All right. Very good. Thanks so much, guys. I'm Lee Hambright, MedTech analyst at Bernstein. We're very happy to host Medtronic today. We have CEO Geoff Martha and CFO Thierry Piéton. Just a reminder that investors can submit questions at any time through Pigeonhole. We'll try to work in as many as possible. Geoff's gonna kick us off with a few opening remarks. Geoff, please take it away.
All right. Thanks, everybody. Is this working? Okay. Thanks, everybody, for being here today. I just thought I'd kick off, first couple minutes here with just 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, our forward-looking statements, so please check these out. Look, 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 billion or, you know, 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 franchises within those portfolios. And what, you know, technology differentiation. That's what it's all about, you know, tech, innovation-driven growth. We got a lot of technology differentiation in these areas. And this slide, I think, captures a lot of it here. This is really all about our growth drivers. In MedTech, it, you know, innovation-driven growth, like I said, is the name of the game. 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've got neuromodulation and, with its sensing technology, which I'll talk about, you know, cardiac, you know, or AFib 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 and mitral and tricuspid. We are—these are a multi-year cadence of, you know, differentiated technology in high-growth areas of MedTech.
Just to double-click on a few, I'm sure we'll get a lot of questions from Lee on this area 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 PFA, which, you know, and I've spent a lot of time on this in 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. Look, this has just really increased the supply chain, the industry supply chain, because the demand is high, you know, with the aging demographics and people more aware of AFib. There's a huge need for this. And this energy source is faster and safer and easier for physicians.
You got this $10 billion market growing 20%. We have a 10% share, and that's rapidly growing. You know, we've talked about, you know, we ended our fiscal year here in April with this business around a billion dollars. We've talked about doubling that in the near term here. Lots of excitement around PFA. 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 this hypertension therapy of ours, again, another energy source that ablates the arteries around the renal nerve to bring down your hypertension.
You know, we've got data going out as far as 10 years to show, so, you know, permanent or it's definitely indefinite, and 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 U.S., 18 million patients that could benefit from this. Every 1% penetration of that 18 million is $2 billion-$3 billion in revenue. We've got 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 million patients just in the U.S. We'll get the definition of how broad this reimbursement's gonna be in, on or before July 13th. That reimbursement will take effect on October 11th. Big inflection point for us in this area. That's another one I'm sure we'll talk about. If you just take a step back on MedTech 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. It's just a good time to be in MedTech. Innovation is changing the game. These are some categories of innovation that cut across.
I'd say instead of looking at it pro—we tend to look at things, you know, therapy by therapy or product by product. But when you take a step back, some of the technology that kind of cuts across horizontally would be AI, robotics, and sensing, particularly in implantable devices. You know, look, in AI, there's, you know, we're talking about AI in our products here and our offerings. We're getting really compelling impact from AI. And what it's allowing us to do is personalize therapies and procedures at scale, and make them better. So we've talked about our GI Genius, 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 we're using robotics or not.
and then these digital platforms like our Touch Surgery platform is really enabling that in surgery. And then, of course, you've got robotics technology. And, and look, don't—the 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's 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 deli cardiovascular delivery systems, you're gonna start to see be more robotically driven. So robotics is a big one. And then, of course, sensing.
We've been sensing in the heart for a long time. You know, that's why, you know, that's 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 MedTech. 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. Brain and the central nervous system, that is brand new. 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. There's one other company in pain.
That is allowing us to really customize our therapies in these areas over time. Like Parkinson's, it helps us to automatically adjust the therapy over time automatically, so you are getting better outcomes with less of a burden for the healthcare system before you go in and reprogram these devices with a neurologist. Lots of exciting stuff. Let me switch to earnings power. That was all on the top line. Top line, very healthy, markets, innovation. Now, now let's talk about earnings power. Let's start with last quarter. We just reported our quarter results last week. You saw a good top line result of 5.4% revenue growth. You also saw, you know, good operating profit growth, you know, an operating margin of 27.8. Then our EPS grew 11%. You are starting to see at Medtronic, us be able to accelerate our earnings power.
It is driven by three things. We are getting synergies across our go-to-market. You know, other than our diabetes business, we sell to hospitals. Those, that distribution, we are 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 are getting synergies around that and driving costs down. Finally, platforming, technology platforms, much of which I just showed you. These areas, AI, robotics, sensing, cutting those across multiple product lines, we are getting platform synergies that are allowing us to grow our top line while still growing our bottom line. I am sure we will get into that with Lee here as well. Finally, I do not want to talk about capital allocation. We have really focused in the last couple of years on decisive capital allocation to these higher growth markets.
