Good morning, and welcome to Medtronic's Fiscal Year 2022 Second Quarter Earnings Video Webcast. I'm Ryan Weispfenning, Vice President and Head of Medtronic Investor Relations. Before we start the prepared remarks, I'll share a few details about today's webcast. Joining me are Geoff Martha, Medtronic Chairman and Chief Executive Officer; and Karen Parkhill, Medtronic Chief Financial Officer. Geoff and Karen will provide comments on the results of our second quarter, which ended on October 29, 2021, and our outlook for the remainder of the fiscal year. After our prepared remarks, our portfolio executive VPs will join us and we'll take questions from the sell-side analysts that cover the company. Today's event should last about an hour. Earlier this morning, we issued a press release containing our financial statements and divisional and geographic revenue summaries. 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 webcast, 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 actual results to differ is contained in our periodic reports and other filings that we make with the SEC, and we do not undertake 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. Second quarter organic revenue comparisons adjust only for foreign currency as there were no acquisitions or divestitures made in the last 4 quarters that had a significant impact on total company or individual segment quarterly revenue growth. References to sequential revenue changes compared to the first quarter of fiscal '22, and are made on an as-reported basis and all references to share gains or losses refer to revenue share in the third calendar quarter of 2021 compared to the third calendar quarter of 2020, unless otherwise stated. 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, let's head into the studio and get started.

Hello, everyone, and thank you for joining us today. This morning, we reported Q2 results, which despite a challenging market backdrop, reflects solid execution around new product launches and strong underlying earnings growth. Obviously, our end markets were impacted by the COVID-19 resurgence and the health care system staffing shortages particularly in the U.S., which affected our quarterly revenue growth. Procedure volumes were lighter than expected in markets where our technology is used in more deferrable procedures like our Spine business or those that require ICU bed capacity like TAVR. Yet in markets where procedures are less deferrable, like pacing, we experienced stronger growth. While the U.S. market was a headwind, many of our international markets were much stronger. We delivered 6% revenue growth outside the U.S., including mid-teens growth in emerging markets. And our emerging market growth is up 9% versus pre-pandemic levels in Q2 fiscal '20. In the midst of these market headwinds, we focused on managing what was in our control and executed to advance our pipeline, launch new products and win share. And when you look at our sequential revenue performance, our 2% decline was slightly better than most of our large cap med tech competitors. While the pace of the recovery from pandemic headwinds is hard to predict, our markets will recover. And as that happens, Medtronic is one of the best positioned companies in health care. The underlying health of our business is strong, and it's getting stronger. We have an expansive pipeline of leading technology, a robust balance sheet and an expanding roster of proven top talent. Coupled with our revitalized operating model and new competitive mindset, we remain poised to accelerate and sustain growth. As I've done in prior quarters, let's start with a look at our market share performance. Year-over-year market…

Thank you, Geoff. Our second quarter organic revenue increased 2%, reflecting the market impact of COVID and health system staffing shortages on procedure volumes, primarily in the United States. Despite the softer end markets, our team executed to deliver strong margin improvement and earnings growth. In fact, our adjusted EPS increased 29%, significant growth reflecting the pandemic impact last year. And our adjusted EPS was $0.03 better than consensus with $0.02 from stronger operating profit and $0.01 from a lower-than-expected tax rate. Our second quarter revenue growth came in lower than we were expecting back in August. We did see improving trends in our average daily sales each month of the quarter as COVID hospitalizations declined. That said, the bounce back in the U.S. wasn't as fast as we had expected or had seen in prior waves. We recognize many of our customers are dealing with staffing shortages on top of increased COVID patients, and we believe that had an increasing effect on procedure volume. Looking down our P&L, we had strong year-over-year improvement in our margins. 360 basis points on gross margin as we continue to recover from the significant impacts from COVID last year, and 470 basis points on operating margin, given savings from our simplification program tied to our operating model. Converting our earnings into strong free cash flow continues to be a priority. Our year-to-date free cash flow was $2.4 billion, up 58% from last year, and we continue to target a full year conversion of 80% or greater. Turning to capital allocation. We continue to allocate significant capital to organic R&D, and we continue to seek attractive tuck-in acquisitions to enhance our businesses. For example, Intersect ENT, we announced our intent to acquire back in August. Intersect's assets complement our own and are accretive to…

