Q4 2020 Earnings Call

[music].

Earnings Conference call.

At this time, all participants' lines are in a listen only mode.

After the speakers presentation, there will be a question and answer session.

You asked a question. During this time you want me to press Star one on your telephone.

Please be advised that today's conference call is being recorded.

I would now like to hand the conference.

Brian why spending vice President and head of Investor Relations, Sir the floor is yours.

Thank you good morning, and welcome to Medtronic fiscal year, 2024th quarter conference call and webcast.

During the next hour jump Marfa, <unk>, Chief Executive Officer, Karen Parkhill, Medtronic, Chief Financial Officer, and Omar Ishrak Tronic Executive Chairman will provide comments on the results of our fourth quarter in fiscal year 2020, which ended on April 24 2020.

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

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

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, given risks and uncertainties, including those related to the impact Cobot 19 has had and is expected to continue to have on her business.

Additional information concerning factors that could cause actual results to differ is contained in our periodic reports and other filings that we make what the FCC and we do not undertake to update any forward looking statement.

Finally, unless we say otherwise revenue rates and range as mentioned during this call or given on a constant currency basis, which compares to the fourth quarter 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 web site at Investor Relations start Medtronic dotcom.

With that I'm now pleased to turn the call over to Medtronic, Chief Executive Officer, Jeff Martha Jeff. Thanks, Ryan.

Thanks to everyone for joining us today.

I hope everyone is staying healthy and save.

And our thoughts or with the many people have been affected by the covert 19 pandemic.

I'd like to recognize the incredible heroism resolved and sacrifice of the frontline healthcare workers fighting Koby 19.

As well as our employees are supporting them.

Many of these frontline healthcare workers are long time customers and friends.

We are continually inspired by their selfless efforts to care for others.

As has been said this pandemic presented the world with an unprecedented challenge, which require an unprecedented response, including by our team at Medtronic.

I'm extremely proud of the way our employees of resins any occasion.

Jumped into help healthcare workers governments and Ngos.

And for the way they've continued to support their communities and their families.

Our top priority. During this pandemic has been to ensure that health and wellbeing of our 90000 employees and their families around the globe.

Our employees have been impacted by this virus like everyone else.

But I'm grateful for the where people have continued to do their jobs and persevere through these challenging circumstances.

Whether that employee is an engineer working on the next innovation breakthrough.

In our factories, making critical lifesaving products field reps assisting a physician on the front line with a medical procedure.

Or any of our employees working virtually.

We are all fulfilling the Medtronic mission.

We've taken a number of measures in our facilities around the world to protect our employees and importantly, we've continued to invest in our employees. During this time, including implementing reward and recognition programs for business critical onsite workers.

We're also protecting our sales reps from significant impacts to their incentive compensation during this period.

And we've developed an extensive emergency lead policy to provide temporary pay for employees, who can't work remotely and are facing certain situations such as home schooling childcare issues or a positive covered 19 diagnosis.

During the pandemic, we've been at the service of medical professionals and health care systems around the world stepping up for physicians hospitals and health facilities that are on the front line.

We've developed and rapidly deployed new remote procedure support and remote monitoring solutions to reduce patients and clinicians exposure to the virus, causing coven 19.

We posted dozens of virtual forums and medical education programs to help physicians navigate the challenges of the pandemic.

We've also worked tirelessly to make sure our products and therapies are readily available.

The most visible example of these efforts is the work we've done to expand our ventilators capabilities and dramatically increases ventilator production.

Positions asked us if we could engineer away to adjust ventilator settings remotely outside of the I see you and away from the patient.

So we partnered with Intel to develop a solution that we brought to the market in a matter of weeks.

Furthermore, we're on track to increase our production of ventilators five fold from pre pandemic levels by the end of next month.

We continue to closely partner with key government authorities to allocate our ventilators to the community that need the most including a recent focus on emerging markets.

But we understood that simply increasing our own production volumes would not be enough.

So we did what Medtronic does consistent with our mission, we put patients first.

We decided to make our PB 560 ventilator design specifications available at no cost. So other manufacturers can use the specs and manufacturing ventilators during the pandemic.

Through this initiative, we're creating partnerships with large scale manufacturing companies such as Fox caught in the U.S. Bayless medical in Canada.

Then group in Vietnam, Walton group in Bangladesh, and Tata Group in India.

During this time of need we've been support our communities.

Since the start of the fourth quarter.

But tronic along with the Medtronic Foundation has pledged more than 36 million monetary and product a nation to nearly 50 nonprofit organizations to support health system.

Patients and vulnerable communities around the world.

If you're interested in reading more on our response to our employees our customers and our communities I encourage you to visit our website Medtronic dotcom for slash covered 19.

Now, let me turn to our Q4 financial results, which have suffered due to covert 19.

Our revenues declined 25%, both constant currency and organic.

This resulted in EPS of 58 cents, which was down 62%.

These results are inline with the press release, we provided last month, where we discussed the expected negative impact on our fourth quarter revenue, resulting from a slowdown and procedures and the associated significant de leveraging that was expected to affect earnings.

There are also consistent with the impact seen across the industry.

It's important to note that our quarterly results include an additional month of impact in April when compared to the quarterly results of our competitors on a calendar year cycle.

Well, we look at our Q4 revenue the difference in our individual business results can be explained by four factors.

The first was the mix of urgent procedures versus those that are more deferrable.

Almost all of our businesses were affected by the decline in procedure volumes this quarter.

Health care systems diverted their attention and resources the fighting Coven 19.

Governments implemented restrictions on elective procedures.

And people avoid and seeking treatment even for emergency condition.

Our businesses that had a larger mix of products used in urgent procedures felt the impact.

They were far less affected and those with therapies, where the procedure could be deferred longer. The second factor was a loss of large bulk purchases near the end of quarter. As you can imagine the normal flow these orders, which tend to be larger and April given our fiscal year end did not materialize.

As I noted on our last earnings call product code 90, we were already planning to reduce large bulk orders and balanced them across the quarter, starting with our next fiscal year.

With a pandemic our efforts were clearly accelerated.

The third factor was centered around capital equipment.

While capital equipment represents a small amount of our overall revenue there are certain businesses that have a higher mix.

And felt the impact of hospitals and surgery centers delaying their capital valuation and purchase.

The last factor was the degree to which businesses products and services that played a role and finding coven 19 or had specific products and customers that were stocking ahead of the pandemic.

This led to greater than expected growth in a select few of our businesses.

So if these four factors in mind, let's look at our results by business group, our cardiac and vascular group declined 33%.

CVG therapy tend to overall be less deferrable.

But we still saw substantial declines and procedure volumes. Moreover, CVG thought a greater impact than some of our groups from the reduction in bulk purchases with particular impact on CRM, Implantables diagnostics and Transcatheter valve.

Our minimally invasive therapies group declined 12%.

And my team's revenue mix is weighted more to the middle of the differ ability spectrum. So it did experience a significant impact from the decline in surgical volumes, particularly in the surgical innovations and GE I.

Which both declined in the low twentys.

This was offset by growth in respiratory and patient monitoring as wells in renal care solutions.

In respiratory and patient monitoring, which was up mid teens, we saw significant growth in Airways and ventilators as we sought to meet the coven 19 related patient needs around the world.

We significantly ramp production, which led to ventilator revenue nearly doubling.

We also saw strong correlation demand for pulse oximetry and Capnography, but the increased demand was offset by overall reduced demand for patient monitoring products, given fewer noncovered 19, hospitalizations and procedures.

Renal care grew high single digits, driven by axis, catheters, and acute and chronic thousands products as dialysis treatment continued throughout the pandemic.

Our story of therapies group declined 32%.

Our TG therapies tend to be used and procedures that are more deferrable, including those in core spine pain, stim, TNT and pelvic health.

Our TG also was impacted by the reduction in customer bulk purchases and capital equipment purchases.

Our TG neurosurgery business in particular has a high mix of capital sales.

Our diabetes group declined 7% the decline was driven by delay in new patient starts on insulin pumps and due to the closing of physician offices as a result of koby 19, as well as continued competitive pressure.

This was offset by an increase in demand for diabetes supplies, including continuous glucose sensors and infusion sets, particularly in international markets.

Next let's review, our fourth quarter performance by geography.

Which I think it's a particularly helpful way to analyze our results given the progression of the pandemic to different regions throughout our quarter.

First China declined 38% and experienced the impact of Cowen 19 for the entire quarter, our revenue in China declined 46% in both February and March.

We started to see gradual sequential revenue improvement midway through March and our April revenue improved to a decline of 21%.

In Asia Pacific our revenue declined 13% as we saw the impact of the virus in many markets through the quarter.

With a number of coven 19 related cases, peaking in some countries within the quarter.

Korea declined 2% as coated cases peaked in mid March and Australia, New Zealand declined 11% with cases, peaking in early April.

Japan declined 14% as cases continue to increase as we exited the quarter.

In EMEA, our revenue declined 10%.

Western Europe revenue was tracking with expectations through mid March when we started to experienced significant decline.

Revenue in Western Europe declined 32% in April driven by procedure delays and to a lesser extent fewer customer bulk purchases.

In the Americas, our revenue declined 32% with the U.S. declining 33%.

Canada down 24%.

In Latin America declining 15%.

Like Western Europe, our U.S. revenue is tracking with expectations through mid March before experienced significant declines driven by a combination of procedure delays and the reduction of bulk purchases.

Turning to our pipeline, we think about the impact of covered 19 in three categories.

Products that just received regulatory approvals over the past few months.

Products under regulatory review.

And products that are in clinical trials, we're preparing to enter clinical trial.

Starting with the products that recently received the regulatory approvals. The pandemic has interrupted some of our recent launches given the delay in procedures.

This includes the European launches of our percent PC deep brain stimulation.

Interstim micro rechargeable sequel, nerve stimulator, cobalt and chrome Highpower CRM devices, and the Diamond tempt ablation catheter.

It also slowed the U.S. launches over 80 fistula indication in our impact Admiral drug coated balloon or.

Our TTM therapy and pain stim.