We invest about almost $3 billion a year in R&D. Then you add our Tuck and M&A, the way I look at it is another source of R&D on top of that, so a couple billion on top. That is our primary focus, Tuck and M&A and increasing that R&D. We announced on our earnings call last week that our FY, our next fiscal year, we're increasing R&D faster than revenue. That's the first time we've done that in the last four years. Finally, we have a healthy return to shareholders. Last year, returning $6 billion to our shareholders. On the diabetes announcement, a lot of questions on that because it's a unique situation where we're separating from a high-growth asset in a high-growth market.
The reason for that, it sort of 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. 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 we believe that growth is gonna continue. Diabetes is ready to stand alone.
I think with the increased focus there and matching that business with like-minded investors, we do think the business will get more focus and more capital outside of Medtronic than in, and we'll continue to grow. Altogether, this is gonna unlock shareholder value near and long term. We'll get into that as well. 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. We wrapped up a pretty strong year too, you know, 10 quarters in a row of mid-single-digit growth. Back half of the year, we grew our EPS 9%. You're seeing that momentum. It's the culmination of a number of different things. Like I said, we believe we're in healthy markets.
We have made changes to our operating model to really focus on this innovation-driven growth, help us with capital allocation as well. We have changed our incentive programs over the years to make much more, gone from a profit-sharing plan to performance-driven. Our long-term incent and tied to the market growth, our performance incentives are tied to equity. So myself and the management team on down in the organization are extremely tied to Medtronic, shareholder returns. Then we brought in outside leadership. Thierry sitting on this stage is in month three, I believe. Feels longer for him, I'm sure. It's been a lot going on with tariffs and everything.
Over the years, you know, especially in our functional areas, to bring in operating rigor into our operations, into our quality, into our financial 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. Talked about increasing R&D investment. On top of that, accelerating our tuck-in acquisition appetite around those high-growth markets. I talked about, you know, a global operations supply chain. We've centralized that. That's helped us stabilize our supply chain that was really, had been, hits, had some issues coming out of COVID and also drive, so improve the resiliency, improve our product quality in the manufacturing, and drive our costs down.
And then, you know, finally here, we've talked about portfolio moves. We've made a number of smaller moves over the years, in terms of divestitures or exiting certain areas. Diabetes is a bigger one, but also the additive piece. You know, Affera is one of our, we have two platforms in the AFib space, one organic, one inorganic, Affera being our inorganic one, doing more deals like that that'll drive growth and shareholder value both near term and long term. Just kinda wrapping it up and getting to the Q and A here, I'd like to say, look, it all starts with the top line of MedTech, and we're in the moment in these growth drivers in these high-growth segments.
We've improved the foundation of the company from operations and quality, and we have a strong foundation. The business fundamentals are the strongest that it's been in 15 or 14 years I've been at the company. We're using portfolio management, both additions and subtractions, to better position the company in the markets that are higher growth where we believe the right ingredients to win. With that, I will wrap it up and move on to the fireside chat here. Thank you.
All right. Very good. Thanks for that, Geoff. Lots of topics to dig in on there. We've already got a lot of questions from the audience. We had an 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 12 weeks now. On the earnings call, you shared some reasons you joined Medtronic. It's a, a return to healthcare, chance to use your background to fix operations and some really exciting growth drivers. Maybe you could just share some first impressions.
Yeah. Look, it's, it's been a busy 12 weeks. Lots of things going on. I've, I've had a fantastic time, honestly. It's, first of all, it's great to be back in healthcare. I spent my time, you know, discovering the products. I, I love to get into the technology and the therapies and the outcomes for the patients, etc. And the team's done a great job of organizing that onboarding, starting with the most important products for, for the coming years.
The ones that, some of the ones that Geoff just mentioned we'll come back to, such as CAS, RDN, etc. 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 the business. You know, 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 through really strong interactions. Most importantly, you know, I've been, I knew it would be like this coming in, but not to this extent, you know, sort of the mission, the mission element of the motivation of the teams.
and, really, all out, great welcome into, into the environment. So I've, I've had a blast. At the same time, you know, we had some shorter-term deliverables with Q4 and the guidance for 2026, which I'm sure we'll come back on, and the tariffs and the deal on diabetes, etc. So it's, it's been a busy few weeks, but, but, it's been fantastic. Yeah. I've, I've really enjoyed it.