Okay. Thank you, Karen. And yes, it is great to have Bob here at Medtronic. For the last few quarters, I've been closing by commenting on the progress the company is making in various areas of ESG, or environmental, social and governance impacts. Part of the S in ESG is our focus on inclusion, diversity and equity and high employee engagement, which I discussed last quarter, and this makes Medtronic an attractive destination for top talent. In the release we issued last week, you read about how Bob Hopkins and other highly sought after world-class leaders chose to join Medtronic and drive our transformation to become the undisputed global leader in healthcare technology. It's very important for our culture that we're bringing in new ideas and diverse perspectives to add to those of our talented leadership and employees across the company. On the E front of ESG, as you know, we set an aggressive goal last year to be carbon-neutral in our operations by the end of the decade. And 2 weeks ago, we upped our game, announcing our ambition to achieve net-zero carbon emissions by FY '45 across our value chain. This ambition outlined in our FY '45 decarbonization roadmap will focus on operational carbon neutrality, supply chain greenhouse gas emissions reductions and ongoing logistics improvements. To support our progress, as well as progress across our entire industry, we joined the International Leadership Committee for a Net Zero NHS in the UK. And we're taking a leadership role with the U.S. National Academy of Medicine action collaborative to decarbonize the U.S. healthcare sector. Our ESG efforts are gaining recognition as last week, Medtronic was elevated from being a constituent of the Dow Jones Sustainability North America Index to joining a select group of companies in the Dow Jones Sustainability…

[Operator Instructions]. Lastly, please be advised that this Q&A session is being recorded. For today's session, Geoff, Karen and Ryan are joined by Sean Salmon, EVP and President of the Cardiovascular Portfolio and the Diabetes Operating Unit; Bob White, EVP and President of the Medical Surgical Portfolio; and Brett Wall, EVP and President of the Neuroscience Portfolio. We'll pause for a few seconds to assemble the queue. The first question comes from the line of Robbie Marcus at JPMorgan.

Great. Good morning, everyone. I think everyone is happy to see the EPS guide reiterated here, but I think the top line guide is a little bit surprising, particularly where you have third quarter organic sales guidance, given I believe you made the comment that November was trending better. So I was hoping you could talk through that and maybe just walk through the Hugo launch delay, what you're seeing there? Is it an adoption issue, a technology issue? Or is it purely difficulty getting into hospitals with COVID-19 going on?

Robbie, thanks for the questions. I'll let Karen answer the guide question and maybe I'll hit the robotics question.

Thanks, Robbie. And you know what, I'm going to -- for the guide, I'm going to walk you through the quarters a bit to help give you and set the context. And I'm going to start with Q2 because versus -- if you look at versus pre-pandemic levels or 2 years ago, our growth in Q2 was about 1% organically. It was a little below peers, but you got to keep in mind that our inventory levels were lower back then because that was before we made the change to bulk purchasing. So if you adjust for that inventory issue and a little bit of a tougher comp, our Q2 growth was in the 2% to 3% range versus pre-pandemic levels. And if you look at it sequentially, our revenue from Q1 to Q2 declined less than 2%, and that was while most of our peers saw declines of 3% to 5%. So our performance in Q2, we believe, is in line -- at least in line with what we're seeing from our peers. And then if you look at Q3 in our guidance, we're expecting that same 2% to 3% growth as we saw in Q2 versus the pre-pandemic levels. And yes, that equates to a slight deceleration from what we saw in October. And we're encouraged by what we've seen in October and into November. But given the dynamic environment, we focus on wanting to err on the side of caution with our Q3 guide. And then for Q4, we're assuming normal sequential seasonality just because it's our fiscal year-end. So you'll see sequential improvement in Q4. So hopefully, that's helpful.

