Good morning, and thank you for standing by. Welcome to Abbott's Second Quarter 2025 Earnings Conference Call. This call is being recorded by Abbott. With the exception of any participant's questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's expressed written permission. I would now like to introduce Mr. Mike Comilla, Vice President, Investor Relations.

Good morning, and thank you for joining us. With me today are Robert Ford, Chairman and Chief Executive Officer; Philip Boudreau, Executive Vice President, Finance and Chief Financial Officer. Robert and Phil will provide opening remarks. Following their comments, we'll take your questions. Before we get started, some statements made today may be forward-looking for purposes of the Private Securities Litigation Reform Act of 1995, including the expected financial results for 2025. Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological, and other factors that may affect Abbott's operations are discussed in Item 1A, Risk Factors, to our annual report on Form 10-K for the year ended December 31, 2024. Abbott undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments, except as required by law. On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott's ongoing business performance. These non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings news release and regulatory filings from today, which are available on our website at abbott.com. Note that Abbott has not provided the related GAAP financial measures on a forward-looking basis for the non-GAAP financial measures for which it is providing guidance because the company is unable to predict with reasonable certainty and without unreasonable effort the timing and impact of certain items, which could significantly impact Abbott's results in accordance with GAAP. Unless otherwise noted, our commentary on sales growth refers to organic sales growth. With that, I will now turn the call over to Robert.

