Earnings Call Transcript - MDT Q1 2026

Ryan Weispfenning, Vice President, Head of Investor Relations

Hello, everyone, and thanks for joining us today for our fiscal '26 first quarter video earnings webcast. I'm Ryan Weispfenning, Vice President and Head of Medtronic Investor Relations. Joining me here today are Geoff Martha, Chairman and Chief Executive Officer; and Thierry Pieton, Chief Financial Officer. Geoff and Thierry will provide comments on the results of our first quarter, which ended on July 25, 2025, and our outlook for the remainder of fiscal year '26. After our prepared remarks, we'll take questions from the sell-side analysts that cover the company. Today's program should last about an hour. Earlier this morning, we issued a press release discussing our results and containing several financial schedules. We also posted an earnings presentation that provides additional details on our performance. The presentation can be accessed in our earnings press release or on our website at investorrelations.medtronic.com. During today's program, many of the statements we make may be considered forward-looking statements and actual results may differ materially from those projected in any forward-looking statement. Additional information concerning factors that could cause our actual results to differ is contained in our periodic reports and other filings that we make with the SEC, and we do not intend to update any forward-looking statement. Unless we say otherwise, all comparisons are on a year-over-year basis and revenue comparisons are made on an organic basis, which excludes the impact of foreign currency and first quarter revenue in the current and prior year reported as Other. References to sequential revenue changes compare to the fourth quarter of fiscal '25 and are made on an as-reported basis. All share references are on a revenue and year-over-year basis and compare our first fiscal quarter to our competitors' second calendar quarter. Reconciliations of all non-GAAP financial measures can be found in our earnings press release or on our website at investorrelations.medtronic.com. And finally, our EPS guidance does not include any charges or gains that would be reported as non-GAAP adjustments to earnings during the fiscal year. With that, over to you, Geoff.

Geoffrey Martha, Chairman and Chief Executive Officer

Thank you, Ryan, and hello everyone. Welcome to the call and the new look. We have much to discuss today, so let's dive right into our Q1 results. We began the fiscal year with another noteworthy quarter of mid-single-digit revenue growth, and we're optimistic about increasing growth as we progress through fiscal '26. Our top-line growth aligned with our guidance, and our EPS exceeded expectations. The entire organization is focused on capitalizing on the significant opportunities Medtronic has ahead of us, allowing us to raise our EPS guidance for the full year following a strong start. As you will hear today, Medtronic is leading med tech innovation across product categories, and we are about to see an acceleration in both our financial results and strategy. First, let’s discuss some key portfolio highlights before Thierry reviews results across all our businesses. In the cardiovascular segment, we achieved high single-digit growth this quarter, building on a strong comparison from the previous year. This success stems from our innovative product lineup and diligent execution in a crucial market area for us. We recorded double-digit growth in cardiac surgery, ICDs, and Leadless Pacing, and we experienced nearly 50% growth in Cardiac Ablation Solutions driven by our PFA systems. This performance reflects our operational capabilities, and we believe that our growth momentum in this essential area is just beginning. During the past quarter, I observed our Affera product alongside competitors in various ablation procedures. The advantages we offer regarding procedure time and ease of use are genuinely distinctive. Feedback from physicians and equipment utilization levels are exceptional, reinforcing our belief that we possess the right technology and product pipeline to achieve category leadership in cardiac ablation. Turning to the Neuroscience segment, we grew 3%, with high single-digit growth in both Neurosurgery and Neuromodulation. As I noted last quarter, our spine AiBLE ecosystem is driving market share gains because health systems are not merely upgrading individual equipment; they are adopting the full AiBLE ecosystem, creating a competitive advantage for us. In Neuromodulation, our innovative closed-loop sensing technology in Pain Stim and Brain Modulation, together with our effective commercial execution, is also increasing our market share. However, our Neuroscience growth was somewhat below expectations due to challenges in our Specialty Therapies businesses, which we will discuss shortly. Nonetheless, we anticipate improvement starting in Q2 and a further acceleration in the latter half of the fiscal year. In the MedSurg segment, we grew 2% this quarter, in line with our expectations. The Diabetes segment continued to outperform the company average, driven by our 780G system and Simplera Sync sensor in international markets. Looking ahead, we are well-positioned for growth across all our segments in the second half of the year. In our earnings deck posted earlier today, we highlighted several upcoming milestones that will fuel this growth, with our CAS business and the ongoing rollout of our PFA portfolio being the most significant. In Q2, we expect our CAS business to outpace the nearly 50% growth we achieved this past quarter, and we are poised to add an additional $1 billion in revenue based on fiscal '25 numbers. Demand remains extremely high, and we are executing our plans to quickly increase the supply of mapping systems and catheters. CAS is just one of the many upcoming growth drivers in the cardiovascular space. Regarding Renal Denervation, we are anticipating final national coverage from CMS by October 8, after which we expect the U.S. launch of our Symplicity procedure for hypertension to ramp up. Our Peripheral Vascular business plans to launch the Contego carotid stent system this quarter and the Liberant mechanical thrombectomy system in the second half of the fiscal year. In Neuroscience, we expect to accelerate growth starting this quarter, continuing through the rest of the fiscal year. Our Pelvic Health business is anticipated to be a key growth driver in fiscal ‘26 and beyond. In preparation for our tibial launch this fall, we have made significant changes to our commercial organization in Pelvic Health during Q1. While this had a short-term impact as expected, it positions us to capitalize on the upcoming growth opportunities in this area. For Neurovascular, we project growth acceleration throughout the remainder of the fiscal year as we move past challenging comparisons from China VBP and product recalls. Additionally, we have new products launching in carotid stenting and our hemorrhagic portfolio. In the Surgical space, we are preparing for the U.S. launch of Hugo in the latter half of the fiscal year, which we expect will contribute to growth. In Diabetes, we anticipate improved performance as we introduce two new sensors, Simplera Sync this fall and the Abbott-based sensor, Instinct, in the coming months. Simplera is significantly smaller, disposable, and easier to apply without overtape. With Instinct, customers will gain access to Abbott's leading CGM platform. Combining these enhanced sensors with our MiniMed 780G and its unique meal detection technology should lead to notable increases in our installed base and revenue growth. Regarding the separation of our Diabetes business, referred to as MiniMed, the process is on track. MiniMed is entering a strong innovation phase independently. This separation will enhance Medtronic's focus on core businesses, including high-growth opportunities like PFA and Ardian. Moreover, Medtronic can grow revenue and earnings more rapidly without Diabetes than currently possible. We maintain that the separation will have an immediate positive impact on EPS, even with conservative valuations, creating value for Medtronic shareholders. There is much to be enthusiastic about at Medtronic in the upcoming quarters. Thanks to the strength of our product pipeline, we are confident that our revenue growth will rise in the near term and that we will achieve higher earnings growth over time. This will result from a combination of natural P&L leverage and the decisive actions we are taking to enhance efficiency in both COGS and our operating expenses. We are fostering an environment at Medtronic where innovation drives growth, and that growth, in turn, enables us to invest more in high-return innovations. We've already begun to increase these investments, as indicated by a high single-digit rise in R&D this quarter. These investments will ensure the durability of our earnings power. Now, I will hand it over to Thierry to discuss the details of our business performance, financials, and guidance.