Okay. So then maybe on the robotics question. I mean, let me first by saying, no, it's definitely not a demand issue. The demand remains high, higher than we can fill at this point. And we're continuing with our regulatory filings around the world. We're going to begin the U.S. IDE here very soon, and surgeons are continuing to do cases. We're doing so far, uro and gyne cases. And we're close to -- I think we're in any day now, like our first general surgery case. So -- and like I said, demand continues to build. So the issue that we're doing, this is more of a limited release phase. That's where we are right now. And we're focused on optimizing the user experience. And the issues that we're managing through are some supply chain issues and some initial manufacturing issues, and those are the issues that we're working through right now. And we're really focused on making sure that these initial experiences with surgeons are really good. And so that's the reason for the slower revenue this year. But then again, next year, we expect next fiscal year a really strong ramp.

Next question comes from Vijay Kumar at Evercore ISI.

Geoff, I had a two-part product-related question. One on Micra, there was an FDA earlier this month on complications related to perforations. How should we think about Micra? Is that something The Street needs to worry about? And one on Ardian, you expressed a lot of confidence in the outlook. I mean we've had a couple of trials where some of your peers have missed endpoints. Is your trial design different from your peer? Because when I look at your peer, they added a 4 drug, and that's when you saw the control arm improve. So if your trial design is similar to your peers, what is the confidence we have that your control trial will have the primary endpoint a year from now?

Thanks, Vijay. I'm going to turn this one over to Sean. But before I turn it over because both the Micra and the Ardian question fall in his world, I'll give you my short answer on Micra. Don't worry about Micra. Micra is doing really well. I'll let Sean provide a little more commentary on the FDA letter. And then on Ardian, look, we're -- and Sean will give you more details, but we're very confident about this. We've got a lot of data here. We've had a registry going for a long time. We're following a lot of patients, picking up a lot of data here. And I'll remind you that our trial wasn't designed to end early. I know some expectations got ramped up about it ending early. And we're confident on this one. And the patient preference, the FDA has seen the patient preference data, they work with us on this and patients really want this. FDA knows that. And look, I've been out myself in the last couple of months talking with -- and in the last couple of weeks, especially talking to a number of our investigators and this -- look, this works. This works and patients like it. And the FDA knows that, and we're confident in our trial. But I'll let Sean give you some more commentary on that. Sean, do you want to chime in here? You got to unmute.

And Vijay, thanks for the question. I'd say, first on Micra, this FDA letter is more of just a reiteration about the importance of being mindful of implant safety. But the actual rate of perforation that we've seen in the Continued Access Study, the Continued Evidence Development Study, which we just reported out 2-year results at the ESC is actually below what we showed in the preclinical work, in the pre-approval trial, and the overall complication rates for leadless pacemaking are about 30% lower at 2 years than what we see with transvenous. So there's certainly no concern here. And the customer reception has been really, really excellent and continues to be despite the letter of the FDA just emphasized. And on the clinical trial front for Ardian. You are right. There are differences in the clinical trials. And we remain, as Geoff said, very confident that our ON MEDs trial is going to make us endpoint. I think what you're referring to is the RADIANCE study that was reported on the RADIANCE TRIO study, which at 6 months, they did a full titration of drugs to get patients to their goal. So that was -- part of their study design was after the primary endpoint of 2 months, they added drugs on it until blood pressure went down. And that's kind of the point of renal denervation in general is that you can get there without as many drugs. And we saw something similar in the pilot study for ON MEDs, where we were able to 4 titrate drugs after the primary endpoint and get people's blood pressure there without having to go to diuretics, which patients really hate taking. So yes, there's nothing to read through on that one. The trial we did in Japan and Korea was a little different. It was more like InterStim III, where they didn't control for medications. They had none of those types of controls. So that's more of a legacy study design that didn't leverage the learnings we got from InterStim III.

The next question comes from Larry Biegelsen at Wells Fargo.

So one on diabetes. The quarter was in line, but you took down the guidance. Why is that? What are your expectations for the timing of 780G and Guardian 4? And Geoff, we've seen a wave of spins recently. What's your view of spins in general? And do you see opportunities at Medtronic for spinning off noncore or underperforming segments?