Excellent. Excellent. Welcome. Thank you for that. okay, Geoff, 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. The performance is better. six straight quarters of double-digit growth, which added 50 basis points to your FY2025 growth rate. Why is now the right time?
Yeah. Five years ago, the business had fallen behind and was struggling, but still a big market share player for diabetes patients. We were type 1 and insulin-dependent type 2. Despite falling behind, we had a lot of loyal patients that are counting on us. If we would've spun it out at that time, I do not know that the business would've survived. It needed a lot of work, and it has been a top priority for me, the board, and the management team to get it where it is today. It is very healthy. Like I have talked about, you know, I talked about the financial aspects of it, like double-digit growth for six quarters in a row and a great pipeline. I should have mentioned that the impact we are having on patients is pretty dramatic. It is really reduced.
We're, the patients are getting the highest time and range of anything in the market, by a meaningful amount, meaning that they're in a healthy glucose range, and they're not having to do a whole lot. The technology does it for them, versus counting carbs and all this stuff. It's a pretty compelling value prop. The business is ready to stand on its own. 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, thesis maybe five years ago that we would eventually spin it. Three years ago, I really started to hone in on that. We wanted to time it when it was healthy, but also when Medtronic could make up for that growth.
and right now, like I said, I believe we'll go faster without the diabetes business 'cause 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, 12% growth, and we've been building. 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 know if we'll get into that or not, it allows, it enables this to be an accretive deal.
Yeah. Great. Why don't we get into that? you know, Thierry, 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 12 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?
Yeah. So, first, you know, I just wanna, as a preamble, I'd like to say that, you know, the preferred path that we've chosen is beneficial in the short term, but it shouldn't detract from what Geoff said, which is we're doing the separation for strategic long-term reasons, right? 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.
You know, the R&D spend as a proportion of sales is a lot higher than for the rest of the business. The SG&A is a lot higher. Overall profitability tends to be on the lower side compared to the rest of the portfolio, quite significantly. It's also, you know, a business that potentially attracts a different type of investor than Medtronic, right? 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? That's the first thing.
The way we're gonna do it, as you said, is, first we'll do an IPO of up to 20% of that business, and, you know, we'll use the proceeds to capitalize it, to pay for the cost of the transaction. Also, you know, a portion of the proceeds will come back to the remainder, so to Medtronic, and we'll use those proceeds in, like we use them usually in our capital allocation policy. Then, you know, as we do that, we will say that there will be a second phase where we will do the split. You know, some investors will come in, into Medtronic shares with a view of potentially exchanging afterwards.
After a six-month 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. 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, you know, as we looked at the precedents in this type of deal, you know, it's very clear that typically the split is massively oversubscribed. We have good confidence that this is gonna be a good value generation business. I think it's a great franchise in a business that's, you know, a sector that's attractive. The transaction will be very unique on the market, you know?
I think, if you're an investor in MedTech, it's gonna be hard not to think about that deal. You know, 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.
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. You know, not ready to talk about valuation yet, but, you know, Tandem trades around one and a half times sales. You know, you don't plan to play in the standalone CGM market in the near future, and you don't have a patch pump yet. You know, why wouldn't Tandem be a better valuation comp than Dexcom or Pod?
I think our business is broader than there. We've got the complete ecosystem, and we've got a pipeline for growth. I mean, I think we've got a very unique value prop that's proven, right? I mean, think about that ecosystem anchored by our 780G algorithm, like I talked about before, the value that it has. It's 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 pen will now be 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 a new version of the existing pump. It's a whole new pump platform. And we've got a patch coming. This is a 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 patch to the pen for a couple weeks. Whatever you wanna do, your data stays. It's a value prop that's unique and proven that, like no one else has, nobody. We're very focused on this insulin-dependent market. It, you know, it's lower margin than the rest of Medtronic, but it makes money. It'll be well capitalized going out. I think it's a completely different and more robust and more durable business than tandem.
Yeah. Very good. Okay. Excellent.
Okay. The diabetes move, you know, kind of leads to bigger questions about the portfolio. You know, after the split, you're still a $30 billion plus revenue company. You know, how do you think about where Medtronic has the right to win and what's the framework for future portfolio decisions?