Thierry Pieton, Chief Financial Officer

Thanks, Geoff, and hello, everyone. So I'll start first with our cardiovascular portfolio. So CV grew 7% this quarter, led by Cardiac Ablation Solutions. CAS growth continued to accelerate to nearly 50%, including low 70s growth in both the U.S. and Japan and low 30s growth in international markets. This rapid growth is being driven by high demand for our Pulsed Field Ablation system including our PulseSelect anatomical catheter and especially our Sphere-9 focal catheter and Affera mapping system. Affera mapping system utilization is high and the Sphere-9 catheters are being used in a wide variety of cases. Our teams are quickly ramping supply and our mapper hiring is on track. This is allowing us to enter new accounts as well as going deeper into more labs in our established accounts. We're still early in the rollout, and we continue to execute with urgency to capitalize on this massive opportunity. We expect to continue to win share in this $11 billion space that is now growing over 25%. As we look forward, we're advancing our PFA pipeline, including our next-gen Affera Sphere-360 catheter. We hear from many EPs that Sphere-360 is the most anticipated single-shot catheter in this space, driven by very positive early clinical data. We're expecting to start the pivotal trial for Sphere-360 this calendar year. Next, in structural heart, we grew 6%. We continued to gain traction with our Evolut FX and TAVR device and our differentiated clinical evidence. We're getting our fair share of international revenue from Boston Scientific's market exit. We're also gaining momentum in several geographies, including Japan. We expect all of this to drive continued strength in our TAVR franchise in the quarters ahead. In Cardiac Rhythm Management, we grew 3%, with 6% growth in defibrillation solutions and 3% in cardiac pacing therapies offset by cardiovascular diagnostics. We continued to see strong adoption of our premium innovative products, including 83% growth of AURORA EV-ICD, 14% growth in Micra leadless pacemakers and 21% growth with our 3830 conduction system pacing lead. In hypertension, we were very pleased with CMS' proposed NCD for our Symplicity system that they issued last month as well as the positive comments that came in during the public comment period. And then last week, we received the news that the ACC and AHA issued updated guidelines recognizing Ardian as a treatment option for hypertension. These are very important steps to providing patients access to our innovative Symplicity procedure. Nearly half of U.S. adults have hypertension and 1 in 4 are uncontrolled despite the broad availability of numerous generic drugs. CMS now expects to finalize the NCD on or before October 8, and we expect procedures to ramp following that. Ahead of this, we're working with healthcare systems across the U.S. to train physicians and help them establish Symplicity service lines. We're rapidly hiring clinical specialists and market development and healthcare economics managers to drive the future growth. They will work alongside our existing coronary sales force to provide support for this important new treatment. We also continue to invest in next-gen Ardian technology, including our next-gen catheter that will provide radial access. And we enrolled our first patient in our multi-organ denervation pilot study, which is called SPYRAL GEMINI. Now turning to the Neuroscience business, which grew 3%. Our Cranial & Spinal Technologies business grew mid-single digits, including 5% U.S. core Spine growth and 8% U.S. Neurosurgery growth. As Geoff mentioned, we had a strong capital equipment quarter as our differentiated AiBLE spine ecosystem continues to win share. Several categories of our enabling equipment grew double digits globally, including Mazor, O-arm, Midas Rex and StealthStation. In Neuromodulation, we had another very strong quarter, growing 9%. In Pain Stim, we grew 10% globally, including 11% in the U.S. Our Inceptiv system, with its responsive real-time therapy adjustments, is giving patients greater freedom. And in Brain Modulation, we grew high single digits as our groundbreaking BrainSense adaptive DBS technology is launching in the U.S., Europe and Japan. BrainSense is a fully closed-loop brain computer interface that automatically provides personalized, real-time therapy adjustments based on brain activity feedback for patients with Parkinson's disease. Next, turning to our MedSurg portfolio, which grew 2%. Our Surgical business also grew 2% this quarter. The business had high single-digit growth in Advanced Energy where our market-leading LigaSure vessel sealing technology won share again for the 12th quarter in a row. This, combined with high single-digit growth in emerging markets, helped offset two ongoing, but stable market pressures, one is in bariatric surgery and the other is from the shift to robotic surgery, and both are primarily in the U.S. We continue to expect our Surgical growth to improve over time, starting in the back half of the fiscal year as we begin to expand the launch of Hugo. Earlier this calendar year, we filed for FDA approval for Hugo and we're looking forward to launching it in the important U.S. market. In international markets, we're making good progress in Surgical Robotics as our revenue and procedure volumes continued to grow. Last month, we received CE Mark for LigaSure technology on Hugo. This was an important step for our robotic offering, given that LigaSure is the most preferred vessel sealing technology in the world, having been used over 35 million procedures. Robotics and the ecosystems that robotic-assisted surgery enables are important for our Surgical business. And as we look ahead, we see robotics and our world-class digital and AI capabilities as an important strategic differentiator that will benefit many of our franchises at Medtronic. To wrap up our business performance, in Diabetes, we grew 8%. This included 11% growth in international markets, where our Simplera sensor technology is already available. We've heavily invested in Diabetes over the past few years, and now we're entering a strong innovation cycle with both new technology and new indications. Last month, we received CE Mark for expanded indications for the 