Thanks, Mike. Good morning, everyone, and thank you for joining us. At the halfway point of the year, we are on track with our key priorities and objectives. In the first half, we delivered high single-digit sales growth, over 100 basis points of margin expansion in both gross margin and operating margin, double-digit earnings per share, and we achieved a number of important milestones related to advancing key programs in our new product pipeline. Our sales growth, excluding COVID testing sales, was 7.5% in the second quarter and 8% in the first half of the year. Our second quarter adjusted earnings per share of $1.26 exceeded the consensus estimate, reflecting 11% growth versus the prior year and 16% growth on a sequential basis compared to the first quarter. I'll now summarize our second quarter results in more detail before I turn the call over to Phil, and I'll start with Nutrition, where sales increased 3.5% in the quarter. Growth in the quarter was driven by 6.5% growth in Adult Nutrition, where Abbott is the global market leader. We continue to see strong demand for our Ensure and Glucerna brands in markets around the world, and this growing demand is driven by consumers seeking a source of complete and balanced nutrition, especially for those focused on protein-rich diets and meeting the dietary requirements for managing diabetes. Moving to Diagnostics, sales declined 1.5% in the quarter, predominantly due to the year-over-year decline in COVID testing sales and the impact of volume-based procurement programs in China. Together, these represent a projected headwind of around $700 million or 750 basis points on the full year 2025 sales growth in Diagnostics. Excluding China, Core Lab Diagnostics grew 8%, reflecting strong underlying demand in the markets around the world. Turning to EPD, our sales increased 8% in the quarter, driven by strong performance in our key 15 markets, which surpassed $1 billion in quarterly sales for the first time. Key 15 markets include India, China, and other markets across Asia, Latin America, and the Middle East. These markets represent the most attractive areas of growth for branded generic medicines. The growth in these markets is supported by favorable long-term health care economic and demographic trends, including higher birth rates, an expanding middle class, aging populations, and growing demand for access to high-quality health care solutions. We serve this growing demand by offering a broad portfolio of branded generic medicines tailored to local conditions with a focus on key therapeutic areas. We continue to make good progress towards building a best-in-class portfolio of biosimilars, having completed 10 regulatory approval submissions across a range of emerging markets with launches projected to begin in 2026. I'll wrap up with Medical Devices, where sales grew 12%, driven by double-digit growth in diabetes care, heart failure, structural heart, electrophysiology, and cardiac rhythm management. In Diabetes Care, sales of continuous glucose monitors were $1.9 billion in the quarter and grew 19.5%. In April, we announced a first-of-its-kind collaboration with Epic, enabling the direct integration of Libre sensor data into the leading electronic health record system. This seamless integration allows health care providers to easily view their patients' glucose data before, during, and after meetings with patients, supporting our goal of simplifying care to help deliver better outcomes for both health care providers and patients. In electrophysiology, we had several key accomplishments in the quarter, including delivering another quarter of double-digit sales growth, initiating the launch of our new Volt PFA catheter, and completing enrollment ahead of schedule in our pivotal trial. In Structural Heart, growth of 12% was led by a combination of continued share gains in TAVR, strong adoption of TriClip, and contributions from Amulet and MitraClip. During the quarter, we achieved several important milestones that demonstrate our commitment and progress toward expanding our portfolio of solutions to treat mitral valve disease. As the market leader in mitral valve repair, we continue to invest in the success of MitraClip. In addition to pursuing a label expansion to increase the addressable market, we recently launched a next-generation version of MitraClip, which further enhances the procedure with improved deployment and deliverability. We expanded our focus several years ago to include the development of mitral valve replacement technologies. In May, we announced FDA approval of our Tendyne mitral replacement valve, which offers a new treatment option for those who are not candidates for open heart surgery or a mitral valve repair procedure. At the New York Valves conference a few weeks ago, we provided an encouraging update on the development of our new transfemoral mitral valve replacement product. We acquired this innovative technology as part of our venture investments program, which led to the acquisition of Cephea Valve Technologies in 2019. Following that acquisition, we continue to iterate and enhance the technology, and the FDA recently granted breakthrough designation. We plan to start the pivotal trial next year and look forward to creating a new solution to help treat the world's most common heart valve disease, which impacts the lives of millions of people around the world. In Rhythm Management, our strong performance results from our strategy to build a comprehensive portfolio capable of significantly outperforming the market based on our historical growth rates. Our growth this quarter of 10% was led by strong uptake of AVEIR, our innovative leadless pacemaker, which is driving growing adoption of leadless pacemakers in both the single and dual-chamber pacing segments of the market. In April, we announced late-breaking data from the AVEIR conduction system pacing feasibility study. This was the first study to evaluate using a leadless pacemaker to deliver a conduction system pacing, which is a novel approach to pacing that closely mimics the heart's natural electrical rhythm. Following the successful outcome of this study, we are targeting to start the pivotal trial next year. In our heart failure business, often overshadowed by other high-growth businesses in our Medical Device portfolio, sales grew 14% in the quarter. This was driven by balanced growth across the portfolio, which included double-digit growth in ventricular assist devices used to treat both chronic and acute conditions. In vascular, growth of 3.5% was led by double-digit growth in vascular imaging and vessel closure products, along with increasing contributions from our sprit are below the indiscernible. Lastly, in neuromodulation, growth of 4% was led by strong performance of our alternate rechargeable spinal cord stimulation device in international markets, reflecting both continued uptake in existing markets and launches in new markets. In summary, our diversified model continues to provide a strong foundation that is both resilient and designed to sustainably deliver top-tier results now and in the future. That's evident in our performance in the first half of the year, which, along with our outlook for the remainder of the year and the momentum heading into next year, aligns with our long-term sustainable growth objectives of delivering high single-digit growth, healthy margin expansion, and double-digit EPS growth. I'll now turn over the call to Phil.

Thanks, Robert. As Mike mentioned earlier, please note that all references to sales growth rates, unless otherwise noted, are on an organic basis. Turning to our second quarter results. Sales increased 6.9% or 7.5% when excluding the COVID testing-related sales. Adjusted earnings per share of $1.26 increased 11% compared to the prior year and was above the consensus estimate. Foreign exchange had a favorable year-over-year impact of 0.5% on second quarter sales. During the quarter, we saw the U.S. dollar weakened, which resulted in a favorable impact on sales compared to exchange rates at the time of our earnings call in April. Regarding other aspects of the P&L, the adjusted gross margin profile was 57% of sales, which reflects an increase of 100 basis points compared to the prior year. Adjusted R&D was 6.3% of sales, and adjusted SG&A was 27.7% of sales. Adjusted operating margin was 22.9% of sales, which also reflects an increase of 100 basis points compared to the prior year. Based on current rates, we now expect exchange to have a relatively neutral impact on our full year sales, which includes an expected favorable impact of approximately 2% on our third quarter sales. Lastly, for the third quarter, we forecast adjusted earnings per share to be in the range of $1.28 to $1.32. With that, we'll now open the call for questions.