Thanks for the questions, Larry. I'll take the spin one and then I'll let Sean take the diabetes one. Well, look, as we've talked about in the past, looking at our portfolio and capital allocation is a high priority. And this new operating model, the executive committee, so the my leadership, the leadership team here, we spend a lot more time on looking at our portfolio and capital allocation that we have in the last 10 years since I've been here, that's for sure, orders of magnitude more time. And look, there's -- we're always looking at our different businesses, including our high-performance businesses and high-growth businesses to make sure we're the right owner because I do think focus is important. And making sure that you can provide the right amount of capital and are there synergies between businesses that matter. And we're always looking at this and debating this. And we've engaged our Board as well, quite a chunk of our time and each Board meeting is spent on this as well. So I do see opportunities. I'm not signaling anything. But I can tell you that this is something that we're constantly looking at. And I don't see ourselves as like a GE or a J&J that have like dramatically different businesses. But it's -- I do think it's an opportunity for us over time. Sean, do you want to take the diabetes one?

Yes. Sorry, Geoff. My mute button was broken there. Yes, Larry, so nothing different than what we've been talking about all along. We've got really strong uptake of 780G and Guardian 4 sensor outside the United States. In the U.S., we have just -- we're waiting for that approval to come through, and we've had very good interactive conversations with FDA. I think we're making excellent progress there. But do remember that when we launch a new product in diabetes, and there's a training element to that, that takes some time, so it pushes the revenue outward before it starts to gain traction. And what we’ve seen in the U.S. is while we're growing pump share right now globally, we do have a lot of patients that came out of the installed base. We have to kind of rebuild that installed base to get momentum going, and that's really going to be driven by the 780 with Guardian 4 sensor launch.

The next question comes from Matt Taylor at UBS.

I had kind of 2 small follow-ups. One on the overall environment. When you're talking about these COVID impacts and staffing shortages, it sounds like you've seen things get a little bit better in November. And I was just wondering if you had a hypothesis as to why that was? And could you give us more of a flavor for how much the improvement has been sequentially?

Sure. On the environmental, yes, so like we said in the commentary, each month throughout our quarter, throughout our Q2, was better than the next. We didn't quantify that, and it got better into November. But the procedures have bounced back, but not as quickly as prior waves and not as fast as we hoped. There's definitely -- it's definitely a fluid situation, and it's gotten a little bit harder, more difficult to predict, right? Before, it was more of an epidemiology discussion around COVID cases and the severity of them and the impact to ICU beds. Now you've got this this critical staffing shortage in our -- in hospitals around the world. I mean, really particularly more so in the U.S., though, particularly this nursing shortage you hear about. And that's a little -- that's been a little bit more difficult to predict. And I think that's the thing that I'd say, surprised us a bit last quarter. And then finally, you've got some supply chain issues, which for us have been manageable so far. But as time goes on, that gets more difficult. So we took, I think -- Karen, walked through the guidance, I think we took a conservative approach here, particularly for our Q3 guide on that. But it's difficult to quantify all these things working together here. The COVID cases jumping back up like you've heard about in Europe, nursing shortages in the U.S. and then global supply chain issues. I think the hospitals are doing a good job managing the headwinds they have. And I think we've done a pretty good job. Our team has done a really good job on the supply chain issues. During COVID, we were able to build up inventory on some of these critical products. But as these issues drag on, it becomes more challenging, and that's why we've taken, I think, a bit of an appropriate position given the uncertainty for our Q2 guide, or Q3 guide rather, sorry.

And maybe I could just ask a follow-up, supply chain. You talked about some of the issues with Hugo and the impact on this year’s revenue. Do you have any thoughts on how quickly that can resolve and what kind of contributions we should expect in the subsequent years versus the prior guidance that you had given?