And our Micra Avi pacemaker.

It's worth noting that prior to the pandemic micro grew over 60% in the U.S. in both February and March.

The good news is that as procedures come back we expect these launches to pick up steam.

Moreover, we just received approval for by Gravy and our reveal link to cardiac diagnostic monitor in Europe as.

As well as U.S. approval for our cobalt and chrome Highpower CRM devices, which we announced earlier this month.

Our cobalt chromium offerings should be particularly valuable in the current could 19 environment as they are the first and only Bluetooth enabled high powered devices in the U.S.

That allow for distance programming and better remote monitoring.

Regarding the second category of products, those and regulatory review the pandemic doesn't currently appear to be affecting the approval process.

As a result, we're expecting a number of approvals this quarter.

Including U.S. approvals for Interstim micro sequel nerve stimulator, our percent PC deep brain stimulation.

And our revealing too.

We're also expecting European approval this quarter of the mini med Seveneighty, Angie and U.S., we anticipate approval to summer of a new product recalling meaning that 770 G, which is Bluetooth enabled and allows for wireless over the air software upgrade before launching our Seveneighty G. Later in the fiscal year.

In addition, 770 GE will be the first hybrid close loop system available to patients aged two to six.

Patients, who purchase and 770 GE will get the free software upgrade to 780 Gee with our advanced hybrid close loop algorithm upon approval.

We expect to show the pivotal results of our advanced hybrid close loop algorithm in adults at the virtual 88 conference in June.

With the third category of our pipeline those that are rolling clinical trials or preparing to enter clinical trials. The pandemic has slowed things down as clinical trial start ups and enrollments have been placed on temporary pause.

This includes our soft tissue robot products, and our diabetes CGM sensor pipeline and are already in on med trial.

Regarding our soft tissue or about our ability to finalize system and preclinical testing has been delayed.

Given the uncertainty of the pandemic, it's too early to update you on timelines.

However, we're exploring ways to expedite this work with the intent of minimizing the delay.

In diabetes, we continue to be optimistic our ability to close the competitive gap and continuous glucose monitoring sensors.

We intend to submit data to regulatory agencies on our Zeus transmitter at the end of this summer and we've completed verification of our synergy sensor that will enable our I'd submission within the next few weeks and in renal denervation will combine our already an unmet data with our recently presented off my data to support us approval.

Look we're excited about creating the new renal denervation market with its potential to treat millions of patients with hypertension.

With all these recently approved and near term pipeline products customer enthusiasm remains high and collectively these represent growth acceleration as we emerged from the pandemic.

With that let me now as Karen to take you through a discussion of our fourth quarter financial Dan outlook Karen.

Thank you.

As Jeff mentioned, our fourth quarter organic revenue declined 25%.

And adjusted EPS with 58 cents a decline of 62%.

We did have significant de leveraging down the PNM during the quarter as we continued to invest for the future. Despite the lower revenue growth.

Gross margin declined by approximately 700 basis points.

Driven in large part by increased expenses as a result of covert 19.

Including manufacturing facility cleaning increased protective equipment.

Bonuses for our factory employees and higher freight and obsolescence charges.

In addition, we experienced a negative impact from next.

As products and higher demand carried lower margin.

And we continue to experience a year over year impact from increased China Tara.

In addition to a lower gross margin our operating profit was affected by continued R&D investment in our pipeline and continued spending and SGN a as we purposely protected the variable compensation of our sales rep.

Below the operating profit line, our adjusted interest expense declined 30%.

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

And our adjusted nominal tax rate with 12.6% for the quarter and 14.3% for the year.

Both were favorably impacted by lower earnings and that jurisdictional mix of profit.

Excluding any nonrecurring tax benefits, we received in fiscal year 20, our adjusted nominal tax rate would've been approximately 15%.

Despite the decline in earnings we did not lose our focus on driving free cash flow.

In fact, we generated 6 billion for the fiscal year converting 97% of non-GAAP earnings.

Well above our long term target of 80%.

And our financial position remains strong.

Over the past several years, we have made important decision to maintain a healthy and robust balance sheet.

Which enable us to not only withstand significant disruption, but more importantly maintain our focus on the long term.

We have ample liquidity with 10.9 billion of cash and investments as of the ended the quarter and an undrawn three and a half billion dollars credit facility.

In addition, we have no public debt maturing until March of 2021.

As we stay focused on the long term, we will continue to allocate our capital to drive our growth strategy.

Including investing in our pipeline to accelerate our long term organic revenue growth.

In addition, we have not slowed our business development activity as we continue to look to supplement our organic growth drivers with inorganic opportunities, including minority investments and tuck in acquisition.

We also continue to focus on generating proper returns for you our shareholders through both organic long term growth and our strong dividend.

As an S&P dividend aristocrat Medtronic has increased our dividend over the past 42 years.

And this morning, we will make it 43 by increasing our annual dividend 16 cents.

Looking ahead, the uncertainty of the covert 19 pandemic makes it difficult to provide our traditional annual and quarterly guidance.

Instead, we're happy to provide our thoughts on the recovery.

As you know there are many factors that will influence its speed and trajectory and these will vary by geography and therapy.

Kobin case volumes and potential resurgence, we'll certainly play a role.

As well updates to recommendations from government agencies on the resumption of elective procedures and provision of Noncovered related health care.

Hospital capacity will be another key factor.

We recognized that new protocol design to ensure patient and provider safety can slow the returned to full capacity.

And some health care systems are planning to increase capacity by extending work days are doing procedures on weekends.

So this isn't the case in all regions.

Moreover, some hospitals are at this point maintaining surge capacity in case, there is a second wave.

We are assuming that any potential second wave will be adequately contained.

But we are watching this closely and are prepared for a range of scenarios.

While it's still early we believe we have seen the worst of procedure declined.

And are seeing encouraging signs of earlier than anticipated recovery in several places around the world.

In fact, the recoveries began in China, although it is gradual.

Well the ultimate pace there is still uncertain, we've seen a reduction in our weekly decline in revenue over the first few weeks it may.

With high teens decline from the prior year.

In other parts of Asia, such as Japan, and India, we're still experiencing severe year over year procedure decline and we continue to expect locked down to impact our first quarter.

Well other markets like Australia, New Zealand and Korea should continue to see recovery.

In the U.S. in Western Europe, we started to see sequential revenue improvement and hope to see that continue.

In May we've seen our weekly revenue across western Europe declining around 20% from the prior year.

And the U.S. has been declining around 30% over the same period.

With all this in mind, we currently expect first quarter revenue growth to be modestly worse than the fourth quarter for both the total company and each of our group.

To be clear, we're seeing encouraging signs in many geography.

But our largest regions are likely to experience a full quarter of impact compared with just five or six weeks in the fourth quarter.

And at this point, we expect second quarter to be better than the first as the recovery continues.

And sequential improvement through the remainder of the fiscal year.

By the time, we reached the fourth quarter, we would expect to be back to more normal revenue growth on a two year stack basin.

Focusing on the first quarter.

Well, there's still a lot of uncertainty regarding the recovery, we would expect our TG revenue to be the most challenged followed by CVG.

With both expected to decline more than the total company.

And my TG in diabetes are both expected to decline in the first quarter as well.

However, they should be better than the company average.

And remember we have an additional selling weak in the first quarter something that happens every five or six year as with our fiscal calendar.

Because this extra week already occurred at the last week of April during that time, the impact of the pandemic was at its highest we've picked up only a minimal amount of additional revenue.

On the bottom line, we continue to plan for significant deleveraging in the near term.

We expect our gross margin to remain under pressure going to product mix lower volumes and the extra cost of safety protocols.

Where we have more than enough inventory to meet current demand manufacturing plants may operate at less than full capacity.

Which could lead to period expensing of some fixed overhead costs.

With this in mind, our first quarter gross margin could be down a few points sequentially.

As stated we're not taking a short term view when it comes to investment.

We believe in the strength of the company and our positioning ourselves to come out of this crisis, even stronger as we continue to invest in our employees our pipeline and our product launches.

Given this the first quarter after DNA and R&D spend should be a couple of hundred million dollars higher than the fourth.

Though similar to revenue, we would expect operating profit to improve as we progressed through the fiscal year.

Regarding currency the U.S. dollar has strengthened substantially since the pandemic began especially against emerging market currencies.

As a result, our FX impact is looking to be about 10 cents more negative to fiscal 21 MPS than a few months back and just over 20 cents for the fiscal year.

Before I turn the call back over to Jeff I would like to express my sincere gratitude to our employees around the world for their ongoing commitment to our mission.

I couldn't be more proud of our teams and the way they have worked together to support our customers and ensure patients have access to our lifesaving therapy.

Back to you Jeff.

Thanks, Karen.

Now looking back at what we've accomplished since the start of the pandemic where in many ways already a stronger company as a result of our actions.

We've reaffirmed our mission and a profile the way.

When patients in healthcare workers urgently needed solutions that we couldn't provide alone we turn to tenant to over mission for a path forward.

Tended to tells us to focus our efforts on biomedical engineering, where we display maximum strength.

But it also supposed to gather people and facilities that augment these areas.

We did just that forming new partnerships that enhance our by medical expertise with additional technology supply chain reach and manufacturing capacity from other companies.

We've also gone back to our roots as a company by regions stealing the value of close partnerships with our customers.

We're focused on our customers' needs. During this pandemic moving beyond just selling the best medical therapies to using our expertise to bring broader solutions to the table.

Feedback from customers and governments are support has been incredibly positive and they are grateful for our efforts.

And we're bringing these new solutions to market record speed.

Development timelines have been measured in hours in days not in weeks and months and the output has been very impressive.

This pace and impact has created a strong energy in spirit with the Medtronic.

Despite the day to day challenges of the pandemic. Our people are really engaged and excited to assist customers in the recovery.

So now as the world begins to recover.

We're focused on emerging from this pandemic even stronger.

We're executing strategies and supporting investments that others in our industry, who are in a different financial position had been unable to make.

We're harnessing new partnerships cutting through the bureaucracy and operating at a high sense of urgency in speed.