Our first question will come from David Roman from Goldman Sachs.

Maybe Robert, you could start by just putting 2025 performance into context for us. As I listen to the walk from the prior guidance to the updated guidance, I think it's pretty clear that it comes from some factors outside the U.S. in Diagnostics plus COVID diagnostic headwinds. But maybe you could help us think through the headwinds you're seeing this year, the extent to which those are transient versus more permanent changes in the growth rate and what that looks like next year?

Sure, David. I guess I'll just start off with like our goal is to always ensure that every one of our businesses is meeting and beating, right? The reality is in the portfolio of Abbott and the complexity and the broadness that we're geographically across the different types of products. You're going to have some businesses that will fall short from time to time and others do better, and we've seen that time and again. The goal here, David, is always to really take all of that complexity and just translate it into reliable and sustainable growth. And that's what we've been doing this year. So when you say characterize your growth this year. Listen, we've got a device business that for the first half of the year has grown over 12%, double-digit growth in a lot of our businesses. Our pharma business has done very well, 8% growth in the first half, building the biosimilar portfolio attrition first half about 5%, which is in the range that we've always expected them now that we've lapped a lot of the market share recovery process here. So really, the challenge that we've had is twofold here. It's really a drop-off in our COVID testing sales and some challenges in the China core lab market, together with some changes that we've seen in the Eurosport funding for HIV testing. So you look at that and say, okay, I'm not sure these are impacts that are 100% definite in the second half of the year, but I'm not going to sit here and try and forecast what COVID testing is going to do. We had expected to see a China recovery in volume. We knew the price impact in the China Core Lab, David, and we rolled that into our guidance. We had expected a market volume recovery to start happening, quite frankly, starting in Q2. We haven't seen that. So we've moved that out into Q4. But you put all that together, it's together with the funding for HIV testing that's over $1 billion of a headwind. Even with that $1 billion, we're still forecasting high single-digit growth and absorbing the impact of tariffs, which we now expect to be just $200 million of impact. FX, as Phil said in his comments, is still a headwind versus the prior year on the EPS side, but much less of a headwind than what we originally anticipated back in January. So I put this all together, and it will be nice, David, to see these headwinds behind us next year. And then as you look to next year, you've got all this great launch activity across all the businesses, whether it's Vault in the U.S., TACTIFLexDuo internationally, the dual analyte sensor, the launch of the new Alinity system, and the biosimilar rollout. So I look at all of that and I say, okay, you've got this headwind that we're facing here. Still, we're committed to high single-digit growth and double-digit EPS growth. As you look into 2026, those headwinds aren't going to be there. You've got all this kind of great momentum. I know what the consensus numbers are; they look very reasonable to me in that range of high single digits, double-digit EPS. It's in line with our historical growth and the guidance we've given this year. And it's in line with what our long-term sustainable growth targets are. So yes, it will be good to see these elements I've highlighted that are specifically to diagnostics. And I'll just take it a step further here. I mean if you look at our core lab business outside, and I hate doing this, but I think it gives context. If you look at the U.S. was up 7%, 8%. The European region was up 8%. Our Latin America region was high teens. So our core lab business is doing very well. Alinity is doing very well. We just got this issue that we need to go through this year as it relates to VBP and the disruption in our core lab business in China. But we're still very bullish on this segment. We believe it's a very important part of the health care system. So like I said, looking forward to these headwinds to be behind us, and we're well set up for next year.

That's very helpful. Maybe just push a little bit harder on one point there. If I look at the guidance for this year, it's really kind of 8.5% when you take out some of those onetime headwinds. One thing you didn't mention was obviously, in EP, you faced a little bit of a portfolio gap this year, and that looks to fully resolve as you head into the back half of the year and into next year. So is there a scenario in which we could see some of these onetime headwinds reverse and see the growth rate accelerate into 2026? And do you see that fall through to the bottom line, recognizing it's early to talk about '26, but just conceptually some of these headwinds fading and some of those pipeline drivers starting to kick in more significantly?