780G for type 2 diabetes, children as young as 2 and during pregnancy. Looking ahead, in addition to launching the 2 new sensors that Geoff mentioned, we're expecting type 2 approval in the U.S. in the coming months. And we also continue to make progress with our new insulin pump systems. We intend to submit our next-generation durable pump, the MiniMed Flex, to the U.S. FDA by the end of the fiscal year. Flex is much smaller than 780G as the screen on your phone, allowing for more discreet placement while still using the same reservoirs and infusion sets. And Flex will work with both Simplera Sync and Instinct sensors. Finally, as mentioned, our planned separation of MiniMed is on track. Our preferred path continues to be a 2 step, IPO and split, which we expect to have fully completed within 15 months from now. Upon separation, we continue to expect approximately 50 basis points of gross margin improvement and 100 basis points of operating margin improvement. Now turning to the financials. Q1 revenue of $8.6 billion grew 8.4% reported and 4.8% organic, in line with our guidance. Our adjusted gross margin was 65.1%, down 80 basis points year-over-year. This was expected and stable when compared to Q4. I'll walk you through the 4 main components that drove the gross margin this quarter. First, we continued to benefit from pricing as we launched new products and maintained pricing discipline on contracting, and this had a 30 basis points benefit. Second, business mix, as I noted last quarter, continues to be a near-term headwind, approximately 70 basis points this quarter split roughly equally between CAS and Diabetes. CAS today is impacted by the mix of lower-margin capital to higher-margin catheters and Diabetes is early in its manufacturing ramp of the Simplera sensor. Over time, we expect both of these to improve as we scale our CAS business and separate the Diabetes business. Third, our COGS efficiency programs, net of inflation, continued to benefit gross margin as our global operations and supply chain organization execute to deliver savings on materials and drive efficiencies in our manufacturing plants. This quarter, this was more than offset primarily by the manufacturing ramp of Affera that we incurred last year. The net of these items was a 50 basis points headwind. And finally, foreign exchange was a 10 basis points tailwind to gross margin. Moving down the P&L. Adjusted R&D was up 7.7%, 100 basis points ahead of revenue growth. We're allocating significant capital to high-growth projects across our businesses, including large increases in both Cardiovascular and Diabetes. With SG&A, we continued to drive leverage, growing at 170 basis points below revenue growth. Importantly, we drove the significant leverage while also increasing investment in growth areas, including CAS as we hired more mappers, and Ardian as we develop the market. We are extremely focused on making sure we fuel our growth drivers to maximize the opportunities from these technological breakthroughs. Our adjusted operating profit was $2 billion, resulting in an adjusted operating margin of 23.6%. Below the operating profit line, our adjusted tax rate was 17.8%, about 70 basis points better than expectations due to jurisdictional mix of profits. The FX impact on EPS was neutral in the first quarter, a couple of cents better than anticipated given rate movements throughout the quarter. The net result was adjusted EPS of $1.26, $0.03 above the midpoint of our guidance. Now let's move to our guidance. On the top line, we continue to expect fiscal year 2026 organic revenue growth of approximately 5%. In Q2, we're expecting 4.5% to 5% organic growth, similar to what we just delivered in the first quarter. As Geoff covered earlier, we're expecting revenue growth to accelerate in the back half of the fiscal year. Based on recent FX rates, which have moved substantially over the past quarter, we now see a tailwind of revenue of $550 million to $650 million in fiscal '26. This is over a $0.5 billion positive increase versus 3 months ago. In Q2, FX is currently $50 million to $100 million tailwind based on the recent rates. Moving down the P&L, we're continuing to drive pricing discipline and to deliver savings on our COGS efficiency programs. These will be offset in the near term by continued business mix primarily in CAS and Diabetes. Regarding tariffs, you will recall we outlined 2 scenarios when we gave our annual guidance last quarter. Given where we are in the year, we can take the worst case $350 million scenario off the table for this year. And the $200 million scenario has modestly improved, driven by our execution on mitigation efforts. As a result, tariffs are now expected to be approximately $185 million for fiscal 2026. We also remain committed to increase investment in our current and future growth drivers, resulting in increased R&D and sales and marketing spend. At the same time, we are confident in our ability to drive leverage with our G&A expenses. Accordingly, there's no change in our expectation for fiscal 2026 operating profit to grow materially faster than revenue. Given our Q1 results, we're raising our underlying fiscal 2026 EPS growth expectation, which excludes the impact of tariffs to 4.5% versus the prior 4%. FX is now a flat to 1% benefit to fiscal '26 EPS. Including the impact of tariffs, we're now guiding EPS in the range of $5.60 to $5.66, a raise from our prior range of $5.50 to $5.60. For Q2, we would expect EPS of $1.30 to $1.32, which includes an approximate 1% benefit from foreign currency based on recent rates as well as an approximate $18 million negative impact coming from tariffs. As I mentioned last quarter, we're expecting high single-digit EPS growth in fiscal year '27, driven by accelerating revenue growth, improved business mix from CAS and Diabetes as well as the other financial benefit of the Diabetes separation. To conclude, our confidence is building. We're advancing our growth drivers to accelerate revenue and growth. And we're executing on efficiencies in manufacturing and supply chain and operating expenses to drive earnings growth. At the same time, we're increasing our growth investments in R&D and sales and marketing, all with a deliberate focus on creating long-term shareholder value.

