about them, and we've talked about it for a long time. So I don't want to jump into each of those just right yet. But I do want to ask the way I think of it is renal denervation is well underway. That's clearly a very successful launch. Geoff talked about in $2 billion in the first half of, I think, fiscal '26.

Cardiac ablation.

Cardiac ablation. What did I say?

Renal denervation, yes.

Pulsed field ablation, sorry.

That would be great, though. We'd take that.

Hopefully, we get there soon. So when I think about pulsed field ablation, that one is clearly ramped up. And that one, maybe some of the investment is already out there and maybe we start to see the margin benefit come through. When I think about renal denervation, when I think about tibial, when I think about Hugo and surgical robotics, to me, at least, those seem like opportunities that need heavy investment from Medtronic to be able to realize that success. So I guess the question is, is that the right way to think about these 4 opportunities? And if not, how would you characterize sort of the investment and return potentials?

Yes. Look, they're at different stages of their development. To your point, CAS is starting to be an established franchise now. And it's -- however, it's still in the early innings. So we still see accelerated growth. That business grew 50% in Q1. It grew 70% in Q2, and that growth rate is going to continue to accelerate. But we're going to continue to invest in it. We're -- the next generation Geoff mentioned with Sphere-360 for us is really important. And as that business grow, the margin is going to continue to improve, and it will be an opportunity to have more funds to reinvest in the other franchises. RDN is very early on in the development. And it's clear that we're positioned ahead of a lot of our competitors there. In fact, we're clearly leading in this field. But we want to keep it that way.

And so we're already fueling investment to do radial access to improve the performance, to look at other indications that we could expand to the portfolio. And I think Hugo is the same. It's very early on in the development. We just got the indication on urology, but we want to expand that, hernia, gynecology, et cetera. And for sure, we're going to differentiatedly invest in those areas to capture the maximum of growth. But we can't stop investment in the rest of the franchises. As I said, those are not the only growth drivers we've got in the portfolio. And we have to secure the leadership positions that we've got -- that we've acquired in some other large cash-generating businesses in the portfolio.

Geoff, I think it was this conference last year, you first started ramping up your mentioning of tuck-in M&A and being more aggressive with that. You now have the growth committee, Medtronic, as you just talked about, looking more at tuck-in M&A. How do you see tuck-in M&A as part of your overall growth strategy? Is it supplemental to internal innovation? Is it stuff you can't get to? How are you thinking about balancing internal where there is a good amount of innovation already versus external? And when do you think we can start to see some of that tuck-in M&A flow through?

Look, I think we've got a pretty robust pipeline right now. So I don't think it will be -- I can't predict the timing of these things, but it's not way out there, right? It's pretty tangible inside the company right now. So a lot going on. And I do think it's -- everything you said, it's supplemental, right? And we've got some real strengths in our commercial go-to-market and real presence, and we've got to feed that beast. And some of it comes from organic and more of it needs to come from inorganic than it's come over the last couple of years. And so that's how we're seeing it. And -- but it's -- that we're focused on these areas, a couple of themes. One is in these high-growth areas that we talked about.

And we'd even -- some of these are such must-win competitive areas that you might have an organic program and go after an inorganic program and see which one wins or have 2 organic bets. We've got a number of -- and venture investing is a big part of this, too, right? So we've got a number of venture investments that are in 2 companies that one of them, by definition, both won't be successful, right? They're both looking at the same thing. So much more aggressive earlier on the venture, multiple shots on goal, focused on the high-growth areas. And also the other theme I'd say is around these procedures, so enabling technology around the procedure like CAS, like ablation or more even around surgical robotics technology around the procedures, I think those are some of the themes.

Great. And when you think about tuck-in M&A, I would generally think something in the -- for a company Medtronic size, something like low to mid-single-digit billion dollars. Is that how you would characterize tuck-in M&A?

Sure.

Yes. Maybe to stick on capital allocation further along. So you have internal innovation, you have tuck-in M&A. You have the dividend that you pay out. Going forward, from today on, how would you prioritize your free cash flow dollars? And are there any changes that we should expect moving forward versus what you've had in the past?

Sure. So look, we talked about funding organic R&D first, right? And so again, we've given clear signs of the direction that we're taking in that area. Second priority is the tuck-in M&A that we just went through. Look, we've got significant firepower with the balance sheet that we've got today to be able to carry out a meaningful number of meaningful acquisitions without any problem. And the dividend is not getting in the way of that, right? So there's no change in the dividend policy. It's what a lot of our investors expect us to do, and we're going to keep doing that. But I think clearly, what's changing versus the last few years is coming back to doing more M&A. I think we went through a period that Geoff mentioned around solidifying the operations and improving operations on a day-to-day basis. And now we're there. So we've earned the right to do these acquisitions, and we've got the capacity. So we're going to step up in that area.

Geoff, it was a year ago exactly today that you got the NCA for renal denervation that got approved. I think it got finalized with the government shutdown in November.

Right.

And so now it's been, let's call it, 2 months since the NCD went into effect. Any early comments you could give us on how the launch is progressing? Obviously, we'll wait until February this year for...

Yes, sure. Look, the leading indicators are good, right? You've got -- I'd say, first, there's the clinical results, I think, are very positive, I'd say, are surprising docs to the upside, right? They -- in many cases, we're looking at the trial data and not really equating it to the real world because what they're seeing in the real world is people that are pretty sick and not taking their meds. And then what happens with this procedure is it's simple, it's fast, it's very tolerable for patients and they get a pretty quick drop in blood pressure, and it sustains. So the impact on patients' lives and their ability to come off the meds, I think, are very strong and better than expected from a physician standpoint. The other thing we've learned is that hospitals were cautious about really the docs are very excited about it, but hospitals were cautious because of the economics. They've been burned before.

They wanted to see not just the NCD come into place, but they wanted to see a few reps. So they'd say, okay, now that it's in place, okay, I'll give you 15, 20 cases to the doc. And then I want to pause and see if I get paid. And so we've had to work with them to make sure they're coding it right and all that. But that is cranking through now. And even just last week, we got more positive news on the NCD, and that went up a couple of thousand dollars. So it's -- those signs are all positive. And what's happening now is now the sites that had, the systems that had hypertension programs, they're moving through and others that didn't have to build those hypertension programs.

Medicare is half the market, I believe, roughly commercial is the other half. What's the latest progress on commercial coverage for...?

I think we said -- we have an update on our last earnings call, we said another 30 -- we're up to 30 million patients now. So the commercial coverage is happening probably a little faster than I would have thought. I thought they would have pushed back a little longer. But there's just such a strong patient pool here that I think it's going to move the coverage faster.

So do you think this is something that could ramp kind of on par with what we saw in pulsed field ablation?

Well, no, because that was a shift. I mean that was a shift from one established procedure shift from one technology to the other. Here, we're building a new. So I mean, it will get -- we believe it's going to get that big, right? But the ramp is going to take longer than that.

If only every product launch could be as successful as that, it'd be good.

Yes. Yes. Yes.

Maybe with the last few minutes, we could shift over to surgical robotics. Hugo just got approval in the FDA for urology. How are you thinking about the rollout here? We saw your competitor take about 1.5 years in a limited launch with their new system. We have general surgery approval coming from you in the future. How are you thinking about limited launch versus full launch and the uptake there?

Look, we're starting with a purposeful launch here. I know you want to call it a limited launch, purposeful launch, but we're very focused on the first impressions of the physicians and make sure we get this right. We've come a long way. We've invested a lot. And with Hugo, like I said in the prepared remarks, you've got -- one, it's the first -- in our opinion, the first real competitive offering to Intuitive here in the U.S. And so that's one. But two, I think what's underappreciated is our ability to contract across the whole surgical suite, open, lap and robotic, right? In today's day and age with the economics of hospitals, the challenges they're facing, the ability to do that efficiently is a big deal.

And remember, one of the key features of Hugo is that the tower that is used for it can also be used for laparoscopic. You don't need a separate room. There's a number of features also that plays into the economics. And then from a clinical perspective, there's physicians are telling us they really like the way it shines in certain procedures, right, where they want a little more access to the patients, so you can move the arms around. They want to come in at a different angle, like hernia, it really shines in hernia, for example. So there's some real economic advantages and then there's some clinical advantages that we feel good about, over time, building a nice market position here globally and here in the U.S.

Great. Unfortunately, we're out of time. Thanks for a great discussion. Thanks, everybody, for coming.

Thank you.

Hello, everyone, and thanks for joining us today for our fiscal 20,162nd quarter video earnings webcast. I'm Ryan Weispfenning, Vice President and Head of Medtronic Investor Relations. Joining me here today are Geof Martha, Chairman and Chief Executive Officer; and Thierry Pieton, Chief Financial Officer. Geoff and Thierry will provide comments on the results of our second quarter, which ended on October 24, 2025, and our outlook for the remainder of fiscal year '26.

After our prepared remarks, we'll take questions from the sell-side analysts that cover the company. Today's program should last about an hour.

Earlier this morning, we issued a press release discussing our results and containing several financial schedules. We also posted an earnings presentation that provides additional details on our performance. The presentation can be accessed in our earnings press release or on our website at investorrelations.medtronic.com.

During today's program, many of the statements we make may be considered forward-looking statements. and actual results may differ materially from those projected in any forward-looking statement. Additional information concerning factors that could cause our actual results to differ is contained in our periodic reports and other filings that we make with the SEC, and we do not undertake to update any forward-looking statement. Unless we say otherwise, all comparisons are on a year-over-year basis and revenue comparisons are made on an organic basis, which excludes the impact of foreign exchange, Second quarter revenue in the current and prior year from our divestiture this quarter of the Dutch Obesity Clinic, also known as NOK, and second quarter revenue in the current and prior year reported as Other.

References to sequential revenue changes compared to the first quarter of fiscal '26 and are made on an as-reported basis. All share references are on a revenue and year-over-year basis and compare our second fiscal quarter to our competitors' third calendar quarter. Reconciliations of all non-GAAP financial measures can be found in our earnings press release or on our website at investorrelations.medtronic.com. And finally, our EPS guidance does not include any charges or gains that would be reported as non-GAAP adjustments to earnings during the fiscal year.

With that, over to you, Geoff.

Okay. Thanks, Ryan, and hello, everyone. Last quarter, I told you that Medtronic is on the cusp of an acceleration on our financial results and our strategy. Well, today, I'm pleased to share that because of our organization's relentless focus, that acceleration is indeed underway. We delivered a strong second quarter. Both our revenue and EPS beat expectations. Looking across our business, procedure volumes and end markets are robust, and we're bringing Medtronic's full capabilities to bear as we launch innovative technologies and execute ahead of plan in some of the most attractive and fast-growing end markets in med tech. We're glad to be able to raise our revenue growth and EPS guidance for the full year on the back of this building progress. This quarter, we accelerated our growth with significant contributions from our cardiac ablation business as promised.

Looking ahead, there's even more that Medtronic is capable. We're positioning ourselves for even greater acceleration in revenue growth in the back half of the year and beyond. And our momentum is fueled by our enterprise growth drivers, including our PFA franchise for AFib, SIMPLICITY for hypertension, Hugo and soft tissue robotics and Ulta Viva for incontinence. Look, these are game changers, and they'll power our trajectory. And at this pivotal inflection point in our growth journey, we recognize the need to capitalize on the incredible market opportunities before us. So we've scaled manufacturing to support our acceleration. In this quarter, we took the opportunity to increase OpEx investments to support our revenue growth momentum. We did all this while still delivering outsized EPS growth relative to our guidance.

Overall, we shifted to a growth mindset. Besides our organic programs, we're focused on pursuing tuck-in M&A and executing strategic portfolio management. Now let's get into the details on our enterprise growth drivers, one of them powered our growth acceleration this quarter. And together, all of them will fuel our total company revenue growth in the quarters ahead.

In cardiac ablation, our PFA franchise is generating just a ton of momentum. We grew 71%, which is a strong acceleration from last quarter's nearly 50% cash growth. This is the highest growth rate of any company in this large and fast-growing space. We're winning share as our PFA franchise grew over 300% in the U.S. as well as in international markets. This was based on the strength of our Affera mapping system and our Sphere-9 dual energy and high-density mapping catheter. Look, physicians tell us that they appreciate not only the shorter procedure times that they're seeing with the Affera, but increasingly, they're calling out its outstanding durability as well. And demand continues to be extremely high as we hear repeatedly from customers that they want to purchase additional Affera systems to expand into even more of their labs. And in the vast majority of instances, when a new Affera system goes into a lab, we take the majority of the AF procedure share in that lab.

Our plants have scaled, as I mentioned earlier, to meet the challenge, and our mapping hiring is going really well. And as a result, we've doubled our installed base of Affera mapping systems during the quarter. And given the economics of this business with capital and consumables, our mapping system sales are a strong leading indicator of future revenue growth and margin expansion. So we're in the early -- we're still in the early parts of this rollout. And we expect revenue acceleration to continue with an even higher cash growth in Q3. We remain on track to double the revenue of this business soon, adding an incremental $1 billion off the $1 billion FY '25 base. Look, we're not stopping there. With our pipeline, we're bringing Affera technology to the single-shot segment with Sphere-360. EPs tell us that 360 is the most anticipated PFA catheter out there. given the strength of its early clinical data. We've submitted the IDE to the FDA to get approval for our U.S. pivotal trial, which we're expecting to start in Q3. So the EP ablation space is now over $12 billion. It's growing mid-20s. And with our low double-digit share and the high demand I just talked about for the current portfolio and our pipeline, we see a long runway to gain significant share and add meaningful growth to Medtronic.

Now on top of that growth, we're launching as the clear market leader in 2 very large end markets, our Simplicity procedure for hypertension and Ulta Viva for incontinence. And we're excited to have received the final Medicare NCD for Simplicity 3 weeks ago. So now in addition to a broad label from the FDA, we have an excellent coverage outcome from CMS. The final NCD enables broad access and removes certain patient pathway barriers that were in the original proposal, including reducing in-person visits, removing a kidney function exclusion and cutting in half the time requirement for adherence to meds. It also highlights patient quality of life as an important consideration. So the NCD gives physicians many avenues to bring Simplicity to patients.

Additionally, we are currently the only company to meet the full NCD criteria with an approved continued evidence development plan, and on the commercial payer front, we picked up significant momentum with wins during the quarter, including HCSC, regions and several Blue Cross Blue Shield plans that collectively cover 30 million lives.

Shifting to efficacy. Medtronic is the runaway leader with Ardian in clinical data, and we continue to add to it. Only Simplicity RF Ardian has consistently shown sustained and improving blood pressure reductions in the long term. This is definitively unique to us as we've not seen this with the ultrasound devices. This sets the standard that all other devices must now meet. And last month at TCT, we shared 3-year data from our ONMED trial that continue to show the procedure is effective over the long term. Patients who underwent the Simplicity procedure experienced an 18.5 point average drop in systolic blood pressure.

We also completed enrollment in our Spiral Affirm trial, which aims to expand simplicity into high-risk subgroups, including people with isolated systolic hypertension. The first data from a subset of this trial was also shown at TCT with very strong results. We're using these results in ongoing discussions with the FDA.

So Simplicity represents a massive multibillion-dollar opportunity for Medtronic with an addressable market of 18 million people in the U.S. with uncontrolled hypertension. And now with a broad NCD in place, and commercial payers coming online faster than anticipated, this isn't a question of if or even how big, it's a question of how fast.

Now we have not incorporated much Simplicity revenue into our back half guidance, but we are sprinting after this opportunity. We have supply. We've ramped up physician training and market development activities with many hospitals initiating Simplicity programs across the country. And now we're increasing our consumer awareness programs. And as a result, we expect our revenue to pick up in the back half of the fiscal year and ramp over the next few quarters and meaningfully contribute to Medtronic for years to come.

Now shifting to Altaviva. We're seeing very positive signs in the first several weeks of the U.S. launch. Physician training programs are oversubscribed, and we're expanding training capacity to meet this demand. Physicians are stacking cases and early media coverage has driven a surge in consumer search activity. Altaviva is a simple option to treat urinary urges and involuntary leaks, which affect 16 million people in the U.S. This small device is inserted just below the skin but above the fashion near the ankle. The procedure is minimally invasive, doesn't require sedation and the patient goes home with a therapy activated. So they're not waiting for follow-up appointments to feel the results. The device is only recharged once or twice a year, eliminating the need for daily at-home charging equipment, and it has a 15-year battery. So we believe Altaviva will add meaningful growth to our Pelvic Health business, and be a Medtronic growth driver again for years to come. And more importantly, it is meaningful for patients.

This is our first patient in South Carolina, who is dancing to Jingle Bell rock. It's getting up to be that time of the year. And it's a wonderful video.

In addition to these enterprise growth drivers, we're seeing improvements in many of our other businesses as we execute on new product introductions, getting products to market ahead of schedule and ensuring strong commercial follow-through.

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

Thanks, Geoff. Hi, everyone. I appreciate everyone joining us today. So I'll start with our Cardiovascular portfolio where we grew 9%. This was our strongest growth in over a decade, excluding the easy comparisons we had after the pandemic. The growth acceleration was driven by our building momentum in CAS, which Geoff walked you through, and it's worth noting that PFA is now 75% of our cardiac ablation revenue. Our PFA growth significantly offset the 40% declines we had in cryo, and 90% of our remaining cryo revenue is in markets outside of the U.S. And look, it wasn't just CAS. The rest of our cardiovascular portfolio grew a combined mid-single digits. Cardiac Rhythm Management grew 5%, with 18% growth in micro leadless pacemakers, and nearly 80% growth in Aurora EV ICDs.

In structural heart, we grew 7% on the strength of the Evolut TAVR platform. In peripheral vascular, we grew low single digits, and we expect growth to improve as we continue to launch the Neurogard-IEP carotid stent and begin the launch of our Liberant mechanical thrombectomy system.

Next, in our neuroscience portfolio, our growth returned to mid-single digits, as expected, with growth of 4%. In Cranial and Spinal Technologies, we grew 5%. That included 8% growth in core Spine, both globally and in the U.S., and 5% in neurosurgery capital equipment. Our Spineable ecosystem, which includes AI-enabled preoperative planning software, and enabling capital equipment, including robotics, navigation, imaging, and powered surgical instruments, continues to attract strong spine surgeon adoption and drive meaningful share gains. And this is enabling strong pull-through of our core spine hardware.

Our Specialty Therapies businesses had flat results in Q2 and expected improvement from last quarter, driven by ENT and Neurovascular. We have clear line of sight to continued improvement in specialty therapies next quarter as we accelerate growth in both Neurovascular and Pelvic Health.

In Neurovascular, growth will improve as we anniversary the vast majority of China VBP in January. We also expect an increasing growth contribution from the Neuroguard carotid stent launch, which is being sold by both our Peripheral Vascular and Neurovascular businesses.

In Pelvic Health, we expect growth to accelerate on the Altaviva launch that Geoff outlined.

In Neuromodulation, we grew 7%, both pain stem and brain modulation grew high single digits as we continue the rollout of our [indiscernible] SCS and BrainSense A DBS systems. The market continues to appreciate our differentiated fully closed-loop technology with responsive real-time therapy adjustments that's available in both of these products.

Next, our MedSurg portfolio grew 1% as expected. Our Surgical business also grew 1%, impacted as we anticipated, by the timing of certain tenders in emerging markets and the ongoing, but stable market pressures from bariatric surgery and the shift to robotics. We expect a slight rebound in Surgical in the back half, and over time, we expect growth to continue to improve as we enter new markets with Hugo.

In the back half of this fiscal year, we expect the FDA to approve Hugo with a urology indication and we'll start our entrance in the U.S. We also continue to make progress on expanding indications. During the quarter, we presented our Enable Hernia Repair study, which met its safety and effectiveness endpoints. And we kicked off our Embrace gynecology U.S. pivotal study last month. This builds on the momentum from the positive results of our international gyn study, which we shared at SRS in July.

Given our experience in international markets, we have developed a clear understanding of the differentiated features that will make our robotics program successful. This includes Hugo's modularity and open console. It also includes continuously adding advanced technologies such as our ICG imaging and instrumentation like LigaSure RAS.

Our touch surgery digital ecosystem is a force multiplier for robotics and for laparoscopic surgery. Adoption is building momentum and bringing AI into operating rooms in over 30 countries.

Beyond the features, we're also leveraging our deep partnerships with customers through our training, support and through our service. We look forward to robotics becoming a more meaningful growth driver over time.

Next, our Endoscopy business grew 8%. This was driven by double-digit growth in our esophageal products as well as in GI Genius, our AI-powered solution used to detect polyps during colonoscopy.

Wrapping up our business performance, our Diabetes business, or MiniMed, as it will be called post-separation, grew high single digits. We had particular strength in international markets, which grew 11%. As expected, the U.S. was lower this quarter, in large part due to a decline in new orders as customers anticipated the launch of our new sensors. As we've started accepting orders, we're seeing this pent-up demand materialize.

There's a lot of excitement behind both the Simplera Sync and Instinct sensors. Look, with the Simplera, we continue to ramp manufacturing volume to support its European launch. As that ramp continues, we plan to roll it out more broadly to U.S. consumers later this fiscal year. And ahead of that, we started accepting orders during the quarter. With the Instinct sensor, we started taking preorders in the U.S. during the last month of the quarter, and we expect to begin shipping in late November. We accumulated more than 35,000 U.S. customer orders for Simplera Sync and preorders for Instant. Around 25% of these orders are from new pump users or our Medtronic pump users who were not using our CGM. The rest of these orders are current customers in our installed base, upgrading to the new sensors.

We also saw over 9,000 HCPs in the U.S. who are new Medtronic prescribers. Look, for those of you who follow this space, you know how big a deal these numbers are and the impact there expected to have on increasing our installed base. We expect the demand for our new sensors to accelerate our U.S. growth in the back half of the fiscal year.

Our Diabetes business is in a strong innovation cycle. We've had a lot of great news in the last few months as our teams execute on the pipeline. In July, the 780G system received CE Mark for 3 expanded indications, including for type 2, for children as young as 2 and during pregnancy. In September, the U.S. FDA also approved 780G for people with type 2 diabetes. And they cared our SmartGuard algorithm that enable integration with the Instinct sensor.

Earlier this month, we received FDA approval to start the U.S. pivotal for Vivera, our third-generation algorithm. We also continue to make progress with our new AID systems, MiniMed Flex and MiniMed fit. We remain on track to submit Flex, our next-generation durable pump, to the U.S. FDA. And and with Fit, our AID patch system, we intend to submit to the U.S. FDA by the fall of next year.

Look, finally, our planned separation of MiniMed is on track. Our preferred path continues to be a 2-step IPO and split. We continue to expect the separation to be completed by the end of calendar year '26.

So we have a lot of momentum with Diabetes given the order inflection and progress on the pipeline and separation. And you're hearing today that this momentum acceleration extends across the enterprise as we advance our pipeline and deliver growth.

Now turning to the financials. The second quarter revenue of $9 billion grew 6.6% reported and 5.5% organic. That's an acceleration from last quarter and 75 basis points ahead of the midpoint of our guidance. Our revenue from a geographic perspective was balanced, with double-digit growth in Japan and mid-single-digit growth in the U.S., in Western Europe and China.

In China, we're driving growth even as we go through ongoing, but very manageable volume-based procurement in a few businesses.

Our adjusted gross margin was 65.9%, up 70 basis points year-over-year. Similar to last quarter, I'll walk you through the main components. So we got 30 basis points again from pricing as well as 40 basis points from our COGS efficiency programs, net of inflation. Importantly, margin headwinds from ramping up our manufacturing capacity on Affera are now behind us. So together, we drove a 70-basis-point operational improvement in gross margin in the quarter. This was offset by business mix, which represented a headwind of 80 basis points, split roughly equally between Cardiac Ablation and Diabetes.

