Q3 2020 Earnings Call

February 18, 2020

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Ladies and gentlemen, thank you for standing by and welcome to the Medtronic third quarter earnings Conference call. At this time all participants are in listen only mode. After the speaker presentation. There will be a question and answer session to ask a question during the session evil need to press star one on your telephone please be advised that today's comp.

Friends is being recorded if you require any further assistance. Please press star zero I wouldn't like to hand, the conference over to Ryan Weispfenning, Vice President head of Investor Relations. Please go ahead Sir.

Thank you good morning, and welcome to Medtronics fiscal year, 2023rd quarter Conference call and wed go.

During the next hour Omar Ishrak, Medtronic, Chairman and Chief Executive Officer, Karen Parkhill, Medtronic, Chief Financial Officer, and Jeff Martha Medtronic, President will provide comments on the results of our third quarter, which ended on January 24 2020.

After our prepared remarks, we'll be happy to take your question.

First a few logistical comments earlier. This morning, we issued a press release containing our financial statements in the revenue by Division summary, we also issued an earnings presentation that provides additional details on our performance and outlook.

During today's earnings call. Many of the statements made maybe 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.

For this call unless we say otherwise rates and ranges are giving on a constant currency basis, which compares to the third quarter fiscal year 2019, after adjusting for foreign currency.

References to organic revenue growth exclude the impact of our tightened spine acquisition and currency.

Reconciliations of all non-GAAP financial measures can be found in the attachment to our earnings press release or on our website at Investor Relations Dot Medtronic dotcom.

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 I'm now pleased to turn the call over to Medtronic, Chairman and Chief Executive Officer, Omar Ishrak Omar.

Thank you Ryan and thanks to everyone for joining us.

This morning.

The results for the third fiscal quarter.

Revenue growth was light this quarter, reflecting a series of largely transient tissues, which I will walk you through in a minute.

The good news. However is that this was more than offset by 90 basis points of operating margin expansion well ahead of our expectations.

Resulting in strong EPS and free cash flow growth both ahead of plan.

Importantly, despite the topline shortfall this quarter.

Q4 outlook is unchanged as you expect significant revenue growth acceleration, excluding any impact from the crooner virus.

Three revenue grew 2.9% constant currency and 2.6% organic revenue growth for a short of our expectations driven in part by customers grew being the purchasing ahead of our new product launches principally in CVG NRG.

And MIT G., we upgraded the group's ERP system in the USA and Canada through a companywide system.

Resulting in a temporary slowdown in our ability to supply customers, which in some cases resulted in lost procedures and lots of longer in the quarter than we anticipated.

That upgrade is now complete.

And as a fully this quarter, we're in the process of returning to full supply.

All of these items led to a quarterly revenue underperformance.

We weren't able to offset these issues given that many of them emerge late in the quarter.

I'm not happy with this topline performance and we are focused on quickly addressing the dynamics that led to this result.

Jeff will provide a little more color on this later on the call.

Looking down the PNM, we drove significant operating leverage despite the softer topline.

Our adjusted operating margin expanded 90 basis points as we continue to see the benefits of our enterprise excellence initiatives, particularly on the question Airlines. We also had strong financial leverage driven in part by the debt refinancing that be completed earlier this fiscal year.

This resulted in adjusted EPS of $1.44 cents, which was six cents above the midpoint of our guidance and up 11.6% year over year.

Let's take a look now at the drivers file group performances, starting with our restricted therapies group, which grew 3.6% organic this quarter.

Our did use performance was affected by customer buying patterns in BNP and the continued market slowdown and slide share loss in pain Stim ahead of our GTM therapy launch.

On an organic basis, our overall spine division was flat this quarter.

Selecting customer drawdown of infused inventory.

Despite this our core spine business grew 2% both globally and in the U.S.

In addition might include sales of enabling technology sold by bringing therapies division.

Which is our competitors report core spine grew 5% organically, both globally and in the us well above market.

Our surgical synergy strategy is resulting in increased sales of our core spine implants.

Driven by surgeons use of our capital equipment in particular, our major robot.

It is also benefiting our brain therapies division, which sells the capital equipment used in spine surgery.

Britain therapies delivered another above market border of 9.2% group.

Neurosurgery, which grew low double digits, we had strong growth in Missouri, robotics, where we are meaningfully outpacing the competition as well as and still station navigation warm imaging and our new Midas Ricks Emirates systems.

And bring Tabbies, our market, leading neurovascular business had another strong quarter with mid teens growth driven by mid twentys growth in the scheming stroke and strong adoption of our solid to extend retriever riptide aspiration system and react catheters.

And then therapies the pain stim market had another slug this quarter and we had some slight share loss ahead of the launch of this didn't Jennings GTM therapy wondering tell us platform.

We're excited about the response, we receive from physicians and the broader SCS community. Following the acquisition announcement and Stim Genex data presentation last month at Nands as well as in our nine year battery warranty and entellus.

We continue to be optimistic about the outlook for the pain stim market and have begun training physicians on the GTM we form.

Our minimally invasive therapies group grew 3.2% organic including flat results in the U.S. am I could use performance. This quarter was affected by the upgrade if its ERP system in the U.S, and Canada, which caused some temporary slowdown in our ability to supply customers with a full breadth of our products and in some cases.

This resulted in lost procedures.

This was however transient issue.

RP upgrade is now complete and the related supply slowdown are behind us as of this month.

Within it might Gigi our surgical innovations division grew 3.6% this quarter.

Driven by our advanced surgical business, particularly in advanced energy, which grew in the high single digits strengthened our linger shore franchise and sales of our Valleylab ft 10 energy platform.

Respiratory G. III in renal division grew 2.2% driven by low double digit growth NRG I solutions business and high single digit growth and pulse oximetry sensors and advanced parameter sensors.

And our cardiac and vascular group, we grew 1.8% this quarter, which was below our expectations due impart to customers holding back their purchasing ahead of new product launches in Sierra Jeff.

We saw high single digit declines in our high power business as customers are weighted approval of our cobalt and chrome devices, which have launched this month in Europe and are expected to launch in the U.S. during Q1.

In heart failure, although our as that business as anniversary the headwinds we faced over the past year. The business declined in the low single digits and hasn't returned to the growth levels, we were expecting.

The other driver of our below expectation CVG performance was our US dollar business, which grew 13% this quarter below the market growth rate was.

While the TAVR market has been rapidly expanding we currently have fully experienced field support coverage in a little more than two thirds of approximately 700 us centers performing to cover.

We began aggressively hiring and training new field personnel months ago.

However, our data shows that it's taking longer than expected for our new reps to reach full productivity. We plan to certify an additional 70 few personnel by the end of this fiscal year.

We expect our U.S. dollar performance to improve relative to the market going forward as our expanded field organization reaches full productivity and refocus the market on the hemodynamic benefits of evolution proved plus platform and the launch of our new confide a sheet.

Outside the U.S., our TAVR market share grew modestly in Q3.

Our pre leasing business grew in the high single digits, well above the market driven by our exclusive microliters pacemaker and as your family of conventional pacemakers, we announced the micro Avi approval in the last week of our quarter and are excited about its growth potential as it expands the micro target population from fit.

10% to 55% of pacemaker patients.

While we did not have revenue from micro Avi in the third quarter.

Already seeing strong interest in early adoption of this new technology in the fourth quarter.

In diabetes, we grew 8.8% slightly ahead of expectations, our us business declined in the low double digits, which is anticipated in resulted from competitive challenges, while we await our new products, we're seeing strong enrollment in our next tech pathway program, which allows purchasers of the mini mid six seven digi to upgrade.

For free to a next generation pumping launched.

Keep in mind that as a result of this program. We're currently deferring a portion of the revenue for pump sales, which we will recognize when patients straight in their 670 G. for the next generation pump.

In markets outside the United States, which represents just under half of our diabetes revenue, we had solid mid teens growth driven by the continued adoption of the mini metrics 70 G.

This demand is not only driving strong growth in our installed base that is also resulting in double digit growth in recurring revenue from CGM and other consumables.

Now turning to emerging markets, which represented 17% of our revenue.

In Q3, we grew emerging markets, 14% with contributions from geographies around the globe.

China grew 14% as it southeast Asia, and Eastern Europe grew 16%, which included 39% growth in Russia.

In addition, southeast Asia grew 13% under the Middle Eastern Africa, and Latin America grew 12%.

We continue to drive strong growth in these markets as we optimize the distribution channel and in certain markets localize R&D and manufacturing.

Regarding the Corona virus, our top concern is the health and wellbeing of our employees in China and across the globe.

We have activated response teams in China Asia Pacific region, and globally, and we remain vigilant in monitoring the virus and taking action as necessary.

All of our manufacturing operations are up and running in China.

We're committed to helping the Chinese government and Chinese physicians address this crisis.

As the Chinese healthcare system is focused in containing the spread of the virus hospitals in China has experienced a slowing of medical device procedure rates and we are seeing procedure delays.

We do expect this to have a negative impact on our fourth quarter financial results, but given the fluidity of this situation the duration and magnitude of the impact are difficult to quantify at this time.

Now turning to our product pipeline.

As we look forward. We're excited about what lies ahead as investments we made in our product pipeline begin to pay off by accelerating our revenue growth and creating value for our shareholders.

We have recently received approval or launched a number of new products that we expect to contribute to our growth going forward.

Mentioned earlier, the us approval of our my gravy pacemaker and the launch that is now underway.

We also received us approval for impact Admiral Avi Fisher indication, which expands the market potential of our drug coated balloons.

We received us approval and are launching our stealth auto guide greener robotic system.

In Europe, we recently received CE Mark approval for cobalt and chrome portfolio of Blue sync enabled high power devices.

Our interest in micro rechargeable implantable sequel, Neuromodulation device and interest Im sure scan MRI leads as well as our precept PC DBS device would bring terms technology.

And over the next few quarters, we expect approval and launch of a number of additional new products, we expect us approval of the cobalt and chrome high power devices, revealing 2.2 in suitable cardiac monitoring.

Interest in my crew and interest Im sure scanner MRI leads and our precept Pcbs device.

We're also expecting European launch of de Minimis, seven NBG and our Diamond temp ablation catheter.

Regarding our minimum Seveneighty GE in the U.S., we intend to file our adult clinical data with the FDA in March which will push expected approval beyond the fiscal year end.

In pain Stim, we unveiled DTN spinal cord stem last month of the man's conference and another training our field force on this novel waveform with an expected limited launch in Q4 and full launch in Q1.

And then my TG, we continue to make progress in our soft tissue robotics program.

Last week, we announced acquisition of digital surgery, a pioneer in artificial intelligence and analytics for surgery.