Geoffrey Martha, Chairman and Chief Executive Officer

Okay. Thank you, Thierry. And before we go to Q&A, I want to make a few brief remarks on the shareholder value creation initiatives we announced this morning in partnership with Elliott Management and on the opportunity that we both see ahead for Medtronic. Today, we've announced a series of governance enhancements that will help capitalize on the enormous opportunities in front of us and unlock the full extent of Medtronic's potential. To start, we've appointed 2 new independent Board members, John Groetelaars and Bill Jellison, each of whom bring deep operational expertise in med tech and fresh perspectives to the table. The Board and I are excited to welcome both John and Bill to Medtronic. And as part of our inflection, the leadership and I are reinvigorating our laser focus up and down the organization on 2 key fronts: growth and creating oxygen to fuel that growth and drive earnings power. These 2 focus areas need to be linked from the front-line employees of Medtronic up through senior leadership, including me, and all the way to the Board. So today, we announced that we've created 2 new board committees to support management. The Growth Committee, which will oversee our portfolio management and capital allocation decisions to accelerate growth; and an Operating Committee, which will provide oversight of our efforts to drive efficiency gains in our operations and expense base. This will enable a higher level of organic investment back into our business while also delivering improving margins and accelerating EPS growth. So we'll have a fresh perspective from our 2 new board members, and these 2 committees will give us support and focus so we can execute with both speed and urgency. And finally, we look forward to sharing the culmination of these initiatives at an Investor Day sometime mid-calendar year '26. And at this event, we intend to provide a comprehensive update for investors on our strategy post Diabetes, the value proposition of our go-forward portfolio and new long-term financial targets for sustained value creation. So to conclude, here's what we want you to take away from today's announcement with Elliott. Medtronic is turning the page and we'll be entering a new period of greater revenue and earnings growth. We've put in place a stronger foundation for the company. And over the last few quarters, we've discussed how we have an incredible product pipeline that is poised to accelerate our organic growth. And now with our renewed focus on aligning our portfolio and capital allocation for higher growth as well as enhancing operational excellence, we're putting the pieces together in place to translate that accelerating top line into a period of sustained outsized earnings growth. We're entering a new phase of our transformation to act more boldly and more decisively to deliver the strategic clarity, growth profile, operational rigor, investment strategy and shareholder returns that this company is capable of. And as I wrap up, I want to thank the Medtronic employees watching today. We've gone through a lot of change together to better position the company to deliver improved performance. I appreciate that you've accomplished this while also keeping the Medtronic mission front and center. You're striving without reserve for the greatest possible reliability and quality in our products and you're doing so with dedication, honesty, integrity and service. Your work is benefiting millions of patients around the world as we alleviate their pain, as we restore their health and we extend their lives. So thank you. Okay. Now it's time to move on to Q&A, where we're going to try to get to as many of you analysts as possible.

Ryan Weispfenning, Vice President, Head of Investor Relations

Sure, Geoff. Finally, please be advised that this Q&A session is being recorded. Okay, we'll take the first question from Travis Steed of BofA Securities.

Travis Steed, Analyst

First of all, on the pipeline, I see it's coming through this quarter with CAS showing 72% growth in the U.S. It appears that supply is ramping up nicely. I would appreciate an update on CAS. However, this growth isn't reflected in the total U.S. growth, which is at 3.5%, with only 1% growth in Structural Heart. I'm interested to know how confident you are in accelerating growth over fiscal year '26, particularly while the base business is still growing in the mid-single digits, allowing the pipeline to build on that.

Geoffrey Martha, Chairman and Chief Executive Officer

Sure, thanks for the question, Travis. Let me provide some context on the quarter. We had another mid-single-digit quarter with 4.8% organic revenue growth, which is within our guidance of 4.5% to 5%. EPS came in $0.03 above the midpoint. The growth drivers are gaining momentum. You mentioned CAS; I'll return to that, and we have other drivers emerging as well, particularly with the tibial expected in the latter half of the year. However, there are a few areas that performed slightly below expectations, such as Neuroscience, Pelvic Health, and Neurovascular, and regarding Diabetes, while demand is strong, U.S. growth has decreased somewhat. There are areas that will bounce back and accelerate, which will positively impact U.S. growth. Additionally, all the new technologies being introduced, the ongoing acceleration in CAS, and the recovery of segments like Diabetes and Pelvic Health will significantly influence U.S. growth. Thierry, would you like to elaborate on this?

