Medtronic at Bernstein Conference: Strategic Focus on Growth and Innovation

On Thursday, 29 May 2025, Medtronic (NYSE:MDT) presented its strategic plans at the Bernstein 41st Annual Strategic Decisions Conference 2025. CEO Jeff Martha and CFO Thierry Pierre Tatpieton outlined the company’s growth strategy, emphasizing a shift towards cardiovascular, neuroscience, and surgery segments, while announcing the separation of the diabetes business. The company aims to enhance its market position through innovation and strategic investments, despite challenges such as tariff impacts and competitive pressures.

Key Takeaways

• Medtronic plans to separate its diabetes business through an IPO and split-off to focus on higher-growth segments.
• Q4 revenue increased by 5.4%, with EPS growth at 11%.
• The company targets a 5% organic growth and 7% operating profit growth for FY26.
• Significant investment in R&D and AI, with a focus on cardiac ablation, renal denervation, and surgical robotics.
• Medtronic aims to regain pricing power through new product launches and cost-cutting initiatives.

Financial Results

• Q4 revenue growth: 5.4%
• Q4 EPS growth: 11%
• FY26 organic growth guidance: 5%
• FY26 operating profit growth guidance: 7%
• R&D investment: Approximately $3 billion annually
• Shareholder return in the last year: $6 billion
• Gross margin: Flat, excluding tariffs, with a target to return to pre-COVID levels
• Tax Rate: Expected to stabilize around 18.5%

Operational Updates

• Diabetes business: Six consecutive quarters of double-digit growth
• Cardiac Ablation Solutions (CAS): Reached $1 billion in revenue in FY25, targeting $2 billion
• Renal Denervation (RDN): Awaiting reimbursement decisions from CMS in July and October
• Hugo Surgical Robotics: Available in 30 countries, with FDA filing for urology indication
• Supply Chain: Centralized to improve resiliency, product quality, and cost reduction
• AI investment: Significant investment in AI across product development, supply chain, and G&A

Future Outlook

• Continued focus on cardiovascular, neuroscience, and surgery segments
• Ongoing investment in R&D and tuck-in M&A
• Anticipated high single-digit EPS growth in FY27 post-diabetes separation
• Emphasis on innovation-driven growth and performance-driven culture
• Targeted expansion in cardiac ablation and renal denervation
• Continued evolution of spine enabling technology

Q&A Highlights

• Rationale for diabetes separation: Strategic move to focus on higher-growth, higher-margin segments
• Structure of diabetes separation: IPO followed by split-off to maximize shareholder value
• Gross margin improvement: Focus on pricing power, cost-cutting, and product mix optimization
• CAS growth constraints: Addressing capital equipment supply constraints
• RDN opportunity: Large unmet need in hypertension with favorable reimbursement outlook
• Hugo ROI: Focused on overall surgical business impact rather than individual robot P&L

In conclusion, Medtronic’s strategic realignment and focus on innovation are poised to enhance its growth trajectory. For a detailed understanding, refer to the full transcript below.

Full transcript - Bernstein 41st Annual Strategic Decisions Conference 2025:

Lee Hambright, Med Tech Analyst, Bernstein: yet? Alright. Very good. Well, thanks so much, guys. We’re I’m Lee Hambright, med tech analyst at Bernstein.

We’re very happy to host Medtronic today. We have CEO, Jeff Martha, and CFO, Thierry Pierre Tatpieton. Just a reminder that investors can submit questions at any time through Pigeonhole. We’ll try to work in as many as possible. Jeff’s gonna kick us off with a few opening remarks.

So, please take it away.

Jeff Martha, CEO, Medtronic: Alright. Thanks, everybody. Is this working? Okay. Thanks, everybody, for being here today.

I just thought I’d kick off the first couple minutes here, which is a quick overview here. I think these slides are available online, and Brian’s got a QR code if you want them. These are our disclaimers or forward looking statements, so so please check these out. Look. I I’d I’d start with just an overview of Medtronic.

You can see here that look. We’re organized around these three portfolios of businesses that are really and then, of course, we have our diabetes business that we just made the announcement last week that we’ll be separating from, and we’ll talk about that. I’ll talk about that in a second. But these three categories of business are defined, I’d say think of them in three ways. One is scale.

They’re all pretty big, you know, 10,000,000,000 or, you know, or or so on average. But, also, they’re defined by so they’ve got scale, but they’re also defined by category leadership. We’ve got lots of category leaders and and and and franchises within those portfolios and, well, you know, technology differentiation. That’s what it’s all about, you know, innovation driven growth. We got a lot of technology differentiation in these areas.

And and this slide, I think cap captures a lot of it here. This is really all about our growth drivers. In med tech, it you know, innovation driven growth, like I said, is the name of the game. And we’re at a really good time in the company’s history where we’re stacking these growth drivers on top of each other. You know, you see there, you know, where you got neuromodulation and, with its sensing technology, which I’ll talk about, you know, cardiac you know, our A fib technology, hypertension.

And then, you know, these are in the moment, I’ll call them. As you go out in time, we’ve got our tibial launch and soft tissue robotics and more in structural heart, mitral and tricuspid. So we’re these are a multiyear cadence of, you know, differentiated technology in high growth areas of med tech. Just to double click on a few, I’m sure we’ll get a lot of questions from Lee on this area and and cardiac ablation, which is having a, you know, kind of a generational growth moment here as we shift from one energy source to the other, as we’re shifting over to to PFA, which you know? And I’ve spent a lot of time on this the last couple of months in particular as it’s out there now talking to physicians, you know, here in New York City and around the world.

And, look, this has just really increased the supply chain, of the industry supply chain to because demand is high. With the aging demographics and people more aware of A fib, there’s a huge need for this. And this energy source is faster and safer and easier for physicians. So you got this $10,000,000,000 market growing 20%. We have a 10% share, and that’s and that’s rapidly growing.

And, you know, we’ve talked about you know, we ended our fiscal year here in April with this business around a billion dollars. We talked about doubling that in the near term here. So lots lots of excitement around PFA. And another one that’s right around the corner for us is hypertension. Another huge unmet need, huge market.