As I noted last quarter, CAS is impacted by the mix of lower-margin capital to higher-margin catheters and Diabetes is early in its manufacturing ramp-up of Simplera. Over time, we expect both of these to improve as we scale our CAS business and separate the Diabetes business.

Next, tariffs were a 20 basis points headwind. And finally, FX was about 100 basis points tailwind.

Adjusted R&D was 8.4% of revenue and increased 8.9%, which is 230 basis points ahead of reported revenue growth. We've increased R&D investments in our core right-to-win franchises where we've identified opportunities to accelerate top line growth and improve our share in the near, mid- and long term.

SG&A was 32.7% of revenue, up 20 basis points versus last year. As Geoff mentioned, we proactively took the opportunity to increase spending to accelerate our PFA and Ardian launches in light of the considerable market demand and compelling near- and medium-term outlooks. At the same time, we delivered disciplined leverage on G&A, with growth at under half the rate of our revenue growth.

Our adjusted op profit was $2.2 billion, an increase of 6%. This resulted in an adjusted operating margin of 24.1%, down 20 basis points year-over-year, but an increase of 50 basis points sequentially. Our adjusted tax rate was 16.4%. Q2 tax expense was lower than expected, which is largely due to timing, and which we expect to offset in the fourth quarter.

All in all, adjusted EPS was $1.36, an increase of 8% and $0.05 above the midpoint of our guidance.

Now let's cover our guidance. Given our outperformance in the first half of the year as well as the confidence we have in our revenue growth acceleration, we're raising our full year revenue guidance today. Year-to-date, we've delivered 5.2% organic growth, and we expect this to further accelerate in the back half of the year. As a result, we now expect fiscal 2016 revenue growth of approximately 5.5%, a 50-basis-point increase from the prior guidance. In the third quarter, we're also expecting approximately 5.5% growth and Q4 will be even stronger.

Based on recent rates, we now see an FX tailwind to fiscal '26 revenue of $625 million to $725 million. including $150 million to $200 million tailwind in the third quarter.

Moving down the P&L. We expect our fiscal '26 gross margin to be slightly up ex tariffs, with pricing, FX and COGS efficiency programs more than offsetting the negative impacts of business mix, primarily from Cardiac Ablation and Diabetes. We anticipate a tariff impact to COGS of approximately $185 million, including $90 million to $95 million in the third quarter. Including tariffs, we expect the fiscal '26 gross margin decrease of roughly 40 basis points.

We'll continue to fund R&D to grow greater than sales. With SG&A in light of the outsized demand and building momentum for our enterprise growth drivers, we're capitalizing on every opportunity to accelerate our top line by strategically increasing sales and marketing investment in key programs, but we'll still deliver SG&A leverage on the 4 year by rigorously managing our G&A line.

Taking all of this together, we expect fiscal '26 adjusted operating profit to grow approximately 5% or 7% excluding tariffs. Our fiscal '26 operating margin is expected to be roughly flat ex tariffs and down about 50 basis points, including the tariffs impact.

Now coming to EPS, second quarter EPS came in $0.05 above the midpoint of our guidance, $0.035 of this beat was from reduced tax expense, as I mentioned earlier, that we now expect to occur in Q4. We're flowing through the remainder of the Q2 beat and increasing our fiscal '26 EPS guidance to a new range of $5.62 to $5.66 versus the prior range of $5.60 to $5.66. For Q3, we expect EPS in the range of $1.32 to $1.34.

We're expecting margins to be down a couple of hundred basis points in Q3 as the quarter includes half the annual impact of tariffs. In addition, the expected growth acceleration in CAS and Diabetes will continue to impact business mix. And Q3 is typically our lowest quarter for generating COGS efficiency savings given the holidays. However, we do expect Q4 margins to increase year-over-year and shows strong sequential improvement.

Looking ahead to next year, we continue to expect high single-digit EPS growth in fiscal year '27, driven by accelerating revenue growth, a lesser impact of business mix from CAS and Diabetes on the gross margin line, and leverage on SG&A while we continue to drive higher investments in R&D and sales and marketing.

Look, we remain committed to driving both revenue and earnings growth and believe strongly that our financial algorithm will flow from our current focus on building sustained top line momentum.

Geoff, back to you.

Okay. Thank you, Thierry. Before we go to Q&A, let me share a few quick thoughts. So when you look at our top line, you can really see the focus we've had on allocating capital and executing on our pipeline is all now coming together to drive meaningful acceleration in our growth. We're on an incredible trajectory with PFA, and we're just getting started with some big new opportunities with Simplicity and Altaviva. At the same time, our newly formed Board committees are helping as we act decisively and with increased speed. We're executing on margin enhancement programs to fuel our enterprise growth drivers, the future pipeline and earnings leverage. We continue to evaluate the overall portfolio at every level as well as tuck-in M&A, and we are committed to growing above our WAMGR while also raising the amber of the company over time. And I'm looking forward to diving deeper into all of this with you at our Investor Day next year.

So bottom line, we're executing on our commitments. You can see it in our numbers, and with every quarter, we're picking up more momentum. We're pleased with the progress, but eager to continue proving Medtronic has turned the page and entered a new period of greater revenue and earnings growth.

Finally, I want to thank our employees who are watching today around the world. Thank you. Thank you for your steadfast commitment to the Medtronic mission and to the patients that you and our customers serve every day. I also appreciate your continued execution, which allows us to collectively deliver on our total company performance. So thank you.

Okay. Now it's time to move on to Q&A, where we're going to try to get to as many analysts as possible. [Operator Instructions]. If you have additional questions, you can reach out to Ryan and the Investor Relations team after the call. So Ryan, can you please give the Q&A instructions and queue up the analysts?

[Operator Instructions] Finally, please be advised that this Q&A session is being recorded. Okay. Let's take the first question from Patrick Wood at Morgan Stanley.

I'll keep it to one, of course. I'd love to start with Simplicity. You mentioned the commercial discussions happening faster than kind of expected. Obviously, without diving into any individual payer, how are those reflective relative to the NCD? Like are there restrictions being put on? What is the sort of tone of the conversation, and how are the commercial payers looking to introduce us within their patient pool?

Yes. Thanks for the question, Patrick. The commercial payers, like you mentioned -- I mentioned in the commentary, they are coming online faster than I believe we anticipated. They're getting a lot of push from patients as well. In terms of restrictions, I would say -- first of all, I'd say, look, the NCD is -- the Medicare NCD is broad, and it's better than we anticipated. It's better than the proposal. So we're comparing it to that. The 1 area that I've heard, and in addition, on the NCD, they've incorporated physician -- for lack of a better word, physician discretion, patient discretion on, hey, as a patient, can I tolerate these meds, or does the physician feel like the patient cannot tolerate the meds. That gives them that avenue to move to Ardian to Simplicity.

In the commercial payers, we're seeing where there is 1 difference that I know of is around the medication. It's more of an emphasis on being on a few medications for a while. So that's the 1 area that I'm aware of. Patrick, and we'll keep everyone posted as this -- as we get more commercial payers online.

We'll take the next question from Travis Steed at BofA Global Securities.

Congrats on a good quarter. I guess, first of all, the implied second half guide around 6%, and you kind of think about the 2 buckets of the pipeline and then end of the base business? Maybe talk about kind of what you're assuming on Ardian in the second half and then also the base business, why I'm confident in the slight rebound in MedSurg and kind of the confidence to keep the base business humming. And then on the margins in the second half, this quarter, we didn't see quite as much margin flow-through, just assuming that changes in the second half, the revenue upside leads to more margin upside in the second half?

Do you want to take that one?

So maybe I'll start with the margin. Travis, thanks for the question. Look, we described the momentum that we had from a commercial perspective in the second quarter. And pretty early on in the quarter, we saw the order intake being pretty strong. We also saw that we were going to have a little bit of upside from a tax perspective, even though that's timing, but we did see it coming early on in the quarter. And so we just made a decision to go invest in the places that are going to drive the growth going forward. So we made some significant investments in the mappers structure, for example, in cardiac ablation. We started to build up the capability from a direct marketing on the Simplicity side.

So we took the opportunity that we were going to see upside on revenue and a little bit on the tax line just to lean into the investment to make sure we fully capture the opportunities that are ahead of us. And so you saw that in R&D. It's the second quarter where we have R&D growth that's pretty significantly higher than the revenue growth. And this quarter, specifically, you saw it on the SG&A line, where we put, as I said, quite a bit of investment, especially in sales and marketing, while keeping the G&A line pretty constrained.

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

On SG&A, though, you should expect to see leverage in the second half, so SG&A together. So we'll start seeing a lift there. And so ex tariffs, we'll have gross margin and operating margin leverage in the second half and -- but we'll have to contend with the tariff impact. So all in all, on a full year basis, you'll see gross margin slightly up before tariffs, down about 50 basis points post tariffs. And at the operating margin level, you'll see operating margin roughly flat year-over-year ex tariffs and slightly down with the impact of tariffs.

So look, it's all about capitalizing on the opportunities that we've got ahead of us, and that's what we'll keep doing. But again, our second half leverage on both those lines.

So on the revenue, as you see from the guidance, we're seeing -- we're looking at a back half ramp here that will extend into 2017. And the way I'd break it down, I mean, a big piece of that is these growth drivers that are kicking in, these multibillion-dollar opportunities. In terms of the back half, though, most of that is really coming from PFA. So -- in terms of the new big ones, right? When you think about PFA, Simplicity, Altaviva and we have Hugo coming, those are, we would say, our big multibillion-dollar upmarket opportunities. In the back half, the contribution will be more from PMA in that category. PFA is, I mean, it's cranking right now. We've got a lot of momentum there.

When it comes to Simplicity and obviously, Simplicity in Altaviva are approved in the U.S. On Simplicity, I'd say we're going to see it start to tick up in the back half of the year and then ramp in the quarter following that. Like I said, between the NCD and the commercial payers coming online, this market is really a best case scenario. It's as big as what we said it is. It's not about if or even how big, like it's as big as we said, it's really how fast. And we're measuring that speed of adoption in quarters, not years.

Altaviva, again, just approved a lot of great leading indicators, physician training is over booked, and we can talk more about that if I get questions on why we're so excited. Again, it will start to contribute in the back half a little bit. And then Hugo, we don't have too much on, but we do still expect the approval in the back half of our year.

Then there's another -- getting to the base business, Diabetes pops back up as our new sensors are available. Neuromodulation continues to be strong. CST will be -- continue to be strong. CRM had 2 really good -- a really good Q2. I don't know if we're going to have that same level of growth there, but still a strong growth there. And then you've got 2 other businesses that I'll call it tick up, incrementally increase their growth rate, Peripheral Vascular with the carotid stent mechanical thrombectomy coming. And then Neurovascular, again, it's also selling a carotid stent, got some hemorrhagic products coming, and they're just lapping some issues, a recall and then lapping DBP here.

So the base business is a big contributor. PFA is a big contributor and then you're going to start to see Simplicity, Altaviva and a little bit of Hugo.

Next, we'll go to the line of Vijay Kumar at Evercore ISI.

Congrats on a nice print here. And Jeff, I had maybe a new product question, a 2-parter, if you will. One on Affera, Jeff, do you feel like we have enough mappers now? And if supply in a place enough where you can hit the $2 billion? How are you thinking about supply and mapping? And then on TBL, we've got some good feedback on cannibalization of whether TBL could cannibalize BOTOX procedures. Could TBL be a $1 billion product for you guys down the road?

So I'll start with the PFA questions. On the supply that we are -- that's not holding us back. So supply is in a good spot. And then on the mappers, the Mapper hiring is going well, right? We're staying ahead, but I wish the buffer a little bit more because the growth is tremendous. But we are staying ahead on the mappers and the supply is not an issue. And like I said, our PFA business is really humming.

I was just with a big customer yesterday. They've got 2 systems. They laid out 3 more that they're going to buy. And just talking about once they put especially Affera, once they put that in 1 of their hospitals, how it kind of takes all the market share or the majority of the market share there for all types of cases. There's just all these benefits there. So feeling really good about that. And again, this mapper hiring has been a Medtronic, not just our Cardiac Ablation business, but a Medtronic effort, and our HR team is doing a hell of a job there.

And then on Tibial, look, Tibial is something I think everyone needs to invest a little bit of time in here. It's a huge market, 46 million people in the U.S. with overactive bladder, and of that 16 million with urinary urge incontinence where this really shines. And it takes the therapy versus sacral, which works really well. It's been a great market for us. There's been some channel disruption in the market lately, but it's still a great market and works really well for patients. But it does take weeks or months to get that therapy to a patient from when they start versus Tibial is less than a day.

So what you're seeing here is with Tibial, right, you have to do both with sacral nerve. You have to do a trial, then you have to go in for the implant, then the patient leaves without the therapy turned on, has to come back to get it activated, versus Tibial, this all happens in a day and the procedure is easier. And when patients, to get to your core of your question, when they're presented with options, all of their options, sacral nerve, Tibial, BOTOX, they choose -- they tend to choose the Tibial. So we do think it will take share from BOTOX.

And I would emphasize that this, we believe, look, there's a very strong place for sacral nerver. Definitely been -- this is an incremental opportunity on top of our sacra business. And so this -- that sacral combined with tibial, given that it's going to be incremental, this is going to make that business, that Pelvic Health business, a growth driver for the company. That's what I'll say about that. It's going to meaningfully improve the growth rate of that business.

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

Thierry, I wanted to ask, you talked about strategically reinvesting into SG&A and over time materially increasing R&D, I think, up to 200 basis points. How are you thinking about where those dollars are going? How soon should we be thinking about that? And just help us think about the cadence and the ability to still grow operating margin in the face of higher investment?

Yes. Robbie, thanks for the question. So first, where the dollars are going? So there are really 2 different categories, I would say. One is to, as I said, to capitalize to the maximum extent possible on the growth drivers that are ahead of us. So there's a significant amount of investment that's going to to CAS, to Ardian, to Altaviva, to -- and obviously, to Hugo with a profile that's a little bit more long term. The -- there are other growth drivers that we're funding at the same time such as structural heart and Neuromodulation, for example.

The second category of where we're putting investment is to make sure that we keep the leading edge from a technology perspective in the key franchises that are our bread and butter. So there's overinvestment compared to the average of the business in CRM, for example, in next generation of Micra. There's -- and there is significant investment going in CST to continue to develop the ecosystem that, that business has created around AiBLE that has enabled us to make the CST business more sticky with our customers from a device perspective and gradually improve the margins. So it's really those 2 areas, capitalize on the growth drivers on 1 hand and keep the edge on innovation in the key franchises on the other side.

From a sequence perspective, look, I would say third quarter, we made a pretty deliberate strong investment because we saw the upside coming. You'll see a bit less of that already in the second half. So as I said, you should see our leverage on the SG&A line in the second half of the year already. But maybe going into the longer term, look, we've tried to give as much clarity as possible on the gross margin line, so that you see the dynamics.

If you look at what happened this quarter, we had about 40 basis points of pricing and about 30 basis points or 40 basis points of cost out. That's been sort of a recurring performance over the last quarters, and we expect that to continue over time, right? So we're generating between those 2 lines, 70 to 80 basis points of gross margin improvement, right? And this quarter, you had about 80 basis points of negative mix and 20 basis points of tariffs, and that was offset with FX.

Going forward, we expect that negative mix to start getting better towards the second half of '27. So for the rest of the year, it's still going to be a pretty significant headwind as CAS and Diabetes continue to accelerate. And in the second half of '27, Diabetes will be deconsolidated. And then on the CAS side, we'll start seeing the shift between the capital equipment and the catheters, which will make that an accretive business as opposed to being dilutive.

So what you're going to see there is the 70 to 80 basis points of gross margin improvement operationally start to show up more as the mix becomes a gradually smaller and a positive effect over time. And then outside of that, we've got some external factors. So we have to contend with the tariffs. So for second half, we've got about 90% of that $185 million of tariffs that's going to show up in the income statement. The bigger portion is in Q3. And then we'll have a carryover of tariffs going into '27. And we expect foreign exchange, which is the last item there to be a slight tailwind going into '27.

So if you go -- it's a long answer, apologies, but I think it's important that you understand the algorithm. Going into '27, we'll keep investing in R&D to get to the 10% over time. But you should expect to see leverage on the SG&A line in '27. So look, we're confident that with the growth, with what we're doing from a gross margin performance in a sustainable fashion and COGS and pricing and the leverage on the overhead, we'll have a leverage P&L on the operating profit line in 2027. And that's why we hold on our commitment to have high single-digit EPS growth going into next year.

Yes. And just to add to that, there's more oxygen here to create for the investment. It's good to see the improved pricing. And as we go forward, we're not assuming much incremental, but -- pricing, but at least holding the improved position that we have. But there's more oxygen in our cost down. As we -- there's opportunities in scrap, obsolescence and over time, continue to optimize our network. So these are areas, I think there's incremental opportunity and cost down. And Rob, I've read some of your stuff in the past that you don't think there's much to do for us on SG&A, but there's more. There's more to go on SG&A for the company, and that's where the scale of the company should benefit us here. And it's not going to be easy on the company, but there's opportunities there, and we're committed to doing what it takes to fund these growth drivers because what we're seeing out there with patients on these different growth drivers and what we're hearing from clinicians, the impact on them and their staff, it's -- this is a big opportunity for the company we haven't seen in decades, and we're going to make it happen, right? And so there's still room to go on SG&A as well, and like I said, COGS to make this happen.

Great. That was a fantastic answer. Maybe just 1 quick follow-up. Jeff and Thierry, I know even since the beginning of this year, you've talked more and more about tuck-in M&A. How are you thinking about the environment today? Do you see a lot of opportunities? And any areas you see more interesting than others to help flesh out the portfolio?

Yes. No, look, we're very focused on the tuck-in M&A. I don't want to tip our hat in terms of exact segments. But we definitely are prioritizing some of the -- again, it's tuck-in. It's -- we're prioritizing these higher-growth segments. A lot of that is in cardiology, some in neuroscience as well. We like that Affera profile, right, where you're close to market or just you're on the market early stage or close to market would be ideal. Not afraid to make the investment that it takes to get those type of companies. But as Thierry said on the -- on your earlier question on like where is the R&D going, doesn't -- the tuck-in M&A, I wouldn't rule out some of our other key franchises that may need to augment their R&D with a little M&A. But we are more focused on these higher growth segments. And then the Board committees we've set up help with the speed and enable us to move faster. So we'll see where it goes, but it's definitely a big focus.

One thing that we don't communicate at all about it, but we've got a pretty active ventures and that arm has been pretty active. So it's got over 50 companies in which we have a stake right now. And we like to use that arm to make investments in sort of early stage companies. And it helps with some of the dilution, et cetera. And typically, we always make these venture investments with a view of going higher into the capital over time. So it's never a venture for venture. And again, it's been -- the pipeline there is pretty strong, and we'll keep working that angle too, because it's helpful to feed the pipeline for future M&A.

Yes.

Thank you, Robbie. Looking at the clock here. I think we've got time for about 3 more questions. So next, we'll go to the line of Larry Biegelsen at Wells Fargo Securities.

Congrats on a nice print here. So Geoff, I wanted to ask about the ramp of Ardian because as you said, it's a question of how fast. So I'm hoping you can add some precision to your earlier comments. I think at our conference in September, I asked if U.S. already in sales could replicate the U.S. WATCHMAN ramp, which is about $400 million in year 5. And I believe you said you'd be disappointed if your U.S. Ardian sales didn't achieve $400 million by, I believe, year 3. So how does the exclusion of isolated systolic hypertension in the NCD impact how you think about the ramp? And do you still believe you can achieve $400 million U.S. sales by around fiscal 2028, which I think would be year? 3. And just confirm, Jeff, that the current run rate in the U.S. is about $50 million?

Well, look, let me start by saying, yes, I would be disappointed if we're at year 5, whatever you said at $400 million, we think it would go faster than that. And this -- the final NCD won't hold us back. And like I said, we believe it's an improvement on the proposed NCD. Maybe this is a good time because I know there was -- on that NCD, like I said, it's an improvement to the proposed NCD. And if you go back a year, it's better than what we thought a year ago. If you go back 5 years and you asked us if we thought we would get this type of NCD, we'd say that's the best case scenario. So this market, like I said, is as big as we said it's going to be. And we believe that this final NCD, as you dig into it and really understand how hypertension today is treated, it actually reduces the requirements for patients to get this therapy and it reduces the time. And this is a good time that we have our Chief Scientific and Medical Officer on the line, knowing that there'd be Dr. Laura Mauri, who's also an interventional cardiologist, knowing that there'll be maybe some questions on this on the treatment pathways. Maybe I'll ask Laura to comment since you mentioned that 1 systolic question, our diastolic question. Laura, can you maybe provide some context here?

Sure. Larry, specific to your question about isolated systolic hypertension, those are patients who don't have an elevation of their diastolic or the lower number of their blood pressure. It's only the top one. And Jeff, we're continuing to study those patients. But I think the important thing to note is that this population is actually pretty small for us overall. If you look at recent studies, people with hypertension over age 60, it's less than 15% of patients who have ISH or this condition. And for patients who are younger than 60 who are half of our patients in trials and then also in practice, it's really very unusual. So as Geoff said, out the gate with the NCD, if you just look at that topic, we would estimate that would be less than 10% that would be affected by systolic systolic hypertension or not meet those criteria. And then overall, just to reiterate what Jeff said is that the overall the final NCD makes access more practical for patients with less time delays to treatment, less restrictions and the couple of things that they've talked about screening for are really things that are done in standard practice by general practitioners or internists.

And I think the other part just to mention is that in their response, CMS really reiterated that quality of life is a really important consideration for patients because lifestyle changes and being on many medications can be really difficult. And so they specifically said the good pave attempts are reasonable before referral rather than specifying some like mandatory minimum doses or number of medications. So overall, whether it's ISH or overall, the workflow for patients to get into referral for simplicity is really not restricted.

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

Great. I wanted to touch on the financial algorithm. Other key message was growth acceleration. How should we think about the base business? Is it mid-single digits? The $1 billion incremental PFA sales is about 300 basis points? And then Ardian, I don't know if you could put a final point there in terms of the growth contribution. But as you think about growth acceleration, should we think about Medtronic moving towards that high single-digit on the top line?

And then on portfolio management, I was just wondering how you're thinking about or should we expect portfolio pruning beyond Diabetes?

Well, maybe -- Shagun, thanks for the question. I'll start with the last part of it on the portfolio management. And look, this is an ongoing focus for the company. And it's really making sure that beyond Diabetes, right? First of all, that deal is tracking and it's on track and going well. But beyond diabetes, we just want to make sure that the whole portfolio fits together, we're getting the right amount of synergies, and we can provide the right amount of focus on these generational enterprise growth drivers like PFA, like Ardian and like Altaviva and Hugo when it comes to the U.S. and others.

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

Look, overall, if you think about the guidance that we just gave 5.5% on the full year, we were at 5.2% at the end of the first half, we're guiding at 5.5% in the third quarter. So you can do the math for what fourth quarter looks like. And we don't want to slow down from there. And look, what I would say is, it's pretty clear that CAS represents a sizable opportunity. We reiterate the incremental $1 billion coming shortly, probably in the beginning of '27, fiscal year '27 for us. And Ardian, we have all these discussions about the speed, et cetera, but I think it's important to keep in mind that 1% of market share in that population is sort of almost $3 billion of revenue for us. So it's a pretty significant opportunity. And we talked about the size of the Altaviva opportunity as well. It's 20 million patients overall.