The lead the industry with a unique touch surgery ecosystem of products, including AI that identify surgical steps and instrumentation.

These products can be leveraged to provide insight into the procedure time cost and process to improve surgical care.

We're excited about utilizing the strengthened capability of digital surgery to advance our minimally invasive and robotic surgery platforms.

We also have a number of important upcoming data presentations.

Starting with use case data under extreme conditions for our advanced hybrid close loop algorithm at HGTV later this week next month.

He will be a big conference for us.

They do from our off led renal denervation pivotal trial will be presented.

As well data for both lower risk bicuspid and leaflet mobility for whatever program.

Also we will share risk stratification data for our direct Santi infection product.

And finally in June at 88, we expect to present to us pivotal data for our mini med Seveneighty GE advanced hybrid closed loop system.

These are just some of the near term highlights from our pipeline importantly, we're continuing to invest in building out a robust long term pipeline of continuous innovation invention and disruption.

I mentioned earlier that we expect significant acceleration in our fourth quarter revenue growth driven in part by our pipeline and excluding the impact of the Corona virus.

And as we look to 5.21, we expect our topline momentum to continue as we get the increasing benefit of the fytwenty product launches as well as the product slated to launch next fiscal year.

With that let me now lost Karen to take you through a discussion of our third quarter financials and forward outlook Karen.

Thank you.

Adam are mentioned, we delivered third quarter organic revenue growth of 2.6% and adjusted EPS was $1.44 growing 11.6%.

We ultimately Cayman six cents above the midpoint of our guidance.

And when attribute two cents to better than expected foreign exchange and four cents to operational outperformance including tax.

Our adjusted gross margin was 69.7% down year over year due impart to increase China Tara.

We more than offset that decline with strong operating leverage as we continue to implement and drive efficiencies and improvement across the company.

While at the same time, making investments ahead of upcoming product launches.

This led to an adjusted operating margin improvement at 90 basis points or 70 basis points, excluding the impact of currency.

Below the operating profit line, our adjusted interest expense declined 36%.

Driven by our successful that issue and tender transaction that we completed last spring and summer.

Our adjusted nominal tax rate was 13.6% lower than we expected due to increased deductions from the exercise of employee stock options and benefits and finalizing taxes out uncertain return.

As you know generating strong free cash flow remains a priority across the company.

And you are seeing that focus come through in our results.

Third quarter free cash flow at $2.1 billion up 21% from last year.

And year to date free cash flow at $4.9 billion, representing a conversion ratio of 90% well above our full year target at 80% plus.

We remain committed to disciplined capital deployment balancing investment in R&D and tuck in acquisition to drive future growth.

While returning a minimum of 50% of our annual free cash flow to our shareholders.

And year to date, we've returned $2.8 billion or 57% and the cash we generated resulting in a total shareholder payout of 51% on adjusted net earnings.

Now turning to guidance.

For the fourth quarter, we're comfortable with current street consensus on organic revenue growth and EPS prior to any impact from the Corona virus.

We expect overall organic topline growth of approximately 4.5%.

By group, we expect CVG to grow foreign at quarter to 4.5%.

Net T six in the quarter to 6.5%.

Our TG approximately 4% organic.

And diabetes to be flat to down low single digit.

And based on recent rate currency would have a negative impact of 80 to 140 basis points.

On margins, we continue to expect our full year operating margin to expand by roughly 40 basis points on a constant currency basis, driven by our enterprise Excellence initiative.

For the fourth quarter, we expect our operating margin to be up slightly including the impact of currency.

Roughly flat on a constant currency basis, as we invest to support current and upcoming product launches.

Below the operating line, we expect our fourth quarter interest expense to be approximately a $160 million to $165 million.

And our fourth quarter adjusted nominal tax rate to be around 16%.

Which would put our annual rate at approximately 15% lower than we originally expected and reflecting the benefits. We have had so far this year.

We're raising our fiscal year 20, EPS guidance to a range of $5.63 to $5.65.

Up from 557 to 563, and reflecting our third quarter Bottomline outperformance.

For the fourth quarter, we expect $1.62 to $1.64.

As mentioned upfront all the guidance I just gave excludes the impact of the Corona virus.

Because the situation at the fluid it is difficult to truly quantified the impact just a few weeks into our quarter and for that reason we plan to provide an update for you later this quarter.

Finally, I would like to know that we plan to hold our biennial institutional investor and analyst day on Tuesday June 2nd in New York City.

Back to you Omar.

Thanks, Karen I'd now like Jeff to make some remarks in the quarter and the outlook, Jeff. Thank you Omar.

There are number a positive things from the quarter that I want to highlight but first I'd like to address our topline performance, even though much of it was transient we did not perform at the level we were expecting.

And the drivers surface at the end of the quarter. We just can't have surprises like this for us nor for you.

And we are making changes.

At our upcoming Investor day in June I'm going to walk you through what innovation driven growth means for Medtronic and a comprehensive set of initiatives to take full advantage of the pipeline.

These initiatives are meant to ensure we see the acceleration of our revenue from the pipeline and to improve our predictability.

On that note I want to discuss an aspect of our plan to address the surprise we saw this quarter.

One issue is the weighting of our revenue to the final month of the quarter.

Which leaves US susceptible this is prizes late in the game like what happened this quarter.

Too often our largest orders come in at the end of the month.

This dynamic makes the business challenging to manage its stresses our operations and it really makes it difficult to mitigate headwinds that pop up within the quarter.

So to fix this we will change our current operating mechanisms certain internal metrics and so some incentives as well.

And I want a flag the opportunity coming up.

With our extra week in Q1.

The impact of the changes that I just mentioned.

Likely won't be contained in a given quarter.

So I'd like to use a good portion of the benefit.

That we would get from the extra week in Q1 to launch these initiatives.

So we guide to the first quarter, we will give you guidance on an underlying basis, excluding the benefit of the extra week.

And we'll give you an estimate of the benefit of the extra week none of these changes.

Like I said, we plan to discuss these and other changes during our Investor day.

But I want to assure you one thing that I am on this and we are taking the appropriate actions to improve consistency and avoid future surprises.

Now before I close and we get to Q and a.

I've got a highlight a number of good things that occurred this quarter accomplishments that I believe can't get lost in this quarter's narrative.

First we drove a better operating margin despite the light topline and free cash flow was outstanding.

These are two things that we've been working on for a long time over the past couple of years, we've taken action on both of these areas and we feel really good about the operating rigor and the culture, we put in place to drive the bottom line and improved cash flow.

Also emerging markets growth continues to be strong for us.

They represented 17% of revenue and once again grew strong double digits, 14% this quarter.

We think of emerging markets actually as an independent growth factor for the company.

We have to acknowledge the progress with our pipeline, we are starting to see approvals and launches come through for important and innovative products and there's more to come.

Yes, the slowed purchasing ahead of these launches hurt us and some businesses this quarter, but this is going to turn.

Customers are really excited about our new offerings.

I'd like to end by saying that the underlying fundamentals of the business are strong.

We have a full pipeline that will accelerate our revenue growth and take share not just next quarter, but next year and beyond.

We're very excited about the future the company the new technology that we're bringing to market. The impact this will have on patients and physicians and the value, we're going to bring and generate for our shareholders.

All right back to you Omar.

Thanks, Jeff I couldn't agree more would approach that retaking and I'm just as excited about our outlook going forward.

Before we start Q in a I'd like to briefly note that we currently anticipate holding our Q4 earnings call.

Which would be my last earnings call on Thursday may 21st.

Let's now move onto Q and aim in addition to Karen Jeff and me are for group Presidents, Mike Coyle, Bob wide brick walls and Sean Salmon are also here to answer your questions.

As usual, we want to try to get to as many questions as possible. So please help us by limiting yourself to one question and if necessary or related follow up.

If you have additional questions. Please contact Ryan and our Investor Relations team after the call.

Operator first question please.

Your first question comes from the line of Bob Hopkins with Bank of America.

Oh, Thank you and good morning.

I'll stick to both questions upfront to make it make it easy.

First I was wondering in CBD, if we could drill down a little bit a nice Cds.

Given the weakness in the quarter and I ask because Boston scientific also saw weakness in the quarter in their high power IC business and the timing of your new launches shouldn't really be a surprise. So I guess my first question is how can your confidence that this isn't just a a slower market.

In fiscal 2020 ones are you still comfortable accelerating off of that 4.5%. It will see hopefully in the fourth quarter on a same selling day basis. Thank you. Thank you.

Thanks, Bob do it Mike Coyle is the right person to address nicety questions, Greg like a yet, but we're not seeing anything that would cause us to have a concern that the overall market price Cds is somehow slowing significantly most of the challenges that we haven't ITD remain the issue associated with the the replacement cycle and the fact.

That we were seeing essentially mid teens declines in year over year comparisons on replacement as I've mentioned before that actually gets better as we get through the year and into next year, especially in the CRT D area.

And that is going to help us in terms of acceleration the I.C.D. side, but the other point and you pointed out the surprise to us in terms of weakness in the number for the quarter was really in EMEA in Europe and Middle Eastern Africa.

I was where essentially we believe customers were holding off given the imminent launch of our cobalt chromium product families, which now have launched into the market and those products will be coming to the United States. During the during the first quarter. The other thing that a depressed the overall performance relative to where we thought we would be during the quarter is the fact that the TYRX and.

Active envelopes could captured under the I.C.D. numbers, when we report externally and I think you may recall last quarter, we had a fairly major.

Quality, driven backorder situation that we expected we'd be resolved completely during the course of Q3, we actually lost a number of.

It's a product manufacturing lots of product early in the quarter, which now has stabilized in fact through through the second half were completely out of any kind of constraints on supply. So we expect that will flow through into the numbers in Q4, and obviously into next year, especially as we have new data that will be presenting at HCC on risk stratification for TYRX. So we think all those things are going to help us.

Celebrate the CD market not only in Q4, but into next year.

Okay. Thanks, Mike I think on your this person to take the question. Yes. Thanks for the question on 21, Bob and Yeah. We're really excited about our pipeline and what it has to offer appetite 21, and I'd love to talk a lot about it but we're close to finalizing our plan so well get any official guidance on our Q4 call as you know.

That said I would think about accelerating growth for next year off of the full year basis as opposed to offer the sequential basis.

And we're very confident and our growth acceleration I've asked why 21 over halfway 20.

Okay. Thanks, Bob next question please.

Your next question comes from the line as it relates with Morgan Stanley.

Good morning, just maybe just one quick question for me here.