Yes. There is definitely a scenario where the growth rate could accelerate. It's a bit early to make any definitive statements about that, but there are certainly opportunities within the portfolio that we will discuss. Electrophysiology, for instance, has consistently exceeded our expectations as well as yours. So yes, there is a chance for acceleration as these headwinds fade. While it might be premature to make strong predictions, I feel very comfortable with our position for 2026.

Our next question will come from Robbie Marcus from JPMorgan.

Two for me. I'll ask them both upfront, both product questions. Diabetes and EP both performed really well in the quarter, particularly U.S. Libre. It was good to see U.S. double-digit EP. Maybe just walk through some of the trends you're seeing in each of those product lines, especially in diabetes. There was a lot of buzz around ketone integration and that product coming from Abbott. So what are you seeing in diabetes? And then also EP, especially now with indiscernible outside the U.S.

Sure, Robbie. Yes, another great quarter of Libre, almost 26% in the U.S., with an acceleration internationally. Also, I think all 3 months we're seeing great momentum. If you look at the intensive insulin user segment, obviously, that's been a key growth driver for the market. But there are still segments there that are underpenetrated, and we're seeing nice growth in there. The new sensor you referenced, I think, is going to definitely accelerate there. The basal segment is doing very well. A big growth driver for us still market leader here. Our view globally is we've got about a 70% share in some markets that have begun reimbursing for basal, Robbie. We're starting to see more markets go down this path and start reimbursing basal, whether it's through specific tenders and regions or different parts of health care systems. So that's good, and we see sustainability to that growth rate and our position in those international markets. The non-insulin user segment is also doing very well, with commercial coverage here in the United States at around 30%, which has doubled over the last 3 years. I think the trends are doing very nicely there. And I think that our position is just going to be strengthened even more as we bring out the innovation. Looking forward to that. I think on your question on EP, we saw good double-digit growth in EP this quarter, double-digit growth last quarter, and an acceleration in the U.S. growth rate this quarter compared to last quarter. A lot of attention now is shifting towards the rollout of Volt to the international markets. We tend to like to launch our products in a more limited fashion. When you move from clinical trials to a full launch, we prefer to have a little period in between where we can ensure that we're clearly understanding and getting all the feedback in a more direct manner. So really focusing right now on the sites that were enrolled in our trials, and the feedback has been excellent. I think that it stacks up very well versus competitors. I think the balloon design is perfect for PVI. I think it optimizes a lot of the process. Some segments globally are going to start to advance in terms of market segments that will benefit from having a procedure done without general anesthesia, just with general sedation. I think Volt fits very nicely into those segments there, too. So far, so good. The team is doing a great job. They’ve been doing a great job over the last couple of years. I think they’re excited now to transition to this phase of the strategy, which focuses on bringing the PFA catheter that we believe is highly competitive.

Our next question will come from Larry Biegelsen from Wells Fargo.

Robert, I just wanted to ask one follow-up question or multipart follow-up question on Libre. First, I'd love to get your reaction to the proposed competitive bidding for CGM and what that could mean for you. Second, the RFK junior comments on wearables, do you think that could accelerate type 2 non-insulin CMS coverage? And just lastly, on the dual ketone sensor, do you think that could drive share gains for you in intensive insulin patients where your share is lower?

Sure. So three-parter. On competitive bidding, Larry, listen, there was nothing unexpected in the CMS proposal document here. I don't think there are any major changes as it relates to CGM. If CMS chooses to go down the competitive bidding route, it's really going to be the DMEs that are going to be doing the bidding, not the CGM manufacturers. I think this is probably going to take a couple of years to fully implement the process, and I don't expect there to be an impact on Abbott, but we're going to continue to monitor. As I've said in other situations, one of the things we need to focus on is being the leader of scale, the leader of cost, and so we'll continue to monitor, and we'll be ready. Your other question was regarding the comments from the Secretary of HHS about wearables. Wearables are powerful. We've known this since we launched Libre. They are very powerful behavior modification tools. Behavior modification has really proven to drive significant impacts on health outcomes. If you can maintain glucose levels in a healthy range, it offers a lot of benefits, including lower risk of diabetes, heart disease, and aids in weight loss. We’ve seen improvements in productivity, etc. We appreciate the secretary's efforts to promote improving health and wellness for all Americans. This aligns with our company's mission, and we're supportive of that initiative. We hope to see Americans wearing CGMs made in the United States, as we have two manufacturing sites. Regarding the continuous glucose ketone sensor, I absolutely believe it can accelerate our share gain.