Thierry Pieton, Chief Financial Officer

No, I think you hit the main points. So as you said, some of the pieces of the business that had a relatively slower growth in the first quarter were mostly U.S. impacting. So if you take a couple of these examples, in Pelvic Health, we made some changes in the commercial force, as we said in the commentary, to prepare for the launch of tibial and that's primarily a U.S. impact, I would say. The second element, I would say, is Diabetes. So Diabetes grew very strongly. Outside of the U.S., we were up 11% in the international market. The U.S. was a bit slower and that's mostly a product topic. So we have the demand for Simplera, but the ramp-up is only starting and that's impacting the U.S. as well. And so as this ramp-up occurs, we'll see those things start kicking in the U.S. and just changing the profile that we mentioned between U.S. and international markets. So positive going forward in the U.S.

Geoffrey Martha, Chairman and Chief Executive Officer

Yes, in the Cardiovascular and Specialty Solutions segment, we demonstrated in the earnings presentation that growth will continue to accelerate. As you pointed out, Travis, we are deploying the capital systems effectively, and their utilization is at an exceptionally high level. There is significant enthusiasm surrounding our catheters, and we also have new catheters, including the Sphere-360 in the single-shot category, on the way. Recently, I was in Japan celebrating the 50th anniversary of Medtronic's presence there, where I engaged extensively with physicians about CAS. In that market, we hold the top market share. Affera is approved, but it has yet to launch there, focusing on PulseSelect. Our competitor has claimed that they are number one and highlighted their case volumes. However, we have performed significantly more procedures in Japan, confirming our leading position. When I inquired about the reasons behind this, physicians cited the precision of PulseSelect, as well as the strong safety profile of our catheters, including the data shared from our IDE trials for PulseSelect and Affera. The prominent centers in Japan conducted their own IDE trials, which reinforced the safety profile. This safety aspect is crucial in Japan, where it is highly valued. As pulsed field ablation (PFA) technology expands and gains wider adoption, I believe it will also become a more significant driving factor in the U.S. market, which benefits us. Therefore, CAS is positioned well for continued growth. It not only increased year-over-year, but also saw a significant sequential acceleration. We experienced strong sequential growth in CAS, particularly with Affera, which registered nearly 60% sequential growth. No matter how you look at it, our CAS business excels across technology, commercial execution, geographic expansion, safety data, and physician satisfaction.

Thierry Pieton, Chief Financial Officer

And Geoff, as you mentioned, the sequential growth is going to continue, right? And you saw that on the chart. We're going to have both higher growth rate in Q2 than we did in Q1 in CAS. And we're also going to have an absolute value, significant sequential growth between the first quarter and the second quarter.

Ryan Weispfenning, Vice President, Head of Investor Relations

All right. Thanks, Travis. Appreciate the 1 question. Next, we'll go to Larry Biegelsen at Wells Fargo Securities.

Larry Biegelsen, Analyst

New Board committees, one focused on growth, one focused on operations. What can these committees do that you couldn't do before? What would success look like? And how long before investors start to see an impact?

Geoffrey Martha, Chairman and Chief Executive Officer

Thank you, Larry. As I mentioned earlier, the two committees will provide focused support for management. One will focus on growth and the other on operational performance, including margins and supply chain. We are also bringing on two new directors with extensive med tech experience, which will strengthen the Board. Previously, we had less med tech expertise, so adding John and Bill will be beneficial as they will serve on these committees. Additionally, we have reorganized our committees—it’s not just about adding two new ones, but ensuring that the number remains the same while concentrating on these two areas. The frequency of interactions with management will increase significantly compared to the past, with more off-cycle discussions that will help drive progress. In summary, the focus, increased interaction, and med tech expertise on these committees will be key.

Ryan Weispfenning, Vice President, Head of Investor Relations

Thanks, Larry. Next question we'll take from Mike Kratky at Leerink Partners.

Michael Kratky, Analyst

Maybe just going back to the CAS business. So during your last call, you talked about CAS growth accelerating from 30%. You put up another great quarter of nearly 50%. Expecting that to accelerate again. So I'm curious in terms of the ramp that you've seen, is that $2 billion that you've talked about in annual CAS sales now squarely on the table for fiscal '26? Or what reservations would you have about committing to that?

Geoffrey Martha, Chairman and Chief Executive Officer

Yes, thank you for the question, Mike. I want to confirm that we are still on track with our plans. Nothing has changed. I mentioned it's a near-term goal. We're looking at achieving it in fiscal '26, and just to clarify, it's an additional $1 billion on top of our FY '25 base. That's our focus, and we are committed to that. Progress is accelerating sequentially, and everything looks promising. No changes on that front.

Ryan Weispfenning, Vice President, Head of Investor Relations

We'll take the next question from Robbie Marcus at JPMorgan.

Robert Marcus, Analyst

Great. I wanted to follow up on Larry's question on the new directors and the formation of the committee. Geoff, Thierry, maybe you could give us a little more. Besides more touch points and communication, is this something where maybe the size of the company, the dividend, the capital allocation might be up for discussion how to create more EPS growth? I'm just trying to understand how much of this is more a continuation, Geoff, of your strategy since you became CEO? And I know you've talked a lot about portfolio optimization versus maybe evaluating something more of a wholesale change.