We're also sharpening our competitive edge to drive an even higher level of performance.

As we emerge we expect these investments will even be more evident in our traction and retention of top talent and in the new products and solutions that we're offering physicians patients and health care systems.

Now for competitive reasons, I'm not going to get into the details of all the actions we're taking.

However, when you combine these new possibilities with our pipeline I couldn't be more excited about the future. We will come out of this even stronger and in doing so create sustainable value for our shareholders and for society.

Finally, as many of you know is my first earnings call CEO.

Which also means that this is omars last earnings call.

So I want him to say a few words Omar.

Thank you Jeff and this is my 36 to Medtronic earnings call service definitely done for doing the job over to someone else and you're just doing bridge bank so or.

The Pos nine years has really gone by fast.

There's been a pleasure getting to know all if you in investment community.

Whether that was visiting your offices around the world.

Thank you in Minneapolis or mentioned you at the conference.

I sincerely appreciate all the interest you had in this company.

In this industry.

To support that you've given me and the Medtronic management team over the years.

As I look ahead, I phone confidence in Jeff and this leadership team to take the company forward.

The team has been incredibly focused on the recovery and there's a number of plans in the works.

We're operating from a position of strength given the strong financial position of the company in the full and robust pipeline.

Well I didn't expect to returning over this year were older and your pandemic, it's reassuring to know the decisions as to be made over the past several years of preparedness for this time.

I'm confident that river rise to engage team in place to ensure the tronic emerges even stronger.

As you've heard me say many times before.

Healthcare is a perpetual growth opportunity.

As a pre universal healthcare need of improve includes loud films, expanding access and optimizing cost and efficiency will not go away.

Medtronic mission a focus on these growth opportunities in Jordan.

I'm glad to have played a role in meeting the storied company.

And I'm sure. It's best days are ahead.

This is Jeff that team and all our employees all the very best going forward.

Jeff Thank you.

Thank you Omar.

And you didn't just play role you played a major role.

And as you step away as CEO, you're leaving us well position to thrive.

The list of your accomplishments as long and meaningful.

But to list a few come to mind, what I think if your legacy.

Well first you doubled the size of this company.

And you inspired or global employees to think differently to think bigger.

And you're the only CEO other than our co founder Robach and to be inducted into the company's Bakken Society, which is the highest technical honor at Medtronic.

You created value for our shareholders.

You got our whole industry to focus on value based healthcare.

And importantly, operationalize the mission in everything we do which led to improving the lives of millions of people over the past nine years.

It's been a pleasure and honor working with you and learning from you.

Finally, I really appreciate all you've done to make this transition of smoothed one.

And I look forward to continuing to work with you in your executive Chairman and chairman of the Board rules.

Before we start Una I'd like to briefly note that we currently anticipate holding our Q1 earnings call on Tuesday August 25th.

We've also postponed or biennial institutional investor and analyst day as a result of the code 19 pandemic.

This was originally scheduled for next month and we'll let you know the date wanted schedule.

Let's now move on to QNX. In addition to Karen Omar Me. We also have our four group President, Mike Coyle, Bob White, Brett Wall, and Sean Salmon here to answer your question.

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

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

Operator first question please.

Your first question comes from a line of Robbie Marcus with JP Morgan. Please go ahead with your question [noise].

Great. Thanks for taking the questions.

Jeff Congratulations on your first call CEO and Omar sorry to see you go but they'll be mess.

Jeff maybe we can start with what you were talking about at the end of the call, which is why you're still optimistic that Medtronic will emerge stronger you know itself.

It's something we've heard a lot of Ceos mentioned over the past quarter relentless here, but you know medtronics actually doing stuff, you're paying employees, but your sales reps through this you're paying bonuses in out it to me it seems like you're actually built in culture during a really difficult times.

Here, but maybe just give me your thoughts on why that's not just lip service, but something that will actually materialize medtronic coming out of this pandemic.

Sure. Thanks for the question Robby.

Extra noticing.

Let me, let me walk through the several components the to the answer.

First thing I'll start off with our financial credit or financial position going into the crisis I mean, having a strong balance sheet makes a huge difference and lets us a lean into this whole crisis and play offense and and the actions that we took during the crisis right. Specifically you mentioned some of them to support our employees.

No and through benefits programs and.

A copy.

Protecting our reps incentive compensation, especially the highly leverage represented the sales reps in the United States and and providing all the safety measures et cetera et cetera, so that they have booth.

Directing their health, but also reducing anxiety. During this time that makes a big difference in these employees morale right now is really high.

And we will I'm sure we'll get questions on this later, but we do see this group.

Strong early signs of the recovery and our employees are ready to go a you know without distraction and see views that we view. This time wisely. So I think they're ready to go and it's gonna Mickey.

Because after all innovation and ER and been commercialization is still people game.

And our customers okay. So the same with their customers.

And we spent a lot of time, partly because we were able to reduce employees anxieties. They could stay focused on on our mission our patients and our customers and we spent a lot of time.

I mentioned it in the commentary with our customers and it was a different dialogue. That's what can it wasn't just selling our therapies and their features which are great. But it was really how can we help them through this a this pandemic and how how can we help on top the other side and the dialogue, we're having with customers is one I'm wanting to.

Have since I've been here.

I hate it when they call it vendors suppliers I hate those words, but when our sitting down with them and they really are they using the word partner and then they are backing it up in and really engaging us in their recovery plans and relying on us and the recovery plans and so we've put a lot we've been developing several programs that I really don't want to get into some of the details of those because I do think there your knee.

Nick and I think they're competitive advantage, but things around you know patient confidence protecting healthcare workers hospital productivity. These are things, we're putting in place with our larger partners in particular, but where do we think we have scale. These two even smaller hospitals and it's really building momentum.

So that's another component of it.

And then it's our pipeline. So you know our pipeline going into this was strong we talked about it on the commentary a lot of these products now as we emerge lot of these products are hitting a we've got a lot of approvals coming out you mentioned micra and cardiac rhythm the cobalt and chrome approval linked to just got a pro.

Moves in Europe, Percept, PC, and DBS, which you know coming from and the Interstim micro and pelvic health you know coming from.

Our TG myself I mean, these are been a long time coming in that we sacrifice so hard to get these things out and really excited.

We also have stim Jackson Pena. The recent acquisition you know some in tea products Diamond temp NFS and you sort of assist the certainly those wave of products hitting the market had a great time, and then specifically, though how these products are positioned during this pandemic you know the whole.

The remote programming remote monitoring capabilities that before work you know important but now we're like critical right and I'm, we're seeing hospitals talk about making these standard of care and if that if and I'd say when that happens we are well aware, we're the best position in the marketplace for that and then set.

Can dearly hyper focused on complications because they don't want patients coming back and.

We're very well positioned there as well with things like Micron TYRX I can go on so those are the big ones and I started with the financial condition and I'm going to end with that one again I think it's worth mentioning twice. The fact that weve a strong balance sheet you at all that up and we're feeling we're feeling good about you know a how we come out of this thing and.

We can debate how big the pie is get what when the the pie gets back to the normal size, but if we don't have a bigger size slice of that I'm gonna be disappointed.

Great maybe is a quick follow up.

[music].

Medtronic right now probably has the best balance sheet that it's had.

Five plus years.

You've been talking increasingly over the past 12 months or so about increased M&A, you know with asset prices down 20% across the board is this the right time from Medtronic to be going out to do M&A and what are you seeing in terms of opportunity set out there right now thanks.

The answer is answer the short answer is yes, I think it is a good time.

To do to do M&A as you mentioned asset prices are down doesn't mean that we lower our standards I just think again, but we can play offense.

And I think our focus remains the same on a.

Tuck ins.

That can tuck in acquisitions that Ken.

But I, but I'm I'm, a little more partial to the tuck ins that are more meaningful.

And can actually affect our growth rate, our long term growth rate.

So we don't buy growth, we grow what we buy in and.

So that's that's what we're focused on and I like I said there. There are some there are some opportunities that are leased I felt personally where we're out of our reach to expenses before this and now are kind of.

More inline with what we think are reasonable returns for those for those investments.

So yes.

Great. Thanks.

Next question please Carmen.

Your next question, it's the millennial David Lewis with Morgan Stanley. Please go ahead with your question.

Hi, Good morning, Thanks for taking the question Karen just two for your real quickly here. The first I Wonder if you just help us with recovery here into the first quarter. I know you said growth would be modestly worse in the first.

She just maybe help us kind of how you're thinking about progression of recovery Baby Cross next couple of months, but more specifically given the stocking dynamic in the fourth quarter in the extra selling weak in the first quarter is this can be kind of material swing I just wonder if you could help us with.

Some of this dynamics, you're heading into the first and then I had a quick follow up on margins.

Sure David Thanks for question and you know as Jeff said, we are seeing encouraging and positive signs of recovery right now, particularly in our largest regions of China you asked in Western Europe.

That said as I mentioned, we do expect a full quarter impact in Q1 as opposed to the five to six quarters that we had in Q or five to six weeks that we had and in Q4 and so we are expecting at this stage at least and Q1 to be modestly worse in terms of revenue growth and then Q.

Before.

But we do expect improvement in Q2, and and sequential improvement going forward into Q3 in Q4 and by the time, we hit Q4, we do expect and to be back to more normal revenue growth for eyes, and we measure that on a two year stacked basis, given the tough year over year can.

Harrison.

In terms of stocking and the extra selling weight and I did mention that the extra selling week happen for eyes. The very first week of our quarter, which was the end of April and and obviously because that was such a depressed time, we are we're saying minimal revenue impact from that extra selling week.

As we think about stocking we have said add starting last quarter. So that we intend to focus on driving revenue and more evenly throughout our quarter and reducing the amount of bulk transactions that we have well continue to do that every quarter. This year.

Add but we had a good head start obviously in the fourth quarter.

Okay very helpful. Karen and then obviously from margin perspective fourth quarter should fit.