The TAM is, you know, like, you know, very big. It’s almost hard to model for many of our investors and analysts. You know, we see based on where we see reimbursement coming out and the indication for for this hypertension therapy of ours, again, another energy source that ablates the arteries around the the renal nerve to bring down your hypertension. You know, we’ve got data going out as far as ten years to show so, you know, permanent or it’s definitely indefinite, gets better over time with a really strong safety profile. No real side effects here.

It’s a very compelling therapy. And, you know, we see just in The US Eighteen Million patients that could benefit from this. And every one percent penetration of that eighteen million is 2 to 3,000,000,000 in revenue. We’ll get some real big inflection points coming up. This is already FDA approved, and everyone’s waiting for the reimbursement to come into place.

The payments are already set. Hospitals will do well, make money on this. Now the question is how many patients will be covered? You know, CMS will set the market on that. We’ll know in July.

They’ve already told us we’re getting they’ve already opened this national coverage analysis, which is a precursor to a national coverage decision. That would be about half of those 18,000,000 patients just in The US, and we’ll we’ll get, the definition of how broad this reimbursement is gonna be in on or before July 13, and then that reimbursement will take effect on October 11. So big inflection point for us in this area. So that’s another one I’m sure we’ll talk about. But then if you just take a step back take a step back on med tech and what’s the state of the state, our end markets are healthy in large part because of demographics, but also in large part because of the innovation.

And it’s just a good time to be in med tech. There’s innovation is changing the game. These are some categories of innovation that cut across. I’d say, instead of looking at it we tend to look at things re you know, therapy by therapy or product by product. But when you take a step back, some of the technology that that kinda cuts across horizontally horizontally would be AI, robotics, and and sensing, particularly implantable devices.

You know, look. In AI, there’s you know, we’re talking about AI in our products here in our offerings. We’re getting really compelling impact from AI. And it’s allowing us what it’s allowing us to do is personalize therapies and procedures at scale and make them better. So we’ve talked to our GI a very simple example using AI in colonoscopies, we’re finding 50% more polyps, than surgeons on their own.

We’re in surgery, we’re using AI to come up with predefined surgical plans that guide the surgeon through the procedure, whether it be whether we’re using robotics or not. So and and then these digital platforms like our touch surgery platform, is really enabling that in surgery. Then, of course, you’ve got robotics technology. And and look. Don’t robotics for Medtronic, we do two basic things.

We do devices. Most of them are in the body, some on the body like the diabetes, and we do surgery. And I think robotics is gonna cut across all of that. Obviously, surgery is first, and you’re seeing it in orthopedics. For us, that’s in spine.

You’re seeing it in soft tissue. But, you know, we’re also seeing it in other areas like cranial surgery and ENT. But you’re also gonna see it over time in the delivery systems for things like TAVR and and structural heart. So cardiovascular delivery systems, you’re gonna start to see be more robotically driven. So robotics is a big one.

Then, of course, sensing. We’ve been sensing in the heart for a long time. Know, that’s why, you know, that’s an enabled like, our pacing business, for example. Pacing is theoretically the oldest medical device category. When our founder, Earl Bakken, invented the pacemaker in 1957, that began med tech.

And here here we are. Pacing market is still growing high single digits. Why? Because we know so much about the heart. Why?

Because we can sense in the heart. We’ve been sensing in the heart, listening and understanding what’s going on, and designing therapies around that. And then brain and the central nervous system, that is brand new. And so sensing in DBS for us, for Parkinson’s patients, sensing in the spinal cord for chronic pain, brand new. We just launched these products in the last year.

We’re the only ones that have the sensing. Well, there’s one other company in in pain, but, that’s allowing us to really customize our therapies in these areas over time. And like Parkinson’s, it helps us to automatically adjust the therapy over time automatically, so you’re getting better outcomes with less of a burden for the health care system before you go in and reprogram these devices with the neurologist. So lots of exciting stuff. Let me switch to earnings power.

That was all in the top line. Top line, very healthy. Markets, innovation. And now and now let’s talk about earnings power. Let’s let’s start with last quarter.

We had a we just reported our quarterly results last week, and you saw a good top line result of 55.4% revenue growth, but you also saw, you know, good operating profit growth, you know, an operating margin of 27.8, and then our EPS grew 11%. You’re starting to see at Medtronic us be able to accelerate our earnings power, and it’s driven by three things. We’re getting synergies across our go to market. You know, other than our diabetes business, we sell to hospitals. And those that distribution, we’re starting to get deeper partnerships with hospitals and synergies across that.

Our global operations and manufacturing also, as we centralize that over the years, we’re we’re getting synergies around that and driving costs down. And finally, platforming, technology platforms, much of which I just showed you. These these areas, AI, robotic sensing, cutting those across multiple product lines, we’re getting platform synergies that are allowing us to grow our top line while still growing our bottom line. I’m sure we’ll get into that with Lee here as well. And then finally, I I I wanna talk about capital allocation.

We’ve really focused in the last couple years on decisive capital allocation to these higher growth markets. We invest about almost $3,000,000,000 a year in r and d, and then you add the our our tuck in m and a, the way I look at it, is another source of r and d on top of that. So a couple billion on top. And and that is our primary focus, is tuck in m and a and increasing that r and d. We’ve in our we’ve announced that on our earnings call last week that our f y our next fiscal year, we’re increasing r and d faster than than revenue.

That’s the first time we’ve done that in the last four years. And then finally, we have a healthy return to shareholder last year returning $6,000,000,000 to our our shareholders. On the diabetes announcement, a lot of lot of questions on that because it’s it’s a unique situation. We’re we’re separating from a high growth asset in a in a high growth market. The reason for that, it starts with legacy Medtronic.

We have those growth drivers I just showed you in cardiovascular and neuroscience. We believe that over time, we’re gonna grow faster without diabetes and with it. We’re gonna put more focus, more investment in those other areas, and the legacy Medtronic, our growth will accelerate even with diabetes gone. And those markets do happen to be higher profit, which will allow us to increase our margins and then continue to reinvest. Second, our diabetes business has gone a dramatic turnaround over the last several years.