Our next question will come from Vijay Kumar with Evercore ISI.

I had one product-related and one P&L question. On the product side, our CRM is doing really well. How are there any metrics you could share on that? What percentage of your installed base has been updated or converted, where are we in the conversion cycle, and is this now like a double-digit or teens for the foreseeable future? What do you think is the ultimate TAM for this product?

I think it has fundamentally changed the growth trajectory of our CRM business. You are asking if this is a one-off thing or if we can bank on this. By 2023, when we launched single-chamber, our growth rate was 7%. In 2024 it was 7%, and in the first half of this year, it's 8%, showing 10% growth in this quarter. Achieving this is very sustainable. The team has done a really good job here in terms of coordinating and aligning marketing, clinical, and sales. They have really gotten into their stride to expand not just in the U.S. but internationally too. We expect to see this outer performance continue over the next several years. One of the things we're doing to support that growth is innovating. We'll launch a next-generation device that has a 25% longer battery life, adding another two years, and we are developing this conduction system pacing product targeted to start a pivotal trial in 2026. We anticipate great enrollment there too. We are also rolling it out internationally; it's launched in 50 countries, including some for a year or two and others just in the process of launching. We see good momentum with this portfolio — not just in execution out in the market but also in R&D and clinical work.

That's helpful. Maybe one P&L on the EPS guidance here. The top end was lowered by $0.05 and the midpoint was maintained despite, I think, operating margins tweaking down, organic coming down. Where are the offsets here? Maybe some comments on what is underlying operational versus perhaps change in FX and tariff assumptions?

I'll let Phil take that one.

Yes. Thanks, Vijay. Very quickly here, Robert touched on some of the sales drivers and derisking elements there. We also touched on the FX impact going forward. At current rates, at least, there's a neutral top-line impact but still a headwind on the bottom line, along with tariffs rolling in the second half of the year as those work their way through inventory. Those are the derisk and normal headwinds.

Sorry, could you quantify what the tariff contribution versus operational was?

Yes. I think Robert mentioned tariffs are a little less than $200 million impact, down from previous estimates. The FX impact here generally averages about 4% EPS headwind on the bottom line for us.

Our next question will come from Travis Steed from BofA Securities.

First question was on M&A. Just curious how you're seeing the pipeline shape up in diagnostics and medtech. If you could see Abbott pursuing a more sizable transaction this year on the M&A side. It sounds like on EPS, you're comfortable with the Street consensus double-digit EPS growth next year; is that assuming tariffs in rates?

Sure. What was the first question again? Oh, M&A. Yes, it is a good environment for M&A and with good opportunities out there. We have a strong organic pipeline that allows us to be selective. We're seeking opportunities that will fit us strategically and generate an attractive return. We're not looking to acquire just to make our top line larger. Profitability, earnings, and ROIC all matter to us. On EPS for next year, it includes what we know right now. As we're all going through, those can change, but as I said in April, our goal is not to focus on mitigating items causing a year-over-year impact. We didn't go out and build substantial inventory recently; we've been focused on planning with our team that has been successful.

Our next question will come from Danielle Antalffy from UBS.

Robert, I actually just have one product question, and that's within med tech, specifically structural heart. You’ve been launching Amulet for a while now, and we have a potentially big game-changing trial readout coming for your competitor early next year. I just want to hear your thoughts on how you're thinking about that and the potential TAM expansion.

Yes, this is a very important growth opportunity we see. A competitor has been investing in a trial that could potentially expand the market, so are we. We have our own trial here and I think it's vital to have the data to support the product. We made that investment, and we should complete enrollment in our trial this year. If these trials are positive, it will have a significant impact on our ability to expand the market. Our job also is to address challenges as we are not the market leader. We've invested wisely in R&D to accelerate our second-generation device and ensure improved deployment and delivery. The feedback we've received from physicians is very positive. This is a strong opportunity for us, tying in with our EP and AFib procedure growth.