So those come in increment to the rest of the business and the rest of the business is not standing still. So Specialty Therapies is getting better. You saw a first sign in this quarter and it's going to keep going. With the product activity that we've got in neurovascular, with Altaviva and Pelvic. And the key franchises, look, had a great quarter. It's going to continue to perform for the rest of the year and beyond. We're investing in that business to keep the technology lead. So we don't intend to go backwards. CST Has been improving on the back of the AiBLE ecosystem that the team has created.

So look, we're positive about the opportunities of the company going forward, and we'll keep you posted when we give when we give next year's guidance at the end of Q4.

We've got time for 1 more question, and I apologize to the analysts that we weren't able to get to. If you've got additional questions, feel free to reach out to me during the day. So we'll go to our last question, Pito Chickering from Deutsche Bank.

I have sort of 2 product questions. I'll ask them upfront. The first 1 is, as [indiscernible] move into the ASC setting, can you talk about how you are positioned in ASC in terms of mappers and Affera placements? And on TAVR, can you talk about what you saw in the U.S., Europe and Japan and how market share is looking in those markets?

Well, thanks, Poto. Look, for PFA and ASCs, over time, we do see that as an incremental opportunity for market expansion there. There will be a bit of a shift outside of the tertiary centers to the ASCs over time, but it also be a market expansion opportunity for us. It is a focus for us. We have been hiring across the company, quite frankly, particularly in Neuroscience and in Cardiovascular, folks that are specifically focused on market development in the ASCs for us and what our strategy is and how our product portfolio fits there and the resources we need, including mappers. So this is definitely is in the calculus for Medtronic, not just our Cardiac Ablation business. Like I said, this -- I think this represent an incremental growth opportunity for us there.

And then on TAVR, what I'll say is we had a decent Q2 here, growing high single digits on a global basis. Internationally, we're executing particularly well and getting more than our fair share of that Boston exit. As we move forward in PFA, I think Q3, we may see a deceleration there in TAVR.

In TAVR.

What did I say?

PFA.

I'm sorry. PFA is going to keep it going, I'm sorry. But in TAVR, a little bit of a deceleration in Q3, but then it will pop back up in Q4. We've seen due to a phasing. We've seen this in prior quarters as well. I don't know if you want to add anything to that?

No. No, that's right. We saw the Q4, Q1 effect and looks kind of similar a little bit slower in Q3, but with a pickup in the fourth quarter.

And just for clarity, PFA will continue to grow off the 71%, and it will accelerate in Q3 and beyond.

Jeff, if you want to go ahead with your closing remarks.

Sure. Well, so thank you for joining all your thoughtful questions this morning. And like Ryan said, apologize to the analysts we didn't get to -- we certainly appreciate your support and your interest in Medtronic. Please join us again for our Q3 earnings broadcast for more updates and there'll be more and our continued progress and on the long-term strategies. And we expect to hold this on Tuesday, February 17. And for those of you in the U.S. I wish you and your families a very happy Thanksgiving next week. I can't believe Thanksgiving is next week. With that, enjoy the rest of your day. Thank you.

Okay. Hello, everyone. Thanks for joining us today. I'm Ryan Weispfenning, Vice President and Head of Investor Relations at Medtronic. Thank you for joining call showcasing the Altaviva device, which just secured FDA approval back on September 18.

I want to remind everyone that today's event is being recorded, and a replay will be available on our website shortly after the call. A few quick announcements before we begin. Please note that today's call may include forward-looking statements. [indiscernible] be open to Q&A from the analysts and investors that have joined via Zoom today. So please get your questions ready and click the raise hand button if you have a question.

With that, I'd like to introduce our special guest today. Joining me to discuss Altaviva is Emily Elswick. She's President of our Pelvic Health business, which is one of the 5 businesses within our neuroscience portfolio. Emily, we're thrilled to have you join us today and shine a spotlight on Altaviva. But maybe before we dive in and talk about the device, could you spend a little bit of time talking about it yourself and your background here at Medtronic.

Sure. Thank you, Ryan. Hello to everyone on the call. It's really a great day to be here and talk about Pelvic Health and Altaviva. Thank you for inviting me.

I've been at Medtronic for about a little over 20 years. I entered through the surgical business as a sales rep and held various commercial leadership roles within U.S. Surgical and Covidien, and came through the acquisition of Covidien before moving in-house to various marketing and leadership roles, notably, the General Manager of our lung health business in our surgical operating unit. And flash forward a few years, I was asked to join Geoff Martha and his team in the office of the CEO before ultimately moving into this current role that I've been in for just roughly 1.5 years.

And the past 1.5 years has definitely brought a lot of change in anticipation of this very moment, but I couldn't be more excited about where we are today and more importantly, the future path that we're on with Altaviva and Pelvic Health.

Great. Thanks, Emily, for sharing your background. Next, and there may be some people on the call today that are new to Medtronic, maybe not familiar with the neuroscience portfolio. So I was wondering if you could spend a few minutes here talking about your business, Pelvic Health and how it fits into Medtronic.

Yes, happy to. The Medtronic Pelvic Health business really offers the most extensive neuromodulation portfolio for bladder and bowel control. And it really is allowing physicians and patients together through shared decision making, which is really becoming more and more of a topic in health care to select the best and most appropriate therapy option and experience.

And we've been at this for 30 years' experience bringing innovation into this space, starting with InterStim for sacral neuromodulation, we advance that market, improving on the device, expanding indications for use and improving access around the globe. And we've leaned into digital as well. You can see that in the middle of the screen with our MyJourney patient education and diary app. And on the tibial side of the business, we have percutaneous neurostimulation with our neuro product. And now implantable tibial neuromodulation with our recent FDA-approved Altaviva device.

It's a special business, Ryan. And honestly, a very underserved patient population. Think about it, 1 in 6 U.S. adults have overactive bladder and 1 in 12 of us suffer from fecal incontinence. So 2 conditions that arguably many just struggle even talking about. The addressable market is less than 10% penetrated, and we're determined to keep driving that awareness for patients with these really life to ensure that because there's a portfolio of options in these advanced therapy realm and especially now specifically focused on urge urinary incontinence with our Altaviva device.

Thanks. Yes. And we shared with investors that are Altaviva tibial device is a real key product launch for Medtronic. When you think about it, combined with PFA and Ardian and the other good things we have going on across the company. And all of that is expected to accelerate our growth here in the back half of the fiscal year.

Maybe if you could spend a little bit of time talking about what makes you so excited about this opportunity. And I think it would be helpful as well if you could help analysts' investors that have joined us today, think about the size of the opportunity with Altaviva.

Sure. Lots of numbers on this slide, so I'm going to break this down a little bit for you. But if you look specifically at UUI, if that opportunity is massive in and of itself, nearly 16 million people in the U.S. experiencing this common symptom of overactive bladder. And they really characterize it by this sudden urge to urinate. It's often followed by involuntary leakage, or you rush to me to go to the bathroom. These symptoms, they have a significant impact on a person's quality of life. They're mental health, sleep and it's really a large economic burden as well on patients and society and to few of us are receiving relief today.

And so of that 16 million, that blue circle that you see on the screen there, that are impacted 45% of sick treatment today, so that's about 7 million people, the remaining 9 million don't seek treatment, instead they're kind of suffering in silence and either trying to self-treat with pads and diapers and there's been some very notable celebrities as of recently as well that have been talking about or advocating for pads and diapers or adjusting their lifestyles to just never be too far from the bathroom.

For the 7 million at the top of the screen, that are seeking treatment, about 80% of those are unlikely to respond to really the first stage of advanced therapy discussions, which is really behavior modification and physical therapy. So that gives you about 6 million people. The majority of those patients will then fail the next stage, which is medications. So that's about 87% of the population. So that leaves us with 5 million patients eligible today for advanced therapies. And we firmly believe we have an obligation to advance care, so that more people can benefit from this therapy, and match the therapy to what their lifestyle and their life goals and expectations are.

And so with the addition of Altaviva, we really believe that we have a solution that can reach that 5 million eligible today that are seeking treatment and raise awareness, which we're going to talk about as well, of the 9 million people that aren't seeking treatment, who can be inspired to potentially buy this device to take action because it's simple and it's an effective option for patients.

Maybe before we move on in a moment, I also want to call out the incontinence, whether it be urinary or fecal. It's a highly stigmatized condition. It results in patients being extremely embarrassed staying at home, not enjoying life, and not even being able to live their life on their terms. So remember, those 9 million in the U.S. who aren't seeking treatment, they are out there suffering, and they're not yet comfortable talking to their physician about what options they have.

So they're either trying to self-treat, like I said, with the diapers and pads or they're just adjusting their lifestyle. So untreated UUI can significantly impact quality of life, as we said. But we believe, again, there's an option with Altaviva to identify and really reach the $5 million and reach the 9 million, which is ultimately going to grow the market and grow more access to patients.

Thanks, Emily. You've established that this is a very large opportunity, and there are a lot of UUI patients out there that could benefit from Altaviva as you've shown there. I get a lot of questions about the device itself, how the procedure actually works, what the device characteristics are. Could you spend a few minutes walking through those topics?

Sure. The device, Altaviva is really designed to deliver a really simple experience for the patient, for the physician and the staff. Even the name, we were very purposeful in the name, Alta suggesting this altitude, evoking a sense of height and viva nodding to Vitality and is as for life. It really builds upon giving UUI patients that new hope and it's a single minimally invasive procedure that can be performed really at various sites of care, whether it's a hospital, the ASC and even in the future in the office without need of sedation, no need for imaging, which means you don't need an imaging tech. You don't need any anesthesiologist or CRNA and really allows you, again, to have that simplified procedure experience for all. And so before we dive in, and I've got one right here with me.

Before we dive in, maybe we'll watch a quick procedure video to get people in a frame of reference and a frame of mind. So if you can go ahead and play the video.

[Presentation]

So if we can move to the next slide. Maybe I'll talk a little bit about what we believe are some of the really differentiated features and benefits of our system. You saw it there. In the procedure video, but I'm really proud of this team and the work that went into this technology and the procedure development because we designed everything in this device with the patient and the physician in mind.

As you saw in the video, the device is about -- half the size of a [indiscernible] chewing gum, and it's implanted near the ankle just below the skin. And that incision is very small, 2 centimeters. And again, intentional along the body's natural linger line. So we really optimize that healing and reduce that postoperative scarring. As you saw, it's placed just beneath the skin, but above the fascia, which is really where all that connective tissue that surrounds muscles, nerves, veins, arteries, all the important stuff, really minimizing the risk that we come in contact with any of that, that sits really below that fascia. And the whole procedure takes less than 15 minutes.

As shown in our clinical study cases as well as our first commercial cases, which we've already completed in the last couple of weeks and the patient experience, it's just unmatched. Therapy is activated at the same time of the procedure with automatic therapy delivery and customized setting. So it really means you don't have to wait 4 to 6 weeks to have that therapy activation like you would with potentially other implantable devices on the market.

We're proud that we're leveraging the power of Medtronic, right, bringing our more than 20 years of MRI knowledge and research, much like SNM and our broader remodulation portfolios and our CRM portfolio, we're MRI ready from start. So patients can have a 1.5T or 3T MRI scan without any extra steps. And that matters because again, this is a 15-year battery life. And we recognize that life happens and the potential for people needing an MRI is real.

So -- and lastly, again, just the knowledge and expertise we have in battery technology over the last 75 years or 70 years, it's unlike the traditional lithium-ion battery, where you can get that fade on the battery life, much like our cellphones. We have that proprietary overdrive technology. It prevents that battery degradation over time. And for us and for a physician and for a patient, it means your recharge performance in year 15 is the same as it was on day 1 of year 1.

So -- and charging is only required once or twice a year, and it's a quick 30-minute recharge from 0 to fully charged. So it's exciting. We've really -- the intentionality in this product to deliver a great experience for the patient and physician is what honestly, I'm excited about the most.

Yes. It's really an incredible device and appreciate you walking through all the features there. I also know there's competition out there, and investors and analysts have asked questions about this as well, the -- in particular, the competition in the Implantable Tibial Neuromodulation space. And wondering if you could walk us through a little bit, Emily, how Altaviva compares to the competition in the ITNM space and maybe from both a technology perspective but also a clinical data perspective?

Yes, absolutely. So we'll start on the first slide with just some side-by-side comparison information. I'm not going to go in exhaustive detail. You can see all of it here, but I'll point a few areas.

There were 2 other commercially available ITNM products in the U.S., right? That's eCoi by Valencia, as you see and Revi by BlueWind. And as I mentioned on the prior slide, the simple experience, same-day activation, device longevity and MRI compatibility. Those are some of our biggest value drivers giving us that unique advantage, we believe, over other technologies.

The ability to turn the therapy on the same day. So let's talk about that a little bit. Imagine if you're a patient, you're finally have hope in your solution. And then you're told to wait and come back 2 or 4 weeks later post-procedure to then activate your therapy. You're going back to pads and diapers, right, for 2 to 4 weeks to then have that therapy activated. With Altaviva, the device is immediately turned on and you can live life with possibilities that very day.

Like I said earlier about Medtronic developing the best batteries, right, over the last 70 years, because of that overdrive technology, our batteries don't degrade over time. eCoin device lasts anywhere from 3 to 5 years, ours last 15. And the Revi device doesn't have an implanted battery and it has an anticipated device longevity of about 10 years.

So when you talk to a patient, and a physician and you talk to them about the experience, having that device longevity of at least 15 years with only a once or twice a year recharge, it's a big advantage.

Lastly on the MRI piece, I want to call out that we're the only ITNM device that patients can safely receive an MRI with the device turned on. Body fully in the MRI machine and without the need for a programmer. For patients with eCoin, it's not safe to place their leg in an MRI machine the eCoin device needs to remain at least 20 centimeters from the edge of the scanner bore and the MRI scan. And Revi is also constrained in the full body MRI conditional world, limiting the active scan time and RF exposure and depending upon that magnet strength in anatomical region composed challenges for them. So those are some of the big ones.

What you don't see on this slide and maybe before I move off of this slide, I should acknowledge that Coloplast is in the product development process and doesn't yet have FDA approval or clearance. But based on what we know today, their device and procedure involves placing the placement above and below the fascia. We continue to be confident that our strengths, especially again in the simplicity of the experience for the patient and the physicians that will enable us to really have a strong position to unlock and activate that market. We talked about the 5 million and the 9 million, those people that yet to step into this therapy.

So we kind of hit on the side-by-side comparison competitively, and you also mentioned let's talk a little bit about the clinical data or the clinical value that we're bringing. On the clinical side of things, we concluded our pivotal study. That is the TITAN 2 study. It included a highly refractory patient population. So what does refractory mean, right? These are patients that had to have previously failed to medications and the inclusion criteria was extremely broad. That is different than the other devices that are on the market.

So with the Altaviva device, we had 100% of patients in our pivotal study record either a motory or a sensory threshold to implant. So a feeling or an inflection on that. And so what does that mean? That means we captured the nerve 100% of the time.

In our 12-month outcome, we saw that 80% of patients on the participants in the study reported that their condition had improved compared to prior to the implant. 70% of those patients experienced what we call in the clinical world, a clinically meaningful improvement, and health-related quality of life and 61% or 6 in 10 of the patients had a reduction of 50% or greater in UUI episodes or voids per day after 12 months of therapy, which is particularly noteworthy given that Medtronic design the pivotal study, again, to reflect a really broad patient population. We're really honestly extremely pleased with the data. And as we've shared it with physicians, they're like, yes, we expected that.

Now imagine what we can do when we find patients that aren't as refractory. So we're excited about this, and we'll be presenting on this at [ OGS ] in next week, so in Vancouver.

Great. Yes, we look forward to seeing that at [ OGS ]. And it does appear that there's some real advantages here for Altaviva, and it does sound like we're well positioned as well versus the competition. Maybe if we shift gears here a little bit, another topic that investors and analysts asked me about a lot with Altaviva's reimbursement. And I'm wondering if you could -- it would be helpful, I think if you could walk through the current reimbursement landscape for Altaviva.

Yes, happy to. When we talk about reimbursement, we always think about coverage, coding and payment. It's also, I think, important to acknowledge that it takes time for a new medical device and innovation or technology to achieve all those levers, that are critical to broad market access, wide-scale coverage, Category I code, physician payment. We're actively working, and I'd argue leading the pack in all of these areas and are currently, we believe, in a really strong position to bring that value both to the providers and to the payers.

So let's kind of break down this slide a little bit. So on the left, on a coverage perspective, Medicare coverage, is provided for implantable tibial under reasonable and necessary. And so it's positive coverage as well for Elevance, which is in 14 states. So good progress there already.

Prior authorization is strongly encouraged for Medicare Advantage. And commercial payers and health plans that currently don't have a coverage decision, which is why we're excited to offer to those wanting to receive a Medtronic patient access support program. We're doing this as well with Ardian in other areas to really help facilitate that patient access to Medtronic therapies and provide that prior authorization support that a lot of health care systems and institutions may require.

So overall, we've got 21% coverage at FDA approval, 27% implicit coverage based on medical necessity and then 20 -- or excuse me, 44% of noncoverage, and we'll address that again through our patient access support program. On the right side of the slide, we've got coding and payment, right? So we haven't established today Category III, 0186T for reporting for implantable tibial neurostimulator procedures.

And we're working with industry players to lobby for that Category I code. We currently have hospital and ASC payment, and that payment is actually similar to that of sacral neuromodulation. And once we get a Category 1 code, then that will address the physician or what is called the professional fee, and that will be defined. So in the meantime, physicians can work with payers using crosswalk codes to establish physician payment under that Category III code.

Great. Great. So the last big topic area that I'd like to cover is our market launch. And I'm wondering if you can share how you're thinking about the rollout of Altaviva in the U.S. And do you have any early updates on our DTC campaigns and any feedback -- early feedback that you're hearing from physicians or patients?

Yes. We think about our market launch with the perspective really of, as you said, the consumer is a little new to Medtronic, right, the patient, the physician and the health system. And we believe the consumer and the patient are different, right?

We're now just under 3 weeks since FDA approval of Altaviva, and we're already seeing Altaviva everywhere with an enthusiastic market response and clinician engagement. You can see some of what we're doing here on this slide.

With this launch, we're doing things differently. I think it's arguably very progressive inside of Medtronic. We're leaning into the consumer early. Typically, you lean in a little bit later to the consumer, but we need to educate and empower not only the 5 million that are seeking treatment today, but again, activating that 9 million of those consumers out there not yet seeking treatment.

The simple experience offered with this device really provides a path, we think, for action that's just not previously existed for consumers. We've already put up billboards all around the country. We are doing community takeover events. We had the opportunity to take over the Twin Cities Marathon this weekend here in Minneapolis, this last weekend, and we wrapped the porta potties with Altaviva campaign logo and information and bringing Altaviva on the road as well through our Medtronic mobile labs, and we leverage those labs across the operating units, but really leaning into the mobile lab experience for our physicians, for training and then for patient community awareness.

Again, I think it's really progressive. It's nontraditional, I think, in med tech and to put something like Altaviva on the side of porta potties where you have thousands of runners learning that there's a simple solution that could address their bladder leaks or someone that they know is really exciting.

If you can go to the next slide, maybe we talk a little bit about what we're doing with physicians and what we're doing with health care systems because it's a launch, it's a new product, and there are still things that we need to work through, right? So we're excited about the momentum, as we said, that we're generating, but we're mindful that it can take time, which is why we're really investing to accelerate in key areas.

So on the physician side, we have a commitment to train physicians clearly. It's part of our mission, right, on safe and effective and proper use of our therapy, bar none. But we're surrounding those physicians with, I would just say, top-tier medical education, but also the teams around them. We've developed the therapy development team, our reimbursement resources that we talked about earlier and really to ensure the seamless integration of Altaviva into that current care pathway.

We believe this is really going to help physicians meet the needs of the large number of patients that are likely to come in. Those are either patients that are already in their walls or the 9 million that are coming and hopefully asking, hey, what is this new device Altaviva?

In our initial experience, these last 10 days post-approval, we've increased capacity to our physician training. And this past Saturday, we trained physicians. And within 48 hours, Ryan, those physicians were already seeing new patients treated. So they went to that training. They said, I need to do this, and they started calling patients that very next Monday morning, and we had patients being treated on Tuesday. So again, it shows the power and the simplicity of action that patients are wanting to actually step into this procedure.

In our initial experience, we've also seen physicians stacking cases. And that gives them that simple, but also reproducible experience as we walk them through what we call kind of procedure proficiency. We want them to get really comfortable doing this procedure, and you learn that comfort over time. And our therapy development team is really readying and they're the ones really supporting these physicians on demand.

On the health care system side of things, we're working closely. Again, we're leveraging the scale of Medtronic, leveraging our enterprise accounts team and our ASC team who really have some strong relationships across whether those are large urology group practices, IDNs or ASCs. And we're really determined to work with these health care systems to ensure that physicians and patients have access as soon as possible to Altaviva.

And in doing that, we're leveraging, again, those relationships, but we're also leveraging the power of our portfolio. We have the most comprehensive neuromodulation portfolio for overactive bladder, UUI and fecal incontinence. So it's a unique differentiator and you add Altaviva to that, and you really have a nice contracting strategy for our health systems and IDNs that want to contract across the portfolio.

So -- we're also helping navigate through what everyone knows to be the Value Analysis Committee process, which is part of just bringing a new medical device into any of these institutions. And VACs are in hospitals and in ASCs and some move really fast and some take a little longer than others.

So maybe the last slide here for this section again, very intentional. You'll see this language in different places. If you're driving up and down a highway somewhere, you might see this less restroom, more guest room. We're aiming to really prioritize the consumer and activate and drive awareness, while creating that world-class physician and patient experience.

So people are picking up our content at rates that we just have not seen before. We're getting inbound patients calling us, wanting to know more about Altaviva. And we've already had more than 40 stories published about Altaviva since our initial release on September 19. So we've got thousands of digital billboards, as I said, across the country. And again, who would have thought -- maybe we'll end on this, who would have thought that we'd be branding porta potties. It's really an exciting time at Pelvic Health, and we're really thinking differently about the explosiveness of this launch.

Yes. It certainly is exciting, Emily. And I appreciate that overview, and it looks like we're a really good start to the launch here. Maybe before we go to Q&A from the analysts and investors, anything you want to leave us with?

Yes. I think you can tell our excitement, right, at Pelvic Health, and that is across the board, whether those are the engineers, quality, regular teams, regulator teams that we're working on this, our commercial teams, our operations teams, those that are manufacturing for us. around the globe. We're excited about Altaviva and the novel way that we're approaching this UUI patient population.

And like I mentioned at the beginning, this affects 16 million patients in the U.S. and the majority of those patients aren't receiving care today. And we believe that the Altaviva device will provide that simple experience and appeal really to millions of these UUI patients in the U.S. today.

But to unlock that patient population, we're really committed to moving with speed. We're going to activate this market like we haven't seen before through a really diverse set of physician and patient experiences. And we're fortunate that the market really has some natural momentum as well with an increasing conversation and topics like menopause that's really helping elevate that impact. And our efforts, they're not going to stop until we turn the tide and until these consumers start realizing that pads are not an answer. They have options, and they have an options to be leak-free.

And lastly, as I'm sure the analysts and many have heard on Geoff's earnings calls about Medtronic, we're really -- we're asked to be now an and company, right? We believe in our mission at Medtronic, alleviate pain, restore health and extend life and drive performance. And this rings true at Pelvic Health. We believe in Altaviva and helping the millions of patients that are affected by UUI. And by serving these patients, we know that just 1% of us being able to impact that patient population is a $1 billion market opportunity.