Maybe not be the the trough margin period. So when do you see sort of the trough margin period in the business and more specifically that revenue recovery a super helpful. How should margins and earnings recover relative that revenue I mean, if you get back to that normalcy quarter that you specified is that the normal quarter for margins or should margins or earnings kind of lag that revenue recovery. Thanks. So much.

No. Thanks for that question David.

In terms of margins and I did mention that we could see sequentially worse gross margins in the first quarter and that's really as we think about the increased expenses due to covert 19, along with the fact that should we choose to not run some of our manufacturing operations at full capacity.

And that we will have a potential live to period expensing some of the overhead and those manufacturing plants as opposed to rolling it on to inventory in our balance sheet.

And so that may add that may cause margins in a in the first quarter to be a little bit worse than the fourth quarter.

But we would expect to see margin improvement as we move into Q2, and then continued sequential improvement as they move into Q3 in Q4 and by the time, we get to Q4, we would expect to be back to more normal margins on a constant currency basis.

As I mentioned FX has become more of a headwind for us and this fiscal year and really due to the strengthening of the dollar, particularly against emerging market currencies and down at this stage. We're looking at an FX impact of about 20 cents to the bottom line, which can obviously impact.

Margins too.

But we're really saying good signs of recovery right now and we're very excited about you know what the future can hold even beyond the F. why 21, yeah. I mean, I think this is obvious but I can't help myself from stating this that.

From a revenue perspective in particular Q1 is modestly worse than Q4 because of the extra five to six weeks of impact, but we are seeing early signs of the recovery. It's you know maybe too early to extrapolate that oh throughout the year, but it's we're seeing faster than we anticipated.

Especially in Europe and Wes.

And for sure.

Q1 is the the trough.

Thanks, David.

Karma next question. Please your next question is from a line of Bob Hopkins with B.L.A. Please go ahead with your question.

Oh, thanks for taking the questions and good luck to Omar and Jeff.

Just two things I would love a comment on and I'll listen both upfront in the interest of time for one and I apologize roll short term I just.

Want to dig a little deeper on your comments on the on the upcoming first fiscal quarter.

I'm, sorry, if I missed it but could you give a sense for.

What you're seeing in the month of May just trying to get a sense or what kind of improvement you're you're assuming from may to get to that total Q1 comment that you made and then I was also wondering if you're just maybe offer up a quick comment on the upcoming diabetes data that we're going to see it 80, a because I know in the past you have comedies that you do expect to chime in a range of around it.

80% and just wondering if that is still the case. Thank you very much.

Yeah. Thanks, Bob in I'll, just talk about the month of May quickly.

We are seeing encouraging signs and particularly as we look at our largest regions in China and the you asked in Western Europe and in China, where we had in a stronger declines in February and March of around 46%. At you know we said we thought April declines of around 21%.

And now we're seeing declines in China in the high teens. So you know continued improvement there and in Western Europe, where we saw declines in April of around 32%. You know in May we're seeing declines of around 20%. So again continued improvement in western may and Western Europe and in the U.S.

And the picture is a big clouded when we look at April because of our bulk purchases that were clearly, saying procedural improvement across the US and then may you know declines at around 30% just in the first few weeks of May which is better than what we had in April yep and just the to build on that in the U.S. I mean.

Okay and give you the numbers.

It anecdotally were getting.

Tax calls.

From hospital see how big health system Ceos purchasing people.

You know basically a indicating.

Faster than anticipated recovery and in many parts of the of the United States.

And you know basically saying are you guys ready buckle up you know so that's two things I like about that one the encouragement to that they're talking about these things and so it's.

Yeah, the northeast is going to be a little slower I think the patient fear factor is a little higher there because the the virus hit harder and New York and asset usage, but other parts of the U.S. a very optimistic so.

So anyway, that's why that's why we're thinking Q1 for us as the trial and we're starting the trough rather and we're seeing the we're starting to see encouraging signs here on the on the second question, Bob I think I'm going to ask as Sean a chunk that Tom and answer that one.

John.

Yes, yes. Thanks, a question about so we'll have to datasets coming up a bit 88. Other persuaded the first of which is going to be a randomized study had a new Zealand, which serves as the CE Mark data and the second one is the adult portion of the fats hybrid closely data, which will be featured bear.

No just one thing too.

So thats really evaluate a number of different things that study, but most importantly, we looked at targeting the glucose studies of patients are two different levels. One is the usual level that we have with 670 today and the other one is a more aggressive lower target and we are evaluating safety at that so as you look at those results skills.

See that.

There's a really a lot to unpack there, but we're very confident and and the product and look forward to share in the results next month.

Thank you.

Thanks, Bob.

Our next question please Carmen.

Your next question is from the line of Kristen Stewart with Barclays. Please go ahead with your question.

Hi, Thanks for taking the question and Ah Ah Omar it's been great, having a CEO and Jeff welcome to their first call. So definitely interesting time Pete has to have this change over here.

I guess my question is just.

As you guys are thinking just kind of longer term and bigger picture I'm, Jeff just thinking.

About kind of your earlier comments on I guess couple of quarters ago, just kind of on the M&A landscape and you guys. Clearly has very good balance sheet in karnes and a great job just improving the cash flows to the company. How are you just thinking about deployment of capital now you guys have the opportunity I guess to.

Be potentially a little bit more aggressive on the M&A front and do you think this is the opportunity now to go out and do that or are you guys can it be a little bit more a watchful and waiting to see how the landscape shakes out just given confident and the backdrop.

Thanks.

Thanks Christian Thanks for the comments thanks for the question a and yes.

I am.

Coming his new role a.

Definitely hardly even a more of appreciation for the cash flow and I'm, a little pro forgiving of all the grief securing gave me about the generating more cash flow in my prior role I'm thinking her now for that.

But when it comes to M&A, you know, we're not going to be watchful waiting to see how cove and plays out or the economy. I mean that we believe that the healthcare and med tech the areas that were in like we said earlier.

Are going to come back and Karen indicated earlier in the call that we believe buyout by our our Q4 that our revenue growth a two year stack basis will be back to normal levels and profitability. So I mean, we feel like this is a hit obviously is very difficult financial.

The impact for everybody, but we do feel bullish on on the future here of the market and then us as well so.

We won't hold back for those reasons.

You know and like I said earlier in the call that we're looking for a meal meant mainly focused on tuck in deals that are going to create long term.

Improvements to our weighted average market growth rate.

And allow us to a you know you know to a better position a strategically so tuck in deals or you know what we're looking for I tend to prefer it will do various sizes I you know I I like the the you know the.

Beat him you know billion dollars put you know those that range because it has a bigger impact on our growth rate.

But but so that's what we're looking for and for sure the.

The viruses impact on the markets and prices asset prices has is going to help.

Is going to make certain assets more attractive I hope that helps.

If that answers your question.

Yeah, and just in terms as on thinking through I would say more from a.

Opportunity and as you have different businesses that you had has cooled bid or just kind of thinking through the landscape changed the different areas that you would look opportunistically, whether it would change your view on whether to tuck in more on the cardio side or whether a tuck and I'm more it did they gave out like tele health or Brian.

Those areas does it change kind of where you would think it lay kind of your chips from more of a product or our service oriented or anything like that.

So again.

I wouldn't say.

The changes by our that the business areas I mean the.

I mentioned, where might we what we're going to be making investments more investments in a remote capabilities of our of our product than of our business model quite frankly, so whether it be remote programming of devices remote monitoring of devices.

Remote case support.

Digital medical education, and things like that so investing and this is an area, where I think medtronic as a company as an enterprise. This is an area, we can add value to our different business units by.

They are making investments like music can scale across a lot of them, whether that's I don't know that that needs to be M&A and there could do is there are some some opportunities there that we're looking at.

That that are more around that that whole idea of remote but also just organic investments and partnerships with large and small tech technology companies like I mentioned in the commentary I mean I was.

Really.

Blown away by how some of these other companies can augment our technologies like whether it be sell or some of the you know there's a lot of smaller companies as well augmenting our capabilities to be more virtual to be more remote and so I think the partners some partnership opportunities so in the.

Virtual area, its or the remote areas, it's organic investment partnerships, including partnerships with other companies and potentially some some some of it. So that's that's one area that I would argue is definitely increased in terms of our or focus.

But nothing I wouldn't I can't think of anything that between the different businesses.

Thanks, Chris and let's go to the next question. Please.

Next question is from lineup Peto Chickering with Deutsche Bank. Please go ahead.

Good morning, guys and thanks for taking my questions Oh look we sit back and look at impacting covina, it looks like the healthcare systems globally.

Appear to deal with a large scale respiratory pandemic.

Another it appears that a worse is behind us might be certain having discussions with tighter use about the infrastructure investment needed.

To deal with the next wave for next pandemic.

So you.

For example in widespread or screen.

Monitoring or ventilators.

Thanks, so much.

Yeah. Thanks. Thanks for the question. If you live you know I'm the answer that is yes, and right now and maybe AOS, Bob the comment as well, but but right now we have a big focus on emerging markets, specifically regarding a cove it and other respiratory other viruses and we're pulling our portfolio together.

Between our ventilation portfolio our.

You know Capnography ESP you too.

Our monitoring capabilities.

To put <unk> to provide I'll call them standing up a lot more hospital capacity.

For these for the patients in these areas.

With all those devices and how they work together and providing solutions.

To these countries and and they don't have today and the scale and I really think it's not just a onetime event I do think this will introduce these technologies to the emerging markets and help that become more of a standard of care because they are under penetrated today. So I do think it'll have a longer lasting and longer term impact as well.

Bob you want to make any comments to that yet Jeff just to build on what you said and you said it really well we think we're really uniquely positioned yeah.

With our combination of technologies and kept inaugural C. Pulse oximetry ventilation you. An example of this is we were key player and standing up the job et cetera, and in New York City, and we think the opportunity is emerging markets stand device using care theaters that medtronic will be there with them to do that and as Jeff.

I mentioned, we're seeing tremendous interest from governments around the world as they look not only to stockpile and build their ventilation capability, but how they think about it because what we're seeing great recovery into markets, a Karen and Jeff mentioned this pandemic is still going to hit emerging markets in a pretty big weight. Unfortunately.