We’ve had six quarters in a row double digit growth, and our pipeline is super strong. And so that we believe that growth is gonna continue. Diabetes is ready to stand alone. And I think with the increased focus there and matching that business with with like minded investors, we do think the business will get more focus and more capital outside of Medtronic than in and will continue to grow. And altogether, this creates this is gonna unlock shareholder value near and long term, and we’ll get into that as well.

And then finally, just taking a step back on the last several years, you’re you know, with this diabetes announcement, you’re seeing the transformation in our quarterly results, and we wrapped up a pretty strong year too, you know, ten quarters in a row of mid single digit growth. Back half of the year, we grew our EPS 9%. So you you’re seeing that momentum, and it’s it’s the culmination of a number of different things. Like I said, we we believe we’re in healthy markets, but we’ve made changes to our operating model to really focus on this innovation driven growth, help us with capital allocation as well. We’ve changed our incentive programs over the years to make much more gone from a profit sharing plan to performance driven.

Our long term incent tied to the market growth. Our performance incentives are tied to equity. So myself and and the management team on down in the organization are extremely tied to Medtronic shareholder returns. And then we brought in outside leadership. Thierry sitting on the stage.

He’s in month three, I believe. Feels longer for him, I’m sure. It’s been a lot of going on with tariffs and everything. But over the years, you know, especially in our functional areas, to bring in operating rigor into our operations, into our quality, into our finance organization, It’s really helped to improve those capabilities and also be part of that cultural change to a performance driven, a mission driven. We call it an and company.

Mission driven, what Medtronic’s known for, but and performance driven at the same time. An and company. I talked about increasing r and d investment. On top of that, accelerating our tuck in acquisition appetite around those high growth markets. And I talked about, you know, a global operation supply chain.

We’ve centralized that. That that’s helped us stabilize our supply chain that that was really had been hits and hits some issues coming out of COVID and also drive so improve the resiliency, improve our product quality in the manufacturing, and drive our cost down. And and then and then, you know, finally here, we we’ve talked about portfolio moves, and we’ve made a number of smaller moves over the years, in terms of the, in terms of divestitures or exiting certain areas. Diabetes is a bigger one, but also the additive piece. You know?

Afera is our is one of our we have two platforms in in the A fib space, one organic, one inorganic, Afera being our inorganic one. Doing more deals like that that’ll drive growth and shareholder value both near, near term and long term. So just kinda wrapping it up and getting to the q and a here. You know, I’d like to say, look. We’re start it all starts with the top line of med tech, and we’re in the moment in these high growth, growth these growth drivers in these high growth segments.

We’ve improved the foundation of the company from operations and quality and and and and the the the we have a strong foundation. The business fundamentals are the strongest that it’s been in fifteen or fourteen years I’ve been at the company. And we’re using portfolio management, both additions and subtractions, to better position the company in the markets that are higher growth where we have, we believe, the right ingredients to win. So with that, I will wrap it up and move on to the the fireside chat here. Thank you.

Lee Hambright, Med Tech Analyst, Bernstein: Alright. Very good. Thanks for that, Jeff. Lots of lots of topics to dig in on there. We’ve already got a lot of questions from the audience.

We had oversubscribed dinner last night, but nice to see lots of engagement here on Medtronic. Okay. Before we dig into those topics, Thierry, maybe you you’ve been in the role for twelve weeks now. On the earnings call, you shared some reasons you joined Medtronic. It’s a a return to health care, chance to use your background to fix operations, and some really exciting growth drivers.

Maybe you could just share some first impressions.

Thierry Pierre Tatpieton, CFO, Medtronic: Yeah. Look. It’s it’s been a busy twelve weeks. Lot lots of things going on. I’ve I’ve had a fantastic time, honestly.

It’s well, first of all, it’s great to be back in health care. I spent my time, you know, discovering the products. I’d I’d love to get into the technology and the therapies and the outcomes for the patients, etcetera. And the team’s done a great job of organizing that onboarding, starting with the most important products for the coming years, the ones that some of the ones that Jeff just mentioned we’ll come back to, such as CAS, RDN, etcetera. So actually spending time with some of the engineering resources, some of the commercial resources, understanding the business.

I’m amazed by the technology. I’m surprised by the commonality that exists between the technologies in different parts of business. I’m also very impressed with the depth of the customer relationships that Medtronic has. I mean, it’s obviously relationships that have been built over decades and and through really, you know, strong interactions. But but most importantly, you know, I’ve been I I knew it would be like this coming in, but not to this extent, you know, sort of the the the mission mission element of the motivation of the teams and really all out great welcome into the environment.

So I’ve had a blast. At the same time, we had some shorter term deliverables with q four and the guidance for ’26, which I’m sure we’ll come back on, and the tariffs and the deal on diabetes, etcetera. So it’s it’s been a busy few weeks, but but it’s been fantastic. Yeah. Really enjoyed it.

Lee Hambright, Med Tech Analyst, Bernstein: Excellent. Excellent. Welcome. Thank you for that. Okay.

Jeff, maybe we start with portfolio management. You know, when you became CEO five years ago, you got questions about spinning diabetes. And the view at the time, kind of paraphrasing, was that you don’t sell your house when the roof is leaking. Performance is better. Six straight quarters of double digit growth, which added 50 bps to your f y ’25 growth rate.

Why is now the right time?

Jeff Martha, CEO, Medtronic: Yeah. So five years ago, the business was had fallen behind and was struggling, but still a big market share, player, for diabetes patients. We’re type one and insulin insulin dependent type two. And, despite falling behind, we had a lot of loyal patients that are counting on us. And if we would’ve spun it out at that time, I don’t know that the business would’ve survived.

It needed a lot of work, and it has been a a top priority for me, the board, and the management team to to to get it where it is today. And it’s it’s very healthy. Like I’ve talked about the, you know, I talked about the financial aspects of it, like double digit growth for six quarters in a row and a great pipeline, but I should have mentioned that the impact we’re having on patients is is is pretty dramatic. It’s really reduced. We’re the patients are getting a highest time in range of anything in the market by a a meaningful amount, meaning that they’re in a healthy glucose range, and and they’re not having to do a whole lot.

The the technology does it for them, versus counting carbs and all this stuff. So it’s a pretty compelling value prop, and it’s and the business is ready to stand on its own. But the biggest thing, why now, is, you know, one, the business is ready to stand on its own. We’ve been working on this for multiple years. We had this hypothesis maybe five years ago that we will eventually spin it.