Like the areas that we play in, we've got scale. Like I talked about the very first slide there, we've got cardiovascular, neuroscience, and surgery. Look, cardiovascular is a juggernaut for us, right? There's lots of high-growth areas. We understand 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.
There is the benefit of scale that's very strong in cardiology at the customer level where they contract across those products. 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, you know, a good, you know, fair price. The ability to contract across that cardiac service line is a real driver. Us and a few competitors have that opportunity. Scale really matters. Neuroscience, that's coming. Neuroscience, we have by far the most robust neuroscience portfolio in MedTech when you look at it all, and everywhere from the leading spine franchise to the leading neuromodulation franchise to the number one, by far number one ENT franchise. You know, I could keep going.
That neuroscience is maybe 15 years behind cardiology and contracting, but they're starting to do it as well. 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 again, surgery is another one where scale missed. Historically, in surgery, scale's been everything. Contracts, hospitals have contracted. It's been us and our leading competitor over the years, J&J. It tends to be, you know, 80% Medtronic, 20% J&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 with the robot was their entry into that game, and now they're expanding their end effectors. Vice versa, Medtronic, we're building a robot out.
We believe it's important for us to be the second robot player out there. I think timing matters, and we've got a multi-year head start over the other competitor. We believe that portfolio approach that hospitals take is gonna help us. We have a right to win on all those areas, and we're continuing to learn how to leverage our scale better.
Yeah. Excellent. Excellent. Okay. Let's turn to FY26 guidance. You know, we'll talk about the 5% organic growth in a second with a bunch of drivers. On gross margin, a couple of questions from the crowd on gross margin. You know, you're guiding to flat gross margin excluding tariffs. FY25 gross margin was still 6,507. That was still about four and a half or five points lower than pre-COVID levels.
You've got some work to do to offset some mixed headwinds from diabetes and CAS this year. Can you just tell us how you're thinking about gross margin improvement in fiscal 2026 and beyond?
Sure. First, the first thing I want to say is this has to be, for me, sort of, you know, in the top priorities, right? Given my background, and so I come from, you know, an industry where every penny counts. 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.
You know, we were a company that was losing about two percentage points of price on a yearly basis. Now we're a company that recently has gained a percentage point of price, right? That has come through better governance. You know, it has come through better management of effects in some of the emerging markets, but it has come mostly out of getting good price from innovation, right? That is going to continue. In fact, we measure the proportion of our products that have been launched for less than three years. That proportion is going to continue to increase, right? We are going to go from, you know, a few years ago we were in the teens to being roughly 23% now to being a third. That is a tailwind that will help us improve margins with pricing.
On the cost side, you know, for a couple years now, the team has been able to deliver cost out that exceeds inflation. Net, net positive, right? I think manufacturing productivity is improving. Supply chain efficiency is improving. Negotiations with suppliers are getting better. I think it is definitely moving in the right direction. Pricing and cost out together is now a net, you know, almost a point of positive effect on a yearly basis, you know, trying to get us back to pre-COVID levels. I'm going to be focused on what I can do, especially to help on the cost side. We have got a couple headwinds, and they are mostly mix. The two elements of mix are really the growth of CAS and the growth, the growth of diabetes.
Diabetes, we just talked about how we will address that. That's not the reason we're doing the separation, but it will be an added benefit. On cardiac ablation, you know, the growth of it has come first through capital equipment. As that phase gradually gets replaced by selling more of the catheters that go with the capital equipment, that headwind will disappear as well. CAS is actually already accretive at the operating margin level. Look, I think mix will get better and we'll accelerate the initiative on cost out. The key target for us is gonna be to get back to higher levels in gross margin, definitely.
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?
Yeah, I think that's right. Yeah. As we grow towards the end of the year and get to, you know, what we feel the business should be in terms of size, we'll see gradually that mix getting better.
Got it. Okay. Cool. And so, when you put all that together, consensus still has you at under 66% gross margin in FY2030. You know, how much upside do you see to that? Is it, is it possible to get back to that pre-COVID 70% level?
All right. Look, I think it's too early for me, you know, after three months in the company to quantify the upside.
I think we've got to aim towards getting back to pre, pre-COVID levels of margin. In my view, there's opportunity. And there are things that, you know, I've seen in the automotive industry around platform sharing, around design to cost, etc., which I think can bring material benefit to Medtronic. And that's what I'm gonna be working on with the team.