Karen just to confirm for your last question is the right way to think about fiscal 20, I'm, assuming you sort of 3.5% to 4%, but my one question I'll keep it to one is just thinking about fourq guidance I. Appreciate it's in line with consensus, but I think about Omar Jeff's comments about Archie as CVG. It seems like the suite you dynamics getting better into the fourth shouldnt the fourth quarter be stronger.

As we see some of this catch up revenues. If you just help us quantify third quarter issues and offer some clarity on what fourth quarter implies in terms of recovery and drivers of acceleration. Thanks. So much.

Okay. So let me take them beginning of it and then I'll, let my colleagues jump into so in terms of that's why 20, there that are our fourth quarter guidance by half way 20 growth as through 637 ish.

And then on fourth quarter, and clearly because of the transient issues in the third quarter, we expect salad that to come back if you look at MIT and he and the ERP issues that we've talked about yeah, we fully expect that to come back and Thats. One of the reason is that we've guided met chain too you know above trend.

For the corridor.

That we have lost some procedures and and those won't come back.

Yes, I think I don't if I could not anything through that.

Yes.

Really the procedure losses.

In a business like EMG, where the procedures top understood that just isn't going to come back.

We recover fully I think in other areas.

Like in the Mcs business or L. that business, you know they will share loss and theres pressure there in our growth is probably going to be lower than we were originally anticipating certain balance. So we felt that holding the Q4 sort of previous guidance was the appropriate thing to do at this stage. We're obviously doing everything we can do to maximize.

Number.

Okay. Thank you David Thanks differently.

Your next question comes from the line of Robbie Marcus with JP Morgan.

Hi, Thanks for taking the question, maybe if we could shift to some of the product lines and specifically tapper here, 13% worldwide growth came in a lot lower than the street was expecting you had the first full quarter the low risk launch in the U.S. Your competitor it did a lot better than this maybe talk.

Exactly what happened in the quarter.

The dynamics in the U.S. and how you expect this to continue throughout fourth quarter in 21. Thanks.

Mike to it exists.

Obviously, we were very disappointed with the performance in the U.S.. If you look outside the U.S. we the.

Plant growth rates were in the high teens and pretty much in line with the overall market actually a little better than the overall market because of the Japan influence, but in the United States, obviously, well below market with the implant rates in the mid teens, whereas we would estimate the market in the quarter probably group.

On the order of the low thirtys.

As we dug into that we obviously headed into the holidays actually feeling pretty good that we were looking at implant rates in the low twentys, obviously in retrospect that turns out to be lower than the market, but as we headed into the end of year in into January we saw pretty meaningful decline in overall growth rates were implants, and we doug deeply into that to figure out which.

Accounts in where we were having the issues and basically I think learning from that analysis was that it takes longer than we thought to have our reps become fully competitive in this market. It's probably a nine to 12 month training exercise, which in retrospect, we probably should have ramped up in advance of this several quarters earlier than we did.

The good news is that as we looked at the hiring that we did do this quarter, we expect to to bring on 70, new sales reps and and the support personnel, which is going to help US go from you know given the 700 accounts that are selling I see you're selling.

That letter servicing this this market, we probably have season sales reps out into those who have a year or more experience in about two thirds of those accounts by the time, we exit with these new certifications, we would expect to be closer to 80% in terms of supporting that we're also accelerating new hiring based on near driving support for our next fiscal year.

So we think there was.

Just catch up in terms of training and deployment plus with we're pushing much more close interval management of the of the reps that are out there to make sure that we're staying on top of development. In these accounts, we think that coupled with obviously, our new product launch around Evolent pro plus the launch of the copper to sheets, which we really improves the performance of our overall.

Device systems, and then new data that will be coming out here at HCC around.

Both bicuspid and leaflet mobility should should basically give us an opportunity to accelerate from where we were in Q4 or in Q3 and that basically looking at just the daily sales rates here as we headed into the new quarter with this new focus on the rep productivity, we are seeing some accelerate.

Asian from those numbers that you see in terms of the mid teens implant rates and so I'm I'm confident we're going to see acceleration, whether we'll get already back to market given that we have two competitors who are driving share in those accounts. It may take more than a quarter do that but on the other hand, I do expect to see acceleration during the quarter.

Thanks.

Okay. Thank you Robby next question. Please your next question comes from the line of VJ Kumar with Evercore.

Hey, guys.

Thanks for taking my question I had two quick ones one.

The surgical robotics I think you mentioned some software updates I just on timeline there.

Mike you have sequential acceleration is there anything baked on the robotic site, there and second on margins.

The comments on FX hedge gains each when you look at next year I think Jeff made some comments on changing incentives. So maybe just talk looked up margins for next year are we still looking at constant currency in that 40 to 50 basis points of expansion. Thank you.

Okay, Let me Bob will probably answer this but just sales above the robotics is not in our financial numbers, yet and then the overall program is more or less contracts. That's right Omar. Thanks BJ for the question to reiterate in first off no update from from what we talked about at JP Morgan relative to the programs such as good news.

And then the the sequential acceleration of MIT jeans business is really all about us coming out of the ERP implementation. Other we've got that back on track in the systems running smooth so.

For that that doesn't 40 VJ.

Yes, and then on the margins guys.

Our margin.

For next year now we're going to continue to look at margin expansion.

I will drive bottom line growth about topline growth every year enter third you haven't changed our long range guidance as.

400 basis points constant currency margin expansion. So you can attain that at this stage.

Hi, guys I can tell you a region is this a focused organization around that we've worked very hard to get.

Yeah, and accountability around that and.

We're going to you're going to that's going to stay we just need to fix our topline growth back to it deserves to be based on product pipeline.

Appreciate the comments Omar.

Thanks BJ next question. Please your next question comes down the line of Matt Taylor with Tvs.

I think you for taking the question.

The first one I wanted to ask was just on mine TG ERP transitions I was wondering if that impacted.

Any of the business lines within a month TG more than the others and are you seeing.

Underlying share loss, there or share gains can you talk about the underlying trends.

Yes, let me take that almost doubling that thing thanks for the question.

The impact of the ERP transition affected all of the the MIT product lines as we migrated into the.

The single Sep system for Medtronic and.

Certainly we lost some procedures, where we weren't able to ship products to customers. So while we think we lost the procedures given the middle months or the quarter. We don't believe we necessarily lost significant amounts of share.

But certainly wouldn't outerwear back on track with ERP system or were backed fulfilling those customer requirements.

Thanks, and just to follow for for Mike or the team there. So it sounds like you're seeing a little bit of an improvement in the DCB trends at least in the US could you speak to that and whether you think we could see any kind of continued uptick there or a change in the FDA stance at some point during the year.

Sure we're seeing some modest improvement obviously as more datasets come in they are providing more comfort to physicians and FDA for that matter I believe that that the signal that had been observed in those first three randomized trials around asset they.

See not consistent with the new data coming in obviously, one big data set that we filed and got approval for was the baby officially indication for DCB, which did not show this mortality signal in the in the Paclitaxel arm and we expect additional data to be coming out on that topic, including at HCC, where we think there'll be a.

One of a major dataset based on claims analysis, so that is creating a greater sense of confidence in the physician base that you know the significant more morbidity issues that come with not using these drug coated balloons and just using P.T.A. balloons are beginning to get attention and I think what what.

Back to see is continued improvement as datasets provide that that level of comfort. So in this quarter. We did see on out sort of selling day adjusted basis, some sequential growth, which is encouraging in DCB and we expect if the data continue to come in as positive as they have that we'll see that continue.

Thank you Mike.

Thanks, Matt next question. Please your next question comes from the line of Kristen Stewart with Barclays.

Hi, Thanks for taking my question just wanted to ask Sean If you could just provide US is overall thoughts on diabetes since kind of taken over the role and then if we could just kind of get an update on 70 d. It sounds like that is getting pushed a lot on the U.S. into next fiscal year, maybe just some thoughts around timeline there. Thanks.

Sure. Thanks, Christian so as you know the diabetes business certainly have no.

Small challenges to overcome but I can tell you I'm really very encouraged with how we're seeing some de risking of the pipeline that that we have going forward in particular that sensor pipeline.

I'm convinced that we thought figured that out and it's been it's time for us to take the pipeline flowing there.

Seveneighty GE is an important.

Catalyst for us to drive growth and we expect that to begin we have privacy marks that device that we are expanding as Omar said, putting the clinical data module in in the March timeframe.

That reviews, calling well, we're very interactive with FDA that will be meet with them. Later this week I won't give more update on exactly when the timing as we get more information on it.

So so far we're happy what we're seeing but from the algorithms and you'll see some that later this week as we stress the algorithm intuit's some challenging conditions that will be announced that HDD unit dataflow, you'll see the full dataset coming up at the 88 in June.

Yeah, I'm seeing a lot of encouraging things or is there are things to clean up obviously, we've got to get the new product flows going and we're confident that we'll be doing that starting soon.

And then just your comments around the de risking, particularly around the sensors can you be just expand upon that ceding theres an opportunity to bring forward some of the sensor timelines.

I will first I think the the first thing is to meet the criteria for IC GM and I'm confident that we're going to be able to demonstrate that we'll have more information on that and upcoming meeting, but probably at analyst day will show smart that.

Too early to comment on on accelerated timing, but that certainly the goal to push as fast as we can into the marketplace.

Okay. Thanks, John.

Thank you Chris next question. Please your next question comes from the line of Kayla Curran with Suntrust.

Thanks, guys. Thanks for taking our questions I'm. The one quick one to clarify and then a question on the business. So on the current a virus I thinking you may have mentioned this but again just to clarify will you give full transparency on your China business performance in the fourth quarter.

Yes, we will add an enviable disclose that growth rate than China already that we will we will continue to disclose that we will be transparent about the impact of the Corona virus.

Perfect and then there's there's obviously a lot of new product launches coming in the next few quarters, but I mean, obviously it can be challenging the predicts that the timing and the impact of when those new launches contribute so I'm just curious how you're modeling new product contribution in the fourth quarter and as part of that Reacceleration in the business. Thank you.

Well there are some that are pretty clear things like the micro Avi, which launched last quarter is now in full steam and moving ahead well in that one you know we're projecting a a strong strong success.

There are others like the in the spinal cord stimulation market, we just launched system genomics.

The way form on the until this platform that's picking up that that's a little more guarded about that because as newer but for sure does going to help us in the spineless goes concert spinal cord stimulation markets.

Things like cobalt crewman Europe.

When we have a history there and we can know we can project historically, what searches that kind of improvement has caused in and we're going to put that into a model. So you know there's a mix of.

Oh softer level of.

Sort of confidence intervals, we have in these projections, some very tight and micro being what are the biggest drivers is very tight.