And we want a theater supportive so that's at Jefferies really well position to capitalize on that.

Thanks, Bob and then lastly, I'd say that Pete as we also have a a business that does remote patient monitoring.

We do a lot of remote patient monitoring for chronic co morbid patients in the and the VA in the United States and that that business is really gotten an uptick of interest and and we're positioning it more strategically to support.

Patience.

And the pandemic.

So in a number of ways.

Great. Thanks, so much.

Thanks Speedo next question please.

Your next question is from a line of Joanne launch with Citibank. Please go ahead.

Hi, good morning, everybody and or you will be nest and Jeff Congratulations on that you're supposed to spend a few minutes on that topper franchise that was a bit of a problem child on this fiscal year third quarter I'm confident that evolved what did you see early in the cycle and how did the you how do you see dr. pop much.

New role congrats on that higher Kim Thank you.

Well I joined thanks for the question obviously, we got the issues in Q3, we talked about extensively on the last call, where we were very disappointed with the U.S. performance of Tibor given that we had you know procedural growth rates and call. It the 14, 15% range when the market was growing at a double back a little bit.

In the Thirtys.

With strictly U.S. issue as you recall, we were actually growing with the market a little ahead of the market outside of the United States.

We can you talk a lot about how well we were refocusing sales forces and repositioning them back into large high volume accounts, where were they had been a basically being deployed into the startup of new accounts with the NCD.

And increasing the snow sharpness of the messaging around our or benefits of the superannuated design that we have a relative to a.

Better gradients and better hemodynamics.

We were very encouraged actually were with where things were headed during the course of Q4 in the first half in those news for seven weeks. So we actually grew in the high teens and attract as we were exiting that seven week period. So the last three to four weeks.

There, we were actually well north of 20% in terms of procedural growth rate now while that still below the market very good traction that we were seeing and then obviously in the last five weeks a six weeks for the quarter. Obviously, we saw though the impact the pandemic hit that market pretty pretty dramatically of course, the other benefit that we should that.

I had was the HCC data releases, where we saw very significant ER positive data coming in the bicuspid area or we put a immobility or at least from both the state.

And some data that was a little more problematic for one of our competitors. So so collectively we really like where we're positioned in terms of pushing our messaging for our for our product and design obviously the recovery is taking place.

Currently now and as Jeff mentioned to Karen mentioned, we're very encouraged by the trends that we're seeing in terms of now five weeks of continuous improvement in terms of overall procedural growth.

In a in that period. So so we are encouraged with where things are headed and we're thrilled with the addition of Dr. problem us to our to our team.

He is obviously one of the leading.

Physicians in the area of structural heart.

And has just been instrumental in support of our program over the years and guiding our program and we think he will really help us with the the messaging of our product for low risk patients for poor bicuspid patients and in our clinical design and development. So we're very very excited about where our TAVR programs said it.

Thank you.

Thanks Joanne next question please comment.

Your next question is from the line of Larry Biegelsen with Wells Fargo. Please go ahead.

Good morning, guys. Thanks for taking the questions.

Just I'll ask both of might upfront here you talked about some of the improvement and you've seen in may across geographies, but but I'd be curious to hear what segments are coming back faster any any surprise is you know is it more the emergent versus the elective procedures is it more inpatient versus outpatient and as those.

The trends you expect to continue over over the.

Coming quarters here, just second Bob <unk> since it's such an important product anymore color on the delay to the surgical robot I'm, just curious why preclinical testing would be delayed.

Bye bye bye coated.

And is it are there some tweaks or you're making is that also part of it and should we just speak about this Bob is maybe a couple quarter.

Delays at the best way to think about it right now thanks for taking the questions guys.

Well I'm wondering maybe I'll start on the first question that I might ask Mike Coyle to comment a little bit too and then we'll turn it over to to Bob for the the robot question I'd say on the in terms of the recovery and the and the procedures.

The the recovery.

In summary, I'd say, just kind of makes sense for us in terms of the rates of the recovery the the therapies and products that are more.

Urgent if you will or less deferrable are definitely you know coming back faster.

Like a neurovascular and our TG.

TAVR, Mike mentioned stance cardiac rhythm, they're coming back faster and then the more little more deferrable procedures are taking longer like our pelvic health franchise and our TG for example, but we're seeing you know really strong.

You know about data coming in on cardiac rhythm for a number of reasons and it maybe Mike you can talk to that for a second grade.

Obviously the ones that are there we listed in our 8-K as being the least elective are the ones that are coming back the quickest. So in a cardiac surgery franchise. Obviously ecmo has seen a lot of significant growth, but pacemakers are coming back.

Very quickly.

Just given the symptomatic nature of the patients and their needing to be treated and it was just playing extremely well for things like micro where are we.

Show data of 60% reduction in implant complications associated with pacemaker implants, using my group that keeping patients Saturday I see you right now is is a big priority.

So that and TYRX, which is getting a significant increase in utilization in order to keep patients out of the hospital has been has been significant but as Jeff mentioned notes with mentioned I think the thing that probably has the most encouraged as that moderately elective a group of technologies things like the Cds.

Marty good TAVR and corner extensive these are areas that we're seeing a very nice rebound, especially over the very consistent rebound over the last five to six weeks and were even beginning to see in some of the less elective procedures like atrial fibrillation and our diagnostics business very similar trend, although obviously a trailing behind the others in terms.

The rate of recovery. So as we said to you know the it's encouraging what we're just seeing over the last five six week.

Some of the is the market and I think some of that in the case of Implantables or the CVG Implantables is how how they're positioned with the remote capabilities the distance programming.

For example, and a lower complications I think thats, helping as well flurry of so.

Maybe I'll turn it over to Bob here for the robot question, Yes, Thanks, Jeff and Larry Thanks for the question and certainly as just mentioned during his commentary covert has limited to pay issue, which we can really completes a record software system of preclinical testing and learning. This shows up and I think the impact a three ways first our engineers.

<unk> have been forced to work remotely in those really limited access to the hardware in the robots sums itself to surgeons you know our staff have no ability yet to travel and participate in lab testing and that's had an impact and then three the availability of our external partners insights to conduct some of the testing.

As you know as I talked about previously we have software development and testing centers around the world all of which have that impact on productivity.

And then as I shared with you previously we certainly been working through the software development and integration challenges that took US a took spirit longer and set us back as well, but the thing I would leave you with our team is looking at every single creative way to expedite our work related to the program and we're seeing some amazing some chasing creativity, but true. It is just mentioned given you.

Turning to pandemic, it's too early to give you an update on timelines at this point thanks Larry.

Thank you Larry.

We have time for one more question Carmen pick the West question. Please.

Your final question will come from the line as Vijay Kumar with Evercore ISI. Please go ahead.

Hey, guys. Thanks for squeezing me and then on congratulations on your tenure here at that Macronix, maybe just one quick one for me.

Saturn I think you mentioned that Q4 back to normalized growth in that you guys look it goes from a double stack up perspective, I just wanted to me.

In the clarify.

Q4 of 20 was down 25.

You know what do you mean that up into Q4 or 521 will be up 25, plus so on a double stack basis for passive growth just one clarification on that and then Jeff on the pipeline here I think you mentioned that interest in micro precept Tds.

Just maybe up in a normalized environment right.

What kind of share gains or what kind of impact could we expect that from these products. Thank you.

Yes, so on that on your first question VJ on what's normal and Q4 you know.

Obviously things are uncertain and so you know, we're not giving specific guidance because of that uncertainty, but just as we look forward right now.

When we talk about a return to normal grows on a two year stack basis.

We're talking about normal you know around the mid single digit levels.

And so you can expect you know that on a two year stack basis, hopefully that helps.

Yeah, and VJ, it's a it's Brett wall with our TG and related to.

These new Neuromodulation products, particularly Interstim pre Covidien Europe, where we had launched this technology, we took back 40% of the accounts.

You know that had been with the competitors or where that was pretty cold it.

So we're really.

Thrilled with this new technology. The technology itself is extraordinarily competitive every patient can get an EMR I, whether it's 1.5 or three Tesla the product itself has a terrific battery recharging capabilities. The recharge experiences grade for the patient. It has a you know just significant.

Ease of use for the patient and the device itself has a programmer that has the ability to have 11 different programs on the patient, which allows that patient and physician to make multiple changes versus the.

Oh, you know versus the competitors.

Plastics single.

Single program device that doesn't really allow any flexibility, particularly of postcode world on the percept device.

This does this device, which.

We'll also launch of both these devices will launch this quarter in the United States and that will put us back into a significant share taking mode.

You know is the first device that's going to have the ability to.

Move forward and close the loop.

With with the DBS procedures and sense, what's happening in the brain and we're going to be able to move forward and significantly alter the experience for the patient and also for DBS in general. So this is really a significant reboot across this entire franchise.

Thanks, Brett.

Thanks, BJ, Jeff you have a now any final remarks for us.

Okay. Thanks, Ryan so on behalf of our entire management team I'd like to thank you for your continued support and interest in Medtronic and they look we look forward to updating you on our progress on our Q1's, earning call in August and so please stay healthy and safe.

Thank you. Thank you everyone for joining today's conference call you may now disconnect.

[music].

[music].

Ladies and gentlemen, thank you for standing by and welcome to the Medtronic fourth quarter.

Earnings Conference call.

At this time, all participants' lines are in a listen only mode.

After the speakers presentation, there will be a question and answer session.

You asked a question. During this time you will need to press star one on your telephone.

Please be advised that today's conference call is being recorded.

I would now like to hand, the conference over to Brian My stunning Vice President and head of Investor Relations, Sir the floor is yours.

Thank you good morning, and welcome to Medtronics fiscal year, 2024th quarter Conference call and webcast. During the next tower, Jeff Martha Medtronic, Chief Executive Officer, Karen Parkhill, Medtronic, Chief Financial Officer, and Omar Ishrak Medtronic Executive Chairman will provide comments on the results of our fourth quarter in fiscal year 2020, which.

Ended on April 24th 2020.

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

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.