Very good. Okay. You're guiding to 7% operating profit growth for 2026. So that's 200 basis points of operating leverage despite those flat gross margins. You're taking cost out of G&A and investing in R&D and sales to support those launches. You know, where do you see those opportunities to pull cost out of G&A?
I look, I think, you know, w e just have to look at the benefits of digitization and AI.
We have to look at the org structure and how we can make it more simple and flatter and how we can shorten the cycle on some of the key G&A processes, right? Again, that's kind of my DNA, I would say, after 10 years of automotive. I think there's just opportunity to continue to work on the structure of the business to make it leaner and more efficient. Great. On that topic, there was a question from the group. How much does Medtronic spend on AI? Is that primarily outsourced spending? I do not know the number off the top of my head. I do not know if you do, Geoff, but I think there are a couple areas. I think if you think about AI, there are almost three categories.
One is the AI, investment in the product. Geoff talked about the benefits that that's bringing. It's very differentiating. It's a structural improvement for our products with, you know, clear output for the patients. I think there's benefits in AI around supply chain, logistics management, etc., on which we're, you know, significantly investing. There's all the back office stuff. How you can optimize what I mentioned previously around G&A through just eliminating some of the transactional work. We're advancing on all three fronts. I don't have the number on top of my head, but they will make a significant impact in all three categories.
It's a meaningful investment though. It's been a multi-year. The question, are we outsourcing it? 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. Some of the, 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. We have to have that data science capability within the businesses as well. At the center, at the edge, data science, core competency, and no, 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.
Got it. Below the line, interest and tax add up to a 300 basis point headwind to EPS growth in fiscal 2026.
Any interest in tax or, or are interest in tax still bad guys in 2027, or do they start to flatten out after this year?
Yeah. So, it's a good question. On the interest side, what's happening is we're refinancing the debt, right? As you have debt repayment and you resubscribe. And as interest rates have gone up, we're replacing debt that was at 0.6-1% interest rate with debt that's at the current rates. You know, it's gonna have an impact and that's going to continue into 2027. From a tax perspective, the headwind is mostly driven by pillar two. If you look at what we've embedded in the 2026 guidance, we've embedded the tax rate to go from 16.5% to 18%.
We see that sort of stabilizing around 18.5%. We are getting close to sort of a stable tax rate. Those headwinds that we are going to continue to have in 2027, we have embedded that in the guidance. We know it is coming. We are going to work, by the way, to try to minimize those impacts, obviously, as we have always done, but it is embedded in the guidance we have given for 2027.
Great. Okay. Speaking of 2027, you said on the Q4 call that you expect to return to high single digit EPS growth upon the diabetes separation, in fiscal 2027, which you expect that deal to happen mid-fiscal 2027. Can you just clarify, are you saying that you expect full year FY2027 reported EPS to grow high single digits over 2026?
That is correct. Yeah. Yeah. Okay.
Consensus has landed around like $6 for fiscal 2027. That's like 8.5% above the midpoint of your fiscal 2026 guide. Is that like a decent starting point?
Seems like a good starting point, I would say.
Okay. Great. Great. Cool. All right. Let's get into the fun stuff on the businesses. Cardiac Ablation Solutions.
I guess you're no fun. I get, yeah.
Sorry.
I guess you're no fun .
I got, is that the, he's still fun. He's still fun. Okay. Lots of excitement about PFA, obviously. There's a huge opportunity in the cardiac ablation space now. It's a $10 billion market growing, like you said, 20% plus. Your CAS business reached $1 billion revenue in fiscal 2025. You know, you talked about this path, this line of sight to $2 billion.
You know, how soon can we get to that $2 billion run rate? Is that, you know, by the end of fiscal 2026? Is that 2027? You know, when do we get there?
It's in that ballpark. You know, I mean, we didn't quantify it, but it, yeah, it's in a couple quarters, you know? The business is ramping quickly. I mean, we're selling these capitals. Thierry mentioned that the mixed headwind is, you know, is a good guy in many respects 'cause we're selling these capital equipment, a lot of it. And as that capital equipment gets installed, they're being used like 100% utilization. I mean, so, you know, it's 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.