The others, a little more unknown, but positive nonetheless, I think thats, the best or into a or anyone else you're any products are mr. any comments.

Well we've recently.

Recently launched the micro which is the new public health product in Europe, which you know we're excited about that and the possibility for that looking too.

Late spring launch in United States, and then percept, which is the new DBS.

A device with brain sense technology has just launched in Europe.

Similar timeframe so in the U.S. approval and we're getting good uptake on that so those are two very interesting platforms for us and the Neuromodulation space and they are they go there.

Completion catheter CE Mark that we expect a during the quarter, which would obviously be even more of a benefit in Q1 of next year as well as we're just in the early stages of the launch of the.

The abbey fistula indication for the impact that mobile and so those will now give full quarter benefit during Q cool.

I think to your question about how we project is you know that historical sort of comparison that we can make against similar such launches and based on that we make a judgment to nor in our planning and from that we derive guidance and our plan going forward. So there's a variety of that but theres some judgment in gold with this.

Thanks, guys. Thank you Taylor next question. Please your next question comes from the line of Larry Biegelsen with Wells Fargo.

Good morning, Thanks for taking the question Mike could you. Please put a finer point on the launch timing of cobalt and chrome in the U.S. and link 2.0, what quarter, you expect to get in and Brad Hansen and what are you seeing for sacred Neuromodulation. What are you seeing from the new competitor and what are your expectations for that business.

For micro is approved in the U.S. and late spring, which is what I heard you say a minute ago. Thanks for taking the questions guys.

So let me on cobalt and chrome we would expect that in the first quarter of next year, probably in the first half of that quarter and then for linked to we would expect that product also in Q1, but tour in the second half of the court.

And then Larry on the on public health and on the micro I think we expect some near term slowing here with a particular products given the competition.

The micro itself in Europe has been received very wall just as a reminder, it's about half the size of the competitive device. The recharge experiences is significantly better and though with the sure cat scan leads it is 1.5 in three Tesla full body conditional. So we're we're very very excited about that product when it comes from Mark in United States.

Thank you.

Thank you Larry next question. Please your next question comes from the line of Matt Miksic with credit Suisse.

Hi, Thanks for taking my question. So I just have one on a on Corona virus and one on a.

Sort of the simplicity spiral timeline and the data GCC so on Corona.

I understand a little bit early to put a finer point on on the impact for Q4, but if you could maybe give us some sense of what the major moving parts are I think we have about $2 billion in China revenue round numbers.

Approximately kind of an annual run rate there, obviously, it's a moving target but.

Things like.

Got it impacting Q4 likely based on what you know now sort of come back in early Q, how transitory is that impact and then on on spiral just maybe walk through us forward for us that timeline of.

What happens after off Mad and what that looks like as you as you continue to develop that.

Program.

Okay. Let me take the core Novartis question first no first a follow were pretty clear, but were China businesses, it's roughly 7% for global business. So you know you can you can do the estimate there.

The the variables right now one variable is that we've got to get our factories up and running sort of it can supply you know different places in the world, including China and that is actually progressing well, but the main factor driving the number there will be the procedure uptake in China.

China was in a complete shutdown mode for the first half of February and then just beginning to start and even now even in places like Beijing and others procedures are only just beginning its too early to tell.

How how that will ramp up to derisk the quarter, we noted and who they province for example, obviously shutdown, but does that still earlier.

5% of China.

The but but you know the rest of China in places like Beijing, and Shanghai right. Now there are there are procedure delays.

In addition to that a lot of physicians are being asked to do actually going to help for the virus.

So there are many dynamics here that really difficult to predict now once the things stabilize the could will be a ramp back up and because people need to procedures. They will get them at some point when that happens is very difficult to predict right. Now. So that's why we're seeing that a wait till a little later in the quarter.

When we have some more data and see how things Progressive review for an update.

So with that we lost Mike to take the real so we are near renovation obviously, the first big milestone will be the the pivotal trial.

The off Ned which will be presented here at HCC.

But there was the second trial that is ongoing in parallel which is the beyond Mad trial.

Unlike the off med. It has a six month efficacy endpoints. So if it is set expectations for windows data were were to become available I would expect that about a year from now so about about this time next year.

In terms of the FDA interaction beyond med or the augment data.

We'll be using it in a modular submission as we along with obviously the device supporting materials. So we think we can get the the process would that be to move forward. We do think we need the off med or in the I'm excuse me the Ahmed dataset in order to get final approval.

For the product and certainly it will be very important in terms of reimbursement to have have those data so that would be how I would.

Set expectations, obviously I think you know the spiral product is available in Europe. Currently does have CE mark so as these datasets become available.

Customers can evaluate them and decide how they want to use that that product.

Great. Thank you.

Next question please.

Next question comes from the line of Chris Pasquale, We think in time.

Thanks.

Mike I, just want to circle back on the Fourq huge CVG growth outlook.

Sounds like some of the headwinds there like all that and TAVR may take at least another quarter to address.

Imagine that theres potentially some risks the U.S. I CD growth slows ahead of those launches just like we saw in Europe. So.

Mike Gravy should help there's a couple other things that go your way, which the confidence in driving that acceleration in the fourth quarter. Thanks.

Sure I think as you point out we have lowered our expectations for the L. bad numbers just based on you know not seen the sequential share capture in Q3 that we had seen in Q2.

And some some competitive.

Indications approvals, but on the other hand, you know obviously, we got the microarray. The early in terms of we expected, though it will be later in the quarter when we were setting guidance.

Last quarter.

And and the customer responses is has been strong in terms of interest in the technology and as a reminder, this is a product that that carries a three X price.

Uplift relative to a standard dual chamber system and our indications for use cover all Avi block patients. So we expect to an opportunity to drive this product meaningfully into into the market above what we were thinking a quarter ago. When we were giving guidance for for Q poor. In addition, although obviously the cobalt and chrome products.

We'll be in the U.S., they will be in Europe, and so unlike last quarter, we really had no meaningful new products and and we saw the customers pausing and while waiting for new products. Now we have a number of new products globally that are that are obviously going to make a difference for us and so net net we're pretty much holding our expectations for growth, where we were a quarter ago. Despite.

The moving pieces in this quarter.

It does the guidance contemplate a pause in U.S. I see the orders ahead of those launches.

Yes, certainly shows no meaningful acceleration in those in those numbers, so something along the lines of what we've had it as I said, we're also seeing some improvement in the replacement cycle generally because of the CRT D side of things and the other thing I should mention is obviously, we will anniversary in March the Paclitaxel issue, which was a big step down in the prior year quarter, which give.

Thats, just an easier comp to to work with as we've seen sequential growth on a selling days basis. The last couple of quarters in DCB.

Thanks.

I agree that the direct sold or we won't get to share capture more.

Quickly, we'll certainly have sequential growth estimate would have orders that we we were constrained for more than half of last quarter in terms of supply and now we are essentially unconstrained. In addition, we're expecting to get labeling expansion two one year dating on that product in the United States, which will help us.

Significantly in terms of just the logistics of pub its growth.

Great. Thanks, Chris next question please.

Next question comes from the line, if peto tinkering with Deutsche Bank.

Hi, Good morning, Thanks for taking my questions to follow up on Robin's question. You asked however, I understand if sales rep issues are holding back growth of new accounts.

Sales reps really holding back growth and establish accounts is that is that where the growth is is falling as from the new accounts are firmly establish counts. Thanks much yeah. It's a great question actually what happened was there was a tremendous focus on launching the absolute pro plus as well is opening up the NCD accounts and what we wound up doing because of the relative immaturity of.

A good bit of our field force is pulling.

Reps, who were supporting large accounts.

To help with that expansion into new accounts, and obviously with a new competitor entering the market and you know some complex messaging having to come in as little as low risk.

Patients were approved it just proved to be too much we were spreading our field too thin.

And so obviously, we've refocused back into those those large accounts to to make sure that our messaging around improving the dynamics.

The benefits will be able to probe plus in terms of profile are now adding the.

Pericardial wrap into the gold barge device segment.

And then obviously just.

Selling the benefit to the hemodynamic data that was presented at HCC a year ago.

Those are things now that we believe are helping to show this.

Celleration growth.

That I referenced as we head into this quarter versus where we were in January.

Thanks. Peter next question. Please ask your next question comes from the line of Matthew O'brien with Piper Sandler.

Good morning, Thanks for taking my question I'll, just stick with one Jeff I. Appreciate you don't want to say much about this new program is going to implant implement until Investor day.

In June, but we've seen contract manufacturers do something like this before but never really a manufacturing company do something like this so can you just talking about the potential economic impacts to Medtronic I mean, do you have to scale to kind of.

Works through some of these things on the topline as you're gonna be better pricing, there could be a little bit of gross margin pressure or longer term. So there's some.

Free cash flow impacts here. So just how do we think about you know some of the puts and takes care of this new program.

Yes, well look I Didnt, just one clarification on when I spoke about I think this is the second question around where some of these changes impact our margins in the answer to that is no right. Weve. You know, we're talking about a focused on increasing our revenue and the overall revenue growth as well as that.

Consistency and predictability of that revenue growth, but we don't want to take a step back.

On the on the margin improvement that we've that we've built up and the cash flow conversion.

Improvements that we didn't done over the last couple of years as a result of our you know with these are sustainable changes from our enterprise Excellence program. So we don't want to take a step back on that was what I smoke mentioned. This morning on this morning's call was a very specific changes that we want to make to improve orders orders that are coming in.

Late in the quarter, we have we have a couple of our larger orders some were coming in late in the quarter, which stresses our system and we've got too.

Execute better really to get those in earlier, we're putting too much pressure on the last month and that specifically what I spoke of this morning, and when I came to that for Investor day was more on what are we doing to realize the full benefits of the of the pipeline. We looked like the fundamentals of the business was strong in a number that specifically you guys know the markets are doing well.

We have a good market share positions, but more importantly in terms of momentum the product pipeline is coming to fruition here. So we need to make sure the we print.

The right programs in place to realize the full benefit to that pipeline.

You know around commercial execution, so thats, we'll get into more of that on Investor day, What I talked about this morning was more having a regular cadence a a moving some of our backend loading of our quarter and spreading that more evenly throughout the quarter, but nothing regarding you know nothing changed regarding margins.

Thank you.

Alright, Thanks, Matt I think we've got time for one more question. Please operator.

Final question will come from the line of Josh Jennings with Cowen.

Hi, good morning, Thanks for taking the questions.

Just two questions for Karen on margins just on the gross margin pressure you experienced so far in fiscal 2000 can you just help us understand the drivers of that and is and it's up 70% levels normal or is your recovery path and it's been FX pricing pressure mix shift and then just.