Three years ago, I really started to hone in on that. But we wanted to time it when it was healthy, but also when Medtronic could make up for that that growth. And right now, like I said, I believe we’ll go faster without the diabetes business because we can focus more on these other growth drivers that are adding more. Like, for example, just our ablation business just last quarter added 70 basis points of growth to Medtronic, and it’s just getting started. That’s more than diabetes who, you know, had a huge quarter, twelve percent growth, and we’ve been built.

So I think our other businesses have an opportunity financially to add more to Medtronic shareholders to the bottom line, and diabetes is ready. And this deal structure, which I don’t if we’ll get into that or not, it allows it enables us to be an accretive deal.

Lee Hambright, Med Tech Analyst, Bernstein: Yeah. Great. Why don’t we get into that? You know, Terry, you you bring some prior experience with divestitures. You’ve highlighted the benefits of this preferred approach.

It’s IPO of up to 20% within twelve months, then a subsequent split off about six months later. Maybe could you just talk a little bit about what what do you have to believe to make this a successful deal for Medtronic?

Thierry Pierre Tatpieton, CFO, Medtronic: Yeah. So so first, you know, I just wanna as a preamble, I’d I’d like to say that, you you know, the the preferred path that we’ve chosen is is beneficial in the short term, but it shouldn’t detract from what Jeff said, which is we’re we’re doing the separation for strategic long term reasons, right? But coming back to the structure of the deal, look, I think it’s a fantastic franchise, but it is different compared to the rest of the portfolio. Diabetes has lower margins because it’s a consumer business. The R and D spend as a proportion of sales is a lot higher than for the rest of the business.

The SG and A is a lot higher. So overall profitability tends to be on the lower side compared to the rest of the portfolio quite significantly. And it’s also a business that potentially attracts a different type of investor than Medtronic, right? So the first thing that you have to believe and I think it’s pretty intuitive is that by creating an environment where you can attract a different set of investors that will be specifically attracted by that business profile, that business will be worth more outside of the portfolio of Medtronic than inside the portfolio. Right?

So that’s the first thing. So the way we’re going to do it, as you said, is first we’ll do an IPO of up to 20% of that business and we’ll use the proceeds to capitalize it, to pay for the cost of the transaction. And also a portion of the proceeds will come back to the RemainCo, so to Medtronic, and we’ll use those proceeds like we use them usually in our capital allocation policy. And then as we do that, we will say that there will be a second phase where we will do the split. And so some investors will come into Medtronic shares with a view of potentially exchanging afterwards.

And after a six months lockup period, we will offer the option for investors or holders of the shares either to keep Medtronic shares or to swap them for diabetes company shares. And as they do that, we will retire the Medtronic shares, reduce the share count, which will have an accretive impact on the earnings per share level. I think as we looked at the precedence in this type of deal, it’s very clear that typically the split is massively oversubscribed. So we have good confidence that this is going to be a good value generation business. And look, I think it’s a great franchise in a business that’s a sector that’s attractive.

And the transaction will have it will be very unique on the market. So I think if you’re an investor in medtech, it’s going to be hard not to think about that deal. So high potential for some short term benefits financially, but more importantly, sets us up to redeploy that capital to places where we’re gonna get better payback and better margins.

Lee Hambright, Med Tech Analyst, Bernstein: Very good. Thanks. Okay. You’ve got a great operator here in queue leading the business. I know you’re eager to get out to the roadshow and start to tell the story.

Know, I’m not ready to talk about valuation yet, but, you know, Tandem Tandem trades around one and a half times sales. You know, you you don’t plan to play in the stand alone CGM market in the near future, and you don’t have a patch pump yet. You know, why why wouldn’t Tandem be a better valuation comp than than Dexcom or Pod?

Jeff Martha, CEO, Medtronic: Well, you know, one, I I think that I think our business is is broader than theirs. We got the complete ecosystem, and we’ve got a pipeline for growth. I mean so I think we’ve got a very unique value prop that’s proven. Right? I mean, think about, you know, that ecosystem anchored by our seven eighty g algorithm, like I talked about before, the value that it has, it’s it even supported, like, a sensor that was behind the competition.

We’re now launching our new sensor. We’ve got this partnership with Abbott. We’ve closed that gap, and we’ve got this very rich pipeline. Some that’s here, like our our pen will now be pen paired with these new sensors and create a whole new category. It’s called smart MDI.

And then we’ve got a new pump coming, which is a big step forward over our current pump. It’s not a next gen it’s not an an the new version of the existing pump. It’s a whole new pump platform, and we’ve got a patch coming. So there’s a lot this is super robust pipeline. You even get to the underlying software and how your data ports among all those different things.

You can go from the the patch to the pen for a couple weeks. Whatever you wanna do, your data stays. So it’s a value prop that’s unique and proven that that, like, no one else has. Nobody. We’re very focused on this insulin dependent market, and it you know, it’s lower margin than the rest of Medtronic, but it makes money.

It’s and it’ll be well capitalized going out, and and I think it’s a it’s a completely different and more robust and more durable business than than than Tandem.

Lee Hambright, Med Tech Analyst, Bernstein: Yeah. Very good. Okay. Excellent. Okay.

So the diabetes move, you know, kinda leads to bigger questions about the portfolio. You know, after the split, you’re still a $30,000,000,000 plus revenue company. You know, how do you think about where Medtronic has the right to win, and and what’s the framework for future portfolio decisions?

Jeff Martha, CEO, Medtronic: Well, like, the the areas that we plan, we’ve got scale. Like, I talked about the very first slide there. We’ve got cardiovascular, neuroscience, and surgery. And, look, cardiovascular is a juggernaut for us. Right?

And the there’s lots of high growth areas. We understand the the clinical side of it. We understand the technology side of it. We’ve got great relationships with the FDA and other regulators around the world. We’ve got deep, deep customer.

So anything in that area, we feel really good about. And there is the benefit of scale that’s very strong cardiology at the customer level where they contract across those product. The cardiac service line is a very real contracting organization in the hospital where physicians and administrators work together to optimize getting the latest and greatest technology for patients, but at a a, you know, a good, you know, fair price. And the ability to contract across that credit service line is a real driver. Us and a few of competitors have that opportunity.