Geoffrey Martha, Chairman and Chief Executive Officer

Yes. First of all, I believe we are entering a new chapter for the company. When I started, I was faced with some challenges that we needed to address, some of which we created ourselves, and others were market-related, like the VBP. However, we have established a stable foundation and have overcome those issues. Our growth drivers are beginning to take off, and we are committed to executing on that. You will notice this growth inflection in the latter half of the year. Moreover, we feel optimistic—our Board feels optimistic—that we can transition to this new chapter and pursue some of the additional growth drivers we mentioned. These are the same areas that Elliott has discussed with us, focusing on value creation and making bold decisions. One major area is increasing our mergers and acquisitions. The Affera deal is looking strong, and we believe our team has the capacity to integrate more deals like this, not just in AFib but across other high-growth segments of the company. So, we aim for more M&A activity. We plan to reinvigorate our focus on the portfolio to steer it towards higher growth through both M&A and portfolio management. We see potential growth in opportunities like diabetes. Additionally, we want to invest more in the company overall. We've discussed our capital allocation, especially regarding our R&D and growth-oriented general and administrative expenses. We want to ensure that we are adequately supporting these significant growth drivers. This quarter, our R&D expenses grew nearly 8%, and we would like to continue that trend, investing more in growth drivers that have the potential for significant, long-term impact. According to Elliott, these are transformational growth drivers that haven't been seen in decades. Overall, our themes are about realigning the portfolio for sustainable growth and reinvesting behind our growth initiatives. We have the confidence and stable operational foundation necessary to pursue both of these strategies simultaneously. The addition of John and Bill to our Board adds tremendous value given their backgrounds in med tech, financial expertise, and experience with portfolio and M&A activities. They fit well with our team; everyone recognized this during the nomination process. We are excited to have them not only support management but also represent all our shareholders. In response to your question, it’s all about creating value, and we are ready to seize this significant opportunity and accelerate our growth efforts.

Ryan Weispfenning, Vice President, Head of Investor Relations

Thanks, Robbie. Appreciate the question. Next, we'll go to the line of Matt Miksic Barclays. Matt?

Matthew Miksic, Analyst

And congrats on some of the progress here that you're making in these major growth drivers. And so on that subject, you've been investing in the groundwork for these major growth drivers now for several years, Diabetes, Ablation, Ardian, and they're just starting to really come through. So we get excited. I think everyone gets excited about seeing the growth come through and hearing about rates like 50% growth in Cardiac Ablation. But it'd be super helpful if you could try to square, not to temper the enthusiasm because they're great programs, but try to square what these can mean on an annual basis to sort of overall Medtronic portfolio growth just because I think the perception becomes we're accelerating growth, which means we're not going to do 5%, maybe we'll do 6% growth or something like that, which to take that off the list for the long term. But maybe help us walk through a cadence of 25 or 50 basis points over the next 12 months. Is it another 25 or 50 basis points maybe in '27? Just some way of gauging what this means to overall portfolio growth would be super helpful.

Geoffrey Martha, Chairman and Chief Executive Officer

Okay. Mike. I don't know, Thierry, do you want to take that one?

Thierry Pieton, Chief Financial Officer

Sure, I'll give it a try. First, you might have noticed that we plan to hold an Investor Day around mid-2026 to outline the next phase in our financial strategy. I'm not going to provide specific targets until then, as that discussion will serve to clarify our direction. During that meeting, we will outline where the company is headed, the necessary steps to achieve our goals, and what it implies for our financial framework. We'll also present the indicators that will help you track our progress. In the short term, Geoff highlighted the significant opportunity we have in CAS, which translates to an additional $1 billion in revenue over the 2025 run rate within a relatively short period. This signifies the type of impact we anticipate. Similarly, Ardian represents a crucial change for us, indicating a substantial shift in our revenue stream. These two factors alone will significantly influence our growth rates. Additionally, Geoff talked about other elements like tibial and Hugo that will contribute to this growth. It's important to note that we are not neglecting the rest of the business. We have implemented foundational changes to enhance operations and are focusing on product and innovation in areas that have historically seen slower growth. You should view these large opportunities as incremental to our targets. Unfortunately, I can't provide precise quantifications just yet. Expect to begin seeing signs of progress in the second half of the year, and we will unveil the new framework during our discussion in mid-2026.

Geoffrey Martha, Chairman and Chief Executive Officer

Yes, I would just like to emphasize that we are experiencing growth and anticipate a significant shift in the latter half of the year, driven by tangible new product innovations. Even in this quarter, some of our businesses that have been growing below trend are preparing to launch promising new products, alongside overcoming previous challenges, which should contribute positively to our growth in the second half. This increased growth provides us with the opportunity to reinvest due to natural leverage from our cost control and operational efficiencies, enabling further innovation. The cycle illustrates that higher growth creates more opportunities for investment and innovation, resulting in sustained growth, and incorporating our portfolio into this equation amplifies the potential. While we’re excited about these developments, we won't delve too deeply into this until our Investor Day, though we hope to share some milestones before then. The broader strategy and algorithm will be highlighted during that Investor Day.

Thierry Pieton, Chief Financial Officer

If I can just add one comment, Geoff, on that. We're talking about reinvesting more, but I want to be clear that we're not talking reinvesting to the detriment of EPS, right? So it has to be and. So we're very clear on the fact that the growth will allow us to invest more while continuing to generate leverage in the income statement and improving EPS, right? I just want to be clear about that.

Geoffrey Martha, Chairman and Chief Executive Officer

Good point.

Ryan Weispfenning, Vice President, Head of Investor Relations

Okay. Thanks, Matt. Next, we'll go to the line of Anthony Petrone at Mizuho. Anthony, please go ahead.