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, given risks and uncertainties, including those related to the impact Cobot 19 has had and is expected to continue to have on our business.

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 FCC and we do not undertake to update any forward looking statement.

Finally, unless we say otherwise revenue rates and range as mentioned during this call or given on a constant currency basis, which compares to the fourth quarter. 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.

Police or on our web site at Investor Relations Dot Medtronic dotcom.

With that I'm now pleased to turn the call over to Medtronic, Chief Executive Officer, Jeff Martha Jeff, Thanks, Ryan and thanks to everyone for joining us today I.

I hope everyone is staying healthy and save.

And our thoughts or with the many people have been affected by the code 19 pandemic.

I'd like to recognize incredible heroism resolve and sacrifice the frontline healthcare workers fighting over 90.

As well as our employees are supporting them.

Many of these frontline healthcare workers are long time customers and friends.

We are continually inspired by their selfless efforts to care for others.

As has been said this pandemic presented the world with an unprecedented challenge, which require an unprecedented response, including by our team at Medtronic.

I'm extremely proud of the way our employees of resins and the occasion.

Jumped in to help healthcare workers governments and NGL.

And for the way it continued to support their communities and their families.

Our top priority. During this pandemic has been to ensure the health and wellbeing of our 90000 employees and their families around the globe.

Our employees are that impacted by this virus like everyone else.

But I'm grateful for the where people have continued to do their jobs and persevere through these challenging circumstances.

What does that employee is an engineer working on the next innovation breakthrough.

Our factories, making critical lifesaving products field rep, assisting a position on the front line with a medical procedure.

Or any of our employees working virtually.

We are all fulfilling the Medtronic mission.

We've taken a number of measures in our facilities around the world to protect our employees and importantly, we've continued to invest in our employees. During this time, including implementing reward and recognition programs for business critical onsite workers.

We're also protecting our sales reps from significant impacts to their incentive compensation during this period.

And we've developed an extensive emergency lead policy to provide temporary pay for employees, who can't work remotely and are facing certain situations such as home schooling childcare issues or a positive covered 19 diagnosis.

During the pandemic, we've been at the service and medical professionals and healthcare systems around the world stepping up for physicians hospitals and health facilities that are on the front line.

We've developed and rapidly deployed new remote procedure support and remote monitoring solutions to reduce patients and clinicians exposure to the virus, causing kuvan 19.

We posted dozens of virtual forum and medical education programs to help physicians navigate the challenges of the pandemic.

We've also worked tirelessly to make sure our products and therapies are readily available.

The most visible example of these efforts is the work we've done to expand our ventilators capabilities and dramatically increased ventilator production.

Positions asked us if we can engineer away to adjust ventilator settings remotely outside of the I see you and away from the patient.

So we partnered with Intel to develop a solution that we brought to the market in a matter of weeks.

Furthermore, we're on track to increase our production of ventilators five fold from pre pandemic levels by the end of next month.

We've been listen health of others to accomplish this including Spacex who is working to supply a critical Val for our PB nineeighty.

We continue to closely partner with key government authorities to allocate our ventilators to the communities that need the most including a recent focus on emerging markets.

But we understood that simply increasing our own production volumes would not be enough.

So we did what Medtronic does consistent with our mission, we put patients first.

We decided to make our PB 560 ventilator design specifications available at no cost. So other manufacturers can use the specs in manufacturing ventilators during the pandemic.

Through this initiative, we're creating partnerships with large scale manufacturing companies such as Fox caught in the U.S. Bayless medical in Canada.

Then group in Vietnam, Walton group in Bangladesh, and Tata Group in India.

During this time of need we've been support our communities.

Since the start of the fourth quarter.

Medtronic along with the Medtronic Foundation has pledged more than 36 million monetary and product donation to nearly 50 nonprofit organizations to support health system.

Patients and vulnerable communities around the world.

It varies generating more on our response to our employees our customers and our communities I encourage you to visit our website Medtronic dot com for slash covered 19.

Now, let me turn to our Q4 financial results, which have suffered due to covert 19.

Our revenues declined 25% constant currency inorganic.

This resulted in EPS of 58 cents, which was down 62%.

These results are inline with the press release, we provided last month, where we discussed the expected negative impact on our fourth quarter revenue, resulting from a slowdown and procedures and the associated significant de leveraging that was expected to affect earnings.

There are also consistent with the impact seen across the industry.

It's important to note that our quarterly results include an additional month of impact in April when compared to the quarterly results over competitors on a calendar year cycle.

Well, we look at our Q4 revenue the difference in our individual business results can be explained by four factors.

The first was the mix of urgent procedures versus those that are more deferrable.

Almost all of our businesses were affected by the decline in procedure volumes this quarter.

Healthcare systems diverted their attention and resources the fighting over 90.

Governments implemented restrictions on elective procedures.

And people avoided seeking treatment even for emergency condition.

Our businesses that had a larger mix of products used in urgent procedures felt the impact.

They were far less affected and those with therapies, where the procedure could be deferred longer. The second factor was the loss of large bulk purchases near the end of quarter.

As you can imagine the normal flow these orders, which tend to be larger and April given our fiscal year end did not materialize.

As I noted on our last earnings call product code 90, we were already planning to reduce large bulk orders and balanced them across the quarter, starting with our next fiscal year.

With a pandemic our efforts were clearly accelerated.

The third factor was centered around capital equipment.

Capital equipment represents a small amount of our overall revenue there are certain businesses that have a higher mix.

And felt the impact of hospitals and surgery centers delaying their capital valuation and purchase.

The last factor was the degree to which businesses products and services. The played a role and finding coven 94 had specific products and customers that were stocking ahead of the pandemic.

This led to greater than expected growth in a select few of our business.

So if these four factors in mind, let's look at our results by business group, our cardiac and vascular group declined 33%.

CVG therapies tend to overall be less the favorable.

But we still saw substantial declines and procedure volumes. Moreover, CBG thought a greater impact than some of our groups from the reduction in bulk purchases with particular impact on CRM implantable diagnostics and Transcatheter valve.

Our minimally invasive therapies group declined 12%.

MIT Gies revenue mix is weighted more to the middle of the differ ability spectrum.

It did experience a significant impact from the decline in surgical volumes, particularly in the surgical innovations and G.

Which both declined in the low twentys.

This was offset by growth in respiratory and patient monitoring as wells in renal care solutions.

In respiratory and patient monitoring, which was up mid teens, we saw significant growth in Airways and ventilators as we sought to meet the coven 19 related patient needs around the world.

We significantly ramp production, which led to ventilator revenue nearly doubling.

We also saw strong correlation and demand for pulse oximetry and capnography, but the increased demand was offset by overall reduced demand for patient monitoring products, given fewer noncovered 19, hospitalizations and procedures.

Renal care grew high single digits, driven by access catheters, and acute and chronic daas products as dialysis treatment continued throughout the pandemic.

Our store therapies group declined 32%, our TG therapies tend to be used in procedures that are more deferrable, including those in core spine pain, stim, NT and pelvic health.

Our TG also was impacted by the reduction in customer bulk purchases and capital equipment purchases.

Our TG neurosurgery business in particular has a higher mix of capital sales.

Our diabetes group declined 7% the decline was driven by delay in new patient starts on insulin pumps and due to the closing of physician offices as a result of code 90, as well as continued competitive pressure.

This was offset by an increase in demand for diabetes supplies, including continuous glucose sensors and infusion set particularly in international markets.

Next let's review, our fourth quarter performance by geography.

Which I think it's a particularly helpful way to analyze our results given the progression of the pandemic to different regions throughout our quarter.

First China declined 38% and experienced the impact of code 19 for the entire quarter, our revenue in China declined 46% in both February and March.

We started to see gradual sequential revenue improvement midway through March and our April revenue improved to a decline of 21%.

In Asia Pacific our revenue declined 13% as we solve the impact of the virus in many markets through the quarter.

With a number of co. The 19 related cases, peaking in some countries within the quarter.

Korea declined 2% has kind of the cases peaked in mid March and Australia, New Zealand declined 11% with cases, peaking in early April.

Japan declined 14% as Keith has continued to increase as we exited the quarter.

In EMEA, our revenue declined 10%.

Western Europe revenue was tracking with expectations through mid March when we started to experienced significant decline.

Revenue in Western Europe declined 32% in April driven by procedure delays and to a lesser extent fewer customer bulk purchases.

In the Americas, our revenue declined 32% with the U.S. declining 33%.

Canada down 24%.

In Latin America declining 15%.

Like Western Europe, our U.S. revenue is tracking with expectations through mid March before experienced significant decline driven by a combination of procedure delays and the reduction of bulk purchases.

Turning to our pipeline, we think about the impact of covered 19 in three categories.

Products that just received regulatory approvals over the past few months.

Products under regulatory review.

And products that are in clinical trials, we're preparing to enter clinical trial.

Starting with the products that recently received the regulatory approvals dependent because interrupted some of our recent launches given the delay in procedures.

This includes the European launches of or Percept, PC deep brain stimulation or.

Interstim micro rechargeable sequel, nerve stimulator, cobalt and chrome Highpower CRM devices, and the Diamond tempt ablation catheter.

It also slowed the U.S. launches over 80 fistula indication in our impact Admiral drug coated balloon or.

Our GTM therapy in pain stim.

And our my gravy pacemaker.

It's worth noting that prior to the pandemic biker grew over 60% in the U.S. in both February and March.

The good news is that as procedures come back we expect these launches to pick up steam.

Moreover, we just received approval for by Gravy and our reveal link to cardiac diagnostic monitor in Europe.

As well as U.S. approval for our cobalt and chrome Highpower CRM devices, which we announced earlier this month.

Our cobalt chromium offerings should be particularly valuable in the current code 19 environment.

As they are the first and only Bluetooth enabled high power devices in the U.S.

That allow for distance programming and better remote monitoring.

Regarding the second category of products, those and regulatory review the pandemic doesn't currently appear to be affecting the approval process.

As a result, we're expecting a number of approvals this quarter.

Including U.S. approvals for Interstim micro sequel nerve stimulator, our per sub PC deep brain stimulation.