So scale really matters. Neuroscience, that’s coming. Neuroscience, we have by far the most robust neuroscience portfolio in med tech when you look at it all, and everywhere from the leading spine franchise to the leading neuromodulation franchise to the to the number one by far number one ENT franchise. You know, I could keep going. And that neuroscience is is maybe fifteen years behind cardiology and contracting, but they’re starting to do it as well.

So we’re seeing real synergies there. And then we’ve got you know? And there’s technology synergies back between those two areas with the implantable devices. You know? And then and then again, surgery is another one where scale mess.

Historically, in surgery, scale’s been everything. Contracts, hospitals have contracted. It’s been us and our leading competitor over the years, J and J. It tends to be, you know, 80% Medtronic, twenty % J and J, or vice versa in any given account. And now Intuitive’s coming in there.

You know, they’re expanding their portfolio, but they came in and with the robot was their entry into that game, and now they’re expanding their their their their their end effectors. Vice versa, Medtronic, we’re building a robot out. And so we believe it’s important for us to be the the second robot player out there. I think timing matters, and we’ve got a multiyear head start over the other competitor. And we believe that that portfolio approach that hospitals take is gonna help us.

So we have a right to win on all those areas, and we’re we we’re continuing to learn how to leverage our scale better.

Lee Hambright, Med Tech Analyst, Bernstein: Yeah. Excellent. Excellent. Okay. Let’s turn to FY ’26 guidance.

We’ll talk about the 5% organic growth in a second with a bunch of drivers. But on gross margin, a couple of questions from the crowd on gross margin. You’re guiding to flat gross margin excluding tariffs. FY ’25 gross margin was still 65.7. That was still about 4.5 or five points lower than pre COVID levels.

You’ve got some work to do to offset some mix headwinds from diabetes and CAS this year. Can just tell us how you’re thinking about gross margin improvement in fiscal ’twenty six and beyond?

Thierry Pierre Tatpieton, CFO, Medtronic: Sure. So first, I you know, the first thing I want to say is this has to be for me sort of, in the top priorities, right, given my background. And so I come from an industry where every penny counts. So I’m definitely going to spend more time on gross margin. If you look at the things that are the different factors in our gross margin evolution recently, you’ve got some good news and some things that are working against us.

I’ll start with the good news. We were a company that was losing about two points of price on a yearly basis. And now we’re a company that recently has gained a point of price. Right? And so that’s come through better governance.

You know, it’s come through better management of FX in some of the emerging markets, but it’s come mostly out of getting good price from innovation. And so that’s going to continue. And in fact, we measure the proportion of our products that have been launched for less than three years and that proportion is going to continue to increase, right? And so we’re going to go from a few years ago, we were in the teens to being roughly 22%, now to being onethree. So that’s a tailwind that will help us improve margins with pricing.

Then on the cost side, for a couple of years now, the team has been able to deliver cost out that exceeds inflation, so net net positive, right? And so think manufacturing productivity is improving, supply chain efficiency is improving, negotiations with suppliers are getting better. And so I think it’s definitely moving in the right direction. And so pricing and cost out together is now a net almost a point of positive effect on a yearly basis, trying to get us back to pre COVID levels. And I’m going to be focused on what I can do, especially to help on the cost side.

Then we’ve got a couple headwinds and they’re mostly mix and the two elements of mix are really the growth of CAS and the growth of diabetes. Diabetes, we just talked about how we will address that. It’s not the reason we’re doing the separation, but it will be an added benefit. And on cardiac ablation, the growth of it has come first through capital equipments. And as that phase gradually gets replaced by selling more of the catheters that go with the capital equipment, that headwind will disappear as well.

And cath is actually already accretive at the operating margin level. So look, I think our mix will get better and will accelerate the initiative on cost out. And a key target for us is going to be to get back to higher levels in gross margin, definitely.

Lee Hambright, Med Tech Analyst, Bernstein: One quick follow-up on the CAS headwind. The capital headwind, is it right to think about that as a bigger headwind in Q1 and then starting to ease up kind of gradually through the year?

Thierry Pierre Tatpieton, CFO, Medtronic: Yes, I think that’s right, yes. Yes. As we grow towards the end of the year and get through, you know, what what we feel the business should be in terms of size, we’ll see gradually that mix getting better.

Lee Hambright, Med Tech Analyst, Bernstein: Got it. Okay. Cool. And so when you put all that together, consensus still has you at under 66% gross margin in FY thirty. How much upside do you see to that?

Is it possible to get back to that pre COVID seventy percent level?

Thierry Pierre Tatpieton, CFO, Medtronic: Look, I think it’s too early for me, after three months in the company, to quantify the upside. I think we’ve got to aim towards getting back to pre COVID levels of margin. In my view, there’s opportunity. And there are things that I’ve seen in the automotive industry around platform sharing, around design to cost, etcetera, which I think can bring material benefit to Medtronic, and that’s what I’m gonna be working on with the team.

Lee Hambright, Med Tech Analyst, Bernstein: Very good. Okay. So you’re guiding to 7% operating profit growth for ’26. So that’s 200 bps of operating leverage despite those flat gross margins. You’re taking cost out of G and A and investing in R and D and sales to support those launches.

Where do you see those opportunities to pull cost out of G and A?

Thierry Pierre Tatpieton, CFO, Medtronic: Look, I think we just have to look at the benefits of digitization and AI, and we’ve got to look at the org structure and and and how we can make it more simple and flatter and how we can shorten the cycle on some of the key G and A processes. Right? And and, again, that’s that’s kind of my DNA, would say, with after ten years of automotive. And and and I think there’s there’s just opportunity to to continue to work on the structure of the business to make it leaner and more efficient.

Lee Hambright, Med Tech Analyst, Bernstein: Great. You know, on that topic, there was a question from the group. How much does Medtronic spend on AI, and is that primarily outsourced spending?