Right. Well, so look, first of all, I'd say -- I should have mentioned this when I was answering Robbie's question. We did underestimate the supply chain -- some of the supply chain issues and early manufacturer issues in a complex program like that or like this, which was a complex program. And that's on us. We should have probably provided a little bit more cushion there because we really -- like we've said all along, we want to make sure that we're optimizing the customer experience here. So in terms of how long this goes on, well, in terms of -- like, first of all, like we said, we're still having double-digit revenue this year, double-digit millions. And we didn't -- we're not quantifying the next year. But I'll tell you this, it will be a very healthy ramp-up this year. So like I said before, because we are -- cases are continuing, demand is building, we're continuing to get new regulatory filings that we filed for and expect approvals and starting our U.S. IDE soon. So there's a lot of activity going on here, a lot of good things, a lot of good feedback. And we just appropriately are optimizing, in my opinion, the end user or the customer experience here. And FY '23 will be a strong year for the robot.

The next question comes from Cecilia Furlong at Morgan Stanley.

I wanted to ask just on Hugo as well. Ardian, the expenses you talked about previously, the $400 million this year, just how we should think about realizing that this year versus what gets pushed into next year? And combined with that, just how we should think about expense ramp in ‘23 -- fiscal '23 associated with your other pipeline products.

Yes. Thanks, Cecilia. I'm happy to take that. So the $400 million operating profit drag that we talked about earlier this year was not just Hugo. It was both Hugo and Ardian, and the important investments we're making in those big product launches for us. And so we will continue to have more expense on those products in FY '23. It is too early to give you a signal because we still have 2 quarters to go this fiscal year, and we're just beginning our planning process for next fiscal year.

The next question comes from Matt Miksic at Credit Suisse.

So lots of things we could sort of ask after. But if I -- just to take 1 question. I'd maybe come back to the staffing question. And it sounds like, Geoff and Karen, you've taken a stab at the fiscal third quarter, which is obviously important calendar quarter for everyone in med devices given kind of the traditional Q4 push. And I just wanted to maybe ask you to talk a little bit about your confidence that we sort of see a turn after that? Or is this a Q3 impact was sort of an improvement into Q4? And then maybe what -- and I apologize because I know it's a terribly uncertain topic, but just what kinds of things would give you confidence that we do get past the staffing thing say as we get through the spring and into midyear next year?

Well, first on -- thanks for the question, Matt. I mean, obviously, the staffing issue is a hot topic. And I've been spending a lot of time with our team on this as well as our hospital customers. Look, these -- the hospitals are basically investing more in staffing. I mean that is, I think, one of the biggest issues here is then are the biggest opportunities. They're just -- they're paying more money for the staffing to get -- to incent people to come back. And the other thing that I see the hospital is doing, where we're spending a lot of time with them is adoption on more remote capabilities and business models. I mean in our world, things like managing your cardiac rhythm patients using remote technologies, so you don't have to come back into the hospital and get their device checks. We're doing that remotely. And I can go down the list to other of our therapies, like another one would be, and it's not in the U.S. yet, but in the NHS and U.K., they're using our PillCam. They've accelerated the use of the rollout of PillCam to do colonoscopy, diagnostic colonoscopies for their patients because they've built up a long waiting list of people who are getting colonoscopy. So I see hospitals -- one, and it's not a sustainable situation, but short term, providing bonuses and incentives. And two, much more rapidly adopting some of -- in our case, I mean, and they're working with other industry players as well to adopt things that are more remote, and they're prioritizing therapies that have less complications that result in less hospitalizations and return hospitalization. So I mean it's not an overnight solution, but they're aggressively working this. I mean no one likes to cancel a TAVR case because there's nobody to monitor the ICU bed or cover the care. So nobody wants to do that. And so they're moving fast on this. And like I said, we're seeing progress here even in our results into November, But it is fluid, and that's why we've taken the approach we've taken on the guide. I don't know if you have anything to add, Karen, to that. No. She's saying no. So I don't have more for you, Matt. This one is a tough one.

The next question comes from Joanne Wuensch at Citi.

A couple of things I'm curious about. Do you think that there's been a change in the way that consumers are looking at healthcare?