On the other income tailwind that you've experienced in fiscal 20.

Outside of FX hedging can you can you talk about the drivers of that benefit and then how sustainable unpredictable.

Mine automobile going forward.

Thanks for taking the questions yeah. Thank you Josh no problem. There on gross margin is one of their larger pressures that would have had on gross margin of the increase in China pair up.

And as long as they stay and that will be a continued pressure.

Gross margin is obviously impacted by next and as we entered the and some of our CLO product that should help growth margin.

Going forward.

And I do think about the net other expense or income line item. We had a benefit this quarter that was primarily driven by a plot program that we haven't played to hedge the gains and losses that are part of our deferred compensation program and that DNA.

And so that was really driven by that are SGN a line would have been even better if it didnt have.

Loss that was effectively offset by again and that either.

Okay. Thank you. Thank thank you Josh on where do you want a rabbit yeah, well. Thank you all for your questions and on behalf of the entire management team I'd like to thank you again for continued support and interest in Medtronic look we'll get the thing right. We've got to toss to do here, we'll get.

Acceleration of growth profile in Q4, and they'll continue into a fight for anyone our product pipeline is strong and this team is committed behind it we couldn't do couldn't I couldn't give us for better team in more committed and we will get this thing right to assure you.

And then we really look forward to updating you on our progress in the Q4 earnings call. Thank you.

Ladies and gentlemen, this does conclude today's meeting. Thank you all for joining and you may now disconnect.

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Asked a question during the session Evone to press Star one on your telephone.

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Require any further assistance. Please press star Zero I would now like Dan The conference over to Ryan licensing Vice President head of Investor Relations. Please go ahead Sir.

Thank you good morning, and welcome to Medtronics fiscal year, 2023rd quarter Conference call and webcast. During the next tower Omar Ishrak, Medtronic, Chairman and Chief Executive Officer, Karen Parkhill, Medtronic, Chief Financial Officer, and Jeff Martha Medtronic, President will provide comments on the results of our third quarter.

Which ended on January 24, 2020.

After our prepared remarks, we'll be happy to take your question.

Looking statement.

For this call unless we say otherwise rates and ranges are given on a constant currency basis, which compares to the third quarter fiscal year 2019, after adjusting for foreign currency.

References to organic revenue growth exclude the impact of our tightened spine acquisition and currency.

Reconciliations of all non-GAAP financial measures can be found in the attachment to our earnings press release or on our website at Investor Relations Dot Medtronic dotcom.

Thank you Ryan and thank you everyone for joining us this.

This morning.

Boarded results for the third fiscal quarter.

Revenue growth was light this quarter, reflecting a series of largely transient issues, which I'll walk you through in a minute.

The good news. However is that this was more than offset by 90 basis points of operating margin expansion well ahead of our expectations.

Resulting in strong EPS and free cash flow growth both ahead of plan.

Importantly, despite the topline shortfall this quarter. Our Q4 outlook is unchanged as you expect significant revenue growth acceleration, excluding any impact from the crooner virus.

Three revenue grew 2.9% constant currency and 2.6% organic revenue growth for short of our expectations driven in part by customers curbing. The purchasing ahead of our new product launches principally in CVG NRG.

And my TG, we upgraded the group's ERP system in the U.S. in Canada to our companywide system.

Resulting in a temporary slowdown in our ability to supply customers, which in some cases resulted in lost procedures and lasted longer in the quarter than we anticipated.

Not upgrade is now complete.

And as a fairly this quarter, we're in the process of returning to full supply.

All of these items led to a quarterly revenue underperformance.

We weren't able to offset these issues given that many of them emerge late in the quarter.

I'm not happy with this topline performance and we are focused and quickly addressing the dynamics that led to this result.

Jeff will provide a little more color on this later on the call.

Looking down the BNL, we drove significant operating leverage despite the softer topline.

Our adjusted operating margin expanded 90 basis points as we continue to see the benefits of our enterprise excellence initiatives, particularly on the Austrian Airlines.

We also had strong financial leverage driven in part by the debt refinancing that to be completed earlier this fiscal year.

This resulted in adjusted EPS of $1.44 cents, which was six cents above the midpoint of our guidance and up 11.6% year over year.

Let's take a look now at the drivers of our group performance is starting with our restaurant therapies group, which grew 3.6% organic this quarter.

Aren't good use performance was affected by customer buying patterns in BNP and the continued market slowdown and slight share losses, Princeton ahead of our GTM therapy launch.

On an organic basis, our overall spine division was flat this quarter.

Flexing customer drawdown of infuse inventory.

Despite this our core spine business grew 2% both globally and in the U.S.

In addition might include sales of enabling technology soba brain therapies Division.

Which is our competitors reported core spine grew 5% organically, both globally and in the us well above market.

Our surgical synergy strategy is resulting in increased sales of our core spine implants.

Driven by students use of our capital equipment in particular, our major robot.

It is also benefiting operating therapies division, which shows the capital equipment used in spine surgery.

Therapies delivered another above market border of 9.2% group.

In Green therapies, our market, leading neurovascular business had another strong quarter with mid teens growth driven by mid Twentys growth in the scheming stroke and strong adoption of our solid to extend retriever riptide aspiration system and react catheters.

In pain therapies, the pain stim market had another slug this quarter and we got some slight share loss ahead of the launch of this ingenico GTM therapy wondering tell us platform.

We're excited about the response, we receive from physicians and the broader SCS community. Following the acquisition announcement and Stim Genex data presentation last month of NAND as relies on our nine your battery warranty and entellus.

We continued to be optimistic about the outlook for the pain stim market and have begun training physicians on the GTM we form.

Our minimally invasive therapies group grew 3.2% organic including flat results in the U.S. am I could use performance. This quarter was affected by the upgrade if its ERP system in the U.S. in Canada, which caused some temporary slowdown and our ability to supply customers with a full breadth of our products and in some cases.

This resulted in lost procedures.

This was however at transient issue.

RP upgrade is now complete and the related supply slowdown are behind us as of this month.

Within their might TG, our surgical innovations division grew 3.6% this quarter.

Driven by our advanced surgical business, particularly in involves energy, which grew in the high single digits strengthen oliger shore franchise and sales of our Valleylab ft 10 energy platform.

Respiratory jiyai in renal division grew 2.2% driven by low double digit growth guys solutions business and high single digit growth and pulse oximetry sensors and advanced parameters sensors.

And our cardiac and vascular group, we grew 1.8% this quarter, which was below our expectations due in part to customers holding back the purchasing ahead of new product launches in CRT Jeff.

In heart failure, although as that business has anniversary the headwinds we faced over the past year their business declined in the low single digits and hasn't returned to the growth levels, we were expecting.

The other driver far below expectation CVG performance was our U.S. dollar business, which grew 13% this quarter below the market growth rate.

Well the TAVR market has been rapidly expanding we currently have fully experienced field support coverage in a little more than two thirds of approximately 700 U.S. centers performing to cover.

We began aggressively hiring and training new field personnel months ago.

However, our data shows that it's taking longer than expected for our new reps to reach full productivity. We plan to show define an additional 70 few personnel by the end of this fiscal year.

Outside the U.S. whatever market share grew modestly in Q3.

Our leasing business grew in the high single digits, well above the market driven by our exclusive microliters pacemaker and as your family of conventional pacemakers, we announced the micro Avi approval in the last week or fourth quarter and are excited about as good potential as it expands the micro target population from Phil.

18% to 55% of pacemaker patients.

Well, we did not have revenue from micra Avi in the third quarter.

Already seeing strong interest in early adoption of this new technology in the fourth quarter.

In diabetes, we grew 8.8% slightly ahead of expectations or us business declined in the low double digits, which is anticipated in resulted from competitive challenges, while we await on new products. We're seeing strong enrollment in our next tech pathway program, which allows purchasers of the mini met six seven digi to upgrade.

For free to a next generation bump and launched.

Keep in mind that as a result of this program. We're currently deferring a portion of the revenue for pump sales, which we were recognized when patients straight in their 670 G. for the next generation pump.

In markets outside the United States, which represents just under half of our diabetes revenue, we had solid mid teens growth driven by the continued adoption of the minimum 670 G.

This demand is not only driving strong growth in our installed base that is also resulting in double digit growth in recurring revenue from CGM and other consumables.

Now turning to emerging markets, which represented 17% if our revenue.

In Q3, we grew emerging markets, 14% with contributions from geographies around the globe.

China grew 14% as it southeast Asia, and Eastern Europe grew 16%, which included 39% growth in Russia.

In addition, southeast Asia grew 13% under the Middle Eastern Africa, and Latin America grew 12%.

We continue to drive strong growth in these markets as we optimize the distribution channel and in certain markets localize R&D and manufacturing.

Regarding the Corona virus or top concern is the health and wellbeing of our employees in China and across the globe.

We have activated response teams in China Asia Pacific region on globally, and we remain vigilant and monitoring the virus and taking action as necessary.

All of our manufacturing operations are up and running in China.

We're committed to helping the Chinese government in Chinese physicians address this crisis.

As a Chinese healthcare system is focused in containing the spread of the virus hospitals in China has experienced a slowing of medical device procedure rates and we are seeing procedure delays.

We do expect this to have a negative impact or our fourth quarter financial results, but given the fluidity of this situation the duration and magnitude or the impact are difficult to quantify at this time.

Now turning to our product pipeline.

As we look forward. We're excited about what lies ahead as investments we made in our product pipeline begin to pay off by accelerating our revenue growth and creating value for our shareholders.

We have recently received approval or launched a number of new products that we expect to contribute to our growth going forward.

Mentioned earlier, the us approval of our microwave peacemaker on the launch that is now underway.

We also received us approval for impact Admiral Avi Fisher indication, which expands the market potential of our drug coated balloons.

We received us approval and are launching our stealth auto guide greeno robotic system.

In Europe, we recently received CE Mark approval for cobalt and chrome portfolio of Blue Sync enabled high bar devices, our interest in micro rechargeable implantable sequel, Neuromodulation device and just Im sure scan MRI leads as well as our precept PC DBS device would bring sensor technology.

And over the next few quarters, we expect approval and launch of a number of additional new products, we expect us approval of the cobalt and croom high power devices, revealing 2.2 unsuitable cardiac monitor.

Interest in my crew and then just Im sure Scana MRI leads and precept BCBS device.

We're also expecting European launch of de Minimis, seven NBG and on Diamond temp ablation catheter.

Regarding our minimum seven agent GE in the US we intend to file an adult clinical data with the FDA in March which would push expected approval beyond the fiscal year end.