So again, thanks, Ryan, for having me today and being able to share about Pelvic Health and Altaviva and our mission to really unlock this amazing market and more importantly, help these patients with UUI.

Yes. Thanks, Emily, and incredible opportunity here. I appreciate you walking through all of it. 1% penetration, about $1 billion in revenue is a big opportunity, not just for Pelvic Health, but for all of Medtronic. So I'm sure investors and analysts appreciate.

Let's move to Q&A. We're going to try to get to as many as possible here. [Operator Instructions]

Okay. I see we've got a few questions. Let's go to the line of Ryan Zimmerman.

Can you hear me okay, Ryan?

Yes.

Awesome. Emily, thank you for doing this. Very informative and like the tagline. Two questions for me. One, can you just talk about urologists' comfort level with implanting a device in the ankle? I think that's certainly something that we've found in our diligence as being potentially something that needs to be educated.

And then the second question, I'll just ask it upfront, which is there's not a meaningful difference, at least from meta-analysis that we can see around clinical outcomes between sacral versus tibial neuromodulation for urinary incontinence. And so do you think the clinical data difference needs to be greater here? Or is the form factor and the ease relative to maybe sacral neuromodulation more than sufficient to compensate for that kind of relative equivalence in clinical outcomes?

Yes. Great questions. Thanks, Ryan. So maybe I'll answer the first one around the ankle because as we were going through the pivotal study, that was a really big component of, okay, these folks are used to working with the bladder, right, and even bowels to some degree, but you get in the extremities and it's like, what am I doing here?

I will say percutaneous tibial neurostimulation has been around since back in early acupuncture days, right? So they are used to doing that through neuro, but we really put a significant emphasis on making sure we understood how to teach and train and educate not only on the product and the procedure, but what to look for, whether it's with wound healing, how to identify, honestly, what's a good ankle, right? It's important.

But as we've kind of walked through with physicians, I think they're getting more and more comfortable with it. Some physicians liken it to a birth control implant in the arm, right? They're not -- gynecologists aren't used to -- weren't used to doing that yet. They put it in the arm. And they said it's simpler than a mastectomy.

So we really haven't, to date, had issues or concerns around that. But I think it's partly, again, how much time we're spending in education and training, ensuring that they have a comfort level, and they understand what makes a good patient for this procedure and really having thoughtful mind and care of the ankle to put everything around that area as we take them through the didactic and the cadaveric labs and such. So I feel like we're really moving quickly through it.

Also, as we think about the 2-centimeter incision, and it's a very small incision, again, along the layer line. So as they're thinking about accessing that pocket or they're closing that pocket, they're really not disrupting a lot while they're in there. And so that, I think, gives them a bit of confidence as well.

Your second question around, gosh, there's not a clinically difference in this in sacral neuromodulation, you're right. What I think is really important and what we're seeing in the early physician feedback is the simplicity of the procedure, the ability to activate day 1, no trial, right, no lead. It's just an easy ability to say yes to getting into the advanced therapy space and having a shared decision-making conversation with these patients, I think, is a lot simpler, right?

You're talking about Botox, which is an injection multiple times a year, injecting that into the bladder. You're talking about percutaneous tibial nerve stimulation, which is every week for 12 weeks, right? So you got a fine time every week to come in. Sacral neuromodulation, great for the right patient, right? Again, broader indication, fecal incontinence today works extremely well. It requires a trial. It requires them to then come back and have a permanent implant, whereas with Altaviva, if you're interested, you could arguably through prior authorization, be receiving treatment within days and weeks and then going on and living your life.

So again, that simplicity and that ability to opt into an advanced therapy, we're getting patients that weren't looking at other therapies or they just weren't comfortable at taking maybe a more invasive first step. I hope that answers your question. Thank you, Ryan.

Thanks for the question, Ryan. Next, we go to the line of [indiscernible].

[indiscernible] appreciate all the information. Can you hear me, okay?

We can.

Okay. My question is on SNM versus ITNS. Kind of can you comment more on what gives you the comfort that there won't be cannibalization here? And it sounds like you're really excited about the ITNS pitch, but you have a big sacral business. And so how do you protect that while growing this and prevent it from becoming left pocket, right pocket stuff? And then one numbers question. Can you comment on the average selling price of your device versus your sacral device? Is it different, or is it similar?

Sure, sure. So maybe we'll take the cannibalization first. We believe a broader portfolio is the right answer. It's the right product for the right patient at the right time. And we truly believe that Altaviva is the product that is also going to help us reach the 9 million that aren't having the conversation.

Share decision-making is a little bit new in the urology and urogynecology space. The AUA guidelines were just updated in 2024 really to reinforce the importance of having that conversation and sharing about all of the advanced therapies that are out there. I think what's unique about this space, again, is in SNM today, our patient population is roughly -- the average is about 65 years old, right? So these are [indiscernible] the patients.

These are patients with urinary incontinence, frequency, mixed incontinence, neurogenic bladder and fecal incontinence. So again, sacral neuromodulation is a great product for those folks that want that procedure and have and need a relief from that symptom specifically. UUI subset, but a bit different of a patient population. They have Urge. Those patients are most often the ones that will look to seek care because they're leaking, and they want to do something about it.

But I really think that we are going to activate a new population earlier in their disease progression. Our SNM patients tend to be highly refractory patients. So we think we're going to activate them earlier, and we're going to reach more patients. So we believe that this is going to really raise all boats.

You asked about price. I think we're very price competitive with our peers, but we are also mindful that Medicare commercial coverage is still being established, but the payment, as you saw on there, is comparable to S&M. So while we don't disclose price, we are competitively priced in the market versus our competition and relative to the innovations and the premium around our innovation. So hopefully, that answers your question.

Thanks, Mike. Next, we go to the line of Larry Biegelsen.

Ryan, this is Nathan Treybeck on for Larry. I just wanted to touch on the broader public health business. It's been a little under pressure recently. I guess what is the growth outlook with the launch of Altaviva? I guess, how long until the business sort of returns to growth?

Yes. Thank you. Understand, yes, the SNM space has been under pressure. We believe that SNM is still a mid-single-digit grower. And this space, we're less than 10% penetrated. So we truly believe that Altaviva can be an unlock for that market. Again, the simplicity of the procedure, our ability to go upstream. And this space hasn't seen novel new innovation and technology for quite a long time, right? Like we've been in this space for 30 years on the backs of Sacral, Botox has been around for quite a long time. Axonics came into the market with a me-too arguably on the SNM side and with the acquisition of Boston.

And I think we are going to absolutely grow and develop this space. We haven't had a lot of focus on the consumer and really driving patient awareness and patient access. So we think our investments both in that and our commercial restructure that we did in the end of May by focusing our clinical support and service on our sacral business, so we can free up our reps and our therapy development team to really go drive the Altaviva market is the right mix to drive growth back again into this broader advanced therapy market for OAB.

Thanks, Nathan. Next, we'll go to the line of Chris Pasquale.

Can you hear me?

We can.

So I was hoping you could put the 61% responder rate in TITAN 2 into more context for us. I believe BlueWind reported 79% in their study. Axonics was about 90% back when they did their pivotal trial. It sounded like you were saying there might be some differences in the patient population that should be taken into account. So could you flesh that out for us and talk about sort of this form factor versus efficacy trade-off?

Yes, absolutely. Great question. So a reminder, in our TITAN 2 study, a couple of things. Those patients had to be off medication. So they could not be on medication for the full 12 months that we were managing that patient. So no OAB medications.

In other studies, different portions of those patients could be on other therapies, they could be on other medications. The designs of the studies are very different. So it's really hard to make direct comparisons. If you look at BlueWind, 32% of the patients with Revi were on OAB meds during the time of the trial.

So we were saying, you know what, we don't want any OAB meds. We want to see the performance of this therapy by itself. And remember, this is a highly refractory patient. They had failed or were intolerant to at least 2 meds prior, and they generally had a higher BMI than the competitive ITNM clinical studies as well as having higher voids and leaks per day.

With Valencia, I think I'm trying to remember with Valencia, I think while TITAN 2, which is our study required failure of 2 meds, I think Valencia's eCoin device required failure of 1 prior therapy, which could have been medications, Botox or PTNS. So just very different studies and different comparators than what we're collectively all looking at.

So we feel this is a starting point. We're going to learn a lot. We are committed to a post-approval study with the FDA as well, and we're starting up early research on different elements to really understand this patient population. It's new, right? This is a UUI-specific patient population. So at 61% with that patient, that very refractory patient population, we believe that finding earlier, honestly, less sick patients, that number is only going to improve.

Thanks for the question, Chris. [Operator Instructions] Next, we'll go to the line of Shagun Singh.

So I guess 2 quick ones for me. Earlier in the presentation, you kind of almost equated the opportunity to PFA and RDN. Can you just put that into context with us -- context for us, what does it mean in terms of growth contribution to Medtronic? Any ramp expectations you can share? And then also, what are you seeing in the market from Boston Axonics portfolio at this point?

Thank you. I think the -- and maybe Ryan can help me here a little bit, but I think the point of this is if you just look at the 5 million patients that are currently eligible for an advanced therapy today, if we impact just 1% of that 5 million, that's roughly $1 billion of opportunity for Medtronic. So that is the context.

Also, Geoff talks a lot about future growth drivers for Medtronic, places where we're making meaningful investment, but places where we expect high growth, that being our PFA business today, RDN with SYMPLICITY and then Hugo, right? And one of those growth drivers that's coming, right, over the next few years, we see as Altaviva. So that's some context, and he's alluded to that in, I think, some recent earnings calls as well.

As it relates to Boston Scientific, we haven't seen a lot from Boston on this front. We're focused on ourselves. We're focused on making sure that our patients and our physicians have the best experience from a physician and medical education perspective and that they can really work to develop this and incorporate this into their care pathway and believe it's absolutely going to be a new opportunity for us. So we're super proud of that. And we're always conscious of our competition and mindful of it, but we are heads down making sure that we make this launch as successful as we possibly can.

Okay. We have another question that was e-mailed to me from Matt O'Brien at Piper Sandler. Matt writes, can you ask Emily about the reimbursement dynamics and whether that is buttoned up enough under a Cat III code to get quick uptake? Or will it require a Cat I? And why do DTC now if you don't have reimbursement buttoned up?

Yes. Great. So we absolutely feel really good about where we are from a reimbursement. Do we want to get to CAT I? Absolutely. The sooner the better. But from a reimbursement perspective, the nice thing is as we're going in and talking to health care systems, first and foremost, the hospital and the ASC both have a payment that is quite favorable, right? So as you saw in there $21,000 and $19,000 for a payment. So that's a really nice place to start. That's comparable to sacral neuromodulation.

And so we haven't seen a challenge yet on the hospital or the ASC side. Are physicians saying, "Hey, it's been a little rocky, right, with our competitors in this space relative to the professional fee." It's why we've leaned in so heavily on the Medtronic patient access support and making sure that we help them navigate through prior authorization and making sure we have society and physician support as we move forward with the Category I code.

But you always have early adopters and innovators, right? The natural curve. So we are definitely on the innovators and early adopter side of the curve where those types of elements aren't as challenging for them. And we've already put patients through the patient access support program, and we were getting approvals within days and weeks.

So again, I think that added support resource that we have, which are experts in the field is really helping remove some of those potential barriers that you would see. But hey, we are going to do everything we can to move as quickly as we can to garnering a Category I code as well.

Great. Thanks for the question, Matt. It looks like Mike Polark has a follow-up question. Mike, please go ahead.

Yes. Along those lines, the path in the office, can you just describe what that looks like? Are there -- what are the reimbursement items to achieve there over time? And then procedurally, does it fit super, super well? It sounded pretty clean and straightforward, or is there some tension that you would expect a lot of docs to be deterred by and thus kind of volume stay in the more traditional sites of service?

Sure. So in our clinical -- that's a great question. Thank you, Mike. So in our clinical study, in our TITAN study, we were 1/3, 1/3, 1/3. So 1/3 of the patients had their procedure performed in the hospital, 1/3 in the ambulatory surgery center and 1/3 in the office environment. So we know it can be done in the office environment. We actually think this low acuity setting and this simple procedure, especially, again, no anesthesia, no imaging, just lidocaine or a local anesthetic, it makes sense definitely to go into the office.

So we're working with what we have today, which is a focus on hospital and ASC, but we will be absolutely working with health systems to kind of prove a path to the office. We can go there for sure. I think we'll walk our way there over the coming years and learn what it's going to take to go to the office, both from a clinician, a payment and an overall patient experience perspective.

But the simplicity of the procedure is absolutely a procedure that can be done, we believe, safely, effectively and consistently in an office environment. So we have a plan on getting there over time, but we do have to make sure that coding, coverage and payment and everything are in place just as we would in the hospital and in the ASC. So it will take some time.

Thanks, Mike. Next, we'll go to the line of Danielle Antalffy.

And Emily and Ryan, thanks very much for doing this. This is super helpful. Emily, this might be a really dumb question, so I apologize if it is. But I'm just curious, thinking about the tibial therapy, could that serve as a step function towards eventually getting SNM? Like could one into the other? Or is that the wrong way to think about it? Sorry.

No, I think I've oftentimes talked to this about is this a gateway therapy, right? When you think about it, if you're interested in -- you're contemplating, I waited it all this time, right, potentially of getting a therapy or I'm 51 like myself, and I'm starting to have weeks. I don't want to age like this. I want to do something now. That first step, that simple first step may be Altaviva for a patient.

And 15 years later, right, the thing about this is the condition doesn't go away, right? We're not curing anything. So the potential that you would step into sacral neuromodulation over time is absolutely possible. And again, sacral is great for certain patients with certain conditions that we currently don't have an indication for, like I said, fecal incontinence, broader OAB.

But it is absolutely possible to think about this as a first step. And then, again, 15 years or at some time in the future, if sacral and your condition evolves or changes, sacral could absolutely be a good opportunity as well. So not a bad way to think about that at all. That's a really great question. Thank you, Danielle.

Thanks, Danielle. Next, we'll go to Imran Zafar.

So I just wanted to ask how you're thinking about the international opportunity. Obviously, reimbursement is going to be much tougher to secure OUS, but just wondering how you're thinking about that. And then I guess, to help inform that, just remind us what the -- how big the business is for InterStim internationally?

Sure. Yes. So maybe I'll start with that first one. So the business is about a $700 million business. 80% of our business is U.S., 20% of our business is outside of the U.S., the majority of that being in Western Europe. Are we thinking about Altaviva outside of the U.S.? Absolutely. Expanding to markets outside of the U.S. is absolutely a priority, and we're actively exploring ways to bring the product to a global patient population as early as possible.

We are contemplating the great thing about doing a post-market study is we can also look at potential to add OUS sites to that. We're also looking at our clinical strategy, which we're putting a significant investment in as well to really start learning, right? What's it going to take to not only enter the market outside the U.S., but as you said, really be meaningful in the market and that meaningful in the market comes with reimbursement. So we're going to take a very focused approach, but it is absolutely a top priority for us.

Thanks, Imran. Next, it looks like Chris Pasquale a follow-up question.

Yes. Could you walk through the recharge schedule just to make sure we understand what the burden is for the patient there and also clarify whether the implant is delivering stimulation constantly or only for a certain amount of time each day?

Yes. Great question. So maybe I'll first talk about the stimulation. So again, I talked about the therapy being activated the same day, right? So as you activate the therapy, we will look at what is that personalization for you. And we have an express setting that is therapy activated every other day for 30 minutes. And then that physician can also do personalization, if you want. They can do it every day. They can change the days; they can change the time. They can also change the stimulation. That's up to the physician, right, working with that patient, but it's a very simple thing to do on the clinical clinician programmer. So they'll set that up.

The nice thing is you can also change that -- so if you're going to Europe, right, and you're traveling for a month, and you don't want it to be at 9:00 a.m. in the morning because that's ultimately the evening, right, when you're going out to dinner or something like that, you can adjust and change the time of day and be able to make that work for you. So we do have customization that you can do from that perspective.

As it relates to energy, that energy is, like I said, every other day initially for 30 minutes a day. And you also asked about the recharge frequency. So the recharge frequency, what we saw in the study and what we believe will happen kind of out there in the real world that on the normal settings, right, we see a recharge needed maybe once, maybe twice a year. So you envision that patient coming back for their annual visit right? Putting that recharger on the ankle, having them be at the clinic for roughly 30 minutes for their visit. They get the recharge. Again, it's 0 to 100 in less than 30 minutes, and you're often in living your life. So once, maybe twice a year on standard settings.

Okay. Just to clarify, they need to go and see the doctor to recharge the device?

They could do it at home themselves. We provide the recharger as well. The clinicians are just saying, hey, I'm going to see these people annually anyway, right? Why not come in, but they have the option to recharge by themselves as well.

And did you guys do sort of a dose-finding study to arrive at every other day for 30 minutes? And it sounds like the patient can feel the stimulation. Is that the reason why they would want to do it at a certain time of day versus just having it going on in the background?

Yes. We were looking at the dosing and feel like we're still learning about dosing. But in the study, we saw that really doing every other day stimulation was enough for the majority of patients. And again, that's up to the physician and the physician can determine if they want more stimulation or more frequency of stimulation.

Okay. Thanks, Chris. I don't see any other questions in the queue. So I think we will wrap there. If you have any additional questions, please feel free to reach out to me or anyone on the Investor Relations team.

Emily, I want to thank you again for sharing your insights today. And I also want to thank all the analysts and investors that joined us today. I hope you're walking away with some new learnings on this important growth driver for Medtronic.

And just a reminder, too, if you missed any of today's call or have colleagues that were unable to join, a replay will be available on our IR website later today. We'll see you all again on our Q2 earnings call, which we plan to report on Tuesday, November 18.

So with that, thanks for your interest in Medtronic, and have a great day.

Thank you.

We're glad to have the Medtronic CFO, Thierry Pieton, here with us. So welcome. Thank you for joining us.

Thanks for having me.

Good. So you've been on the job kind of about 6 months now. So maybe if you think about the first 6 months and coming into Medtronic, curious how you're thinking about the business today and how you want investors to kind of think about your plan for kind of shareholder value creation from here and sort of the initial earnings here in the first 6 months?

Yes. So look, one of the reasons or some of the reasons I decided to join Medtronic is, first, I had the perception that the company was about to level inflection in terms of growth rate. And as I went through the selection process, we talked about some of the growth opportunities with the business leadership, cardiac ablation, Ardian, Hugo, et cetera. And so I knew these would be present coming in.

The second part is we talked about how with an automotive background, I could help bring some incremental value and the way the business is performing. And I would say after 6 months in the position now, it sort of comforts those two areas as the places where I can focus. So I would say, first of all, we're about to have an inflection and the growth is about to accelerate in the second half, and we can get into the specifics of some of those areas.

The goal for us is to capitalize on those growth areas and turn around and create a flywheel where we use a portion of the benefit that we're going to get from those to reinvest in innovation, both organically and from an M&A perspective to fuel the next generation of growth. So for me, that's going to be the key focus.

The second part is part of capitalizing on those opportunities is delivering leveraged earnings. So coming from a tough industry from a sort of margin rate perspective, I think I can -- even though a lot of progress has been made by the company, I think I can still help in making sure that we improve the margins and ultimately, we deliver a more leveraged P&L altogether.

And one of the things like you're already talking about high single-digit EPS growth for next year. And so it's been a focus for investors to kind of get Medtronic back to growing earnings. And so curious on kind of -- one, the commitment, but also like the visibility to go ahead and say this early on that you're committed to high single-digit EPS growth this early in the year?

Yes. So first, it's a commitment, right? So it's not we don't make or I certainly don't make commitments without having the right level of comfort and data behind it. So part of my onboarding and where the business has been to look at the performance, to look at the roll up and to look at the construction that is going to be required to get there and to get comfortable that we had a clear path to achieve this.

So number one, I think the math is there. More importantly, I think the question is around the algorithm and what we need to put in place to get that done. And if you take a step back, first, it's about accelerated growth. And I mentioned that already. And so that's going to help with the leverage. We'll have higher growth, so better absorption of some of the overhead.

The second part is delivering incremental gross margin. So if you look at the gross margin rate today, the gross margin rate today versus what it was prior to COVID were about 4 points lower. And we're -- we have a solid path to going back and create things, sort of having the actions to get us back to the margin rates that we had prior to COVID. And I can get into the detail of that.

Then below that, we still have significant opportunity to deliver leverage at the SG&A level, and it's really mostly with G&A, we'll protect the selling side to make sure that we capture the growth opportunities that we have ahead of us. So if you look at this accelerated growth, better gross margin and leverage from an SG&A perspective, we can then use a portion of that to reinvest in innovation, both organic R&D and M&A and sort of create this flywheel that I was talking about to fuel the future growth for the future. So that's kind of the algorithm, and we can go into the detail of any one of those different items.

Yes. Maybe starting with gross margin because revenue growth will get to in a bit, but the gross margin is probably a key aspect of the P&L leverage.

Yes. So look, as I said, we're about 380 basis points lower than we were prior to COVID. And so for us, the target should be to get back to where we were. And here's how I look at it. There are really two today, and if you look at our performance from a gross margin perspective, there are two, sort of opposing trends.

One is, operationally, our performance is really improving. So if you look at pricing, we used to be a business that lost price on a consistent basis. Now we gain price on a year-over-year standpoint, thanks to better contracting, better pricing controls, et cetera, but also thanks to innovation because our customers are ready to pay for highly differentiated innovation that have a material impact on the patient or on the hospital's economics, right? So pricing is getting better. And if you look at our Q1 performance, price was up between 1 and 1.5 points, which delivered about 40 basis points of gross margin improvement.

Second part is cost management. And in a similar way, the business is now in a position to deliver a sustainable net cost out to the tune of 1% to 1.5% on a yearly basis. And again, that translates into 30 to 40 basis points of gross margin improvement year-over-year. And that's thanks to all the work that's been done by Greg Smith, in terms of our global operations and supply chain, improving manufacturing operations, improving relationships with suppliers. We used to have four manufacturing teams. Now we have one.

We used to have nine purchasing teams. Now we have one. So the team is really able to generate much better savings on the cost side. So you take those two things, pricing and cost out performance, and they add up to about 80 basis points of gross margin improvement today. Today, that's being offset by business mix, and that's really driven by two things.

One is diabetes that grows faster than the rest of Medtronic, but with lower margins. And as you probably all know, we're in the process of divesting that business. So that pressure point will go away sometime in the second half of '27, right? So that will give us about 50 basis points of gross margin right away. And remove that sort of headwind that we've had in a consistent basis.

The second part is cardiac ablation. And first of all, it's a good problem to have because it's a business that is dilutive at gross margin but very, very attractive from an operating margin perspective. But more importantly, today, it's dilutive because the mix between capital sales and catheters is skewed towards capital sales because we're growing fast and building the installed base.

And in the second half of '27, that mix is going to start to shift and it will become a tailwind instead of being a headwind. So this mix pressure is going to disappear and the operational improvements that we're making in pricing and costs are going to start showing up at the gross margin level. And so we should be in a position to start delivering meaningful, sustainable gross margin improvement starting in the second half of '27.

Very helpful. And then how are you thinking about G&A leverage versus increasing R&D and increasing the investments on the OpEx line?

Yes. So again, if you look at what we spend in R&D today, we're at about 8% to 8.5% of revenue. And we think the right level based on the roll-up that we've got internally and the projects that we'd like to fund in the midterm is closer to about 10% of revenue, right? So we've got about 2 points to 1.5 points of increased R&D to deliver from -- as a percentage of revenue.