Anthony Petrone, Analyst

Congratulations on the announcements this morning. And maybe I'll zone in on one of the growth initiatives, which is Renal Denervation. We're looking at the targeted date of October 8 for the NCD. So maybe just frame for us what you would view as the best case outcome in terms of the targeted population in uncontrolled hypertension. And when you sort of think about this new structure growth initiatives, where would you stack rank Renal Innovation on transforming the growth profile of this company? Can this be a multibillion dollar product category over the next few years?

Geoffrey Martha, Chairman and Chief Executive Officer

Thank you for the question, Anthony. First of all, there was an update on Ardian this quarter that we didn't cover in our previous commentary. We just completed the 30-day comment period with CMS, and we received a record number of overwhelmingly positive comments in support of Ardian and the guidelines set by CMS regarding reimbursement requirements. As we mentioned in our last call, this presents a strong case for us and expands our market potential. Additionally, physician societies are now incorporating renal denervation and our product, Symplicity, into care pathways, both in the U.S. and Europe. All the elements we've been working on for a long time, including breakthrough FDA device designation, proposed reimbursement from CMS, and physician society endorsements, are aligning. There is strong demand from hospitals to develop these care pathways. We have sent many market development specialists to assist them with training physicians, which won't be a significant challenge since interventional cardiologists already possess the necessary catheter skills. Everything is coming together, indicating that this could be a massive market. We're also looking at CAS, which is very tangible, as we see a shift from drugs to ablation technology, specifically moving towards PFA, where we have a fantastic product that is rapidly growing. I believe Ardian has the potential to be even larger. There are around 100 million to 200 million people in the U.S. with hypertension, and of those, approximately 100 million could benefit from this treatment.

Ryan Weispfenning, Vice President, Head of Investor Relations

Yes. I'll chime in, Geoff. 18 million that are uncontrolled hypertension. And so it's a massive population.

Geoffrey Martha, Chairman and Chief Executive Officer

One in four individuals with hypertension are uncontrolled, which represents a significant number. We believe this could be the most significant opportunity we've ever pursued. This is an area where we plan to invest to develop the market and foster growth, creating a competitive advantage for our Symplicity franchise. We already have our next generation of catheters prepared and new clinical trials aimed at different treatment areas, which we believe will significantly aid in blood pressure reduction. There's considerable activity in this area, and we're very satisfied with how everything is progressing. Anything else...

Ryan Weispfenning, Vice President, Head of Investor Relations

Great. Thanks, Anthony. Next, we'll go to the line of Josh Jennings at TD Securities. Josh, please go ahead.

Joshua Jennings, Analyst

I wanted to follow up on the increased focus on the Diabetes franchise with the IPO split strategy. In the U.S., it seems the slowdown may have been caused by patients and doctors waiting for the next-generation CGM and the collaboration with Abbott on Instinct. This is a multipart question, but first, I want to ensure that there hasn't been any disruption leading to the slowdown. Second, can you help set expectations for how sell-side investors should view the ramp-up of the U.S. Diabetes business from this point? Lastly, what is the status of the approval and launch of Instinct and its integration with 780G? Apologies for the three-part question, but I hope you're able to address all of that.

Geoffrey Martha, Chairman and Chief Executive Officer

Okay. Well, so the 3-parter and change the picture, if you want. But why don't I do 2 things here. I'll have Thierry update you just on the deal. It is on track and let him talk about that. And I will bring Que on to talk about the business specifics. So Thierry, do you want to update us on the deal?

Thierry Pieton, Chief Financial Officer

Just on the deal, I would say the process is perfectly on track. So there's really 2 sides. One is the operational separation of the business and the other is the transaction itself on both fronts. The teams are making progress exactly in the way we anticipated. The first investor engagements have been very, very encouraging. So look, we said 3 months ago, we thought we'd complete the separation within 18 months. It's 3 months later, now it feels like 15 months. So everything on track, that's all I would say on this front, Geoff.

Geoffrey Martha, Chairman and Chief Executive Officer

Okay. Que, do you want to answer the business questions that Josh had?

Que Dallara, Executive Vice President, Diabetes

Yes, Geoff, thanks. Josh, I think you got it right. It's really a matter of timing in the first half. We're really excited about Simplera, and you can see that we're achieving double-digit growth in the international markets where Simplera has been launched. And in the U.S., the demand is absolutely there. So we have this dynamic where patients are waiting for the new CGMs. And to give you a sense of how we're ramping up production, we're going to be producing double what we made in Q1 and in the second half double what we're making in the first half. So production is ramping up really nicely. And then in parallel to that, the Abbot-based sensor, Instinct, we expect to launch in the coming months, so not too far behind Simplera. And to put it in context, it's actually a very big moment for us because we're now going to have 2 competitive sensors on the market, giving patients choice, significant improvements in form factor and days of wear. And so really, it's a matter of timing and why I'm actually extremely confident that we'll see growth acceleration in the second half. And then you asked about what's left to get Instinct over the line, we told you that we submitted for ACE and iAGC back in April. We got ACE approved in July. So our expectation is that we'll be in a very strong position to launch in the coming months.

Geoffrey Martha, Chairman and Chief Executive Officer

Yes. To summarize, there's a significant wave of innovation happening in Diabetes. We believe this transaction will create substantial value for shareholders. Currently, Medtronic owns this company, and we're dedicated to it for over a year. This division is crucial to the company, and we are focused on leveraging this cycle of innovation to ensure that this transaction proves to be a meaningful value creator for investors.

Ryan Weispfenning, Vice President, Head of Investor Relations

Great. Thanks, Josh. We'll take 2 more questions here before we wrap up. So we'll go to the line of Matt O'Brien at Piper Sandler.