Well, I'm not sure if there's a question underneath the question. But yes, I think consumers have been much more engaged in healthcare. And this is something that's weighing into our strategy. You saw that we rebranded Medtronic here last quarter and gone to a different look in engineering in the extraordinary. That's part of a first step to us more aggressively directly reaching out to consumers and educating them about our therapies. I mean things like PillCam, Genius, which I just talked about, things like cryoablation as a first-line indication for Afib. They don't want to be on these regimen of drugs. And so we historically have relied on our specialist physician partners like in the case of cryoablation on Afib, it's been electrophysiologists to kind of "build up our referral pathways in our markets." Now I think given the changes in technology, the miniaturization, which leads to less invasiveness, the connectivity of our devices, the better efficacy, we're moving up in the line -- in the food chain here closer to first line, like I mentioned in Afib. And some of our businesses are already there, more of a consumer business like diabetes and pelvic health for overactive bladder. So you're going to see us more engaging consumers and directly. And the reason we're bullish on this is, one, like I said, the therapies have changed, less invasive, more efficacious in some cases, just a better solution clinically proven than pharma, which is the typical first-line indication. The other thing that we're seeing getting to your question is, like I said, here's a proof point on consumers more engaging. Like on our Ardian trial, we -- this trial filled up really quickly, enrolled really quickly, all through consumers opting in through our digital marketing efforts in social media efforts in the Ardian trial, consumers self-enrolled. That's a first for us. And so we are seeing much more engagement from consumers and in their care. And through -- they're using the Internet and digital platforms to get that education, and that's changing our strategy.

The next question comes from Matt O'Brien at Piper Sandler.

As I look across the different segments on the surgical side, the one that's down the most from the first guidance that you provided last quarter is the Cardiovascular business. And I get the whole staffing shortage issue. It's just a little surprising, TAVR, you can't delay those too long. So I'm just wondering how long that -- some of these pressures you think will last? I mean, is this something that's going to go deep into calendar '22 that you're going to continue to encounter in that segment? And then what really kind of -- what can you do to help us sway some of these issues on the staffing side?

Well, look, it's -- like I said, it's hard to predict, Matt, the timing. But like I was just with one of our bigger customers in the South of the United States like 1.5 weeks ago, and they had a couple of -- and it was a cardiologist that had a couple of TAVR cases canceled that day. And there's a huge sense of urgency because of the nursing shortage. So they have a huge sense of urgency in correcting that issue. And like I said, they are prioritizing moving nurses. First of all, they're getting more aggressive with their staffing strategies to attract and retain staff. They're reallocating resources around the hospital, the health system, if you will, to get more nurses into these critical care areas. They're pushing certain cases out to ASCs. We're seeing growth in surgical centers, where they need less staff to do these cases. So we're seeing them aggressively make these, I'll call it, reallocation of resources, and we're helping them as much as we can in these areas. So I -- look, the -- like you said, you can't defer these cases. First of all, I don't know how -- I don't like -- I've never liked the term elective, I think it's more deferrable. And you can only defer some of these cases so long as you pointed out. And so people are innovating. Hospital systems are innovating here. And I just don't -- it's really hard to predict. I mean like I said, last quarter, we underestimated the impact of the nursing shortage. Like I said, we're seeing improvement, but -- and we've taken a conservative guide in our fiscal Q3 in particular, but it's really difficult for us to provide much more specifics than that.

Matt, I might add. I know you're all trying to figure out how long this will last. And if you just look at -- if we just look at the recent trends in November, we saw some good upticks last month, particularly in cardio. Now we don't know if that's because it's preholiday pre-Thanksgiving, but we are seeing some good encouraging trends.

Next question comes from Chris Pasquale at Guggenheim.

Karen and Geoff, most of the focus in terms of macro headwinds has been on the U.S. so far, but some of the recent headlines that in Europe have been a bit concerning. Just curious what you're seeing in your European business over the past few weeks, whether guidance assumes any deceleration in OUS procedure trends during the third quarter?