A lot of that will be offset by -- more than offset by the gross margin improvement that I just went through. And we still have an opportunity to deliver significant leverage in SG&A. If you look at the first quarter as an illustration, right? We grew R&D about 100 basis points faster than sales, but we delivered about 170 basis points of leverage on the SG&A line, right? So we're more than offsetting the R&D growth with SG&A sort of cost control.

And we're going to continue to do that. And you kind of have to split the S part from the G&A part. The S part today is hiring the mappers to capture the opportunity in cardiac ablation. It's about building the direct marketing for Ardian, so we need to protect those budgets and continue to fund that.

On the flip side, G&A is back office. And there, we still have an opportunity to generate savings through simplification, digitization, et cetera. So that's kind of the algorithm that we're putting in place.

And then currency has been a thing that Medtronic had to kind of deal with and hedging and stuff like that. Curious how you're managing FX differently at Medtronic. So we're not kind of surprised on some of the FX movements.

Yes. So there are a couple of things. So first of all, the best way before you go into hedging is to avoid the FX pressure to start with. So we're looking at how we can move the cost base to have more matching between where our costs lie from a currency perspective and where the revenue lies.

More short term, we made a change last year, which is to measure countries that have high foreign exchange volatility on a USD basis. So essentially, if you're the General Manager in Turkey or in Argentina in a place where there is typically FX pressure, we're asking you to offset the devaluation with pricing, right? And we started that last year. We've made it more systematic this year, and it's paying off and it's contributing also to the fact that pricing is getting better.

So that eliminates a lot of the exposure in a way. And then with the exposure that's left, you need to have a good hedging program. And I think it's been the case, but it's been a little bit sort of -- on average, it was on a 3-year horizon, which makes it difficult to explain externally. So we did some analysis and figured that we could get about the same efficiency from a hedging perspective, reducing the horizon to 2 years instead of 3.

So we're in the process of shifting in that direction. We'll get the same kind of coverage, but it will be a lot easier to explain externally for you and for the market.

Okay. That's helpful. One thing that kind of been consistent with Medtronic, it's like some of the historically execution and kind of visibility of the businesses and stuff like that. And curious what kind of discipline you're going to bring to Medtronic in terms of forecasting how much visibility do you have in the business kind of day-to-day so you can kind of set guidance with confidence. And so we're kind of getting back to the consistent execution that we want to see.

So look, first, I think a lot has been done already. So I mentioned some of the things that Jeff and the team have put in place over the last 3 to 4 years, it's been a change of the incentive systems to make sure it's a true performance-based incentives as opposed to a profit share.

It's been a change in the operating system, where basically some of the critical to execution functions such as quality, procurement, manufacturing have been centralized, right? So as I said, we've got one manufacturing team under Greg Smith. We've got one procurement team under John Klein, who is under Greg. And so that's brought much better discipline.

So for example, in manufacturing, every site I go has the same KPIs, the same operating mechanisms, the same review processes. Greg's implemented what we call MPS, which is Medtronic Performance Systems, which is a translation of the Danaher system to Medtronic in a way. So that's already driven much better execution. And it's also taken the weight of some of those problematic off the shoulders of the operating units. So they can now focus on innovation and performance from a commercial standpoint, which is ultimately what's going to make them successful, right?

So I think a lot of work has been done, and you can see in the last 10 or 12 quarters, that execution has been a lot stronger. There has been -- there have been no surprises from a supply chain perspective. So the company is in a much better place. That being said, there's still significant improvement for simplification of the supplier base. There is still opportunity for optimization of the manufacturing footprint. And there's still opportunity for design to cost, to get the cost of our products in the right place at the moment we launch them.

And to simplify them from an engineering perspective, to reduce the potential for quality problems in the future. So that's still ahead of us. And this is something that I've lived through with our automotive and that I look forward to working on with Greg and with Scott Cundy, who runs our quality and R&D now at Medtronic.

How long does some of this stuff take? Is it multiyears or?

I think there is it's obviously some midterm. So manufacturing footprint is hard in med tech. Some of the design to cost is going to fully pay off in the next generation of products like in Sphere-360, for example, in cardiac ablation. But there are also short-term opportunities that we can work on. For example, in the reduction of the number of suppliers that we've got, which is well underway, but still with a large opportunity ahead of us.

There is a large short-term opportunity in terms of SKU reduction. So taking the list of products that we sell and analyzing which ones are low volume, high inventory carrying value and tend to generate disruptions in our supply chain. We're going through those right now. And each time we eliminate those, we enable more focus and more stability in the ones that remain.

So you should expect to keep seeing that operational improvement right away, but in a continued fashion that some of the more midterm things start kicking in towards the end of '27.

It's like using CAS as an example, where you have Sphere-9 today and then the next-gen catheter will be Sphere-360. And so you're basically saying that Sphere-360 will probably be a higher gross margin product because you're designing it for that.

That's exactly right. So the voyage is Sphere-9 was originally difficult to manufacture. And the team did a great job of stabilizing now. So the execution on Sphere-9 and Affera is very good. So we have the right level of output. In the same time with the engineering team, we're working on the design of 360, so that when we launch it, it comes out with a significantly better cost base than Sphere-9.

Okay. Helpful. Maybe touching a little bit on your new investor partner, if you will, Elliott. Maybe just kind of give an overview of how that kind of came together?

Yes. So look, maybe to tell the story, so Elliott contacted Jeff by e-mail and said, "Hey, we like Medtronic. We've become a large investor, we'd like to talk to you." The second step was a meeting that we had with Jeff, with Ryan and myself and the Elliott team where we went through their view of Medtronic, right?

And essentially, what they said was -- we love the company. We love the innovation. We really love the customer relationships that you've built over time and the trust that you've got with your partners, but the stock has been underperforming. At the same time, we can tell that you're at an inflection from a growth perspective because of CAS, R&D and Hugo, et cetera. And so we want you to do two things. We want you to capitalize on those opportunities, so maximize the way you capture them both from a revenue perspective and from a margin standpoint. So keep improving the margins.

And we want you to use those opportunities to accelerate future growth. So we would like you to invest more both organically and from an M&A perspective because you've done relatively less than the competition over the last years. And so we are sort of exactly in the same place, right?

So the reason the engagement has been very constructive so far, is that a lot of things that they brought up are exactly in line with what we're focusing on internally. So they said to ensure that this capitalization and acceleration occur we think you should bring more expertise, more med tech expertise in the Board, which, again, we violently agree with because we used to have it.

And over time, we lost it because people retired, et cetera. And we were actually looking at bringing back med tech expertise on the board. One of the individuals we were talking to, is one of the individuals that we ended up bringing with the Elliott engagement. So we agreed to it. We shared a list of potential candidates. And so we hired John and Bill to join our Board, and we're really excited about getting their perspective and getting their expertise to help us capture these growth opportunities and position the company for the future.

The other thing that Elliott said is we think you would benefit from having dedicated committees on the board to oversee on one side growth. So portfolio management, capturing these opportunities, how you drive innovation, et cetera, and maybe pruning the portfolio.

And on the flip side, having a committee that focuses on operations. So how do you secure margin improvement. And so again, this corresponds very well to the way we run the business from an executive perspective, so we implemented those two committees. We took the opportunity to simplify the Board governance overall. So we eliminated two committees, which we thought were starting to be redundant. And so now that's in place. And I think we look forward to having the two new Board members help out on those two specific topics.

And then when you think about the Elliott plan versus the Medtronic plan, it sounds like they're pretty similar?

Yes.

But in terms of like urgency and in terms of like, the speed of what you're actually executing this plan, is that maybe faster now because of the shareholders?

Well, look, I think it's always an incremental incentive, right? So you take the med tech representation on the Board. It was on the radar screen. We were talking to individuals. Elliott comes in and within a month, we've got two that have joined, right?

So clearly, it's helped accelerate that. I think the operating committees, we had focus on those and the Board generally speaking. But, Elliott coming and saying, why don't you do this? We've seen it work well with other engagements we've had. So we quickly put those things in place and -- so I think it's accelerated in a way, decisions that we would have made.

And look, I think also going forward, if you look at on the growth side, M&A and portfolio management, and on the upside, things like manufacturing footprint optimization, et cetera, med tech does have some specifics, right? It's a little different from other industries. So having John and Bill come in and weigh in with their background, I think it's going to help.

How do you think the committees will probably add the most value in terms of the two new committees that are bringing in?

Yes. So again, I think certainly from a portfolio management and on the M&A side, having two key leaders that have been very successful in using those levers in their life so far, in their professional life so far is going to help. And as I said, M&A in med tech is a little bit different. There's various stages in terms of maturity of the targets that you go after that you have to take into consideration.

There is relative to other industries, more uncertainty in terms of the outcome of M&A. So having those two board members, I think, will help. And on the upside, it's similar, right? So in terms of how to manage the speed of innovation, the cost of the product and the simplification, sort of designed for manufacturability and also optimization of manufacturing footprint, having two additional players that have lifted and know how it works in med tech is going to be beneficial.

What -- you talked about, we'll see kind of a plan in kind of mid 2026. What do you think that will entail? What's kind of the plan to -- in terms of the plan? What's the plan for the plan, I guess, if you will.

So if I told you the plan right now, I would ruin the whole suspense for the event of next year. But so, look, I mean, as I said, we're going through an inflection. It gives us an opportunity to think about what's the next step after those, right? So how do we invest after the first generation of CAS after the first generation of R&D and how do we capture Hugo and robotics in a systematic fashion, et cetera.

So how -- what should the business be aiming for in the midterm. And I think part of that will also be sharing with you maybe a revised financial algorithm in terms of what you should expect in terms of financial performance in the midterm and what KPIs we're going to track and how we'll keep you posted on the progress that we're making towards those new goals.

And EPS leverage seems very important to you?

Yes. It's doubly important. So it's important, obviously, in itself because we want to deliver value to the shareholders and improved earnings and dividends, et cetera. But it's also what pays for acceleration of innovation, and this is an innovation industry.

And so being able to do the EPS leverage and improve the margins and sort of turn around and reinvest a portion of that and things that are going to make us successful in the future is really key.

And then you've talked a lot more recently on doing acquisitions, which is kind of new for Medtronic. That's been a little bit quite there. So maybe, just to start out, what's given you the reason to start talking about M&A? And then kind of what should we expect to see in Medtronic there?

Yes. So look, I think there has been a few years of slowdown in M&A for us, and that has been deliberate. And it's a choice that was made by the management team so that they could focus on fixing some of the issues that I mentioned supply chain and quality and things like that. So really, the decision was, let's fix those issues before we add a new layer of complexity with M&A.

There's still room for improvement, but most of these issues are now behind us. So we feel like we've earned the right to go back in offense in M&A. We also have a strong -- a very strong balance sheet, and we've got capacity to go do meaningful tuck-in M&A for the future. So we made the decision to go back in a little bit more in offensive. The type of deal that we're going to target ideally is, I would say, the sweet spot for us are companies that are just before commercialization or just after commercialization. So that the outcome is relatively certain, right?

And we can have deals that have a meaningful impact on our growth rate and our performance. So we're talking tuck-in M&A with deals maybe between $1 billion and $4 billion, that will make a significant impact on our WAMGR. They have to come with a few different attributes.

Obviously, they need to be in attractive markets that are growing, that are going to accelerate our WAMGR and where there is a significant profit pool, so a potential for future profits. That's obvious.

Second thing is we need to have the right to win in at least one of three areas: one, having commercial synergies. So typically, a deal that we can add to the portfolio of an existing sales force, right? So we have great commercial coverage with Medtronic. And so we have an opportunity to carry products in incremental markets without necessarily having to invest a lot commercially speaking. So that's one criteria.

The second one is synergies and R&D. So we can help sometimes develop market products quicker or help startups or companies gets clinical approval faster. So that would be a second type of synergy.

And the third one is on supply chain. So sometimes, we see great companies that have a fantastic sort of our product, but that aren't able to scale it, and we can help with that, right? So attractive market, significant synergies and that's typically where we're going to attack.

A perfect example for us would be Affera, right? So it was a fantastic prototype made by an Israeli company, and we came in and it took us some time, but we fixed the manufacturability and now we're capturing a great part of the market. So that's the, I would say, the sweet spot. But we're also ready to do sort of more venture type investments.

So to take a minority stake in companies that are in an earlier stage in their development provided, we see them as a meaningful future portfolio addition. And typically, what we would do is a minority investment with a structured deal, meaning that we would maybe have a call option to be able to increase our investment if it reaches a specific milestone. So it always has to be with a view of having a significant impact on the financials.

And one thing I want to touch on is you're talking about doing earlier-stage acquisition, which tend not to be too accretive to earnings, but you're also talking about high single-digit EPS growth and EPS leverage. So how are you working on the balance of being able to do both?

Yes. So for the first category, the sweet spot, that's where potentially the short-term dilution is bigger from a magnitude perspective, but it's probably shorter because the outcome is faster and more secure. So clearly, for us, there has to be this path to accretive earnings. And the amount of dilution that's caused has to be such that we can still deliver our commitment of high single-digit EPS growth in '27, right?

So it's not an either or it has to be and so we do the acquisition and we deliver the leverage at the earnings level. Again, when the outcome or the dilution is too long, then we will take this option of a minority investment until we have better visibility to what the outcome is going to be. And that sort of reduces the impact short term and allows us to get a foot in the door without feeling as much of the dilution as we would if we made a full acquisition.

Okay. And then I think one of the things that Elliott mentioned is free cash flow and improving free cash flow to help fund some of these acquisitions? Like is there a plan here at Medtronic and kind of what are you doing to improve your free cash flow generation?

Yes. So first, maybe to remove sort of what I would call an urban legend around your dividend is getting in the way of doing more R&D and more M&A. In fact, it's not, right? It's just not accurate. We may -- we make over $5 billion of free cash flow, and we've got a really strong balance sheet and so forth, the type of acquisition that I'm talking about, we have significant capacity to do that without touching the dividend we're committed to the dividend policy as it is today.

That being said, we have opportunity to improve from a free cash flow generation perspective. The first obvious lever is the operating margin leverage that I talked about. So that will deliver better EBITDA. And I think we're pretty focused on working capital.

Receivables are improving. We're investing a little bit in inventory today to support the growth of cash, for example, but we have opportunity in inventory as well by eliminating some of the slower rotation type of activities that we've got in the portfolio. So our goal is to get back over sort of the 80% conversion rate that we historically had as soon as '27. And so that's a meaningful incremental cash generation that will come within a pretty short period.

Okay. And one of the big drivers on the revenue growth is CAS, probably the biggest opportunity right now, at least in terms of short term. You talked about getting to kind of $2 billion in revenue early next year, maybe. You put a time on it, but how are you thinking about kind of the opportunity here for CAS in the pipeline? Like you're still #4 in the market. Is there an opportunity to get to 2, 3 in this EP market?

Look, our ambition is to be #1 in this market. And I think we're very well positioned to achieve that. We've got two very strong products today with PulseSelect on one hand and Sphere-9 for PFA on the other hand. On Sphere-9, the product is in super high demand. So we're building the installed base of capital equipment and we're ramping up according to plan.

But candidly, if we could ramp up quicker, we would sell quicker capital equipment. So there's still tension. We're hiring mappers and we're to support the procedures with the clinicians, and that's going well. And -- but we're still in that ramp-up mode. And so we haven't had the sort of exponential effect that you get from the catheters once you've built the installed base, and that's going to continue to build up.

And so we're very, very excited about that. At the same time, as we mentioned earlier, we're working on Sphere-360, and there's even more excitement on that product. If you take the time for procedure, for example, the -- in hard time of 360 is going to be around 11 minutes, which is significantly shorter than what it is with Sphere-9 today, which is already a great product.

And so the doctors have a super appetite to get this product as soon as possible. We're going to go for a pivotal trial this fiscal year. And so we look forward to that next generation. So for us, clearly, the end game is to take market leadership in this area.

And I want to ask about kind of digital surgery in Hugo as well on the top 3 pipeline opportunities here. And we just had the opportunity yesterday to visit the London headquarters and see a lot of the AI and stuff that's happening. So maybe just talk a little bit about Hugo and the rollout and when investors could start to see some impact on revenue?

Yes. So maybe to start on why it's important. In our portfolio, we have another business, which is spine, so spinal implants, right, and the CST business. And if you look at it a few years back, you could have looked at it and said, it's a pretty commoditized implant type of business, very competitive.

You're going to have a lot of pressure, et cetera. We built an ecosystem around it with the AI with AiBLE with the robot with Mazor, with the C-arm and with imaging, right? And so what that has achieved is really build an ecosystem that makes a ton of difference for the physicians and for the patients. And what could have been a commoditized simple business has become an overperforming margin-accretive business for us, where candidly, a lot of the competition is exiting.

Hugo is about -- and the digital suite around Hugo is about achieving the same thing in MedSurg, right? So we're a market leader in surgery, we've got decades of experience in instrumentation, a ton of goodwill with the doctors and with the patients. And Hugo and the digital suite are an opportunity to make that sticky.

And to create the same ecosystem where the doctor can do pre-op procedures, can have monitoring of the operation, can do post-op analysis with AI to help him understand how to improve the outcome, how to improve the speed of the procedure, et cetera, thanks to this whole ecosystem. So that's what we're going for.

And we're on Hugo, specifically the robot has been on the market outside of the U.S. for a few years now. It's -- we have an installed base in over 30 countries outside of the U.S. We've built the sort of understanding of what's going to make it successful. And we anticipate to get FDA approval in the U.S. before the end of our calendar year.

And so you should start seeing an impact if you go in the fourth quarter for us on the MedSurg numbers, and you should start seeing the impact on the full Medtronic numbers in fiscal year '27.

And then already in, kind of the third big growth driver. You talked about faster than WATCHMAN, but...

So third but not least. So here, we have a business that has taken I would say, 15 years to come to market, and it's a testament to the resilience of the Medtronic team, I would say. But now we have a very, very unique position with a ton of clinical data in a field where in the U.S. alone, there's 18 million patients. And so I'll let you do the math, 1% of 18 million patients multiplied by a catheter worth $16,000.

It's a very, very large opportunity for us. It's about to get a final decision from a reimbursement perspective or officialization of that decision because the decision is made. And so we're about to commercialize the product and -- and that's -- for us, it's probably the biggest market opportunity Medtronic has had in decades.

Is there some pent-up demand there from patients that you're seeing since you've had earlier...

Yes. so when we did the clinical trials, 80% of the patients self-applied, right? So which means that there is a demand. It's a procedure that has a material impact on the life of the patients with hypertension.

And look, we're going to do some direct-to-consumer marketing to raise awareness of the therapy because that's key. At the same time, we're building the capability to carry out the procedures and building the system, so that when a patient becomes aware of that possibility, he gets referred to a center where he can have it done as efficiently as possible.

So again, you will start to see the impact pretty materially in the second half of this year. And the reference that you gave to WATCHMAN, so WATCHMAN, was about $0.5 billion after 5 years, and we anticipate a much faster ramp-up than that.

Okay. Great. I think that's all the time we have. Thank you.

Thanks very much. Thank you.

All right. Good afternoon. Thanks, everyone, for joining us today for the Healthcare Summit DB. If everyone doesn't know me, my name is Pito Chickering, one of the med tech analysts here at DB. We are very excited to have Greg Smith, Executive VP of Enterprise Operations for Medtronic today, which I believe may be your first public sell-side call.

That's correct.

So excited to have you here. So I guess just to start off with a little background, you started at Medtronic in 2021. Can you just walk us through what the supply channel was before you start -- when you got to Medtronic in 2021, kind of what you did to stabilize it?

Sure. No, thank you. Well, good afternoon, everyone. Pleasure to be here. So I joined Medtronic, as you said, about 4.5 years ago, right in the middle of the pandemic. And you can recall those days where it was a challenge to get materials. It was a challenge to be able to supply -- to stock our supply base. But I would say where we found ourselves in the supply chain and operations organization is really it came from a decentralized base and having 4 different manufacturing teams, 9 different supply chain organizations.

We had very disparate supply base so the ability to be able to -- our procurement organization. And so we're doing things in a lot of different directions in a lot of different ways. So first and foremost, we had to do was really come up with kind of our approach going forward. So it was setting the strategy, it was setting the structure. It was going from 4 organizations to 1, going from 9 organizations down to 1 in supply chain and really setting ourselves up for basically taking on the task ahead.

So how long did it take you to sort of to stabilize just to stabilize out that supply chain because it was a period of disruption, you were sort of making a lot of changes. I mean, how long did it take you to sort of stabilize again out before you started focusing on sort of improving the COGS?

Well, I would say we started instantaneously on trying to improve the COGS, but we had a lot of transitional base work to do on foundation. It's -- I would tell you, it took us a better part of 2.5 years to really get to a position where we felt like we had stability around the base. We started with a very, very large supply base, some that were very, very good preferred suppliers, but a very smaller base than what we had liked.

So it's putting the foundations in place and making sure we enter it. At one point in time, during the worst of times, we had over 250 people deployed to our suppliers to try to help them actually resolve some of the problems that we had. So a lot of foundational work to do, but knowing we needed to do the work to get service better to continue to focus on quality, drive cost out, working capital, we started immediately on trying to develop programs and putting them in place to address the long-term needs.

Okay. So looking at your universe just for all the areas that you touch, as you think about for COGS, kind of what are the big buckets to make sure I don't miss anything here, materials, manufacturing, labor, logistics, contract manufacturing, kind of what are the big buckets that we should be focused on?

Yes. I'd say there's kind of 3 verticals that I think about. One is your LBM, the labor, the burden and the materials, which is what makes up the majority of the cost of goods sold. And the highest of that is materials, about 60% of the cost structure and then about 1/3 of the balance is in labor and the other 2/3 is in burden.

There's a second vertical, which is really around logistics and it's really around how we move the products. It's the transportation aspect of it. It's the warehousing aspect, it's customer care. And then there's the third piece, which is more of the SG&A, the structural overhead that supports the businesses, which covers all the different functions. And between the 2, some go to gross margin, some go to operating margin. But those are kind of the pools, I would say, I would -- the way that I think about it.

Okay. So material is about 60% of COGS. So what was Medtronic doing for material purchasing in 2021? What are you instituted over time? Kind of where are we today? And kind of what the savings we can get. How should we thinking about just on the term?

So if you go prior to 2021, basically, the majority of the cost savings were coming out of negotiations with suppliers. So I would say that base was being leveraged to the degree that we were benefiting savings coming out of the company. It wasn't a lot that was coming out of logistics and there wasn't a lot coming out of the factory. So it was more around continue to support top line, make sure we have service, make sure that we're providing to the customer and the patient. So I'd say since then, if you look at all of those buckets of costs, labor, the burden materials as well as logistics supply chain components, a lot of focus now on specific programs to be able to drive more productivity and more benefit out.

So I'll give you an example. Materials, for instance, right? At the time, we had direct material supply base of about 4,500 suppliers. And about 40% of that would be what I'd consider preferred suppliers, meaning that the other 60% weren't preferred, which meant there was something about the way they do business that we needed to improve. So we went in and not only focused on negotiations, but also how do you go after other areas of materials?

How do we take waste and yield loss out of our factories? How do we look at the engineering ability? We repointed our supply chain -- I mean, our supply organization and through R&D to basically be on the technical front end of supply. So when we had new product development coming through, we pointed them toward the suppliers that we wanted to have better service, better cost, better quality, better continuous improvement that they can drive. So we had structured programs that we're playing out now that we're driving to enhance our ability to get more out in materials, but also go after burden to go after labor and then to make demonstrative improvements as well on transportation, warehousing and logistics, the way we move our products across the globe.