Matthew O'Brien, Analyst

I'd love to ask a little more about Ardian. But I think the other thing to think about here is the overall business as you spin off Diabetes, you've got half the business that's doing really well, growing very quickly. But another half that's a little softer, not growing quite as quickly, maybe some structural headwinds. You do have a couple of new products in tibial and robotics that may be able to help kind of some of these softer areas. But are there other products on the organic side of things that can help kind of bring some of these softer businesses up to the other half of the business that's doing so well? Or do we need to wait for more inorganic additions to really help with that side of the business, maybe post the Elliott contributions?

Geoffrey Martha, Chairman and Chief Executive Officer

Yes, thanks, Matt. The short answer is that some of the businesses that are underperforming or showing lower growth have specific growth drivers already in place. For instance, Neurovascular has been a strong performer for us previously, though it is currently facing significant impacts from value-based pricing. Neurovascular is particularly important for us in China, and while we are navigating through these challenges, including a recall, the replacement product is starting to ramp up, which will support growth. Additionally, we have products coming through our Contego partnership that will enhance growth in both our Neurovascular and Peripheral Vascular segments. Neurovascular is also introducing some new hemorrhagic products, which will contribute to a significant acceleration in growth. In the Pelvic Health sector, we see potential in the market for overactive bladder treatments, which is large with millions of patients. The transition from an implantable device to a more accessible option will likely allow us to capture market share and significantly grow this sector. Neuroscience has consistently performed well and is well-positioned competitively, and I expect further acceleration from this category as well. Peripheral Vascular is set to benefit from the Contego transaction as we incorporate new carotid stenting products along with other organic offerings. There are also slower-growth areas to address, including Diabetes. In Surgical, we face some consistent headwinds, but the situation remains stable. In our other significant areas, Spine and Cardiac Rhythm Management, we are doing very well. Spine revenue showed mid-single-digit growth overall, and our capital growth is impressive, with over 8% globally and 13% in large capital, which gives us a solid competitive edge. Cardiac Rhythm Management faced some tough comparisons but is innovating rapidly, with Leadless devices showing over 14% growth and EV-ICD surpassing 80% growth. We're also introducing new products like the OmniaSecure high-power conduction system lead, which has the potential to further enhance this segment. Overall, when you look at the portfolio, there are robust growth drivers alongside some slower-growth areas that, with newly launched products, particularly Pelvic Health, will support a strong performance in the latter half of the year. Did I miss anything?

Thierry Pieton, Chief Financial Officer

No, I think that was very comprehensive.

Ryan Weispfenning, Vice President, Head of Investor Relations

Thanks, Matt. We'll take one more question. We'll go to the line of Joanne Wuensch at Citi.

Joanne Wuensch, Analyst

SRS earlier this summer, Hugo had a really significant showcasing. And I'm curious what are your thoughts on what you've learned in the European market and how that could translate to when it comes into the U.S. market. And I'm also curious if you can give us any sort of metrics on revenue robots placed? Anything that sort of helped ground us to the progress that's being made in that segment?

Geoffrey Martha, Chairman and Chief Executive Officer

Thanks, Jo. I think we'll call Mike Marinaro to answer those questions, but I'll start by saying Hugo continues to make progress. This is an important program for us. We're counting on it being one of our growth drivers, particularly when it gets into the U.S. we talked about in the back half of the year. But I'll turn it over to Mike to answer those specific questions. Mike?

Mike Marinaro, Vice President, Surgical Robotics

Thank you, Geoff, and Joanne. To address the questions regarding our insights from international markets, we've discovered that our product design, especially the open console and modular design, has been well received, particularly in general surgery. The modularity of our system truly stands out here, allowing for a lap-like approach in procedures. We've learned that building strong partnerships is crucial. While we focus on selling robots and ensuring their performance, fostering these partnerships is equally important. Aspects like training, education, and presenting ourselves as a comprehensive surgical business are vital lessons we've gathered, drawing from our experiences in the Spine sector. We're now operational in over 30 countries globally, with tens of thousands of procedures completed, and we're experiencing substantial double-digit growth in our year-on-year accounts, which we monitor closely as an indicator for future expectations. We have filed for FDA approval regarding our urology indication and are in discussions with the agency, preparing to submit data for hernia and GYN soon after. We presented substantial datasets at major conferences, including urology at AUA, GYN at SRS, and will present hernia data at the American Hernia Society meeting next month. Our proactive approach showcases the safety and efficacy of our system to customers and the broader community. Additionally, we are about to enroll our first patient in our GYN-onc study to pursue that indication as well. Our digital ecosystem has seen significant growth last year and is on track to double this year. Overall, we're making great strides, observing the system's performance, understanding the importance of partnering fully, and expanding our presence and procedure volume consistently each quarter. Thank you for your inquiry.

Geoffrey Martha, Chairman and Chief Executive Officer

Thank you, Mike, and Joanne, for the question. I think we will conclude the call here. I want to express my gratitude to all the analysts for their questions and support. Thank you for joining us today. I would also like to announce that our Q2 earnings call will be broadcast the week of Thanksgiving, specifically on Tuesday, November 18.

Ryan Weispfenning, Vice President, Head of Investor Relations

The week before.

Geoffrey Martha, Chairman and Chief Executive Officer

I'm sorry, the week before Thanksgiving, Tuesday, November 18. That's the week before Thanksgiving. We will update you on our progress. So with that, I'll bring the call to the close, and thanks for joining us, and have a great day.