GAAP vs Adjusted Operating Margin in Medtech

Most of the Gap Is the Cost of Past Deals

Six large device makers reported FY2025 adjusted operating margins 5.0 to 10.0 points above their GAAP figures. At the four that have grown by acquisition, between 69% and 77% of what each added back was accounting left behind by past deals, mostly amortisation of the patents and product rights they bought. At the two that grew mainly on their own products, the gap came from somewhere else: share-based pay at Intuitive Surgical and a litigation charge at Edwards Lifesciences. One word, “adjusted”, covers both.

GAAP operating margin is operating income as the audited accounts report it, divided by revenue. The adjusted figure starts from the same number and adds back charges management treats as outside the running business. Each company publishes the bridge between the two in the non-GAAP reconciliation at the back of its quarterly earnings release, filed with the SEC as exhibit 99.1 to a Form 8-K. Read that table rather than the headline. The adjusted margin on its own says nothing about what went into it.

FY2025 Operating Margins, GAAP and Adjusted

Fiscal years ended 31 December 2025, except Medtronic’s, which ended on 25 April 2025. Each adjusted figure is the company’s own from its FY2025 earnings release, except Abbott’s: it prints no adjusted operating margin, so 23.2% is its GAAP operating earnings plus the specified items its reconciliation lists.

On GAAP, five of the six sit within three points of each other, between 17.8% and 20.8%. Switch to adjusted and the order changes: Boston Scientific moves from fifth to second, and Abbott from fourth to last. Nothing in either business differs between the two columns. Only the list of exclusions does, which is why a table comparing companies has to use one basis throughout.

What Each Company Adds Back

Columns group the lines in each company’s own reconciliation. Other deal costs covers integration spending, acquired inventory revalued to fair value, earn-out revaluations and deal-related charges; Stryker’s includes $140M of stock payments triggered by a change in control, and its litigation column includes $58M of recall costs. Other covers impairments, EU device-regulation compliance costs and, at Medtronic, $90M it adds back to sales; Abbott’s other includes a legal reserve. Intuitive’s share-based pay column includes $1.0M of long-term incentive plan expense beside the $788.1M of share-based compensation, and its other is a small gain on a business sale. Edwards’ restructuring includes separation costs.

Amortisation is the largest single item. It was $5,139M of the $9,848M the six added back between them, 52%. When a company buys another, it books the target’s patents, product rights and customer relationships as intangible assets and writes them off over their useful lives. The charge accounts for a real purchase, but no cash leaves in the year it is booked; the cash went out when the deal closed. That is the case for excluding it, and it explains the pattern in the table. Medtronic, Abbott, Stryker and Boston Scientific each carried $732M to $1,807M of it. Intuitive and Edwards carried under $15M each.

Deal costs sit beside it. Add them to amortisation, and acquisitions account for 69% to 77% of the gap at each of the four acquirers.

Restructuring recurs. All four acquirers excluded restructuring in both FY2024 and FY2025: Medtronic $389M then $303M, Boston Scientific $229M then $343M. A charge that turns up every year is a running cost.

Litigation is lumpy. Edwards booked $325.4M of intellectual-property agreement and litigation expense, 86% of its FY2025 gap. That single charge is why a company with almost no amortisation still shows 6.3 points between its two margins.

Share-based pay separates Intuitive from the rest. It excluded $788.1M, 7.8% of revenue and 97% of its gap. None of the other five adjusts for ordinary share-based pay. Leave it in, as they do, and Intuitive’s margin is 29.5%, barely above its GAAP 29.3%.

Six Companies, Six Definitions of Adjusted

No accounting standard sits behind “adjusted”, so each company’s figure answers a slightly different question. The FY2025 releases differ in five ways worth checking before any comparison.

• Share-based pay. Excluded at Intuitive only. Stryker’s $140M of stock paid on a change in control sits inside its acquisition costs, a deal cost rather than ordinary pay.
• The label. Stryker, Boston Scientific and Edwards say adjusted, Medtronic and Intuitive say non-GAAP, and Abbott says excluding specified items. The name tells you nothing about the contents.
• Whether a margin is printed at all. Abbott reconciles gross margin, R&D and SG&A line by line but prints no adjusted operating margin, so you build it.
• The revenue line. Medtronic’s non-GAAP margin divides by $33,627M of net sales, $90M above GAAP, because it adds back accruals for Italy’s payback scheme, under which device suppliers refund part of regional health-budget overruns, booked after two 2024 rulings by Italy’s Constitutional Court.
• Where amortisation was charged. This matters at gross margin, where Abbott charges it above the gross line and Medtronic, Stryker and Boston Scientific below it, as the gross margin guide shows. By operating income every company has charged it, so GAAP operating margin puts all six on one set of rules.

Which Margin Belongs in a DCF

Neither printed margin goes into a DCF unchanged. The adjusted figure is the better start for the trend in the running business. The work is putting back what recurs, and keeping the deal spending consistent with the growth you forecast.

Take a fictional acquisitive device maker with $10,000M of revenue and $1,800M of GAAP operating income.

The amortisation add-back holds only if acquisitions stay out of the forecast growth as well. A forecast that grows revenue at the organic rate and excludes amortisation is consistent with itself. One that uses reported growth, which includes bought revenue, also has to charge the cash paid for those deals, as a recurring outflow like capital spending. Taking the bought growth without its cost counts the acquisitions as free. The organic growth guide shows how to separate the two.

Restructuring and litigation that recur go back in at a normal level: an average over several years, not the latest year and not zero.

Share-based pay stays a cost. If you start from a margin that excludes it, carry it through the share count instead, as the dilution it causes. Otherwise the valuation treats the shares handed to staff as free to the owners.

For comparing companies, use GAAP operating margin, or rebuild every company on the same exclusions. A table that mixes definitions compares accounting choices. The same amortisation question decides whether a pharma dividend looks covered, and the pharma payout guide works through it on GAAP earnings.