Okay. And then from a -- so from a materials, I guess, states perspective, kind of where are we today, kind of what are the next steps that you guys can take to keep driving that kind of what inning you are you see us as games or optimal purchasing of materials.

Let me open it up and go to total. But I would tell you where we were in 2021 is about 2.5% of our overall savings is what we would basically were accomplishing. Now that's a gross savings. If you put inflation against that, and remember what happened in 2021 with labor costs going up, material costs going up, we basically found ourselves negative margin contribution because the actual benefit or the actual benefits weren't offsetting the impact of the inflation. So that hit us hard. What -- as we have built those programs, what we have seen now, our ability at 2.5% of gross savings is now more than double and sustained and growing across materials, across labor, across burn and supply chain.

Now we've also had the benefit of inflation abating, right? So we look at inflation, we've seen it come down demonstrably from where we are. So now we're in a position where we're contributing contribution to margins as it relates to our programmatic savings benefits outsetting and overcoming the cost of inflation and then contributing to that expansion.

So then just to sort of be super clear, we talk about right now on an overall basis, all the things you're driving about 5% sort of gross savings, inflation is running 3%. It means your net savings should be 2%, so sort of 200 basis points sort of where we should be. So I guess looking at the 5%, which buckets is that kind of where you guys -- as you go from 2.5% to 5%, where are you seeing the biggest -- the biggest savings come from?

So net biggest savings, obviously, comes from supply because of the magnitude. But as far as percentages come from the labor out of the factories. We've been able to drive the last couple of years, almost double-digit productivity improvement out of our factories. and being able to run our lines more efficiently, take labor out.

Now that's the smallest percentage of our overall spend, but it's a big impact. So we have those programs, I talk a little bit more about them that are impacting labor and impacting yield. Those are the fastest to yield. But the one that we are doubling down on is in materials because it's such a large component of the total cost structure.

So you're looking into your fiscal sort of to say looking for fiscal '27, '28, what areas of materials or do you see the biggest savings? Is it from using preferred, better negotiations, but I mean kind of where are the biggest savings, right? You do it initially if you're a number of suppliers, it makes sense. But as you think sort of 3 years down the road, where do you savings keep coming from on the materials side?

Yes. So we've been able to move over the last couple of years, we've been able to move from about 40% preferred to about 68% preferred. So we've made a dramatic improvement there by getting the products on the front end of the innovation cycle with the preferred supplier base. It's now given us the ability to get leverage our scale. So we're getting better scale leverage. We're getting better contracting.

We're getting better continuation and programs with improvements me with them as we gave them more volume. We also -- we have stood up a group called supplier transfer office, whereas one of our challenges before is we would go out to bid, we really didn't have the leverage because we would never move from one supplier to another.

So now we've added about 100 people to a team, but all they do is move product. and given us the leverage there. We've also gone back and said, look, a lot of projects, programs, products that haven't necessarily been engineered on platforms that were real efficient. So how do we go retrospectively and how do we address some of those products, specifically ones that may have low yields, ones that have idiosyncrasies associated that are not necessarily -- they're expensive, but don't necessarily add value to the customer or to the patient.

So we have a team, we call it VAV, value-added value engineering that allows us to go back in and we're addressing some of those programs and products. And then we put a big focus on ensuring that through our development process that we are designing and putting in place a design for value.

So when we make choices around how we build products, we don't ever deviate from what the outcome is to be, but we make sure the inputs are efficient and we're leveraging -- think about an automotive platform, right, where you use more on multiple cars than you do just strictly one. And so it gives us the ability to leverage and leverage that scale.

Is your new CFO an ex-car manufacturers?

As a matter of fact, he is, yes.

That's what we heard about.

It's just like one for -- a quick question on materials. I mean, as you move from 40% to 68% preferred kind of things, how much savings do you guys get to move into a preferred supplier versus nonpreferred?

It depends. I mean we have examples where we have single digit, low single digit. We have others where we have high double digit. So a lot of it is making sure that we are just picking the suppliers that actually have the capabilities that we need. For us, it's critical, especially as you guys know in this industry, you got to have the right product at the right place at the right time. If you don't have a customer that can service your supplier that can service you consistently, problem. If you have issues of quality that we have to catch internally because they haven't produced the product right, problem. But we also want people that understand the best-in-class approach is how do you automate? How do you drive continuous improvement on your end, you're not coming to us asking for pricing.

So in addition to that, a lot of the ideas that we have for taking materials out, they don't come from us. They come from our suppliers because they're doing something for a competitor, they're doing something else in the space, and they may have better knowledge base than we do. So therefore, it's suppliers that are willing to work with us and to be able to have a win-win scenario where they get more volume and they actually give us better price structure along the way.

Okay. And then on -- so is 60% materials third labor and through burden. So let's just go to labor for a second. How much of the labor improvements have been more of a onetime, your ability to run more efficiently to maybe shut down facilities kind of looking through your labor productivity, how much of that is just sort of adjusting or catching but where it should be and how do you think about that from a durability perspective, continue to keep finding those stronger labor improvements?

Yes. I would say part of it is that. But what we have driven is a lean manufacturing process. We call it Medtronic Performance System that we are replicating across all our factories. When I first started, we had 67 manufacturing facilities. And if you go visit them, every one of them was manufacturing and doing things differently. They have different operating approaches, they have different ways of doing things.

So we've taken a standard approach. that we have deployed across all. It starts with what our key objectives are and we sequence them all the way through the manufacturing facility. Then as part of that lane, we brought to make processes, zero loss, a lot of tools that are not new to the world. their implementations that you'll see best-in-class companies have been used, and we've been pushing those across our facilities. The advantage of that, it helps enable our 54,000 people to be able to be part of the problem solving identify the issues, problem solved. And so we are seeing more and more productivity coming off our production floor where we're actually seeing the creativity and the thought processes generated from the bottom up that we have process in place to be able to exploit. So it's very durable. And if you look at a lot of companies out there, best-in-class companies that use lean manufacturing, you'll see that sustained approach over time.

So looking at your labor inflation is running sort of typical 3% to 4% somewhere in there. So as you look at your 3-year plan here, looking at the sort of that gross 5% savings, you still get a big chunk of savings by simply continual improvement within that. So just offsetting [indiscernible] that labor...

Labor is probably one of the ones that we would say from an inflation standpoint, we feel it's probably more of a risk. I feel better about materials. I feel a little worse about labor. A lot of that is other countries that we do business in, where we'll have -- they'll have statutory increases, things like Mexico, where we're seeing higher wage rates, if you will, in the U.S. But generally, yes, we will be in a position to have net productivity coming from our labor pools because our productivity will exceed the inflation.

Okay. And then the other third is burden. I guess, what is burden?

Burden is the overhead. It's the individuals, the engineers, the infrastructure, the depreciation, the elements of running of the manufacturers.

So how do you get leverage? I mean, besides simply manufacturing 5% or more pipes or more how do you get leverage from burden?

Big element of it, we're finding is -- it's actually using AI and machine learning. A lot of the folks that we have in those facilities are actually there, in some cases, for inspection and improvement and dealing with problem solving. We have put in place a lot of systems, manufacturing execution systems overall equipment digital factory, a number of things that are taking and basically automating the work has to be done.

Probably one of the biggest opportunities that we have found is a lot of inspections that take place in the facilities. And so we've basically gone to automated visual inspection system, and we're starting to deploy those rapidly across the enterprise to be able to address where we got manual intervention and manual labor and tie those into the overall digital initiatives that we have.

So what's the FDA's view, I guess, as you go through the FDA approval process, there's a certain set of areas, we typically just see the approvals. But from a manufacturing perspective, is when you go through that, I guess what's the -- what are the regulations around AI for visual inspection versus using Mark One Eyeball.

Yes. I mean our regulatory teams are working on that actively now. But definitely, it has to go through the FDA and be approved and we have to validate but so far, we're seeing some really good problems.

So is that actually up and running live? Or is it something which woiuld -- and then you have to validate it for each product that you go through? Or how does that work?

We do. A lot of places that we have been able to find the most helpful so far is in packaging. Those things aren't quite as product sensitive that when we use the proof cases, we can replicate and horizontally deploy across the enterprise, but also take those lines against other things upstream.

Fair enough. And then logistics. You guys have an enormous number of manufacturing facilities, and we'll talk about tariffs in a bit. So let's separate the pure logistics how are products being delivered, whether manufacturing to warehouses to customers, I guess, in 2021? Where are we today? And kind of what's your sort of vision of where this moves to?

So today -- well, in this last year, we took over our distribution network. So historically, it's been a third-party run network. We acquired and we closed, I think, 5 distribution networks over the last couple of years or distribution centers and stood up a brand-new large facility in New Jersey and then also another one in Memphis. So for us, as we think about the strategy associated with logistics, we want to minimize touches, so the more that we can do things directly, touches include inefficiencies and costs.

We want to take miles out. We want to maximize the cube. Example would be I visited a facility in the Minnesota area, Minneapolis area, where we had 19 boxes of products that arrived from the same location the same day, right? So basically, how do we realize that all of it would sit in 2 boxes and be in a position and we start working to be able to cube out that shipment as much as we possibly can. So from a logistics standpoint, a lot of it has been the blocking and tackling starting to now move into -- we just -- I was visiting a customer the other day that's probably one more advanced on supply chain, and we've cut their orders down by 90% working together where we're sending products now to their central distribution center.

And we are having a lot less processing, a lot less FedEx shipments, a lot less work. And so there's a number of opportunities that exist in the supply chain space in those kind of areas that we are starting to exploit.

From a total cost because logistics to point is both in COGS as well as SG&A. But can you sort of size to sort of what's the total dollars around ballpark logistics for the whole company? And what's the split between COGS and SG&A?

I would say it's in the 2% to 3% range of sales is in that space, total cost. The majority of that is in cost of goods. So probably 60% of what I would say, and 40% of it is SG&A its operating margin versus gross margin.

Okay. And then from -- I guess, taking over the distributors and start taking them on yourselves, there's obviously investments you guys have had to make.

Not distributors, the distribution centers.

Distribution centers. Yes. With those investments that were made, I mean, those cost savings you can walk us through when you decide to do that to sort of day 1, year 1, year 2, year 3, I guess, how does that cost savings flow through on that 3% of sales?

So there was investment that was required for us to buy out those facilities and buy out and take them over ourselves. But it was based on the trajectory of the benefits. First and foremost, you get the fees back that you're paying and the party running so immediately. And then second of all, as we look at our lean processes that our manufacturing facilities and we look at the success that we've had there and our ability to be able to deploy those, we didn't have a situation where we had as much productivity that could be generated from our third parties as we could internally. So it's part of our benefit that we received on day 1, and then it's a continuation of our multiyear plan to be able to drive productivity down across those networks.

So miles, touches and queues, those are the 3 cube rates.

Miles, touches, cube rate. So we negotiated the rate, those are the big ones.

So I mean just, for example, can you sort of quantify in my -- I guess, each of these miles touches and queues and then rate, I guess, 2 years ago, where we are today and kind of where it can get to, your way of quantifying just the improvements that you can make by being more efficient with your logistics?

Logistics has been one of the areas that when you look at the breakdown between cost structure, it's been one of the ones we've gotten the most success out of the last couple of years. The way it has been accretive to us and what we've been able to do for margin. It's been a higher percentage, I would say, than the average over the period of time. A lot of that is because of the factors. Also, we've had the benefit of freight rates have been down a little bit because of the demand. So that's been a tailwind to us as well.

So can you cut miles by like 3%, 5%, 2%, 1%, kind of what's the target from areas of miles?

Yes. I would say that when we look at a macro basis around logistics supply chain, we're in that mid-single-digit target for benefits on a year-over-year basis. I won't get into the specifics around miles because I couldn't tell you about, right? But examples of simple things that you can identify that are just opportunistic and this is one-off is products that are produced in Mexico, for instance, that we would ship to the U.S., go to a distribution center that would ultimately be distributed to Europe, right? So as we get smarter and we get better with intelligence, digitalization, then we can just -- it's how do you take that intermediate step out and go direct. And those kind of opportunities are ones that we're working to exploit now.

Which I think is a nice sort of segue into as you think about the tariffs and how tariffs change almost logistics as much as manufacturing. I guess how do you -- do you guys have enough information at this point to sort of playing out over the next 3 years tariffs? -- you still sort of waiting to see? I mean how much do you guys think of changing logistics first, manufacturing second around volatility tariffs?

Yes. For us, looking at country origin has been a big deal, right? And it's not just because of where you move products, but it's also to how you label products. So Puerto Rico, for instance, is in the U.S. trade zone. So it's designated as a U.S. product, right? When in reality, it's Puerto Rico. And so it's different than how other countries would view that, right? So we've taken a real strong approach in our revenue protocol, USMCA, country origin bypassing borders.

So if we make something in Tijuana, Mexico and have it sterilized in the U.S., Southern Callon and shipped over to Europe, and we bypassed that now, skip the border, if you can and try to run through that. So we've been very successful with those. You've heard recently what we set our target implications are for this year and for next year.

So we're not completely out of the woods, but it factors into our decision-making, specifically really quickly around supply chain, manufacturing, not as much. I mean this is a very complicated industry, as you know, when you stand up a new manufacturing and duplicate manufacturing process is a commitment. And so we got to think about that in the context of all the other things that we think about geopolitical and everything else that could arise and our risk profile.

It's also -- to your point if you're bypassing the U.S. or bypassing countries from manufacturing sterilization to even warehousing as long as it's basically -- so your shipping has changed structurally to avoid bypass basically essentially certain countries. Yes. Okay. Fair enough. So I guess, looking forward, as you look at sort of those areas, so materials, labor and burden, kind of where do you see like the overall inflation going sort of within those 3 segments kind of as you think about sort of that 5% gross offset, kind of how should we think about it a 3-year view?

Yes.

And then from a, I guess, labor perspective -- from a blended labor perspective, is that more like 4%, 5% kind of because of the secretory increases? And do you see that the increases changing at all as the global economy sort of moves around? Or is that just -- are those just fixed costs within those countries that is?

Yes. I think probably the biggest thing of fluctuation we've seen in the last few years is Mexico. Mexico has taken about 20% increases over the last 4 years as they've changed their assumptions. So that's kind of something that's weighted is a little bit. We say U.S. is probably don't see quite as much impact in Europe, and we don't see as much even in Puerto Rico anymore. And those are the 4 areas that are biggest for us. But I would say that we probably anticipate labor to be 4% to 5% in that risk.

Okay. One quick question actually going back to the tariffs. I guess as you have to adjust your logistics to deal with sort of origin, like how much cost systems? Is that a real cost to optimize tariffs? Or is it's beneficial because it offsets tariffs. But how much of additional cost burden is it going to be on the all system?

It hasn't tended to be one. In some cases, it's probably caused us to revisit our whole structure and how we move products, but we haven't seen it being a burden at all. And to your point, when you look at the benefit from the tariffs, the offset, the impact is positive.

Okay. And then from a manufacturing optimization, I guess how many facilities have you guys consolidated and kind of how do you view that, I guess, going forward? Is it still an area of opportunity to help increase our labor? Is it all from a tax perspective, I guess, how do you view -- I guess, what you've done so far from the manufacturing facility basis on how we do that going forward?

So if you look at the last few years, we've had a few facilities that we've added as a result of acquisition. We had 5 facilities that we divested as part of the divestiture. We shut down 7 manufacturing facilities, 1 in the U.K., 1 in Germany, 4 in California and 1 in Massachusetts. We'll be -- obviously, our footprint changes to diabetes. We'll have a couple of additional facilities that we'll exit. And network optimization is one of the transformational programs we're very focused on. So we see that as an opportunity. However, it's also not a quick payback. And as you highlighted earlier, the implications associated with FDA and ISO and everything else of moving products is a choice that we have to make.

So as we think about the deployment of our resources and we think about deployment of capital, it enters into it. It's also, in many cases, it's better off the plan network changes as part of our PLM. So our product life cycle management as we have a new launch that's going to cause a base to change dramatically will cause us to think about the implications of that.

Okay. How much leeway does senior management -- you are senior management, so basically CEO and CFO, give you to do the things that you see fit. I mean you came in from the outside with a fresh perspective, you've been in the business a while. There's a lot to be done to be stabilized and then work on improvements. How much of a free hand do you have to get all the things done that you want to do?

I would say nothing but support would be what I would describe. Now can we do everything and does everything make sense? No. Industries are different. There are certain things like network optimization, a great example coming from CPG or from automotive. It's a different model, if you will, around how you move things around. So some of the things that opportunities like that, it hasn't made the most sense to prioritize at the highest level.

But I've been very supported, I would say, through this. What we try to do is make sure there's a leadership team, we collectively review the strategies and make sure that we're aligned with where we're taking the organization and make sure that not only the people understand, they understand and have input into decisions as well. So it's more of a -- I wouldn't call this as an operations plan. A lot of this work is an overall business plan. So we review with the Board when the Board meetings on facilities or where we [indiscernible].

Going back to sort of this sort of 5% sort of gross savings number as we sort of look back at fiscal sort of '25 and sort of fiscal '26 with inflation sort of coming down, how should we think about sort of when do you guys get -- when you ramp up to that 5% number? -- kind of as we look at the numbers from outsiders, obviously, in fiscal '25, you had FX for fiscal '26, you have diabetes investments plus PFA investments. But how should we be looking at the 5% gross savings number versus the CPI inflation? And then how kind of as we're looking at the gross margin line, kind of how we should be thinking about it for the last 2 years and how should you look at the next 2 years?

Yes. I think we had a little discussion about this earlier, but I would say the way to think about it is our inflation exceeded -- 4 years ago, inflation exceeded the benefit. I'd say we were neutral to next year. In the last few years, we have -- the model has played out that we've seen the 5% top line. And we're seeing accretion to the gross margin basis point contribution.

So look at last year, we saw accretion coming from the work that we're doing around programmatic savings exceeding inflation, and we will see the same as we go forward. So we are seeing our ability to move from the lower percentage of savings up to that level of achievement. We've got a robust pipeline and a lot of different programs and projects to get us there. So I'd say we saw the results in fiscal '25 contribution basis points. We anticipate that will continue.

Yes. I mean, obviously, you have to pull out FX as we sit there and look at the analysis, you have to pull out FX to figure out.

And pricing and a number of other aspects which is difficult. But Terry, I think, was -- has addressed that recently around the contribution factors as it relates to what was attributed to us on pricing actions we took last year, what kind of contribution we're seeing from the net benefit. I'll leave it to him to explain in more detail.

Yes. I mean like it's pricing, it's not -- that's not your world, so we're not going to -- you're just cost, cost. So I mean, I guess looking at the buckets again, whether it's materials, labor or burden and logistics, logistics seems that you guys are able to ramp up on that pretty quickly pretty early. Labor, you guys ramped up pretty quickly pretty early. Can you sort of walk through sort of how long it takes on material side. So reformulating products getting to FDA, is that sort of the next 3-year horizon that we're looking at that we should be looking at some biggest leverage there?

So the labor side -- I mean, excuse me, the material side, we started ramping up with the stop program coming on, the VAB program coming on with the negotiations work, the work that we're doing around development side, I would say we're building muscle in all those areas. So what used to be our laggard as a percentage, we're seeing it pick up as we move along. So I anticipate we'll be at a run rate on material savings in the next few years that will be an average of what we seek to achieve across the board.

Okay. And then so going to some specific examples, Affera, obviously, you guys acquired ramping up aggressively. Can you sort of walk us through just the process of sort of how it is that you optimize this process, when the leverage begins to get there, when it goes from a margin headwind into a margin tailwind? And just details are actually around just literally how you guys ramped up in Affera because it went from 0 to a lot in a very short time period.

So let me give you a contrast. So Pulse Select is a product that also operates in that field. It's something that we developed internally and part of our process is designed for manufacturability. So at the conception of the idea of the product, the engineers, the operations teams, the R&D teams work together to make sure that we produce a product that meets the need that has the right margin structure that's repeatable, we can manufacture it, it's reliable and it's got a good cost structure.

That was not how Affera was designed. So we acquired Affera. We purchased it. It has not gone through a similar process. And at the time that we purchased it, it was -- we were making 5 products a week of the catheters. And the clean room in that facility in Bedford, Massachusetts is half the size of this room. So basically, what we needed to do to get Affera there, we believe in the product, we knew its capability. We knew the market potential was really basically we stood up a brand-new factory. We have multiple lines in there. We sought to get FDA approval. We had to do all the work to basically retrospectively do y for manufacturability through all the engineers and R&D and the quality teams and operations teams and basically got to a position where we overcame those issues and now are producing the product at a significant rate, and we're doing it at yields that are almost comparable to what we're doing with Pulse.

So I would say, which is really solid work from all the multiple teams with a very clear intention of what we need to accomplish to the team work together to achieve. The cost structure has improved dramatically. We are seeing very good margins off the product. The exception being right now is obviously, as we launched the capital units.

Capital units are a little bit of a drag, but the good news of capital units is they're what compel the people to buy the catheters. So it's a good thing. But our team between mappers and between capital units is ramping up as aggressively as we can. And the catheter supply is not only enabled by the new facility that we stood up in Massachusetts to produce this, but we've also taken our one of our premier facilities in Gale, Ireland, which is one of our shining star, and we have put multiple lines in place there as well to produce the product. So we are feeling very good about the foreseeable next 3 to 5 years on capacity for the product.

Which is sort of a nice segue as you prepare for these launches. So RDM, we have coming up, obviously, potentially, it's a big launch, a lot of excitement building around it. Reimbursement, CBD, a lot of uncertainty at this point sort of in terms of how it will be rolled out. But across the board, you talk to hospital systems and physicians, there's a lot of excitement here. How do you balance the scale of these potentially large product launches without sort of crushing your margins in the near term? How do you balance that out?

Well, I think it depends on what's involved, right? Ardian is a great example of where we have the capacity online now for 2 years, and we've got ample ability to be able to meet the high side scenarios in that. And we basically have negotiated with our suppliers that we have the flexibility on their side to be able to give us instantaneous capacity that we need. So we built the safety stock, if you will, to be able to prepare for the launches. But at the same time, we can react quickly versus in some situations, have we not planned for that.

It may be a slow reaction and it takes a while to be able to react to that. So on these product launches, we're trying to make sure that we have instantaneous capacity internally, we have the right supply contracts, and we're in a position that we have the flexibility of our suppliers, assuming that the business is on that side.

So you have great contracts with suppliers, but you still need the manufacturing lines, you still need the staff. I guess how do you plan for that? Because at some point, you have the suppliers that can give you what you need, but you still have to have the fixed cost investments. So how do you balance the fixed cost investments with potential demand if you Affera love the example about when demand goes off, it's almost going to throw everything you have added as you are planning this launch, I guess, how do you balance suppliers just your own fixed cost investments, whether it's labor and/or manufacturing lines?

I'd say from a -- when we have the for instance, like Ardian that we've had in the pipeline for years, and we know what's involved in that. It's a lot easier to do than to acquire a business like Affera and not really understand what has to be true from -- with the growth that comes from that. But with our base of Ardian, for instance, in our Galway facility, it's a relatively small footprint. There's a flexibility of labor there that we're able to move in and out. So it gets back to that flexibility again it's not just our supply base, it's also with what we have internally.

Okay. So shifting kind of more macro, I have to ask the AI question. We talked about how you're using AI for visual inspection, which is for packaging, eventually, we need visual inspection, assuming FDA approval on the products. What other areas do you see AI from a perspective? Like if you rank it from the biggest things that you're focused on right now using AI?