Our next question will come from Josh Jennings from TD Cowen.

I wanted to ask about your TAVR franchise. Can you share your expectations for market growth here? How does Abbott view the market? How do you see the franchise taking share?

We want to be the leading global structural heart company, and the only way to achieve that is to have a full product portfolio. Navitor continues to receive a lot of positive feedback from physicians; it's an excellent design with great clinical data. Our sales have doubled over the last two years, largely driven by international success, and I expect that to continue. There is an opportunity to accelerate that growth internationally with the competitor exit. Our team is actively pursuing that. The CE mark planned for Navitor presents a perfect opportunity. We aim to increase our presence in U.S. centers; currently, we are in about 20% of them. We are doubling our sales team to enhance our competitiveness. There’s considerable potential for growth in structural heart, especially with the ongoing innovations and investments in our TAVR and mitral products.

Our next question will come from Adam Maeder from Piper Sandler.

Two quick ones for me. First, hoping for an update on formula litigation and the MDL process. Also, what do you think about the potential pathway to resolution? Secondly, on the dual analyte sensor, I'd like to know more about expected approval and launch timing, pricing strategy, and how quickly you'll integrate with different pumps.

I'm not going to comment specifically on upcoming cases regarding litigation. This product has been supported by the medical community, regulatory community, and scientific community. It has been on the market for a long time and does not represent much to our revenues. We stand behind the product and its safety. If necessary, we will take appropriate action. Regarding the dual analyte sensor, I'm not going to discuss timing, but it's significant that this first sensor will measure two different analytes continuously. We have completed approximately five trials to support its submission, and I won't disclose the launch timeline or pricing but will ensure that we have lined up conversations with insulin delivery pump companies for integration to ensure swift availability.

Our next question will come from Matt Miksic from Barclays.

I'd love to hear your thoughts on potential M&A opportunities across diagnostics and medtech. Where do you see the most likelihood for investments or gaps in the portfolio you’d like to fill?

It's clear people want to triangulate. I won't telegraph our path, but I've been clear. We are interested in diagnostics and med devices, with many opportunities available. Great growth rates across the businesses put us in a selective space. We're applying our usual framework in M&A, seeking to improve assets while expanding patient access. There’s good momentum and strength across our organic pipeline, making it a favorable environment for M&A.

Okay. Operator, we'll take one more question, please.

And our last question will come from Marie Thibault from BTIG. I wanted to follow up on your planned biosimilars and how you see the reach of those products, the investments needed on your end maybe in SG&A and the size of some of those markets.

This is an opportunity for us to sustain our growth rate. This business has been growing between 8% and 10%. Our management team has successfully navigated FX cycles and inflation. They’ve expanded margins, and we're looking at how we can do this capital efficiently. There will be some SG&A required to educate the market for biologics, but we will leverage our existing infrastructure for distribution and regulation along with strong healthcare relationships. The predominant diseases are significant in emerging markets. The team has laid out a robust pipeline focusing on autoimmune disease, women's health, oncology, and access to GLP-1s. We are launching in smaller markets this year and will roll them out next year, contributing to our growth. Well, listen, I’m pleased with what we've accomplished in the first half. We've delivered high single-digit sales growth and double-digit EPS. We've expanded our gross margin and operating margin by about 100 basis points. The second half sales growth guidance is derisked to account for transient items in diagnostics, and we’re poised to lap these in the next year. That still leaves over $1 billion in revenue growing high single digits throughout the rest of the year. We've reaffirmed our guidance, and I see another example of the strength of our diversified model, which is resilient and well-positioned to deliver top-tier results. There is good underlying momentum that I believe will carry into next year. With that, I'm going to wrap up. Thank you for joining us.

Thank you, operator. Thank you all for your questions. This now concludes Abbott's conference call. A webcast replay of this call will be available after 11:00 a.m. Central Time today on Abbott's Investor Relations website at abbottinvestor.com. Thank you all for joining us today.

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a wonderful day.