We have, we don't see the line of sight for that leveling off anytime soon. We have a nice product pipeline behind our current, like this is, I'm talking about Affera. We've got this product pipeline behind our current catheter, which is the Sphere-9 catheter, which plays in this kind of point-to-point segment of the EP ablation. When we get Sphere 360, you know, we've started in that clinical trial. It's usually about a year. That's about the timing. That gets us into this other segment point, the single shot, which goes right at our competition. We feel really good. We have a whole other platform called PulseSelect that is highly effective. It's very safe, and that gives us flexibility to tier these products.
Farah, you know, if you do your checks, I mean, it is coming back, you know, from the physician feedback we are getting as the premier platform in the space. And so, you know, we, you know, and we've got, like I said, this roadmap going forward. We see that continuing.
Got it. You've been working through several constraints to AFib growth, catheter supply, generator supply, mapping personnel to support the cases. You are making progress on all of those. What's the key gating item right now and how long until you're completely unconstrained?
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.
I'd say right now in the moment, and that's for each platform, the PulseSelect 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. That's helpful, especially for outside the U.S. Within Affera, the constraint would be the capital equipment right now. That is something we understand. We understand how to make these things. This is an acquisition. 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 keep up with demand. You ask when will that quit being a constraint. I'd say in the next couple quarters, yeah.
That is all in our guidance.
Excellent. Your PFA has taken off so quickly. Your key competitor in the 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 Cryo?
Look, I am just going off what our physicians are telling us. You do have a camp that is saying, look, I am just moving all to PFA. There is another camp that says, you know, we want PFA, but we also like some of the features of RF and we like an integrated system. We are providing them that with Affera so that we give them that flexibility. I think that is 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 a number of physicians out there, very tangibly want both?
Great. You mentioned Sphere 360, which is your single shot, Affera device coming soon. The market has been 80% point by point and 20% single shot historically. That mix is obviously changing rapidly. How do you see that mix evolving over time?
Yeah. I, look, the mix is changing in large part because, whether you prefer point to point or you prefer single shot, the better technology, PFA is right now in single shot. I think that is driving a lot of it.
and as we, I think that mix to single shot's gonna continue, especially when we have Sphere 360. Yeah. I think it's gonna continue.
Okay. Great. Obviously, we could talk about this all day, but you have lots of exciting businesses we have to hit. Let's hit renal denervation. Obviously, huge addressable market here, over a billion people worldwide with hypertension. 1% penetration equals $1 billion of revenue. You know, 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?
The, it's a huge unmet need. you know, I showed you showed a slide just in the U.S.
When you take out all these exclusions and you really narrow things down, we see 18 million patients that can benefit from this therapy just in the United States. It's a massive opportunity. I just look at it, you know, based on the, just taking a step back, you've got a therapy, if you have a huge patient pool where the current standard of care just by all accounts just isn't working. People do not like the side effects of the medication. They do not take it. Their blood pressure remains uncontrolled. You know, one in four people with hypertension do not have it in control. That is a big number. You get to this 18 million. You look at this therapy, it is coming into an established infrastructure, interventional cardiologists and cath labs, lots of interventional cardiologists, lots of cath labs.
The training for them is not that hard to do this procedure. They have the skills. For the patient, you know, a little bit of mild anesthesia. 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. Where's the downside? Yeah, where's the downside? And now you have the last missing piece of that puzzle, the day of reimbursement coming in. Like I said 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. We'll see what comes out on July 11th. The payments are there. It's a matter of the coverage. How broad?
Once the coverage comes into play, what is the, what do the economics look like for the hospital?
They're gonna, it's, they're strong economics. Like the payments I said are already established. What's happening on or before July 13, whatever that day is, July 13 is a Sunday. In my head, I keep going to July 11. The payments are not the question. The dollars per case that's out there, in different, do reimbursement and hospitals will make money there. With 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. What's the pushback?
The pushback on RDN is about whether the blood pressure reduction is enough to be clinically meaningful. If it's safe and easy and outpatient for the patient, if the hospitals can make money, you know, there's clearly a lot of patients out there. It seems like it could ramp.
Yeah. No, even in your pushback, I mean, the clinical trial with randomized control trial, a therapy arm with RDN and another arm, you know, RDN plus medication, and then the other arm, just medication, you know, those are tough clinical trials to get through. We did show a clinically meaningful differentiation in the eyes of the FDA. 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. That's why we're so bullish on it. That's great. How fast can it ramp? You know, on the Q4 call, you pointed out that RDN's different from PFA. It's a little bit longer ramp, but a long annuity. Is Watchman a good analog? I think, you know, that's one of the curves we've looked at. And, you know, 'cause, you know, for our investment thesis and everything, that's one of the curves we've looked at. I think that's very doable.