Yes. So for us in the last few years, we have put in place an advanced planning system. So before, we had multiple planning systems. And so from initiation of our IBP process, all the way through to where we deploy products. So that's a big area of opportunity for us. We now have a system, we have a foundation, and the team is working aggressively to find ways to be able to digitize that so that we have less manual intervention through the process.

We have better signals deep into our supply base, and we have the ability to be able to get early warning signals, if you will, be able to manage things across our coparties, if you will. That's a big area. We also put MES systems, our manufacturing execution systems and now we're installing across our facilities.

We put overall equipment effectiveness tools in place. So we're basically connecting all the equipment on the lines so that we have the ability to be able to see how effective is it operating and not only how effective is it operating, but when does it deviate? So we go into the planning process that we can basically change the standard deviation, and it gives us a lot more productivity and it gives us a lot less waste. So we're starting to get into the factories and then look at the big work streams that we have around how we deploy machine learning and AI.

So the 2 big ones for us that we're focused on right now is perfect order. So from the time an order comes in, have zero touch and that includes how we go through the contracts, goes through pricing, goes to any kind of credit holes, goes to any kind of credit blocks, anything that can deviate from everything coming out.

So that's one that we stood up. And we think there's tremendous value in that, that we can extract. But the other one, the bigger one is really from the demand all the way through demand signal all the way through deployment and then how do you leverage and connect systems. And so I have the advantage of having global IT in my team as well. And so we're really deploying and using a lot of that but doing it across the enterprise as well.

So we're trying to find those areas that we can really leverage it. Human resources has been a big one for us, not necessarily in my space, but human resources transaction has been a big one. Finance and some of the things we're able to do on AP and AR and be able to really get efficient in those areas. Early indications of where we can go bigger. And so we're making the investment in time and resources now to do that.

Okay. From a -- I guess, sort of 4 minutes left here, so as sort of go more macro question. I mean you're looking at sort of the biggest opportunities 3 to 5 years for cost savings as for specific details that we should be looking for, talking to you about in the future and are asking Ryan about as we look at gross margins for Medtronic.

Yes. I just -- I think that it's going to be a balanced approach, right? It's not going to be a one-size silver bullet. There's not -- you don't walk in and close this or open this. It's going to be the continuous improvement and transformational programs that we have to do around driving material costs out, continue to get more productive and efficient in our facilities, driving out our distribution network. And then I think the other part that will emerge and is emerging to some degree is how we work together across the value streams and how do we bring those handoffs together so that we're much more efficient through the process.

Okay. And then so with sort of this durable target of sort of 5% gross savings, if 1 year you miss that again, we're not talking about pricing. We're not talking about volume. talking about your target of 5% gross savings. What are the biggest risks there? Kind of what are the things that keep you awake at night? Where is it that you have to deploy your time that could be in the areas that pressures that?

I think the biggest thing that worries me is what happens around the world. The day that Ukraine was bomb, we found -- you realize the supply lines go up, you realize that the borders closed. You realize that there's a geopolitical aspect of it, right? Those are the elements to us. I feel like we have a very good understanding of where our supply base resides, what those risk profiles look like. But we also depend on Tier 2, Tier 3 and Tier 4 suppliers as well, very diverse across the globe. So those are probably the ones to me that are the most concern is how we get the right contingency in place and continuity to make sure we protect supply when it's such a volatile world right now.

Which is a nice segue into as you think about sort of the volatility that we're seeing, whether it's -- do you plan to gold tariffs, et cetera. How do you think about inventory levels, right? So how do you balance working capital with inventory levels as you think about managing like the shocks of the system that we sort of somehow keep seeing year after year?

There is certainly a role for safety stock that exists. I think also what -- an area that we're really focusing on is trying to get cycle times down so we get better reaction from our suppliers. So we don't have the latency, if you will, when something does occur. So part of what we're doing is we're getting on these preferred suppliers is getting a much better understanding of what their capacity models are, what kind of capacity is available to us and then how we deal with that risk profile is further upstream. So that is, to us, going to be really important as well, make sure we get better reaction times from the suppliers, understand their system, their supply chain better. And that's where digital and AI is going to help us as well because with that many suppliers, it's sometimes challenging, but the systems are designed to be able to help us infiltrate and understand a little bit better than we do.

And then last question is that, again, looking at us for 3 or 5 years, the inflation harbors around 3% level. target of a gross savings by 5. So these sort of 200 basis points potential gross margin savings kind of coming out of Medtronic in the next several years. Are there any other areas that need the investment that will offset sort of that net savings that you have that you see at this point? Or as we start seeing this continual gross margin improvements over the next 3 to 5 years?

Yes. Probably best to have Terry walk you through the componentry of it all because as you know, mix plays in their FX plays and there's a number of components that are positive years negatives over years, right? But I can tell you that from a standpoint of breaking out the programmatic savings versus inflation aspect of it. We're seeing the benefits come through. We -- they'll come through this year, and we've got a robust pipeline for the future. And it's not -- we're not creating the Adam, we're not splitting the item. It's not what others have never done before. A lot of it is tried and true capabilities. It just didn't exist in this industry and didn't exists within Medtronic.

That's why you brought in. Guys, thank you so much for joining us. Greg, thank you very much.

I appreciate it. Thanks, everyone.

I think we'll kick things off. Thanks so much, everybody. Day 1 Morgan Stanley Global Healthcare Conference. Thanks, everybody, for coming. Patrick Wood, obviously, I run the U.S. MedTech team here. Exciting, thrilling disclosures, morganstanley.com/research disclosures. I'm sure you'll all be going there right after this meeting. But what is exciting is to have Thierry here as CFO of Medtronic, which is an exciting one. So thanks for joining us.

Thanks for having me. Pleasure to be here.

I got to start with just kind of the obvious one because you joined the business from a different industry, and I'm probably going to want to dive into this a bit. But how have you found the transition? What surprised you, just everything about that?

Yes. So I've worked for many different industries over my career with GE and with automotive, et cetera. So I'm used to kind of changing industries pretty quickly. I would say the transition to Medtronic has been really good. It's a very sort of welcoming culture open to new ideas, and they wanted someone with my background. So they're obviously -- there's high expectations, I guess. But it's been easy to kind of get access to everyone in the business.

Look, there's a lot of surprises on a day-to-day basis in terms of the technology, the products, et cetera. It's easy to forget how amazing some of the products are and the difference that they make. The culture for me, I knew it would be sort of mission-oriented, but it's really is a strong driving force in the business.

But yes, it's been great. So I've been spending my time learning about the customers, learning about the products, learning about how they're made and getting access to as much information as possible, focusing my efforts really sort of; one, on just delivering the short term, obviously; two, on starting to identify how I can help with margin expansion; and three, on the growth side. So how I can support acceleration of growth. So it's been an interesting few months.

Yes. I mean your previous role -- your more immediate previous role, automotive, capital-intense business, raises in margin. It's just a very different [ content ] to health care. When you were doing the interview process and thinking about things, were they -- do you think the team was looking for someone who has that eye for efficiency to help drive the productive side? Like what was their pitch to you for how you would fit into Medtronic?

Yes. I think there was a combination of 2 things. One is indeed, automotive is very, very tough from a cost perspective and operations have to be very, very smooth. So you can't afford any surprises. So I think clearly, there was an expectation that I would bring some of that discipline to the table and how to help continue to improve that.

The second part, though, is there are similitudes in the sense that it's -- automotive is also very heavily innovation-driven. Capital allocation has become very, very important. So making sure that you're decisive and where you're going to be successful and how you allocate resources is a common theme between the 2 industries. And so in my previous job, I worked a lot on freeing up capital from one area to be able to capitalize on the ones where we're going to be successful. And I think that applies to Medtronic to a large extent as well.

When you joined, I guess you would have -- I mean Medtronic is a massive company with a lot of different end markets. You both would have wanted to pick up a lot of the information of what's going on in each of them. I suspect at the same time, those divisional heads would want to be pitching you why they should get allocated opportunities in capital. How do you find that process? And is that not challenge internally, but how does that opportunity cost, if you like, allocation? How does that work?

Yes. Look, I'm a data-driven person, right? So for me, going into these discussions, it's all about understanding the numbers, the size of the opportunity, the probability that we're going to be successful, the size of the price, so to speak, and looking at that with data. So what's the opportunity from a growth rate perspective, what's the opportunity from a margin standpoint? I'm pretty big on return on invested capital as well. So the -- my approach has been to just look at the data, right?

And it's -- you pretty quickly come to a first sort of set of conclusions on what the growth drivers, the macro level growth drivers are going to be, and we might speak about some of those with cardiac ablation, RDN and Hugo and you get comfortable with the big stones, right? Then you look at the large franchises like for us, cardiac rhythm management, Spine, Surgical and you look at how you can fund those so that they remain successful and continue to have a moat around them.

And then you get to the smaller businesses, right, and see how you allocate the businesses -- the capital between them based on what the competition is doing and how you evaluate your chances to succeed. And it's been very data-intensive and very discussion-intensive discovery process, I would say, but great fun at the same time.

I remember when we did actually by Wall Street with that first meeting. And quite unusually because you were fairly new in the role, you were very clear that the first guidance would be one that you would own and that was yours. I mean, I guess, on the one hand, that also requires trust for you and the internal team and the information they're giving you on that side. But maybe the flip side of it could be there's an incentive to set a target and a structure that you feel very comfortable with, especially earlier on in the role. How -- what's the interplay there? Or another way, is the guidance conservative?

Well, look, I mean, I want to set the business up for success and obviously, myself, so I wouldn't give a guidance that I'm not comfortable with. As it happens, it was not necessarily an easy one because we had the impact of tariffs, and we had the separation of the diabetes business to communicate at the same time. But look, we went through a pretty deep roll-up process as you do in these cases, and the team took me through risks and opportunities. And we came to the guidance that we issued. And yes, I'm comfortable with the guidance and after 1 quarter of performance, I think we're encouraged. And we feel strongly that we're going to deliver that, yes.

I'm sure there's only so much you can say on things like that, but latest thoughts on the time lines of the Diabetes spin, how progress is working on that?

Sure. So there are really 2 things, right, in diabetes. One is the operational separation of that business. So it needs to become stand-alone so that when we do the IPO, it can run itself, so to speak. And then there's the transaction work itself. On both fronts, the work is progressing very well. So the business -- the management team is in place. We're doing the separation from a systems perspective towards the end of this calendar year. So it will be ready. It will be ready by end of this calendar year to be run as a separate business.

And I can tell you, the team there is fully engaged and can't wait to control their destiny and run their own business. And then there's the transaction side, and it's progressing nicely. So we're in the process of forming the bank syndicate that's going to help us with the IPO process. And so when we announced the separation, we said it would take 18 months, right? That was back in May. So now 3 or 4 months later, we're looking at 14 to 15 months.

So we're right on track. So we're talking the first phase, so the IPO phase of the transaction towards sort of the end of the first quarter calendar year of '26. And then the split parts to happen roughly 6 months after that. So all on track. And positive reaction from stakeholders, from investors that we've been meeting so far.

Yes. It's a fast innovation area so being independent.

Yes. And look, it's a fully scaled business. It has its own manufacturing, its own logistics. It's got an exciting pipeline of products. We have 2 sensors now between the instinct sensor that comes from Abbott that got approved last week and Simplera, which is our own sensor that's ramping up. And we've got a patch pump coming up. We've got a pen coming up in the pipeline as well. So it's an exciting business in a market that's growing.

And yes, from a transaction perspective, it's going to have scarcity, right? It's going to be a large transaction that is going to be hard for investors not to look into. So yes, we're excited about that, excited about launching that business into its own future and candidly, to be able to focus the rest of the business on the other 3 franchises where we have a lot of things -- a lot of positive things going on.

From your perspective, diabetes assuming that will go successfully. RemainCo is still a very large business. Do you feel it's the right kind of size, a bit of a loaded question, but is it manageable of that size? Would there be further things that you think from a slowing down or a focusing perspective? Or do you think it's probably nicely situated is how you would view it?

Look, I think it's not a size question as much as it is a -- what processes do you have in place to control it and make sure you're on top of things. I think eliminating or taking diabetes out of the portfolio will give 20% to 25% more time to some of the senior leadership, whereas it was only sort of 7% of revenue and 1%, 2% of profit. So that's good. It will give us more time to take a look at the rest of the portfolio. I think coming from the outside, there are significant synergies between the different franchises. If you take Tibial in Pelvic Health, Neuromodulation, cardiac rhythm management, it's all the same basic technology.

If you look at some of the software that we're developing with AiBLE in spine and in Hugo, there are lots of consistencies, et cetera. So I think there are synergies between the different parts of the business, number one. Number two, I think the operating framework that Jeff put in place with the operating units, but having centralized function for the nonnegotiables such as supply chain quality, et cetera, is working well. It's driving a lot of benefits for the organization that we're starting to see from an execution standpoint and from a margin standpoint. So I think size is not an issue.

You mentioned supply chain. I know Greg is in town. I don't think anyone who hasn't worked in industry knows how critical that component is internally in the business. How do you feel that is at the moment? I know there's a number of supply chain companies have been brought down and the whole thing have been rationalized. But does it feel to you, stepping in now like we're in a good spot from like a forecasting and a management side of the supply chain?

I think so. I think Greg did a ton of work from a consolidation perspective. As you said, we went from 4 manufacturing teams to only 1. We went from 9 purchasing teams to only 1. It's all centralized. That makes the data much more forthcoming. It makes all the forecasting a lot easier to do.

Predictability is actually good now. So execution is strong. And we're starting to gain efficiency from that sort of centralization of things. Between technology, commercial and cost, those are the 3 areas where we benefit from the size of Medtronic. And I think what Greg and the team have put in place is really starting to pay off. I do think that there's still a lot of opportunity ahead of us, though, that I'm happy to discuss.

A couple of unanswerable questions, so I apologize. But how have the discussions with Elliott been? That was obviously relatively new news. They added a little bit of infrastructure, might be worth flagging to the group what's going on there, but they added a little bit of infrastructure in terms of the Board composition. How are you finding things there? And how has the discussion been?

So look, Elliott contacted us in a very constructive fashion. So they -- contrary to some other engagements that they've had where there's a public letter, et cetera, it was a private discussion first through e-mail with Jeff and then they came and they expose to us their thesis on Medtronic. And the first thing they said is, look, we think you're in a great place. We've analyzed the company for a decade, and we think you've never been in such a good position from a portfolio perspective. You're about to have an inflection in performance. And we want you to do 2 things. We want you to capitalize on that opportunity. So make sure that you capture cardiac ablation, RDN, Hugo in the most -- in the optimum fashion, I would say, number one.

And number two, we want you to take those opportunities and use them as an opportunity to accelerate growth, right? And go back in offense in funding organic R&D and also maybe going a little bit more in offense on the M&A side, right? And so one of the things that they said as to how to make that happen is, first, they said we feel that you would benefit from more MedTech representation on the Board, which we fully agree with that we used to have in the Board and through just retirement, et cetera, that was no longer the case. And we were already looking at bringing some Board members from the MedTech industry on to the Board.

So we were happy with that recommendation. They said, one is good, maybe consider 2. So we swapped list, and we converged on the choice of the 2 new Board members, one of whom we were already speaking to in the past. So I think that worked out well. And then the second thing is they said we think you should have a committee to oversee growth and operations. And so ultimately, we decided on 2 committees. So one on growth that is going to be focused on capturing those opportunities, continuing to sharpen the portfolio to make it evolve towards higher WAMGR through M&A and potentially through further pruning of the portfolio.

And the second one is around operations. So it's all about margin improvement, right? And how do we create the fuel to be able to reinvest in R&D internally to create the next generation of products and to build a flywheel. And so we looked at the committees that we've got at the Board level today or that we had at the Board level. And we decided to simplify a little bit the committees that we had. So we merged 2 financially oriented committees into one. We eliminated one that was focused on science and technology that we thought was maybe less impactful. And so we removed 2 and built 2 new ones. And the 2 new ones are growth and operations, in fact, it works well because they're well aligned to the way we run the company from an executive perspective, right?

So if we look at the operating mechanisms that we've got internally, we've got an M&A committee, a business development committee. So that fits well with the growth committee. And then we've got the monthly business reviews and the margin improvement committee, et cetera, which fit well with operations. So in a way, it creates a good interface between the way the business is run on a day-to-day basis and the way the Board is going to be organized. So I think it's a good thing.

Yes. That's really interesting. And maybe it's interesting the idea of incremental M&A. That's been a big topic, obviously, within the MedTech industry in general, helping to drive growth. You're also a return on capital guy. And MedTech M&A sometimes requires a bit of a leap of faith because it's often early stage for the biggest payoffs like maybe an unanswerable question again, but like how do you think about that interplay? Do you just kind of probability risk adjusted it? Like how do you think about...

Yes. So there's multiple -- there are multiple parts to that answer. First, when we look at the targets, there has to be a few characteristics. First, the market the target needs to be in needs to be attractive from a revenue growth perspective and ultimately from a profit pool standpoint. Two, Medtronic has to have the right to win in those sectors. So there has to be synergies either from a tech perspective where we can bring things to the table and I don't know, battery technology or materials technology or things like that or there needs to be commercial synergies.

So for example, if it's a product that one of our existing sales forces can carry in their portfolio in addition to existing products, then we get benefits from a commercial standpoint. So we will look at those 2 things. And then we will assess sort of the financial profile. So what's the horizon for the deal to be accretive from a growth perspective and from a profit perspective. We have to get comfortable that it's not going to get in the way of delivering what our commitment is, which is high single-digit EPS growth. So to be clear, it's not M&A or high single-digit EPS. Both have to go together, right? And so we assess against that angle.

And then we look at where the company stands in its development process. And the sweet spot for us is basically companies that are either just before commercialization or just after so that the risk level is more acceptable and the path to financial return is better, right? And so that's for, I would say, core M&A, and that's the typical approach. For things that are more risky or sort of more upstream in the development stage, we have a very good venture arm that is based out of Boston with a dedicated team. And what they do there is they talk to companies that are earlier stage, but never with a view of making money on the venture, always with a view of at one point, is that going to bring something to the portfolio of Medtronic.

So sometimes we will just take a position. Sometimes we will do a structured deal where we have a call option if the company hits certain milestones, for example. And we try to enter at an early stage if we perceive that the risk is too high. So that's kind of how we approach it. And I guess the focus now is the sweet spot, which is kind of, I would say, deals like Affera right now for us, which has been obviously a long journey, but a great venture for us in terms of the payback that it brings to the table today.

You mentioned CAS a few times, and I can understand why. Again, you did these internal meetings. You had all the different division heads sort of picture. I'm guessing, tell me if I'm wrong, but like CAS, RDN and Hugo were the ones that stood out to you. Maybe if that's correct, maybe if you could sort of start on with CAS, like how you felt about it, how the discussions have gone and how you feel about the opportunity...

Look, I mean, I think CAS is -- we're in a fantastic position. I think we're the only company with the full set of catheters today. We've got -- this is one case where we took 2 shots on goal and both paid off with PulseSelect on one side and Sphere-9 on the other. Both are in high demand. I think Sphere-9 is even more in high demand than the others.

The numbers are already very attractive, and we can tell that it's going to continue. Growth was in the 30% range in Q4. It was 50% in Q1. It will be higher than that in Q2, and it will continue to ramp up. It requires capital from a first building the capacity, secondly, hiring the mappers perspective. So for me, it quickly became a nonnegotiable, right? So that was a part of funds that we kind of segregated and said, it has to happen.

In the past, there has been opportunities where Medtronic has been in a good position and hasn't fully captured that opportunity. And this is not going to happen for CAS. We're putting the resources that are required and the ramp-up is working well. Capital equipment is increasing. We're creating the installed base that's going to pay off with the catheters going forward. We're hiring mappers at a rapid rate. And so yes, I'm very excited about that opportunity.

We passed the $1 billion milestone at the end of last year. We're relatively shortly past the $2 billion milestone, but that's only a step in a market where we think we have a clear path to being the leading player. And it's an $11 billion market today growing 20% a year. So it's an exciting opportunity. And we're working on the next generation, right? We're working on Sphere-360. It will start pivotal trials soon. And so it's -- the future is really positive for that franchise. Very excited about it.

Interesting to hear the tonality of how you're talking about nonnegotiable. Would you say like Medtronic has become a little more aggressive in terms of selecting which areas it's going to invest in and then just aggressively doubling down on that? Is that a fair?

Yes. I think the company has become more decisive. I think there has been some sort of changes in the way we approach it. So it's more data-driven, a little bit more top-down from an investment perspective. We're making plan -- changes in the way we do the [ strat plan ] to be more decisive, et cetera. So I think that's helped. And I think another thing that's helping is that the execution is more consistent, right? So we've done 11 quarters of mid-single-digit growth, which means that it's easier to get comfortable with the funding of projects like that.

Maybe also touching on RDN, which has been a hilarious topic because the buy side went from thinking it's terrible and a 0 to now really quite exciting. It's been quite a journey. Again, how do you think about the discussion in the market?

So first, the size of the market, right? You're talking 18 million potential patients in the U.S. with a catheter that will be priced $16,000. So you do the math, 1% of $18 million times $16,000. The size of the price is massive, number one. Number two, from a margin perspective, it's a great product for us. So financially speaking, it's very attractive. Most importantly, from a therapy standpoint, it's just a game changer for the patients. You're talking people who are sometimes on 4 or 5 meds that have uncontrolled hypertension. Their life is impacted on a day-to-day basis.

Instead of struggling with the meds and potential side effects, et cetera, they go to an outpatient procedure in and out. And in one shot, they get an improvement in their hypertension. And our clinical data indicates that it actually continues to get better over time. So you're talking a product that makes a material really tangible difference to the life of patients. And when we did the clinical trials, 80% of the people that were in the clinical trials were self-applied, right? So there's a real demand from the market.

So on one side, you put a big population, great therapy and natural demand. And it's -- again, it's probably one of, if not the biggest opportunity we've had in the portfolio for a long time. It's a long time coming. It's been 15 years. But the advantage of the 15 years is that we're significantly ahead of the competition today from the amount of data that we've got at our disposal. So we've got an opportunity to capture this very, very large market.

So today, we're focused on 3 things: making sure that we create the centers that are going to do the procedure at the physicians' locations, right? And so training the physicians and helping them with the coding of the reimbursement, et cetera. On the other side, raising awareness of the consumers. So we'll probably do some direct-to-consumer marketing to continue to raise awareness and then building the referral pathway. So to put the 2 together, right?

So building a process so that the consumers that want to undergo the procedure know where to go and that there's a process in place to get them in touch with the centers that are going to carry out the procedure. So that's what we're working on today. And again, it requires some investment, but not to the same extent as cardiac ablation, but still some direct marketing investment, et cetera, but for a really, really transformational growth opportunity.

I guess one of the differences [ was ] CAS is here, you're building a completely new market.

Yes.

And so how much do you have the teams coming to you and saying, can we ring-fence this much spend? And how would you characterize the amount of time, energy and money that's going behind RDN relative to CAS just qualitatively?

Yes. Look, I think it's -- they come with the demand, right? And we look at it together. And again, it's data-driven. So what are you going to do with the spend? So in CAS, it's the mappers and it's things like that, it's capital equipment. In RDN, it's some of the direct-to-consumer stuff. It's investing in some of the clinical specialists that are going to help with the development. And we ask them for sort of forward-looking KPIs that we can track to make sure that it's on track and that we're comfortable that we're going to get the payback that we expect.

And so we have reviews on a weekly basis with those businesses today to make sure that they're delivering on the path that's going to make us successful. And so far, it's the case. So we keep funding them. And then the work is where can we go and squeeze costs in other places to make sure that we have the capacity to fund those businesses in the way that they require.