And our revealing too.

We're also expecting European approval this quarter of the mini med seven AG in U.S., we anticipate approval to summer of a new product. We're calling me med 770, G, which is Bluetooth enabled and allows for wireless over the air software upgrade before launching our seven AG later in the fiscal year.

In addition, 770 GE will be the first hybrid close loop system available to patients aged two through six.

Patients, who purchased 770 GE will get the free software upgrade to 780 Mg with our advanced hybrid closed loop algorithm upon approval.

We expect to show the pivotal results summer advanced hybrid close loop algorithm in adults that the virtual 88 conference in June.

With the third category of our pipeline those in a rolling clinical trials or preparing to enter clinical trials. The pandemic has slowed things down as clinical trial startups in enrollments have been placed on temporary pause.

This includes our soft tissue robot products on our diabetes CGM sensor pipeline and are already in on med trial.

Regarding our soft tissue robot, our ability to finalize system and preclinical testing has been delayed.

And given the uncertainty of the pandemic, it's too early to update you on timelines.

However, we are exploring ways to expedite this work with the intent of minimizing the delay.

Diabetes, we continue to be optimistic our ability to close the competitive gap in continuous glucose monitoring sensors.

We intend to submit data to regulatory agencies on or zoos transmitter at the end of the summer and we've completed verification of our synergy sensor that will enable our I'd submission within the next few weeks and in renal denervation, we will combine our already an unmet data with our recently presented off my data to support you us approval.

Look we are excited about creating the new renal denervation market with its potential to treat millions of patients with hypertension with all these recently approved and near term pipeline products customer enthusiasm remains high and collectively these represent growth acceleration as we emerged from the pandemic.

With that let me now as Karen to take you through a discussion of our fourth quarter financials and outlook Karen.

Thank you.

As Jeff mentioned, our fourth quarter organic revenue declined 25%.

And adjusted EPS with 58 cents a decline of 62%.

We did have significant de leveraging down the TNL in the quarter as we continued to invest for the future. Despite the lower revenue growth.

Gross margin declined by approximately 700 basis points.

Driven in large part by increased expenses as a result of covert 19.

Including manufacturing facility cleaning increase protective equipment.

Bonuses for our factory employees, and a higher freight and obsolescence charges.

In addition, we experienced a negative impact from next.

As products and higher demand carried lower margin.

And we continue to experience a year over year impact from increased China Tara.

In addition to a lower gross margin our operating profit was affected by continued R&D investment in our pipeline and continued spending and SGN a as we purposely protected the variable compensation of our sales rep.

Below the operating profit line, our adjusted interest expense declined 30%.

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

And our adjusted nominal tax rate with 12.6% for the quarter and 14.3% for the year.

Both were favorably impacted by lower earnings and the jurisdictional mix of profit.

Excluding any nonrecurring tax benefits, we received in fiscal year 20, our adjusted nominal tax rate would've been approximately 15%.

Despite the decline in earnings we did not lose our focus on driving free cash flow.

In fact, we generated 6 billion for the fiscal year converting 97% of non-GAAP earnings.

Well above our long term target of 80%.

And our financial position remains strong.

Over the past several years, we have made important decision to maintain a healthy and robust balance sheet.

Which enable us to not only withstand significant disruption, but more importantly maintain our focus on the long term.

We have ample liquidity with 10.9 billion of cash and investments as of the ended the quarter and an undrawn three and a half billion dollar credit facility.

In addition, we have no public debt maturing until March of 2021.

As we stay focused on the long term, we will continue to allocate our capital to drive our growth strategy.

Including investing in our pipeline to accelerate our long term organic revenue growth.

In addition, we have not slowed our business development activity as we continue to look to supplement our organic growth drivers with inorganic opportunities, including minority investments and tuck in acquisition.

We also continue to focus on generating proper returns for you our shareholders through both organic long term growth and our strong dividend.

As an S&P dividend aristocrat Medtronic has increased our dividend over the past 42 years.

And this morning, we will make it 43 by increasing our annual dividend 16 cents.

Looking ahead, the uncertainty of the Cobot 19 pandemic makes it difficult to provide our traditional annual and quarterly guidance.

Instead, we are happy to provide our thoughts on the recovery.

As you know there are many factors that will influence its speed and trajectory and these will vary by geography and therapy.

Kobin case volumes and potential resurgence well certainly play a role.

As well updates to recommendations from government agencies on the resumption of elective procedures and provision of Noncovered related health care.

Hospital capacity will be another key factor.

We recognize that new protocols designed to ensure a patient and provider safety kinslow the returned to full capacity.

And some health care systems are planning to increase capacity by extending workdays or doing procedures on weekends.

This isn't the case in all regions.

Moreover, some hospitals are at this point maintaining surge capacity in case, there is a second wave.

We are assuming that any potential second wave will be adequately contained.

But we are watching this closely and are prepared for a range of scenarios.

Well, it's still early we believe we have seen the worst a procedure decline.

And are seeing encouraging signs of earlier than anticipated recovery in several places around the world.

In fact, the recovery has begun in China, although it is gradual.

Well the ultimate pace there is still uncertain, we've seen a reduction in our weekly decline in revenue over the first few weeks it may.

With high teens declined from the prior year.

In other parts of Asia, such as Japan, and India, we're still experiencing severe year over year procedure decline and we continue to expect locked down to impact our first quarter.

Well other markets like Australia, New Zealand and Korea should continue to see recovery.

In the U.S. in Western Europe, we started to see sequential revenue improvement and hope to see that continue.

In May we've seen our weekly revenue across western Europe declining around 20% from the prior year.

And the U.S. has been declining around 30% over the same period.

With all this in mind, we currently expect first quarter revenue growth to be modestly worse than the fourth quarter for both the total company and each of our group.

To be clear, we're seeing encouraging sign in many geography.

But our largest regions are likely to experience a full quarter of impact compared with just five or six weeks in the fourth quarter.

And at this point, we expect second quarter to be better than the first as the recovery continues.

And sequential improvement through the remainder of the fiscal year.

By the time, we reached the fourth quarter, we would expect to be back to more normal revenue growth on a two year stack basis.

Focusing on the first quarter.

Well, there's still a lot of uncertainty regarding the recovery, we would expect RTT revenue to be the most challenged followed by CVG.

With both expected to decline more than the total company.

And my TG in diabetes are both expected to decline in the first quarter as well.

However, they should be better than the company average.

And remember we have an additional selling weak in the first quarter something that happens every five or six years with our fiscal calendar <unk>.

Because this extra week already occurred at the last week of April during that time, the impact of the pandemic with at its highest we've picked up only a minimal amount of additional revenue.

On the bottom line, we continue to plan for significant deleveraging in the near term.

We expect our gross margin to remain under pressure going to product mix lower volumes and the extra cost of safety protocols.

Where we have more than enough inventory to meet current demand manufacturing plants may operate at less than full capacity.

Which could lead to period expensing, some fixed overhead costs.

With this in mind, our first quarter gross margin could be down a few points sequentially.

As stated we're not taking a short term view when it comes to investment.

We believe in the strength of the company and our positioning ourselves to come out of this crisis, even stronger as we continue to invest in our employees our pipeline and our product launches.

Given that the first quarter as DNA and R&D spend should be a couple hundred million dollars higher than the fourth.

So similar to revenue, we would expect operating profit to improve as we progressed through the fiscal year.

Regarding currency the U.S. dollar has strengthened substantially since the pandemic began especially against emerging market currencies.

As a result, our FX impact is looking to be about 10 cents more negative to fiscal 21 area than a few months back and just over 20 cents for the fiscal year.

Before I turn the call back over to Jeff I would like to express my sincere gratitude to our employees around the world for their ongoing commitment to our mission.

I couldn't be more proud of our team and the way they have worked together to support our customers and ensure patients have access to our lifesaving therapy.

Back to you Jeff.

Thanks, Karen.

Now looking back at what we've accomplished since the start of the pandemic where in many ways already a stronger company as a result of our actions.

We've reaffirmed our mission in a profile the way.

When patients and healthcare workers urgently needed solutions that we couldn't provide alone we turn to tenant to over mission for a path forward.

Tended to tells us to focus our efforts on biomedical engineering, where we display maximum strength.

But it also sets to gather people and facilities that augment these areas.

We did just that forming new partnerships that enhance our by medical expertise with additional technology supply chain reach and manufacturing capacity from other companies.

We've also going back to our roots is accompanied by regions stealing the value of close partnerships with our customers.

We're focused on our customers' needs during his pandemic moving beyond just selling the best medical therapies to using our expertise to bring broader solutions to the table.

Feedback from customers and governments are support has been incredibly positive and they are grateful for our efforts.

And we're bringing these new solutions to market record speed.

Development timelines have been measured in hours in days not weeks and months and the output has been very impressive.

This pace and impact has created a strong energy and spirit within Medtronic.

Despite the day to day challenges of the pandemic. Our people are really engaged and excited to assist customers in the recovery.

So now as the world begins to recover.

We're focused on emerging from this pandemic even stronger.

We're executing strategies and supporting investments that others in our industry, who are in a different financial position had been unable to make.

We're harnessing new partnerships cutting through the bureaucracy and operating at a high sense of urgency in speed.

We're also sharpening our competitive edge to drive an even higher level of performance.

As we emerge we expect these investments will even be more evident in our traction and retention of top talent and in the new products and solutions that we're offering physicians patients and health care systems.

Now for competitive reasons, I'm not going to get into the details of all the actions we're taking.

However, when you combine these new possibilities with our pipeline I couldn't be more excited about the future. We will come out of this even stronger and in doing so create sustainable value for our shareholders and for society.

Finally, as many of you know is my first earnings call CEO.

Which also means that this is omars last earnings call.

So I wanted to say a few words.

Sure.

Thank you Jeff and this is my 36 to Medtronic earnings call. So it was definitely done for doing the job over just someone else and you're just doing bridge bank. So for the past nine years has really gone by fast and it's been a pleasure getting to know all of you in the investment community.

Whether that was visiting your offices around the world.