In Princeton, we unveiled DTN spinal cord stem last month of the man's conference and they're not training our field force on this novel waveform within expected limited launch in Q4 and full launch in Q1.

And then my TG, we continue to make progress in our soft tissue robotics program.

Last week, we announced acquisition of digital surgery, a pioneering artificial intelligence and analytics for surgery.

The lead the industry with a unique Dutch surgery ecosystem of products, including AI that identify surgical steps and instrumentation.

These products can be leveraged to provide insight into the procedure time cost and process to improve surgical care.

We're excited about utilizing the strengthened capability of digital surgery to advance our minimally invasive and robotic surgery platforms.

We also have a number of important upcoming data presentations.

Starting with use case data under extreme conditions for our advanced hybrid closed loop algorithm at eight DGD later this week next month.

She will be a bit conference for us.

They do from our off med renal denervation pivotal trial will be presented.

I will data for both low risk bicuspid and leaflet mobility for October program.

Also we will share risk stratification data for our direct sent infection product.

And finally in June at 88, we expect to present to us pivotal data for our mini med Seveneighty GE advanced hybrid closed loop system.

These are just some of the near term highlights from our pipeline importantly, we're continuing to invest in building onto a robust long term pipeline of continuous innovation invention and disruption.

I mentioned earlier that we expect significant acceleration in our fourth quarter revenue growth driven in part by our pipeline and excluding the impact of the crooner virus.

And as we look to slide 21, we expect our topline momentum to continue as we get the increasing benefit of the fytwenty product launches as well as the product slated to launch next fiscal year.

With that let me now lost Karen to take you through a discussion of our third quarter financials and forward outlook Karen.

Thank you.

As Elmore mentioned, we deliver third quarter organic revenue growth of 2.6% and adjusted EPS was $1.44 growing 11.6%.

We ultimately came in six cents above the midpoint of our guidance.

And would attribute two cents to better than expected foreign exchange and four cents to operational outperformance including tax.

Our adjusted gross margin was 69.7% down year over year due in part to increase China Tara.

We more than offset that decline with strong operating leverage as we continue to implement and drive efficiencies and improvement across the company.

While at the same time, making investments ahead of upcoming product launch it.

This led to an adjusted operating margin improvement of 90 basis points or 70 basis points, excluding the impact of currency.

Below the operating profit line, our adjusted interest expense declined 36%.

Driven by our successful debt issuance and tender transaction that we completed last spring and summer.

Our adjusted nominal tax rate was 13.6% lower than we expected.

The increase deductions from the exercise of employee stock options and benefits from finalizing taxes out uncertain return.

As you know generating strong free cash flow remains a priority across the company.

And you are seeing this focus come through in our result.

Third quarter free cash flow at $2.1 billion up 21% from last year.

And year to date free cash flow at $4.9 billion, representing a conversion ratio of 90% well above our full year target of 80% plus.

We remain committed to disciplined capital deployment balancing investment in R&D and tuck in acquisitions to drive future growth.

While returning a minimum of 50% at our annual free cash flow to our shareholders.

And year to date, we've returned $2.8 billion or 57% of the cast we generated.

Resulting in a total shareholder payout at 51% on adjusted net earnings.

Now turning to guidance.

For the fourth quarter, we're comfortable with current street consensus on organic revenue growth and Ed.

Prior to any impact from the Corona virus.

We expect overall organic top line growth of approximately 4.5%.

By group, we expect CVG to grow for on a quarter to 4.5%.

Let me six in the quarter to fix and a half percent.

Our TG approximately 4% organic.

And diabetes to be flat to down low single digit.

And based on recent rate currency would have a negative impact of 80 to 140 basis points.

On margins, we continue to expect our full year operating margin to expand by roughly 40 basis points on a constant currency basis, driven by our enterprise Excellence initiative.

For the fourth quarter, we expect our operating margin to be up slightly including the impact of currency or roughly flat on a constant currency basis, as we invest to support current and upcoming product launches.

Below the operating line, we expect our fourth quarter interest expense to be approximately $160 million to $165 million.

And our fourth quarter adjusted nominal tax rate to be around 16%.

Which would put our annual rate at approximately 15%.

Lower than we originally expected and reflecting the benefit we have had so far this year.

We're raising our fiscal year 20, EPS guidance to a range of $5.63 to $5.65.

Up from 557 to 563, and reflecting our third quarter Bottomline outperforming.

For the fourth quarter, we expect a $1.62 to $1.64.

As mentioned upfront all of the guidance I just gave excludes the impact of the Corona virus.

Has the situation at the fluid it is difficult to truly quantify the impact just a few weeks into our quarter and for that reason we plan to provide an update for you later this quarter.

Finally, I would like to note that we plan to hold our biennial institutional investor and analyst day on Tuesday June 2nd in New York City.

Back to you Omar.

Thanks, Karen on non like Jeff to make some remarks in the quarter and the outlook, Jeff. Thank you Omar.

And the drivers surface at the end of the quarter. We just can't have surprises like this for us nor for you.

And we are making changes.

At our upcoming Investor day in June Im going to walk you through what innovation driven growth means for Medtronic and the comprehensive set of initiatives to take full advantage of the pipeline.

These initiatives are meant to ensure we see the acceleration of our revenue from the pipeline and to improve our predictability.

On that note I want to discuss an aspect of our plan to address the surprise we saw this quarter.

One issue is the weighting of our revenue to the final month of the quarter.

Which leaves US susceptible this is prizes late in the game like what happened this quarter.

Too often our largest orders come in at the end of the month.

This dynamic makes the business challenging to manage stresses our operations and it really makes it difficult to mitigate headwinds that pop up within the quarter.

So to fix this we will change our current operating mechanisms certain internal metrics and some incentives as well.

And I want to flag the opportunity coming up with our extra week in Q1.

The impact of the changes that I just mentioned.

Likely won't be contained in a given quarter.

So I like to use a good portion of the benefit that we would get from the extra week in Q1 to launch these initiatives.

So we guide to the first quarter, we will give you guidance on an underlying basis, excluding the benefit of the extra week.

And we'll give you an estimate of the benefit of the extra week net of these changes.

Like I said, we plan to discuss these and other changes during our Investor day.

But I want to assure you one thing that I am on this and we're taking the appropriate actions to improve consistency and avoid future surprises.

Now before I close and we get to Q and a.

Got a highlight a number of good things that occurred this quarter accomplishments that I believe can't get lost in this quarter's narrative.

First we drove a better operating margin despite the light topline and free cash flow was outstanding.

These are two things that we've been working on for a long time.

Over the past couple of years, we've taken action on both of these areas and we feel really good about the operating rigor and the culture, we put in place to drive the bottom line and improved cash flow.

Also emerging markets growth continues to be strong for us. They represented 17% of revenue and once again grew strong double digits, 14% this quarter.

We think of emerging markets actually as an independent growth vector for the company.

And we have to acknowledge the progress with our pipeline, we are starting to see approvals and launches come through for important and innovative products and there's more to come.

Yes, the slowed purchasing ahead of these launches hurt us and some businesses this quarter, but this is going to turn.

Customers are really excited about our new offerings.

I'd like to end by saying that the underlying fundamentals of the business are strong.

We have a full pipeline that will accelerate our revenue growth and take share not just next quarter, but next year and beyond.

All right back to you Omar.

Thanks, Jeff.

One degree more the push the good taking and I'm just as excited about our outlook going forward.

Before we start Q in a.

I'd like to briefly note that we currently anticipate holding our Q4 earnings call, which would be my last earnings call on Thursday may the 20 Onest.

Let's now move onto acuity. In addition to Karen Jeff and me are for group Presidents, Mike Coyle, Bob wide brick wall and Shaul Simon are also here to answer your questions.

As usual, we want to try to get to as many questions as possible. So please help us by limiting yourself to one question and if necessary a related follow up.

If you have additional questions. Please contact Ryan and our Investor Relations team after the call.

Operator first question please.

Your first question comes from the line of Bob Hopkins with Bank of America.

Oh, Thank you and good morning.

I'll stick to both questions upfront to make it make it easy.

First I was wondering in CBD, if we could drill down a little bit a nice Cds.

So that's question number one and then the thing I'd also love a quick comment on his I realize it's too early for formal fiscal 2021 guidance, but you guys have talked a lot about accelerating growth in fiscal 2020 ones are you still comfortable accelerating off of that 4.5%. It will see hopefully in the fourth quarter on a same selling day basis. Thanks.

Thank you.

Thanks.

Mike Coyle is the right person to address nicety questions.

But we're not seeing anything that would cause us to the concern that the overall market price Cds is somehow slowing significantly most of the challenges that we haven't ITD remain the issue associated with the the replacement cycle and the fact that we were seeing essentially mid teens declines in year over year comparisons on replacement as I've mentioned before that.

Actually gets better as we get through the year and into next year, especially in the CRT D area.

And that is going to help us in terms of acceleration the ITD side, but the other point and you pointed out the surprise to us in terms of weakness in the number for the quarter was really in EMEA in the European Middle Eastern Africa that was where essentially we believe customers were holding off given the imminent launch of our cobalt chromium product.

Families, which now have launched into the market and those products will be coming to the United States. During the during the first quarter. The other thing that depressed the overall performance relative to where we thought we would be during the quarter is the fact that the TYRX anti-infective envelopes could captured under the I CD numbers. When we report externally and I think you may be.

Call last quarter, we had a fairly major.

Quality, driven backorder situation that we expected we'd be resolved completely during the course of Q3, we actually lost a number of.

Well some product manufacturing lots of product early in the quarter, which now has stabilized in fact through through the second half were completely out of any kind of constraints on supply. So we expect that will flow through into the numbers in Q4, and obviously into next year, especially as we have new data that will be presenting at HCC on risk stratification for TYRX. So we think.

Those things are going to help us accelerate the CD market to not only in Q4, but into next year.

Okay. Thanks, Mike I think on your business will stick the question yes.

Question on 21, Bob Adam Yeah, we're really excited about our pipeline and what it has to offer for appetite 21, I'd love to talk a lot about it but we're close to finalizing our plan. So we'll get any official guidance on our Q4 call as you know.

That said I would think about accelerating growth for next year off of a full year basis as opposed to offer that sequential basis.

And we remain confident and our growth acceleration.

Slide 21 over half by 20.

Okay. Thanks, Bob next question. Please your next question comes from the line and David Malignant Morgan Stanley.

Good morning, just maybe just one quick question for me here.

Sorry, just to confirm for your last question is the right way to think about fiscal 20, I'm, assuming you sort of 3.5% to 4%, but my one question I'll keep it to one is just thinking about fourq guidance I. Appreciate it's in Lima consensus, but I think about.