Maybe we could also just talk a little bit about Hugo because that's another large pillar that's a remarkable market, still growing very quickly, one very entrenched competitor. How are you thinking about like the investment and the energy behind competing in the U.S. with Hugo as the number of indications expand?

Yes. So first, again, it's a massive opportunity. I mean in the U.S., now 30% of surgeries are done with robotic assistance, right? So when you're a big medical surgical franchise like us, it's -- you have to look at it, and it's a big opportunity going forward. So first, it's -- we're committed to Hugo and moving forward.

So for us, we feel like we've got a product that is differentiated from a form factor perspective because of its modularity. We think the visualization attributes that we've got are good. Physicians like the end factor, so the instruments that we've got that we can put at the end of the arm because they trust those instruments. So an instrument like LigaSure for vessel sealing, for example, has been used in 35 million procedures. So they like the fact that they're comfortable with the instrumentation.

And so there are areas that where Hugo is really differentiated, where we think we have a large opportunity. And candidly, I think there is just room for 2 players and a lot of our clients actually like the idea of being able to have 2 different players to speak to. So we're in that phase now. Hugo is going to be approved in the U.S. towards the end of this year. It will be first urology and then following that hernia and benign GYN. And as we do those different approvals, we will do the instruments that go with them. But we'll take it in a -- it's a controlled launch, right?

So for us, the most important thing is to have successful customers and customers that get from Hugo the service that they expect, right? So we've started selling Hugo outside of the U.S. for the last 4 years, and we've taken that approach, and we've learned a lot in terms of where Hugo is going to be successful. We've made changes in the software in the arm, et cetera, as we were moving forward, and we're ready to start taking that to the U.S. market, which is by far the biggest opportunity.

I think of scale, on the one hand, you've got RDN, HUGO, CAS, Inceptiv, AiBLE, all the things happening over here. On the other side, in bariatrics is a little tough. But like there's not -- looking forward, it doesn't feel like there's something particularly negative. And to your point, you've been growing mid-singles already fairly consistently. So I guess the question is, if you're us, what is the blue sky situation in terms of growth? And if the organic growth ends up inflecting up a bit, what are you going to do with the extra money? Because it's a margin versus reinvestment into play?

Well, I think it's about -- so it's all about creating a flywheel, right? So on one side, we feel comfortable that the growth is going to pick up for the opportunities that you just mentioned. And -- and that alone will give us an opportunity to invest more in R&D and in M&A. But there's a second part of the flywheel, which is around margin expansion, right? And so it can't be just growth. It has to come with margin expansion. And I talked about some of the improvement that have been made by Greg and by Scott Cundy in R&D more recently, et cetera, to become more efficient from a supply chain perspective and an R&D standpoint.

But I feel like we still -- coming from a different industry, I feel like we still have opportunities in front of us. To name a couple of things, I think manufacturing footprint is still an opportunity for us. It's harder to do in MedTech than it is from where I come from because of the regulatory approvals and all that. But I think it's an opportunity for us, and we're looking at it aggressively. It will take a while, but it will drive significant benefits. The other thing is design to cost. So it's working on engineering for cost upstream in the development cycle of the product, which is a transformation I've seen in my previous industry that is starting in MedTech as well.

And so today, we're working on products like Sphere-360 to launch it at a much better cost position than the product it replaces. And so I think very meaningful benefits will come from that. That will help gross margin go up, and we'll use a portion of that improvement to reinvest in R&D. But long story short, I think the objective for us is to get back to gross margin levels that are closer to where we were prior to COVID, right?

So we're talking 3.5 to 4 points of gross margin incrementally over time. So this is -- again, this is not next quarter or by the end of the year, but it's opportunities that we're building for the years to come. So continue to fund innovation. So I think the path is there, and I'm excited about it.

Last one. We're at a global health care conference. So that is a correct answer. What's more fun, autos or MedTech?

I'll tell you, financially speaking, MedTech is a lot more fun than auto. Auto will still -- will always be a sector close to my heart, but I continue to enjoy the products without having to work in that sector. And having the financials of MedTech and being able to enjoy automotive on the side is probably a better choice. But look, I think I come in at Medtronic at a moment where there's very significant growth opportunities that are right there, right? And so it's one of the reasons I joined it because they were pretty clear to me when I met the management team. And I'm excited to see that they're even better and more transformative than what I expected.

At the same time, I feel like we still have opportunity for significant margin improvement. And I think the combination of those 2 things will generate leverage EPS growth and shareholder value. So I'm excited about the journey ahead of us.

Love to hear. Thanks so much. Thanks, everyone.

Thank you. Thanks for having me. Thank you.

Okay. Good morning. Welcome to day 2 of the Wells Fargo 2025 Healthcare Conference. I'm Larry Biegelsen, the medical device analyst. And I am thrilled to host this fireside chat with the management team from Medtronic. With us, we have Geoff Martha, Chairman and CEO; Thierry Pieton, the Executive Vice President and CFO; Laura Mauri, Senior Vice President and Chief Scientific and Medical Officer and Ryan Weispfenning, Vice President and Head of Investor Relations. The format is fireside chat. If anyone has a question, raise your hand. We'll call on you. So before we jump in, Geoff and Thierry, I just want to say thank you. You've been big supporters of our conference for many years, and I really appreciate it.

Thanks for having us.

So looking forward to the discussion. Obviously, a lot to talk about. So Geoff, before we jump into the business, I'm going to start with a couple of high-level questions, starting with the Elliott announcement. On the one hand, Elliott believes your growth is inflecting and there's an opportunity to create shareholder value. But on the other hand, they're activist and they believe there are things that you could be doing better. So my question is, where do they want to see improvement? And are you aligned?

Yes. There's -- first of all, they came -- they've got a real strong reputation for creating shareholder value, and they came well researched on med tech and on Medtronic. It's not -- it was a research that went back a long time. And it was pretty quick in our discussions that there is a lot of alignment. And I asked them like why now, and like I said on the earnings call, they said, look, you guys are the best spot we've seen in 20 years with the transformational innovation. And so the focus then -- and we think you're going to reflect.

And the focus was on, I think, 2 words, this is their words, not mine, capitalize and accelerate. To capitalize on the moment that you're in. So execute on the growth drivers, which I'm sure we'll get into today, CAS, Ardian, Hugo, et cetera, along with the margin improvement work that we're -- that I'm sure Thierry spearheading, capitalize on that moment and then accelerate the WAMGR improvement with portfolio and whether it be more tuck-in M&A or continuing to look at the portfolio. And diabetes, the moves we made before diabetes, getting out events, dialysis, LVADs. These things weren't big from outside, but from inside, with the exception of events, they did take up a lot of investment and then diabetes, and keep looking at that portfolio aggressively.

And so there are a lot of alignment, step up the pace on the portfolio, including M&A, was the, I think, the area for improvement.

And we'll get into -- we can get into that like why we haven't done as much and why we think we can do more going forward, M&A.

So I definitely want to ask about that. But first, I wanted to ask about kind of the breadth of the portfolio. You and I have discussed that many times in the past. Historically, we haven't seen the breadth of the portfolio translate into above-average growth. And people have speculated there could be a couple of reasons for that. One is just the breadth is -- it's just too broad a portfolio. It's difficult to manage, right? Your management could be spread thin, that kind of thing.

The other is that the R&D investments are just not comparable to your pure-play competitors like the DexCom of the world, like CGM, for example. What's your view on this? And is there any consideration of going further than the diabetes spin?

You mentioned a couple of things. First on R&D, I agree. We've been trying to get that R&D as a percentage of sales up. Last quarter, we grew at 8%. And I think we want to get that number up to 9%, 10% and not at the expense of EPS. Because we -- I'm sure we'll get into it. Between our incremental -- our new accelerating growth and margin expansion, we have room to invest more in R&D and still hit the EPS numbers that we've signaled in the past. So that's one. We agree there and do more tuck-in M&A, which is basically another form of R&D. So we agree on that one. And the -- in terms of the rest of the portfolio, I think the other thing is on growth, right? You're saying that the breadth translated into growth. We also need the innovation. And so we have a bunch of innovation coming. So I think that's going to help the growth a lot and make it durable.

In terms of the portfolio, we do need to show more on how the breadth of the company, the scale of the company is driving differentiated top line and bottom line. And the areas we've talked about is technology platforms, go to market, so our distribution and our global operations and supply chain. Some help the top line, some help the bottom line. And so we've got to demonstrate that more. But we believe that they do drive differential top line and bottom line, but they need to be paired with the growth drivers.

So I'm hearing near term, that breaking up -- wholesale breakup of the company is not like something being considered that you're right now...

I didn't say that. What I said we believe we can manage this portfolio and get the growth. So that's going to happen, right? In parallel, we're looking at the portfolio in total. And so I'm not taking anything off the table.

So -- and one other -- one follow-up on kind of the portfolio. We've heard this argument that it would be difficult to split some of the businesses outside of diabetes because they're so well integrated. The battery technology is used in the cardio group, and it's also used in the neuroscience group. Is that a reason why it would be difficult to split other businesses?

I'd say no. It does create an additional hurdle. But because we said diabetes is easier. The diabetes spend, there's a number of reasons for it. Like I said before, we think we'll grow faster without it than with it, we can focus more. It's a different business. It's a consumer. It had less synergy. So it definitely -- there's less barriers like that in executing the Diabetes spin. But we've got a -- we've developed a good muscle over the last couple of years on a standing divestiture team operationally on how to do that.

And if we believe there's more shareholder value on trimming down the portfolio and more focus, et cetera, we won't let those things get in the way that you mentioned, the synergies that are there, right? So it is an additional challenge, and if we were to carve off those businesses, how do you not have negative shareholder value because there are real synergies there. You listed some, but there's more. But we won't let that get in the way.

That's helpful. So Geoff, you obviously mentioned tuck-in M&A a couple of times already. Why haven't we seen -- the impression is you've done less than your peers, certainly than Boston side...

[indiscernible].

Boston, yes. Why have you done less? And it sounds like you expect to do more going forward. So remind us just size, area of interest?

I say why we've done less is, I mean, coming -- starting in the middle of COVID -- on the tail end of COVID there between our supply chain issues that we had to deal with, some product quality issues. We really wanted to get the -- and then the operational foundation of the company is strong. And we had -- in the past, we've had IT things. We've had this host of what I'd call operational issues that we don't like shareholders like. We wanted to get that nailed down and fixed. We still did deals like Affera, and we did intersect deals like that we felt were really strategic. We didn't want to pass on. But we did raise the bar because we wanted to focus on getting this operational foundation, right, which I think we've -- those issues are behind us, and we're moving forward.

And so now we think we're in a better position to do more M&A. And the areas that we're focused on are the high-growth areas, right? The high-growth areas where we believe we have a right to win. So areas like in cardiac ablation, like in AFib, right? We did the Affera deal, we did a needle crossing deal. There's more you could do there or surrounding that procedure in that ecosystem. We believe we have a technical lead and a clinical lead in ablation right now. I'm sure you're going to ask me about that. We want to keep that. Some of that will be backed by organic investment, maybe some more inorganic investment there. Structural heart, all the different segments there. There's opportunities. Even though it's new, but we're thinking not just short term, but medium term and long term on hypertension.

So those type of areas are where we're focused, not exclusively, but that's where we're really prioritizing. It doesn't mean we wouldn't do a deal that can help one of our other businesses that aren't in those high-growth areas, but that's where the focus is.

Geoff, two potential reasons we hear about you guys doing less M&A. One is the dividend payout ratio is about 50%. You don't have the free cash flow. And then second, the dilution because obviously, the earnings growth has been hard to come by in recent years. And so a lot of these deals Affera was -- look, it's going to turn out to be a good deal for you, but it...

It has turned out. But it was a little bit dilutive at first. It's -- the dividend isn't the issue. And I'll let Thierry answer this one. The dividend isn't the issue, it was more the focus, like I just walked you through. The other thing that you mentioned, [indiscernible] Thierry walk through that, but the dilution and things like that -- with our -- we're in a better position to take on those things. But, I don't know if Thierry, if you want to answer it.

No. I think you said it, Geoff. I think.

I'm not sure if the mic is working, but...

We can think, the dividend is not getting in the way of anything at this stage. We've got significant firepower to do tuck-in M&A of material size. So that's not getting in the way. In addition to that, I'm sure we'll talk about it, but margin is going to improve, which will help with cash generation. We're coming out of a phase where we still had some old items relative to the Covidien acquisition costing some cash on the tax line, which is now behind us. So we're going to see the cash conversion improve starting in '27. So with all of that, we've got significant firepower to do the M&A without having to reconsider the dividend policy.

How about dilution? You want to grow earnings, I think you said high single digits in '27. How do you think about dilution?

Well, look, I mean, I think there's got to be a clear picture for the deal to be accretive, right? So sometimes you have to accept a short-term dilution. But we've got a significant opportunity to continue to drive margin improvement. So look, we'll look at the opportunities. And if we get comfortable that we've got a right to win that it fits, then we're going to generate synergies. I think in some cases, short-term dilution might be acceptable if it's going to be a significant impact to our growth drivers.

Thierry, you talked about margin expansion a couple of times. I think there's a new Board committee looking at -- there's two, one on growth, one on operations. Anybody could look at a Medtronic P&L and see the issue has been the gross margin compression. And so my question is really how -- and I know Medtronic has tried to address this, Geoff, you've talked a lot about this. What can you do differently new, especially in light of the fact one of your major new products, YouGo is coming, and I don't think that's going to be gross margin accretive initially. So what can you do differently to improve the gross margin?

So first, to address some of the headwinds that you mentioned. So short term, we have tariffs and that's going to stabilize.

Short term...

We have the impact of the tariffs, right? And so that's going to stabilize. Hopefully, no one knows what's really going to happen, but hopefully, after '27, that becomes a normalized situation. And then we've got some mix pressure coming from the growth of cardiac ablation and diabetes in particular that are putting some pressure on the margin rates.

Diabetes is going to take care of itself, I should say, based on the transaction that we're going to do there. So hopefully, second half of next year, the dilution that comes from diabetes will be behind us.

CAS is a great business from a profitability perspective, but it does put some pressure on the GM rate. Some of it is due to mix between the CapEx sales early on in the deployment of the product versus the catheters. So that's going to turn around and get better. You're right, Hugo is going to be a bit below our average. But Ardian, on the other hand, is going to come with very healthy margins. So we see that mix pressure getting better over time. So we still have a handful of quarters in front of us where that's going to be an offset to a lot of the margin improvement. But over time, this is going to get better.

If you put those things aside, the operational -- the underlying operational margin improvement is there. So we've made durable changes and improvements in pricing. So we're now getting positive pricing in a consistent fashion. You saw it in the first quarter results, you saw it in last year's results as well, and that's been a factor of three things, really, better management of foreign exchange. So in countries where we have foreign exchange pressure, we know how to price it better now.

The second one has been better controls about discounting and contractualization. And the third one has been innovation, right? So when we deploy products like Affera, we get significantly better pricing. We've had that in neuromodulation as well.

And if you look forward, what we call our vitality index, which is the proportion of our sales that consists in products that we've launched in the last 2 years, that proportion is going up. So we used to be in the teens 5, 6 years ago, we're kind of in the low to mid-20s now. And that's going to continue to grow with some of the growth drivers that Geoff mentioned. So that's an opportunity for further pricing. So pricing is going to be a consistent positive. And then on the cost-out side, with the rigor that has been put in place by Greg Smith and the team. We now have consistent performance from the plants, from purchasing. So the net cost out after inflation is now a positive driver as well.

And if -- again, if you take the example of the first quarter, that was 30 to 40 basis points consistent, right? So look, we're today on a sort of a run rate between pricing and cost out to do 70, 80 basis points of margin improvement. So as some of the headwinds go away, we should be able to deliver consistent gross margin improvement.

And then look below gross margin, as Geoff said, we'll reinvest a portion of that improvement in R&D. So you saw us do that in the first quarter, and we'll keep doing it until we get closer to 10% of revenue. But we still have significant opportunity to drive leverage at SG&A level. And it's mostly G&A. So we protect the selling side to be able to capitalize on the innovation. But look at first quarter, we had 170 basis points of leverage between top line and SG&A and we'll keep doing that.

So combination of this GM improvements and driving more leverage with the growth that accelerates should put us in a position to deliver high single-digit EPS improvement starting in '27.

That's helpful. So Geoff, one more big picture question before we transition to the business. And I wanted to ask that Hugo specifically because high-profile pipeline product. The impression is it's an expensive investment and it's obviously super competitive. So I guess the question is, how are you thinking about the return from Hugo? And basically, you talked about the margins, but just the commitment to Hugo, and how do you manage that balance between the [indiscernible] the cost of investment?

Yes. Look, the Hugo is a big investment, like you said, all the things it's hypercompetitive. We believe in the system, we believe in the future of it and we believe in the impact on the surgery business. And you mentioned robots are lower margin. But we have an example, compare it in our spine business, right? Our robot there was a lower margin, but we've surrounded that robot also with other enabling technologies, imaging navigation, surgical planning, digital, and it's helped us pull through more profitable implants.

And despite the "dilution" from the robot in spine, the growth of the business has gone up materially. The market share has gone up and the profitability has gone up materially in that business from that business model.

So it's very strong profit and cash flow. We believe the same will happen in our Surgical business. It's a $6 billion business. Yes, the robot itself, when you look at it, bare naked, it is a lower-margin product, but it will be surrounded by a digital platform, other enabling technologies, visualization, et cetera. And the overall business model will help the profitability of that business, inclusive of the robot. So that is the model we have confidence in that. We have confidence in the system.

But to your point, it is highly competitive. We don't have our head in the sand. We're not dogmatic. We're looking at this thing every quarter, making sure that we're hitting in the milestones because it's taken longer than we thought. I don't think we're alone on that, but we feel good where we are and what we have. But we look at it every quarter, are we hitting the milestones? Is this still the right strategy for Medtronic? And we look at it as a management team and, we talk about it with the Board every quarter as well.

So Geoff, let's transition to the business. Your Q1 results came in line with your guidance on the top line despite 4 areas that came in below at least Street expectations, U.S. Diabetes, U.S. TAVR, Pelvic Health and Neurovascular. If those all improve going forward, and I think your organic growth was 4.8%. If those all improve going forward and CAS, which was strong, almost 50%, continues to accelerate, which is what you've guided to, it looks like you're going to exceed your 5% guidance for the year. So what's wrong with that line of thinking?

I mean nothing is wrong with that the last thing. We do see a back half. We constructed the plan that the first half of the year, there are some puts and takes, and then you have a back half ramp, and we don't intend to look back after that, right? There's the growth drivers that everyone's talking about in the big areas, but also some of our slower growing businesses over the last year, a couple of quarters all have growth drivers themselves, not to the extent of Affera or Ardian, but pelvic, our peripheral vascular business has a thrombectomy device coming, Liberant. It also has carotid stenting coming. Neurovascular has also carotid stenting and some hemorrhagic products coming. And then Pelvic Health has a pretty big product coming that we expect approval on here soon with its tibial stimulator, which we think is a big deal.

So you think about the head of the business and the tail, like the slower growth businesses, coming up, not double digits, but maybe public health, but the others incrementally up and then you got the big growth drivers. And the back half of the year could be pretty exciting. Now we gave you the guidance in Q4. After Q1, I'd say we have more confidence in that guidance, but it's still early in the year. So we're not -- we haven't changed our guidance. So we want to make sure we're set up for success. And -- but the back half of the year could very well be pretty exciting.

And diabetes also should improve.

Diabetes. I mean, Diabetes is, yes, because we have not 1 but 2 sensors coming, right? And recently, we just got the Abbott sensor approved, and we call that instinct. Remember, we're not just -- it's fully integrated into our system, branded Medtronic, but everyone knows that's the Abbott sensor, and then we have Simplera, our own sensors. So that in the U.S., in particular, patients are waiting for those 2 sensors and they're both approved. And as you know, on Diabetes, there's a little bit of a gap between approval and launch, but a couple of weeks, but those will launch, and we're excited about it.

And type 2.

And type 2 indication. Thank you for reminding me. So the Diabetes business has the best -- you got the type 2, you got the 2 sensors. You've got -- now we take those 2 sensors and pair it with our pen. Our pen we've been waiting. We didn't want to launch it aggressively without a more competitive sensor. We'll be submitting our new durable pump pretty soon. That's derisked and ready to go. And then we have the patch a little bit further out. And all this will be laid out as we start to market the IPO in more detail. Diabetes business is exciting.

So one on fiscal '27 before we turn to CAS. So for Thierry, I think, the recent earnings slides talk about accelerating revenue growth and high single-digit EPS growth in fiscal '27. Starting with organic growth, could we see 6% plus in fiscal '27? And second, what are the drivers of the high single-digit EPS growth? And how much of a tailwind is FX as of today because it does talk about FX as a component of that?

Yes. So it's a little early to give guidance for '27. So I won't confirm any numbers on the growth rate yet, but it's clear that a lot of the growth drivers that Geoff mentioned, we'll have the full year effect in '27, right? So it will be -- we'll continue to have the growth in PFA. It will be the first year for Ardian. We will have some of the growth drivers in the specialty therapy businesses that Geoff mentioned. We'll have Tibial and Pelvic Health, for example. So clearly, we should see a step-up in the growth rate in '27.

I mentioned the gross margin, the gross margin. So I think the picture there will be similar to what we have in '26. So still pressure coming from mix, but continued operational improvement, offsetting some of that pressure. And look, we'll keep driving the leverage on the overhead. And so we should see a drop down at the operating margin level that will be much better in '27. This year, we have some headwinds below the line, right, that we had announced in Q4 -- and there are really two things this year. One is the tax line, which is driven mostly by sort of the Pillar 2 elements. And that kind of gets to a stabilization in '27. So we'll see a little bit of headwinds, but not to the same magnitude as what we saw this year. And we'll see a little bit of pressure coming from interest, but significantly smaller. So the combination of the growth and leverage at the overhead level and less pressure coming from below the line is what is really going to drive it.

Any way to quantify FX as of now?

I think it's -- if everything stays the way it is, it will be a small tailwind going into next year. We have a bit of a tailwind this year, which is one of the elements that we incorporated in the revised guidance in Q1. And through our hedging program, we'll see some of that benefit continue in '27. So it will continue to be a small tailwind.

Great. So Geoff, CAS, growth accelerated from about 30% to almost 50% from Q4 to Q1. You expect to add an incremental $1 billion of revenue by early '27, I think fiscal '27 was your comments on the call. How are you thinking about the ramp from here? And what's driving the acceleration?

We feel good about the ramp. Everything is still high confidence in. And what's driving the acceleration is one, underlying PulseSelect organic and that had grown pretty well, but it was completely masked by the cryo going down. And just as the cryo kind of started to get pretty low and stabilized, then we have Affera on top of it. What's really driving that growth right now is, one, cryo becoming a smaller part of the business, more stabilized. But by far, the biggest driver, orders of magnitude bigger is Affera.

And getting those capital systems out there. They're now pumping out those systems, getting out there and they're over utilized. I mean they're utilized to their fullest extent with catheters with the Sphere-9 catheter. And that is what's driving the growth and have a nice pipeline coming with the Affera. Well, it's Sphere-360 and more after that. And you have a nice -- on the mapping side of Affera, as you know, it's closed system mapping. We've got a number of software upgrades that improved with the mapping, but the first-gen mapping has already gained very good reviews and people see the pathway forward.

Geoff, sorry about that on the webcast. So where are you on the supply of both, Affera -- the both the Affera system, the mapping system and catheters and when do you expect to be able to meet demand?