Thierry Pierre Tatpieton, CFO, Medtronic: I I don’t know the number on top of my head. I don’t know if you do, Jeff, but I I think there’s a couple areas. I I think there’s if you think about AI, there’s almost three categories. One is the AI investment in the product and Geoff talked about the benefits that that’s bringing and it’s very differentiating and it’s a structural improvement for our products with clear output for the patients. Then I think there’s benefits in AI around supply chain, logistics management, etcetera, on which we’re significantly investing.

And then there’s all the back office stuff, so how you can optimize what I mentioned previously around G and A through just eliminating some of the transactional work. And we’re we’re advancing on all three fronts. I I don’t have the number on top of my head, but they they will make a significant impact in all three categories.

Jeff Martha, CEO, Medtronic: It’s it’s a meaningful investment, though, and it’s been all multiyear. But the quest are we outsourcing it? And the answer is no. Data science is a capability that we want at the center of the company and at the edge of the company. So some of we we are for our products, for example, we have certain AI platforms that’ll cut across multiple businesses that are being developed at the center, but, also, we have to have that data science capability within the businesses as well.

So, at the center, at the edge, data science core competency, and and, no, we’re we’re not outsourcing it. Do we talk do we leverage some of these, you know, hyperscaler platforms a bit? And are we partnered with NVIDIA and Microsoft? Yes. But not outsourcing.

Lee Hambright, Med Tech Analyst, Bernstein: Got it. Below the line, interest and tax add up to a 300 basis point headwind to EPS growth in fiscal twenty six. Any interest and tax or or are interest and tax still bad guys in 2027, or do they start to flatten out after this year?

Thierry Pierre Tatpieton, CFO, Medtronic: Yeah. So so it’s a it’s a good question. So on on the interest side, what’s happening is we’re refinancing the debt, right, as as you you have debt repayment and you resubscribe and as interest rates have gone up, we’re replacing debt that was at 0.6% to 1% interest rate with debt that’s at the current rates. So it’s going to have an impact, and that’s going to continue into ’twenty seven. From a tax perspective, the headwind is mostly driven by Pillar two.

And so if you look at what we’ve embedded in the 2026 guidance, we’ve embedded a tax rate to go from 16.5% to 18 And we see that sort of stabilizing around 18.5%. So we’re getting close to sort of a stable tax rate. And those headwinds that we’re going to continue to have in in ’27, we’ve embedded that in the guidance. So we’ve we know it’s coming, and we’re gonna work, by the way, to try to minimize those impacts, obviously, as as we’ve always done. But it’s embedded in the guidance we’ve given for ’27.

Lee Hambright, Med Tech Analyst, Bernstein: Great. Okay. Speaking of ’27, you you said on the q four call that you expect to return to high single digit EPS growth upon the diabetes separation in fiscal twenty seven, which you expect that deal to happen mid fiscal twenty seven. Can you just clarify? Are are you saying that you expect full year FY ’27 reported EPS to grow high single digits over ’26?

Thierry Pierre Tatpieton, CFO, Medtronic: That’s correct. Yeah.

Lee Hambright, Med Tech Analyst, Bernstein: Okay. And so consensus has landed around, like, $6 for fiscal twenty seven. That’s, like, eight and a half percent above the midpoint of your fiscal twenty six guide. Is that, like, a decent starting point?

Thierry Pierre Tatpieton, CFO, Medtronic: Seems like a good starting point, I would say. Yeah.

Lee Hambright, Med Tech Analyst, Bernstein: Okay. Great. Great. Cool. Alright.

Let’s get into the fun stuff on, the businesses. So cardiac ablation solutions. Guess you’re

Jeff Martha, CEO, Medtronic: no fun.

Lee Hambright, Med Tech Analyst, Bernstein: I Yeah. Sorry? I guess

Jeff Martha, CEO, Medtronic: you’re no fun. I got is that the He’s still fun.

Lee Hambright, Med Tech Analyst, Bernstein: He’s still fun. Okay. Lots of excitement about PFA, obviously. There’s a huge opportunity in the cardiac ablation space now. It’s it’s a $10,000,000,000 market growing, like you said, 20% plus.

Your CAS business reached a billion revenue in fiscal twenty five. You talked about this path, this line of sight to $2,000,000,000. You know, how how soon can we get to that 2,000,000,000 run rate? Is that, you know, by the end of fiscal twenty six? Is that ’27?

You know, when when do we get there?

Jeff Martha, CEO, Medtronic: It’s in that ballpark. You know? I mean, we it it we didn’t quantify it, but it yeah. It’s in couple of quarters. You know?

The business is is ramping quickly. I mean, we’re selling these capitals. Terry mentioned that the mix headwind is, you know, is a good guy in many respects because we’re selling these capital equipment, a lot of it. And as that capital equipment gets installed, they’re being used, like, a % utilization. I mean, so, you know, it’s it’s be being used as long as the electrophysiologists are in the hospital, whatever their day is, it’s being used, and that’s pulling through all these catheters.

And so, we have we have we don’t see the line of sight for that leveling off anytime soon. So and then we’ve got a nice product pipeline behind our current like, this is I’m talking about Afera. We’ve got this product pipeline behind our current catheter, which is the sphere nine catheter, which plays in this this, kind of point to point segment of the EP ablation. And when we get sphere three sixty, you know, we’ve started in that clinical trial. It’s usually about a year, so that’s about the timing.

That gets us into this other segment point, you know, the the single shot, which goes right at, you know, our competition. So we feel really good. And then we have a whole another platform called Pulse Select that is highly effective. It’s very safe, and that gives us flexibility to tier these products. Farah, you know, if you do your your checks, I mean, it it is coming back, you know, from the physician feedback we’re getting as the premier platform in the space.

And so, you know, we we you know, And and we’ve got, like I said, this road map going forward. So we see that continuing.

Lee Hambright, Med Tech Analyst, Bernstein: Got it. You’ve been working through several constraints to Afera growth catheter supply, generator supply, mapping personnel to support the cases, but you’re making progress on all of those. What’s what’s the key gating item right now, and how long until you’re completely unconstrained?

Jeff Martha, CEO, Medtronic: Yeah. Specifically, it’d be the capital systems. Right? I think, you know, I mean, like, these are all different because the growth is so fast. You mentioned the capital systems, and you have the catheters.