Our Jeff's comments about Archie as CVG. It seems like the street, you dynamics getting better into the fourth shouldn't the fourth quarter be stronger as we see some of this catch up revenue. So if you just help us quantify third quarter issues and offer some clarity on what fourth quarter implies in terms of recovery and drivers that acceleration. Thanks, so much.

[music].

So let me take that beginning of it and then I'll, let my colleagues jump into so in terms of alkali 20 into that are our fourth quarter guidance would apply eflow 20 grow.

6007 ish.

And then on fourth quarter, and clearly because of the transient issue than a third quarter, well expect seller that to come back if you look at MIT and.

He assumes that we talked about we fully expect that to come back and that's one of the reason that we've guided that gene to Bob trial.

For the corridor.

But we have lost on procedures and Adam and those won't come back.

Yes, I think I don't if I could not anything through that.

Really the procedure losses.

In the business like EMG, where the procedures top items that just isn't going to come back we recover fully I think in other areas.

Like in the Mcs business, our business you know that will show us and there's pressure there in our growth is probably going to be lower than we were originally anticipating so in balance so we felt that.

Holding the Q4.

Sort of previous guidance was the corporate thing to do at this stage. We're obviously doing everything we can do to maximize that number.

Okay. Thank you David nicely with.

Your next question comes from the line of Robbie markets with JP Morgan.

We talk to exactly what happened in the quarter.

The dynamics in the U.S. and how you expect this set to continue throughout fourth quarter in 21. Thanks.

I'd like to take this year I mean, obviously, we were disappointed with the performance in the US if you look outside the U.S. we the.

On the order of the low thirtys.

Decline in overall growth rates were implants, and we Doug deeply into that to figure out which accounts in where we were having the issues and basically I think learning from that analysis was that it takes longer than we thought to have our reps become fully competitive in this market. It's probably a nine to 12 month training exercise, which in retrospect, we probably.

We should have ramped up in advance of this several quarters earlier than we did.

The good news is that as we looked at the hiring that we did do this quarter, we expect to to bring on 70, new sales reps and.

Support personnel, which is going to help US go from you know given the 700 accounts that are selling I see you're selling.

Let me, let our servicing this this market, we probably have season sales at that into those who have a year or more experience in about two thirds of those accounts by the time, we exit with these new certifications, we would expect to be closer to 80% in terms of supporting that and we're also accelerating new hiring based on their driving support for our next fiscal year.

So we think those.

Just catch up in terms of training and deployment plus with we're pushing much more close interval management of the of the reps that are out there to make sure that we're staying on top of developments in these accounts, we think that coupled with obviously, our new product launch around Evolent pro plus the launch of the carpet to sheets, which really improves the performance of our overall.

Device systems, and then new data that will be coming out here at HCC around.

Both by cuts bid and leaflet mobility.

Should should basically give us an opportunity to accelerate from where we were in Q4 or in Q3 and that basically looking at just the daily sales rates here as we headed into the new quarter with this new focus on the rep productivity, we are seeing some acceleration from those numbers that.

You see in terms of the mid teens implant rates and so I'm I'm confident we're going to see acceleration, whether we'll get our way back to market given that we have two competitors, who are driving share those account that may take more than a quarter do that but on the other had I do expect to see acceleration during the quarter.

Thanks.

Thank you Robby next question. Please your next question comes from the line of VJ Kumar with Evercore.

Hey, guys.

Thanks for taking my question I had two quick ones one.

The surgical robotics I think you mentioned some software updates I just on timeline there.

My TG, how sequential acceleration is there anything baked on the robotic site, there and second on margins.

The comments on.

Hedge gains each when you look at next year I think Jeff made some comments on changing incentives. So maybe just talk about drop margins for next year, we still looking at constant currency in that 40 to 50 basis points of expansion. Thank you.

Okay, Let me above 11 for real to this but just sales about the robotics is not in our financial numbers yet.

Overall program is more or less contracts, that's right to Omar thanks easier for the question to reiterate first off no update from from what we talked about at JP Morgan relative to the programs such as good news and then the the sequential acceleration of MIT jeans business is really all about us coming out of the ERP implementation.

Now that we've got that back on track in the systems running smooth so.

Hopefully that does that does afford VJ.

Okay, and then on the margins guys.

Yes. Thanks.

Yeah.

For next year, we're going to continue to look at margin expansion.

I will drive bottom line growth about topline growth every year.

At this stage, we haven't changed our long range guidance of 400 basis points constant currency margin expansion.

10 that at this stage.

Thanks, guys I can tell you region is focusing the organization around that we've worked very hard to get.

Yeah, and accountability around that and.

We're going to you're going to that's going to stay we just need to fix our topline growth back to it deserves to be based on product pipeline.

I've shared the comments Omar.

Thanks BJ next question. Please your next question comes down the line of Matt Taylor with MBS.

I think you for taking the question.

The first one I wanted to ask was just on MTG ERP transition.

Was wondering if that impacted.

Any of the business lines within them I am I TG more than the others and are you seeing.

Underlying share loss, there or share gains can you talk about the underlying trends.

Yes, let me take that Matt. Thanks, Thanks for the question.

The impact of the ERP transition affected all of the the MIT product line does we migrated into the.

The single Sep system for Medtronic and.

Certainly we lost some procedures, where we weren't able to ship products to customers.

So while we think we lost procedures.

Given the middle month for the quarter, we don't believe Wouldnt necessarily lost significant amounts of share.

But certainly we're now we're back on track with ERP system or were backed fulfilling those customer requirements.

Thanks, and just to follow for for Mike for the team there. So it sounds like you're seeing a little bit of an improvement in the DCB trends at least in the U.S. could you speak to that and whether you think we could see any kind of continued uptick there or a change in the FDA stance at some point during the year.

Sure we are seeing some modest improvement obviously as more datasets come in they are providing more comfort to physicians and FDA for that matter I believe that that.

The signal that had been observed in those first three randomized trials around asset Bay.

Not consistent with the new data coming in obviously, one big data set that we filed and got approval for was the officially indication for DCB, which did not show this mortality signal in the in the Paclitaxel arm and we expect additional data to be coming out on that topic, including at HCC, where we think there will be a b.

Reservation of a major dataset based on claims analysis, so that is creating a greater sense of confidence in the physician base that you know the significant more morbidity issues that come with not using these drug coated balloons and just using PPA balloons.

Are beginning to get attention and I think what what we expect to see is continued improvement as datasets provide that that level of comfort. So in this quarter. We did see on out sort of selling day adjusted basis, some sequential growth, which is encouraging in DCB and we expect if the data continue to come in as positive as.

They have that we'll see that continue.

Thank you Mike.

Thanks, Matt next question. Please your next question comes from the line, if Kristen Stewart with Barclays.

Hi, Thanks for taking my question I'm just wanted to ask Sean If you can just provide us is overall thoughts on diabetes since kind of taken on for the role and then if we could just kind of get an update on 70 d. It sounds like that is getting pushed a little me last into next fiscal year, maybe just some thoughts around timeline there. Thanks.

Sure. Thanks, Christian so as you know the diabetes business certainly has no.

Small challenges to overcome but I can tell you I'm really very encouraged with.

How we're seeing some de risking of the pipeline that that we have going forward and particularly that sensor pipeline.

Vince that weve figured that out and it's bit of time for us to to the product line flowing there.

Seveneighty GE is an important.

Catalyst for us to drive growth and we expect that to to begin we have five a CE mark for that device that we are and spending is Omar said, putting the clinical data module in in the March timeframe.

That review is going well, we're very interactive with FDA that will be meet with them. Later this week I won't give more update on exactly when the timing as we get more information on that.

So so far we're happy what we're seeing both from the algorithms and you'll see some of that later this week as we stress the algorithm into its some challenging conditions that will be announced at HDD unit Dataflow and you'll see the full dataset coming up at the 88 in June.

Hello.

Yes, I'm seeing a lot of encouraging things or is there are things to clean up obviously, we've got to get the new product flows going and we're confident that we'll be doing that starting soon.

And then just your comments around the de risking, particularly around the sensors can you maybe just expand upon that ceding there's an opportunity to bring forward some of the sensor timelines.

I just I think the the first thing is to meet the criteria for CGM and I'm confident that we're going to be able to demonstrate that we'll have more information on that and upcoming meeting, but probably of at analyst day will show smart that.

Too early to comment on on accelerated timing, but that certainly the goal to push as fast as we can into the marketplace.

Okay. Thanks, John.

Thank you Chris next question please.

Next question comes from the line of Kayla Curran with Suntrust.

Thanks, guys. Thanks for taking our questions on the one quick one to clarify and then a question on the business. So on the current a virus I think you may have mentioned this but again just to clarify will you give full transparency on your China business performance in the fourth quarter.

Yes, we will and we'll disclose that growth rate than China already that we will we will continue to disclose that we will be transparent about the impact on the Corona Byron.

Well there are some that are pretty clear things like micro Avi, which launched last quarter is now in full steam and moving ahead well in that one you know we're projecting a strong strong success.

There are others like the in the spinal cord stimulation market, we just launched the stern genomics.

We form on the until this platform that's picking up that that's a little more guarded about that because us newer but for sure does going to help us in this bundles goes courts spinal cord stimulation market.

Things like Google Chrome in Europe.

Again, we have a history there and we can know we can project historically, what such that kind of improvement has caused.

We're going to put that into a model. So there's a mix of.

First the level of.

Sort of confidence intervals, we have in these projections, some very tight and micro being one of the biggest drivers is very tight.

The others, a little more unknown, but a positive nonetheless, I think thats, the best Android or anyone else you're any products are mr. any comments.

Well, we recently, we recently launched the micro which is the new public health product in Europe, which you know we're excited about that and the possibility for that looking too.

Late spring launch in United States, and then Percepta, which is the new DBS.

Device with brain sensor technology has just launched in Europe.

Similar time frames.

In the us approval and we're getting good uptake on that so those are two very interesting platforms for us in the Neuromodulation space.

Okay.

With inflation catheter CE, Mark that we expect a during the quarter, which would obviously be even more of a benefit in Q1. It next year as well as we're just in the early stages of the launch of the of the be fistula indication for the impact that mobile and so those will now get full quarter benefit during Q.

I think to your question about how we project is you know that historical.

Sort of comparison that we can make against similar such launches and based on that we make a judgment to nor in our planning and from that be derive guidance and our plan going forward. So there's a variety of dot, but theres some judgment and go over this.

Thanks, guys. Thank you Taylor next question. Please your next question comes from the line of Larry Biegelsen with Wells Fargo.