Well, Chris, thanks for the question. And you're right, the Q2 was a U.S. story for us. I mean the other regions performed well, especially our emerging markets, we're seeing really strong growth in emerging markets. But Europe performed well as well in other developed markets last quarter. Now in the last few days and weeks, you're hearing in Europe about certain countries pulling back on elective cases. I really don't see this to be long lived here, given the vaccination status in these countries, the high vaccination rates in most of these countries and other new therapies like the oral antiviral therapies coming online. So I don't see it taking too long there directly from COVID, and we've reflected that in our guidance.

The final question comes from Rick Wise at Stifel.

Good morning, everybody. Maybe, Geoff, just since I'm bringing up the rear here, one bigger picture question for you, and then I'll add a question for Karen. I mean you're obviously working hard to -- it's not exactly turnaround Medtronic, but make Medtronic grow faster, be more innovative, execute better. I'm sort of curious your reflections on sort of a big picture sense of, do you feel that the challenges of COVID, staffing and everything you're talking about today have slowed your personal mission to drive that forward? Obviously, you're highlighting innovation and all the new products, et cetera. But at a high level, I'm just wondering your evolving thoughts. And maybe shorter, Karen, if you could just talk us through a little more gross margin. I mean, gross margins despite the challenges in the quarter, better than expected. Maybe give us a little more color on, do we expect that kind of trend in the second half? And do you feel more optimistic about the longer-term potential to expand gross margins as all these new innovations roll out?

Rick, well, thanks for the question. And maybe last but definitely not least here, and I appreciate the question. And look, I'm -- it's a great question. And I'm very bullish on where we stand, and I'll walk you through why. I mean, yes, COVID and this nursing -- the critical staffing shortage like highlighted by this nursing shores in the U.S. and just spending a lot of time talking about vaccines and vaccine mandates, yes, it is a bit of a distraction, but I am very happy about our bigger picture here. We've -- one, what I really like is to structurally how we've made the company smaller on the front end, if you will, with these 20 operating units and the clarity that we have into the end markets and the dynamics what the customers are really asking for, what the competitors are doing, and we've got a really good handle on our pipeline by each of these operating units. And we have gotten more aggressive in funding these businesses and holding them accountable to making the right choices and prioritizing innovation and innovating faster. So I feel really good about that. And my team, we spend a lot of time looking at these operating units and making these judgment calls, what is the appropriate funding? What does a good pipeline look like, how should we feel about the competition? And it's not just like me sitting around talking to an operating leader, it's my team, different portfolio leaders even if it's -- the business is not in their portfolio, asking tough questions because every incremental dollar funding we put in one business is one less dollar we put in another business. So the rigor around this and the constructive debate and the diversity of thought coming from…

Gross margin, I'm going to take.

Gross margin

Yes. So -- and I just want to emphasize something that Geoff said before I go to gross margin, Rick. And that is despite the challenges that we've had from COVID, our R&D investment is not coming down. And we said at the beginning of the year, we were increasing that 10%, and we still fully intend to do that. So we're offsetting our headwinds in a different way when it comes to delivering the bottom line. Also, on gross margin, yes, our gross margin was better than expected. We're really pleased with that. We're -- we've got a very concerted effort to improve our operations and to lead to better gross margin. We're focused on getting our gross margin back to pre-COVID levels. And from there, at least sustaining it and hopefully improving it. And if you look at just the year-over-year, we're still focused on that 2.5 points to 3 points of improvement in gross margin this fiscal year. And when I think about longer term, I would just say to you that nothing has changed from our focus on delivering that 5%-plus revenue growth and that 8% plus bottom line growth. And I would say that includes next fiscal year in FY '23, even given some of these headwinds that we've talked about today.

Thank you, Rick. Geoff, please go ahead with your closing remarks.

Okay. Well, thanks, everybody, for the questions. We definitely appreciate your support and your ongoing interest in Medtronic. And we hope that you'll join us for our Q3 earnings webcast, which we anticipate will be on -- we'll be holding this on February 22, where we'll update you on our progress. And Ryan will kick off that call standing outside of our world headquarters here in Minneapolis, again, without a coat on. He's promised us that no matter what the weather. So with that, thanks for watching today. Please stay healthy and safe over the holiday. And for those of you in the U.S., I'd like to wish you and your families a very Happy Thanksgiving.