There’s some ancillary supplies around that, and then you got mappers. But I’d say right now in the moment and that’s for each platform. The Pulse Select platform, we’ve had it out there. That’s an organic platform. We built it for scale in mind, and so there’s no constraints there.

And that’s helpful, especially for outside The US. Within Afera, the constraint would be the the capital equipment right now. That is something we understand. We understand how to make these things. This is an acquisition.

It took after buying the company, it took us almost about a year to figure out the code to manufacture this at scale. We’ve cracked that code. And so now we’re adding lines in our factories around the world to to keep up with demand. And so you you’ve you ask when will, you know, when will that that that quote being a constraint? I’d say in the in the next couple quarters.

Lee Hambright, Med Tech Analyst, Bernstein: Yeah.

Jeff Martha, CEO, Medtronic: And that’s all in in our guidance. Excellent.

Lee Hambright, Med Tech Analyst, Bernstein: Your PFA has taken off so quickly. Your your key competitor in this space sees a world where the whole market could move to PFA Yeah. Over time. You know, do you agree with that, or do you see a continued role for RF or or cryo?

Jeff Martha, CEO, Medtronic: Look. I well, I’m just going off what our physicians are telling us. And, you know, you do have a camp that is saying, look. I’m just moving all the PFA. But there is another camp that says, you know, we’re we want PFA, but we also like some of the features of RF, and and we like an integrated system.

So we’re providing them that with with Avera so that we give them that flexibility, and I think that’s a competitive advantage for us. Yeah. But, you know, everybody has their outlook, but the reality of it is the fact of the matter, not the opinion, is there are a number of physicians out there very tangibly want both. Great.

Lee Hambright, Med Tech Analyst, Bernstein: You mentioned SPHERES three sixty, which is your single shot Afeyra device coming soon. The the the market has been 80 by point and 20% sorry. And 20% single shot historically, but that mix is obviously changing rapidly. How do you see that mix evolving over time?

Jeff Martha, CEO, Medtronic: Yeah. I look. I I the mix is changing in large part because whether you’re you prefer point to point or you prefer single shot, the better technology, the the the PFA is right now in single shot. So I think that’s driving a lot of the, you know, a lot of it. And and and as we I think that mix, the single shot is gonna continue, especially when we have SPHERRE three sixty.

Yeah. Great.

Lee Hambright, Med Tech Analyst, Bernstein: Great. Obviously, we could talk about this all day, but you have lots of exciting businesses we have to hit. So let’s hit renal denervation. Obviously, huge addressable market here. Over a billion people worldwide with hypertension.

One percent penetration equals a billion dollars of revenue. You know, we’re we’re getting closer to some important coverage decisions, draft NCD on or before July 13, final on or before October 11. How are you thinking about the opportunity here?

Jeff Martha, CEO, Medtronic: Look. The the the it’s a huge unmet need. You know, I show you saw the slide. Just in The US, when you take out all these exclusions and you really narrow things down, we see eighteen million patients that can benefit from this therapy just in The United States. It’s a massive opportunity.

And I just look at it, you know, based on the just taking a step back. You’ve got a if you got a huge patient pool where the current standard of care, by all accounts, just isn’t working. People don’t like the side effects of the medication. They don’t take it. Their blood pressure remains uncontrolled.

So that, you know, you know, one in four people with hypertension have it’s don’t have it in control. So that’s a big number, and you get to this eighteen million. You look at this therapy, it it’s coming into an established infrastructure, interventional cardiologists and cath labs. Lots of interventional cardiologists, lots of cath labs. The the the training for them is not that hard to to do this procedure.

They have the skills. For the patient, you know, a little bit of mild anesthesia. It’s an it’s a hospital outpatient setting. You know, they wake up, and within weeks, their blood pressure is down meaningfully. And there’s a pristine safety profile of this procedure over a decade of data.

So so where’s the downside? Yeah. Where’s the downside? And now you have the last missing piece of that puzzle. You have reimbursement coming in.

And and, like I said in in in my prepared remarks here, CMS has already told us about this national coverage analysis. That’s public, a precursor to national coverage decision. That’s half the patients. And we’ll see what comes out on July 11. But the the payments are there.

It’s just a matter of the coverage. How broad?

Lee Hambright, Med Tech Analyst, Bernstein: Once the coverage comes into into play, what is the what do the economics look like for the hospital?

Jeff Martha, CEO, Medtronic: They’re gonna it’s they’re strong economics. Like, the payments I said are already established. So So what’s happening on or before July 13, whatever that day is July 13 is a Sunday. So, like, in my head, I keep going to July 11. So but the payments are not the question.

The dollars per case that’s out there in different due to reimbursement, and and hospitals will make money there and so will the physicians. This will be unlike some other breakthrough therapies that have launched where hospitals have to lose money, we don’t think that’s gonna happen here. We think they’re gonna make money out of the gate, which helps. Got it.

Lee Hambright, Med Tech Analyst, Bernstein: So what’s the pushback? The pushback on RDN is about whether the blood pressure reduction is enough to be clean clinically meaningful. But if it’s if it’s safe and easy and outpatient for the for the patient, if the hospitals can make money, you know, there’s clearly a a lot of patients out there. It it seems like it could ramp.

Jeff Martha, CEO, Medtronic: Yeah. No. Even in your your pushback. I mean, the the the the clinical trial with randomized control trial, a therapy arm with Ardene and another arm, you know, Ardene plus medication and then the other arm, just medication. You know?

Those are tough clinical trials to get through, but we did show clinically, you know, meaningful differentiation in the eyes of the FDA. But in the real world, that’s not what’s happening. We’re not comparing to people that are taking their medicine. The baseline is people that have hypertension that aren’t taking their medicine for a variety of reasons and have uncontrolled hypertension with massive side effects. And so that’s why we’re so bullish

Lee Hambright, Med Tech Analyst, Bernstein: on it. That’s great. How fast can it ramp? You know, on the on the q four call, you pointed out that Ardian’s different from PFA. It’s a little bit longer ramp, but a long annuity.

Is is WATCHMAN good analog?

Jeff Martha, CEO, Medtronic: I think, you know, that’s one of the curves we’ve looked at. And, you know, because, you know, for our investment thesis and everything, that’s one of the curves we’ve looked at, and we think that’s very doable.