Good morning, Thanks for taking the question Mike could you. Please put a finer point on the launch timing of cobalt and chrome in the U.S. and link 2.0, what quarter, you're expecting it in and Brad on SNS, what do you see for Synchronoss modulation. What are you seeing from the new competitor I'm what are your expectations for that business.

Before micro is approved in the U.S. in late spring, which is what I heard you say a minute ago. Thanks for taking the questions guys.

So Larry on cobalt and chrome we would expect that in the first quarter of next year, probably in the first half of that quarter and then for linked to we would expect that product also in Q1, but toward in the second half of the court.

And then Larry on the phone on public health them on the micro I think we expect some near term slowing here with a particular products given the competition.

Micro itself in Europe has been received very wall just as a reminder, it's about half the size of the competitive device. Other recharge experiences is significantly better and though with the share cat scan leads it is 1.5 in three Tesla full body conditional. So we're we're very very excited about that product when it comes with Mark in United States.

Yes.

Thank you.

Thank you Larry next question. Please your next question comes from the line of Matt Miksic with credit Suisse.

Hi, Thanks for taking my question. So I just have one on a on Corona virus and one on.

You know sort of the simplicity spiral timeline and data is DC so on Corona.

I understand a little bit early to put a finer point on on the impact for Q4, but do you could maybe give us some sense of what the major moving parts are I think we have about $2 billion in China revenue round numbers.

Approximately kind of an annual run rate there, obviously, it's a moving target but.

Things like would it impact in Q4 likely based on what you know now sort of come back in early Q, how transitory is that impact and then on on spiral just maybe walk through us for for US the timeline of.

What happens after off med and what that looks like as you as you continue to develop that.

Hi, Graham.

Okay. Let me take the core Novartis question first no first of all were pretty clear about what would our China businesses, it's roughly 7% of our global business. So.

You can you can do the estimate there.

You know the.

Variables right now one variable is that we've got to get our factories up and running sort of chicken supplies.

Different places in the world, including China, and that is actually progressing well, but the main factor driving the number there will be the procedure uptake in China.

How how that will ramp up to the risk the quarter, we noted and who they province for example, obviously shutdown, but that's that's Sonia.

5% of China.

But the rest of China entries like Beijing, and Shanghai right. Now there are there are procedure delays.

In addition to that a lot of physicians are being asked to do actually going to help for the virus.

And so there are many dynamics here that are really difficult to predict now once the things stabilized liquid will be a ramp back up and no because people need to procedures do they will get them at some point when that happens is very difficult to predict right. Now so that's why we're saying that.

Until a little later in the quarter when we have some more data and she how things progress that we give you full update.

So would that we lost might do take the real so we are near renovation obviously, the first big milestone will be the pivotal trial on the off med, which will be presented here at HCC.

But there was the second trial that is ongoing in parallel which is the beyond mad trial unlikely augment it has a six month efficacy endpoint. So I've heard is set expectations for windows data will wear to become available I would expect that about a year from now so about about this time next year.

In terms of the FDA interaction beyond med or the augment data.

There will be used in a modular submission as we along with obviously the device supporting materials. So we think we can get the.

Process with the FDA to move forward, we do think we need the off med or in the on excuse me the Ahmed dataset in order to get final approval.

For the product and certainly it will be very important in terms of reimbursement to have have those data so that would be how I would.

Set expectations, obviously I think you know the spiral product is available in Europe. Currently does have CE mark so as these datasets become available.

Customers can evaluate them and decide how they want to use that that product.

Great. Thank you.

Next question please.

Next question comes from the line of Chris Pasquale with Guggenheim.

Thanks.

Mike I, just want to circle back on the for Q CVG growth outlook.

Sounds like some of the headwinds there like elevated and TAVR may take at least another quarter to address.

Imagine that theres potentially some risk that USA CD growth slows ahead of those launches just like we saw in Europe. So.

Mike Gravy should help there's a couple other things that go your way, which the confidence in driving that acceleration in the fourth quarter. Thanks.

Sure I think as you point out we have lowered our expectations for the all that numbers just based on not seeing the sequential share capture in Q3 that we had seen in Q2.

In some some competitive.

Indications approvals, but on the other hand, obviously, we got the micro Avi early in terms of we expected note. It will be later in the quarter. When we were setting guidance last quarter.

And and the customer responses is has been strong in terms of interest in the technology and as a reminder, this is a product that carries a three X price.

Uplift relative to a standard dual chamber system and our indications for use cover all Avi block of patients. So we expect an opportunity to drive this product meaningfully into into the market above what we were thinking a quarter ago. When we were giving guidance for for Q4. In addition, although obviously the cobalt and chrome products.

We will be in the U.S., they will be in Europe, and so unlike last quarter, we really had no meaningful new products and and we saw the customers pausing and do it while waiting for new products now we have a number of new products globally that are that are obviously going to make a difference for us and so net net we're pretty much holding our expectations for growth, where we were a quarter ago. Despite.

The moving pieces in this quarter.

It does the guidance contemplate a pause in U.S. I see the orders out of those launches.

Yes, certainly shows no meaningful acceleration in those in those numbers, so something along the lines of what Weve habit as I said, we're also seeing some improvement in the replacement cycle generally because of the CRT D side of things and the other thing I should mention is obviously, we will anniversary in March the Paclitaxel issue, which was a big step down in the prior year quarter, which give.

That's just an easier comp to to work with as we've seen sequential growth on a selling days basis. The last couple of quarters in DCB.

Thanks.

I agree that the direct sold or we won't get to share capture mode. This quickly. We certainly have sequential growth estimate would have orders that we were constrained for more than half of last quarter in terms of supply and now we are essentially unconstrained. In addition, we're expecting to get labeling expansion two one year dating on that product in the United States, which will help us.

Significantly in terms of just of logistics of of its growth.

Great. Thanks, Chris next question please.

Your next question comes from the line, if peto tinkering with Deutsche Bank.

Good morning, Thanks for taking my questions to follow up on Rob's question. You asked however, I understand if sales rep issues are holding back growth of new accounts.

Sales reps running holding back growth and establish accounts is that is that where the growth. This is following us from the new accounts are from established counts. Thanks, much guys to great question actually what happened was there was a tremendous focus on launching the absolute pro plus as well as opening up the NCD accounts and what we wound up doing because of the relative immaturity of a good bit.

Of our field force is pulling.

Reps, who were supporting large accounts.

To help with that expansion into new accounts, and obviously with a new competitor entering the market and you know some complex messaging having to come in as little as low risk.

Patients were approved it just proved to be too much we were spreading our field too thin.

And so obviously, we've refocused back into those those large accounts to to make sure that our messaging around improving what dynamics.

The benefits of the able to probe plus in terms of both profile are now adding the.

Pericardial wrap into those large device segment.

And then obviously just.

Selling the benefit to the Hema dynamic data that was presented at HCC a year ago.

Those are things now that we believe are helping to show this acceleration in growth.

That I referenced as we head into this quarter versus where we were in January.

Thanks. Peter next question. Please ask your next question comes from the line as Matthew O'brien with Piper Sandler.

Good morning, Thanks for taking a question I'll just stick with one Jeff I. Appreciate you don't want to say much about.

This new program, that's going to implant implement until Investor day.

You know works through some of these things on the topline is there going to be better pricing there could be a little bit of gross margin pressure or longer term. So there's some free cash flow impacts here. So just how do we think about you know some of the puts and takes care of this new program.

Yes, well look I Didnt, just one clarification on when I spoke about I think this is the second question around where some of these changes impact our margins and the answer to that is no right. We've we're talking about a focused on increasing our revenue and the overall revenue growth as well as the.

Consistency and predictability of that revenue growth, but we don't want to take a step back.

On the on the margin improvement that we've that we've built up in the cash flow conversion.

Improvements that we didnt done over the last couple of years as a result of our you know with these are sustainable changes from our enterprise Excellence program. So we don't want to take a step back on that what would I smoke mentioned this morning on this morning's call was a very specific changes that we want to make to improve orders orders that are coming in.

Late in the quarter, we have we have a couple of or larger orders. So were coming in late in the quarter, which stresses our system and we've got too.

Execute better really to get those in earlier, we're putting too much pressure on the last month and that's specifically what I spoke of this morning, and when I came to that for Investor day was more on what are we doing to realize the full benefits of the of the pipeline. We looked like the fundamentals of the business a strong one I mean that specifically you guys know the markets are doing well.

We have good market share positions, but more importantly in terms of momentum the product pipeline is coming to fruition here. So we need to make sure that we put.

The right programs in place to realize the full benefit to that pipeline.

You know around commercial execution. So that's we'll get into more of that on Investor day, What I talked about this morning was more having a regular cadence a a moving some of our.

Backend loading of our quarter and spreading that more evenly throughout the quarter, but nothing rewarding you know nothing change regarding margin.

Thank you.

Alright, Thanks, Matt I think we've got time for one more question. Please operator.

Our final question will come from the line of Josh Jennings with Cowen.

Hi, good morning, Thanks for taking the questions I just two questions for Karen on margins just on the gross margin.

Pressure you experienced so far in fiscal 2000 can you just help us understand the drivers of that and is and as sub 70% levels of new normal or is your recovery path and it's been FX pricing pressure mix shift and then just on the other income tailwind that you've experienced in fiscal 2000.

Outside of FX hedging can you can you talk about the drivers of that benefit and then how sustainable unpredictable that line item won't be going forward.

Thanks for taking the questions yeah. Thank you Josh Snow problem. There on gross margin is one of their larger pressures that would've had on gross margin over the increase in China pair up.

And as long as both today and that will be a continued pressure.

Gross margin is obviously impacted by next then as we enter into some of our CLO product that should help growth margin.

Going forward.

And as we think about that net other expense or income line item. We had a benefit this quarter that was primarily driven by a swap program that we haven't played to hedge the gains and losses that are part of our deferred compensation program and that DNA.

And so that was really driven by that are SGN. A line would have been even better if it didnt have you know a loss that was effectively offset by again and that either.

Okay. Thank you. Thank thank you Josh Omar do you want to wrap up.

Thank you all for your questions and on behalf of the entire management team I'd like to thank you again for continued support and interest in Medtronic look we'll get this thing right. We've got a task to do here, we'll get a acceleration of growth profile in Q4, and they'll continuing to fight for you on our product pipeline is strong and this team is committed behind it.

We couldn't do we couldn't I couldn't give us for a better team and more committed and we will get this thing right to assure you.

And then we really look forward to updating you on our progress in the Q4 earnings call. Thank you.

Ladies and gentlemen, this does conclude today's meeting. Thank you all for joining and you may now disconnect.

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