Medtronic Plc Q3 FY2025 earnings call

• Delivered another quarter of mid-single-digit revenue growth for the ninth quarter in a row, with high-single-digit EPS growth, improved gross margin and operating margin.
• Key highlights in various segments: Cardiac Ablation Solutions' PFA products driving rapid growth; structural heart having important clinical data; cardiac pacing therapies' micro leadless pacemaker performing strongly; hypertension procedure having major coverage progress; neuroscience's cranial spinal technology and neuromodulation having innovation and share growth; medical surgical's Hugo platform having progress; diabetes having continuous high growth.
• Advancing innovation pipeline, such as renal denervation opening large market, Hugo platform's research progress, and investment in diabetes technology pipeline.
• Overcoming short-term US distributor dynamics, focusing on end customer purchases, and strong growth in international markets.

Cardiovascular Portfolio

• Overall mid-single-digit growth. Cardiac Ablation Solutions grew 22% due to Pulse Field Ablation products, with PFA portfolio demand accelerating. Expected to continue rapid growth, with CAS expected to accelerate in Q4 and be a $1 billion business this fiscal year with line of sight to $2 billion.
• Structural heart excluding congenital grew high-single-digits, with Evolut FX+ TAVR system well adopted in US and international launch off to good start, having important clinical data catalysts.
• Cardiac pacing therapies grew 9%, with micro leadless pacemaker franchise strong, growing 24% in Q3.
• Hypertension and simplicity blood pressure procedure: Medicare coding and payment in place, CMS opened national coverage analysis, with massive market opportunity.

Neuroscience Portfolio

• Cranial and spinal technologies grew 5% globally (8% in US), with differentiated enabling technology attracting spine surgeons. Neuromodulation grew 13%, with closed-loop sensing technology disrupting competition, Pain Stim grew 12% (17% in US) on Inceptiv closed loop spinal cord stimulator, brain modulation grew 15% (26% in US) driven by Percept DBS systems.

Medical Surgical Portfolio

• Experienced change in US distributor buying patterns impacting surgical performance, but offset by winning share with LigaSure Advanced Energy Products globally and high-single-digit growth in emerging markets. Hugo Soft-Tissue robotic platform approaching milestones, with international procedure volume more than doubled year-over-year, and US on track to submit for FDA approval for Hugo with urology indications by end of next month.

Diabetes

• Fifth quarter in a row of double-digit growth, driven by move to AID systems and strength of MiniMed 780G system, with strong growth in consumables, and investment in diabetes technology pipeline.

• Reiterated full-year organic revenue growth expectation in the range of 4.75% to 5%. Q4 expects revenue and EPS growth to accelerate.
• Full-year non-GAAP diluted EPS expected in the range of $5.44 to $5.50.
• Q4 expects restored earnings power and operating margin expansion to continue, with high-single-digit adjusted EPS growth in the back half of fiscal year ‘25.

• Impact of US distributor buying pattern change on surgical performance.
• VBP issue in China causing volatility in peripheral vascular business.

Q: Patrick Wood from Morgan Stanley asked about fiscal ‘26 growth expectations and Q4 exit rate.

A: Geoff Martha said they'll give FY ‘26 guidance on Q4 call, but objective is to drive profitable growth and operating leverage, and Q4 expects acceleration.

Q: Larry Biegelsen from Wells Fargo asked Sean Salmon about AF Solutions acceleration in Q4 and $2 billion line of sight.

A: Geoff Martha and Sean Salmon discussed PFA market strength, Affera's demand, supply improvement, and future growth.

Q: Robbie Marcus at JP Morgan asked about balancing spend on growth programs and margin expansion.

A: Geoff Martha and Gary Corona discussed investing in growth drivers while maintaining margin improvement through COGS efficiency, pricing discipline, and tuck-in M&A.

Q: Vijay Kumar at Evercore ISI asked about surgical P&L management and gross margin sustainability.

A: Geoff Martha and Gary Corona explained surgical distributor dynamic resolving in Q1, stable end customer purchases, and gross margin drivers including COGS efficiency, pricing, and foreign exchange favorability.

Q: Travis Steed at Bank of America asked about surgical business recovery and Hugo platform.

A: Geoff Martha and Mike Marinaro discussed surgical distributor issue resolving in Q1, stable end customer purchases, and Hugo platform's progress with multiple milestones and clinical evidence.

Q: Matt Miksic at Barclays asked about peripheral vascular business decline.

A: Geoff Martha explained it's a China VBP issue with volatility that will work its way out.

Q: Josh Jennings at TD Cowen asked about renal denervation international opportunity.

A: Geoff Martha and Sean Salmon discussed international progress including country-by-country reimbursement efforts, European health technology assessment, and China and Japan progress.

Q: David Rescott at Baird asked about FX risk mitigation.

A: Gary Corona explained proactive measures like changing incentive structure, dynamic pricing, and creating natural hedges in supply chain to mitigate FX risk.

Q: Shagun Singh at RBC Capital Markets asked about growth driver magnitudes and timing.

A: Geoff Martha discussed various growth drivers like diabetes, PFA, neuro mod, Hugo, Ardian, tibial stimulation, and their incremental growth potential over time.

Q: Pito Chickering at Deutsche Bank asked about risk of distributors pushing private products displacing Medtronic products.

A: Mike Marinaro and Geoff Martha explained tight contracts with distributors and end-user hospitals, not concerned about private products displacing Medtronic products.