Lee Hambright, Med Tech Analyst, Bernstein: Yeah. Very good. Okay. Great. Let’s touch on Hugo just for a sec.

Your your surgery business has been under pressure driven by GLP one impact on bariatric surgery and procedures shifting to robotics. Just first, is is bariatric surgery, is that is that a headwind to growth in fiscal twenty six, or is that kind of behind us now?

Jeff Martha, CEO, Medtronic: It’s not a % behind us, but it’s it’s leveling off. Right? I mean, we’re getting to a we’re getting to the bottom, basically. Great. And it’s, you know, honestly, it just you know, it’s taken us it it’s it’s gone down more than we would have If you asked us this eighteen months ago, two years ago, we thought it would have leveled off earlier, you know, but GLP one’s a bit more widespread than than we anticipated, like many.

But it it’s not completely leveled off, but it’s getting to that point. We can so that answers that.

Lee Hambright, Med Tech Analyst, Bernstein: Question from the audience. How how much of the MedSurg business is losing share to robotics? Is it is it mostly US stapling, or is it broader than that?

Jeff Martha, CEO, Medtronic: Well, the stapling is is the hit is bariatric. The stapling is more bariatric. We’re just it’s it’s it’s just losing cases to robotics, laparoscopic cases of robotics, and it’s kinda hitting, you know, multiple of our our of our of our product areas. Yeah.

Lee Hambright, Med Tech Analyst, Bernstein: When you when you put that all together, you know, Hugo is now in 30 countries. You filed, for the FDA for the urology indication. As you think about just the med surge, growth outlook over the next couple of years, you know, can can that go negative until Hugo kicks in, or how how should we think about that growth?

Jeff Martha, CEO, Medtronic: We’re not thinking, you know, negative. Like, where where it is right now, we would we would grow from here. Right? It did take a a dip in our q three, which we explained, and it popped back up in q q four to to low single digits. And our anticipation is to grow from here.

We think Hugo will have an impact at the the surgical, you know, business level in in f y twenty six. And then f y twenty seven, you’ll feel it at the Medtronic level. Yeah.

Lee Hambright, Med Tech Analyst, Bernstein: Great. Big picture. Hugo’s a big investment for Medtronic, you know, may maybe still the largest single investment across the company. How do you think about the return on investment

Jeff Martha, CEO, Medtronic: for for that? We’re looking at the return on investment and the impact of that surgical business for us. That’s a $6,000,000,000 business. We’re not looking we look at the return on the robot itself, but the the we we think it’s gonna be a very healthy return on the business. So, like, a good predicate for us is our spine business.

If you go back, you know, ten years, we were, it was a lower growth market, and we were actually losing share. We ended up buying this Mazor robot integrated into our, you know, enabling technology platform. And, you know, fast forward, you know, seven or eight years later, and the business is taking share from virtually, you know, everyone. And the market’s growing faster. We’re growing.

We’re taking share, and we’re more we’re more profitable than we’ve ever been. If you look at the robot p and l, it doesn’t look all that pretty, the the Mazor. But when you look at the what it’s done for the broader spine business, that $4,500,000,000 business, it’s raised the whole it’s raised the whole boat. Yeah. It’s a rising tide.

And we see the same thing for the surgical business. We think it’s going to, you know, get it back to, at least mid single digit growth, that’s 6,000,000,000, and with a healthy return for that business, good margins in that business.

Lee Hambright, Med Tech Analyst, Bernstein: We had a question from the audience on spine, believe it or not, which is close to my heart, obviously, business I used to work in. I remember writing those surgical synergy slides.

Jeff Martha, CEO, Medtronic: Yeah. Yeah. So so Lee, it’s all your we we have you to thank for this.

Lee Hambright, Med Tech Analyst, Bernstein: Thanks. Thanks. So the the question is lots of competitors working to replicate this approach. You know, what’s what’s being done to innovate and stay ahead?

Jeff Martha, CEO, Medtronic: So I I we’re we’re very excited about the spine business. Reason number one, we think we’re gonna change outcomes here. This going from an art to a science in this this therapy area driven by this enabling technology, That plus we’re getting, you the economics. So we’re continually evolving our spine, enabling technology. We just added a a partnership with Siemens, to the added innovative, you know, kind of X-ray device on the front end of the ecosystem, And we’re about to enter, you know, towards the end of FY twenty six, a p a pretty meaningful upgrade of various parts of that ecosystem.

And when you upgrade one part of the ecosystem, you’re upgrading to the whole ecosystem. So we’re investing quite a bit, and and you’ll start see the benefits of that, you know, at the end of FY twenty six when some of this new technology comes out.

Lee Hambright, Med Tech Analyst, Bernstein: Okay. Great. Time flies here. But maybe just a final closing thought. You know, you you took the CEO role in April of twenty twenty, and you you jumped right into COVID crisis management.

You know, not the easiest time to to kick off a turnaround plan. As you as you just reflect on your tenure, you know, where where are we, and what are you prioritizing going forward?

Jeff Martha, CEO, Medtronic: I feel we’re we’re at a a good inflection point here between, you know, the growth drivers are in place, the the operational foundation of the business is in is in a good place, and I really like the team we’ve we’ve assembled here. Terry’s just been a phenomenal ad. You know you know, we’ve got a really strong team, and the markets are healthy. So I I really believe you add this all up. Strong markets driven by innovation.

We’re have great innovation in the high growth segments. Our operational metrics are really strong, as strong as they’ve been, the foundation of the bit of the company. And the team, you know, is is very strong with diverse backgrounds. Bringing to the table, we’ve got some real med tech veterans. We’ve got, particularly in the functional area of functional expertise that we sorely needed and need coming from other industries.

Terry is a great example. Seeing what they’ve done in the automotive space and applying those best practices, it’s gonna help us a lot. So, you know, and the board’s been on this journey with us. So, you know, I think we’re at the at a good inflection point.

Lee Hambright, Med Tech Analyst, Bernstein: Great. Great. Thanks so much, Jeff, Thierry, Ryan. Thanks so much for being here.

Thierry Pierre Tatpieton, CFO, Medtronic: Thank you.

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