Yeah. Very good. Okay. Great. Let's touch on Hugo just for a sec. Your surgery business has been under pressure, driven by GLP-1 impact on bariatric surgery and procedures shifting to robotics.
Just first, is bariatric surgery, is that a headwind to growth in fiscal 2026, or is that kind of behind us now?
It's not 100% behind us, but it's leveling off, right? I mean, we're getting to the bottom basically. And it's, you know, honestly, it just, you know, it's taken us, it's gone down more than we would've thought. If you asked us this 18 months ago, two years ago, we thought it would've leveled off earlier, you know, but GLP-1's been more widespread than we anticipated, like many. And it's not completely leveled off, but it's getting to that point. We can, so that.
Great. Question from the audience. How much of the MedSurg business is losing share to robotics? Is it mostly US stapling or is it broader than that?
The stapling is, is the hit, is bariatric. The stapling is more bariatric. We're just, it's, it's just losing cases to robotics, laparoscopic cases to robotics. And it's kind of hitting, you know, multiple of our, of our product areas. Yea
h. When you, when you put that all together, you know, Hugo is now in 30 countries. You've filed for the FDA for the urology indication. As you think about just the med search 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?
No, we're not thinking, you know, negative. Like where, where it is right now, we, we'd, we would grow from here, right?
It did take a dip in our Q3, which we explained, and it popped back up in Q4 to low single digits. Our anticipation is to grow from here. We think Hugo will have an impact at the surgical, you know, business level in FY 2026. In FY 2027, you'll feel it at the Medtronic level.
Yeah. Great. Big picture, Hugo's a big investment for Medtronic. You know, maybe still the largest single investment across the company. How do you think about the return on investment for that?
We're looking at the return on investment and the impact of that surgical business for us. That's a $6 billion business. We're not looking, we look at the return on the robot itself, but we think it's gonna be a very healthy return on the business.
Like a good predicate for us is our spine business. If you go back, you know, 10 years, 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. 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&L, it doesn't look all that pretty. The Mazor. But when you look at what it's done for the broader spine business, that $4.5 billion business, it's raised the whole, it's raised the whole boat. Yeah. It's a rising tide. 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 billion, and with a healthy return for that business, good margins in that business.
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 slides, those surgical synergy slides.
Y eah. Yeah. So it's all your, it's we, we have you to thank for this.
Thanks. Thanks. The question is, lots of competitors working to replicate this approach. You know, what's, what's being done to innovate and stay ahead?
I think we're, we're very excited about the spine business. What reason number one, we think we're gonna change outcomes here.
This is going from an art to a science in this therapy area driven by this enabling technology, that plus we're getting in the economics. We're continually evolving our spine enabling technology. We just added a partnership with Siemens to add an innovative, you know, kind of X-ray device on the front end of the ecosystem. We're about to enter, you know, towards the end of FY 2026, a pretty meaningful upgrade of various parts of that ecosystem. When you upgrade one part of the ecosystem, you're upgrading the whole ecosystem. We're investing quite a bit and you'll start to see the benefits of that at the end of FY 2026 when some of this new technology comes out.
Okay. Great. Time flies here, but maybe just a final, closing thought.
You know, you took the CEO role in April of 2020 and you jumped right into COVID crisis management. You know, not the easiest time to kick off a turnaround plan. As you just reflect on your tenure, you know, where are we and what are you prioritizing going forward?
I feel we're at a good inflection point here, between, you know, the growth drivers are in place, the operational foundation of the business is in a good place. And I really like the team we've assembled here. Thierry's just been a phenomenal add. You know, we've got a really strong team and the markets are healthy. I really believe you add this all up, strong markets driven by innovation. We have great innovation in the high growth segments.
Our operational metrics are really strong, as strong as they've been, the foundation of the, of the company. And the team, you know, 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, functional expertise that we sorely needed and need coming from other industries. Thierry's a great example. Seeing what they've done in the automotive space and applying those best practices, it's gonna help us a lot. You know, and the board's been on this journey with us. You know, I think we're at a good inflection point.
Great. Great. Thanks so much, Geoff, Thierry, Ryan. Thanks so much for being here.
Thank you.