Thank you in Minneapolis or me can you at the conference.

I sincerely appreciate all the interest you had in this company.

In this industry.

To support that you've given me and the Medtronic management team over the years.

As I look ahead, I phone confidence in Jeff and this leadership team to take a company forward.

The team has been incredibly focused in the recovery and there's a number of plans in the works.

We're operating from a position of strength given the strong financial position of the company and the full and robust pipeline.

Well I didn't expect to returning over this year are all doing a pandemic, it's reassuring to know the decisions being made over the past several years of prepared us for this time.

I'm confident that we have the right to engage team in place to ensure the medtronic emerges even stronger.

As you've heard me say many times before.

Sounds good as a perpetual growth opportunity.

The three universal healthcare need of improving clinical outcomes, expanding access and optimizing cost and efficiency will not go away.

Medtronic mission that focus on these growth opportunities in Jordan.

I'm glad to have played a role in leading the story.

And I'm sure. It's best days are ahead.

Yes, Jeff the team and all our employees all the very best going forward.

Jeff Thank you.

Thank you Omar.

And you didn't just play role you played a major role.

As you step with CEO, you're leaving us well positioned to thrive.

List of your accomplishments as long and meaningful.

But to list a few come to mind, what I think if your legacy.

Well first you doubled the size of this company.

And you inspired our global employees to think differently to think bigger.

And you're the only CEO other than our co founder old Bakken to be inducted into the company's Bakken Society, which is the highest technical honor had been tronic.

You created value for our shareholders.

You got our whole industry to focus on value based healthcare.

Importantly, operationalize the mission and everything we do which led to improving the lives of millions of people over the past nine years.

It's been a pleasure and honor working with you and learning from you.

Finally, I really appreciate all you've done to make this transition has moved one.

Look forward to continuing to work with you in your executive Chairman and chairman of the Board rules.

Before we start Una I'd like to briefly note that we currently anticipate holding our Q1 earnings call on Tuesday August 25th.

We've also postponed our biennial institutional investor and analyst day as a result of the coven 19 pandemic.

This was originally scheduled for next month and we'll let you know the date wanted schedule.

Let's now move on to Q in a in addition to Karen Omar Me. We also have our four group President Mike Coyle.

Bob White, Brett Wall, and Sean Salmon here to answer your question.

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

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

Operator first question please.

Your first question comes from a line of Robbie Marcus with JP Morgan. Please go ahead with your question.

Great. Thanks for taking my question.

Yes, Jeff Congratulations on your first call CEO and Omar sorry to see you go but they'll be mess.

Jeff maybe we can start with what you were talking about at the end of the call, which is why you're still optimistic that Medtronic will emerge stronger you know itself.

It's something we've heard a lot of Ceos mentioned over the past quarter earlier here, but you know medtronics actually doing stuff, you're paying employees, but your sales reps through this you're paying bonuses in owe it to me it seems like you're actually built in culture during a really difficult time.

Here, but maybe just give me your thoughts on why that's not just lip service, but something that will actually materialize medtronic coming out of this pandemic.

Sure. Thanks for the question Robby and thanks for noticing.

Let me, let me walk through the several components the.

The answer you know first I got to start off with our financial credit or financial position going into the crisis, I mean, having a strong balance sheet.

Thanks, a huge difference and lets us lean into this whole crisis and play offense and and the actions that we took during the crisis right. Specifically you mentioned some of them to support our employees.

Ill and through benefits programs.

A copy.

Protecting our reps incentive compensation, especially the highly leverage represented the sales reps in the United States.

And providing all the safety measures et cetera, et cetera, so that they have booth.

Effecting their health, but also reducing anxiety. During this time that makes a big difference and these employees morale right now is really high.

And we will I'm sure we'll get questions on this later, but we do see this.

Strong early signs of the recovery and our employees are ready to go.

Ill without distraction and the views that we views. This time wisely. So I think the ready to go and it's going to Turkey.

Yes.

Because after all innovation and then.

Realization is still people game.

And our customers okay. So the same with our customers.

And we spent a lot of time, partly because we were able to reduce employees anxieties. They could stay focused on on our mission our patients and our customers and we spent a lot of time.

I mentioned it in the commentary with our customers and it was a different dialogue. It's what can it wasn't just selling our therapies and their features which are great. But it was really how can we help them through this a this pandemic and how how can we help them thought the other side and the dialogue, we're having with customers is one I'm wanting.

To have since I've been here.

I hate it when they call it vendors suppliers I hate those words, but when our sitting down with them and they really are they using the word partner and then they are backing it up and then really engaging us in their recovery plans and relying on us and the recovery plans and so we've put a lot we've been developing several programs that I really want to get into some of the details of those because I do think there you are.

Unique and I think they're competitive advantage when things around you know patient confidence protecting healthcare workers hospital productivity. These are things, we're putting in place with our larger partners in particular, but we we think we had scale. These two even smaller hospitals and it's really building momentum.

So that's another component of it.

And then it's our pipeline. So you know our pipeline going into this was strong we talked about it on the commentary a lot of these products now as we emerge lot of these products are hitting.

A lot of approvals coming out we mentioned the micro and cardiac rhythm the cobalt and chrome approval link to just got approved in Europe, Percept, PC, and DBS, which you know coming from and the Interstim micro and pelvic health you know coming from.

Our TG myself I mean, these are been a long time coming in it we sacrifice so hard to get these things out and really excited.

We also have stim Jackson Pena. The recent acquisition you know some in tea products Diamond temp NFS and you sort of assist the surge in those wave of products hitting the market had a great time, and then specifically, though how these products are positioned during this pandemic.

The whole remote programming remote monitoring capabilities that before work you know important but now are like critical right and I'm, we're seeing hospitals talk about making these standard of care and if that if and I'd say when that happens we are well, where we are the best position the mark.

Good place for that and then secondarily hyper focus on complications because they don't want patients coming back and.

We're very well positioned there as well with things like micro and TYRX I can go on so those are the big ones and I started with the financial condition and I'm going to end with that one again I think it's worth mentioning twice. The fact that we have a strong balance sheet you at all that up and we're feeling we're feeling good about.

So.

How we come out of this thing and we can debate how big the pie is good what when the the pie gets back to the normal size, but if we don't have a bigger size slice of that I'm going to be disappointed.

Great maybe as a quick follow ups.

No.

Medtronic right now probably has the best balance sheet that it's had.

Five plus years.

You've been talking increasingly over the past 12 months or so about increased M&A.

Asset prices down 20% across the board is this the right time for Medtronic to be going out to do M&A and what are you seeing in terms of opportunity set out there right now thanks.

The answer the short answer is yes, I think it is a good time.

Due to do M&A as you mentioned asset prices are down doesn't mean that we lower our standards I just think again, we can play offense.

And I think our focus remains the same on.

Tuck ins.

That can tuck in acquisitions that Ken.

But I, but I I'm, a little more partial to the tuck ins that are more meaningful.

And can actually affect our growth rate, our long term growth rate.

So we don't buy growth, we grow what we buy and.

So that's that's what we're focused on and I said there. There are some are some opportunities that.

At least I felt personally were out of our reach too expensive before this and now are kind of.

More in line with what we think are reasonable returns for those for those investments.

So yes.

Great. Thanks.

Next question please Carmen.

Your next question, it's the millennial David Lewis with Morgan Stanley. Please go ahead with your question.

Good morning, Thanks for taking the question Karen just two for your real quickly here is the first I Wonder if you just help us with recovery here into the first quarter. I know you said growth would be modestly worse in the first.

Do you just can you help us kind of how you're thinking about progression of recovery maybe across next couple of months, but more specifically given the stocking dynamic in the fourth quarter in the extra selling weak in the first quarter. This can be kind of material swing I just wonder if you could help us with.

Some of those dynamics, you're heading into the first and then I had a quick follow up on margins.

Sure David Thanks for the question and you know as Jeff said, we are seeing encouraging and positive signs of recovery right now, particularly in our largest regions of China you asked in Western Europe.

That said as I mentioned, we do expect a full quarter impact in Q1 as opposed to the five to six quarters that we had in Q five to six weeks that we had and in Q4 and so we are expecting at this stage at least and Q1 to be modestly worse in terms of revenue growth and then Q.

Before.

But we do expect improvement in Q2 and sequential improvement going forward into Q3 in Q4 and by the time, we hit Q4, we do expect and to be back to more normal revenue growth for eyes, and we measure that on a two year stack basis, given the tough year over year compare.

Harrison.

In terms of stocking in the extra selling weight and I did mention that the extra selling week happened for eyes. The very first week of our quarter, which was the end of April.

And obviously because that was such a depressed time, we we are seeing minimal revenue impact from that extra selling week as we think about stocking. We have said add starting last quarter that we intend to focus on driving revenue.

More evenly throughout our quarter and reducing the amount of bulk transactions that we have we'll continue to do that every quarter. This year.

Add but we had a good headstart, obviously in the fourth quarter.

Okay very helpful. Karen and then obviously from margin perspective fourth quarter should fit.

Maybe not be the the trough margin period. So when do you see sort of the trough margin period in the business and more specifically.

Net revenue recovery, a super helpful. How should margins and earnings recover relative that revenue I mean, if you get back to that normalcy quarter that you specified is that the normal quarter for margins or should margins or earnings kind of lag that revenue recovery.

Thanks, so much.

Thanks for that question David.

In terms of margins and I did mentioned that we could see and sequentially worse gross margins in the first quarter and that's really as we think about the increased expenses due to covert 19, along with the fact that should we choose to not run some of our manufacturing operations at full capacity.

And that we will have a potential move to period expensing some of the overhead and as manufacturing plant as opposed to rolling it on the inventory in our balance sheet.

And so that may add that may cause margins and and the first quarter to be a little bit worse than the fourth quarter.

But we would expect to see margin improvement and as we move into Q2, and then continued sequential improvement as they live into Q3 in Q4 and by the time, we get to Q4, we would expect to be back to more normal margins on a constant currency basis.

As I mentioned FX has become more of a headwind for eyes, and this fiscal year and really due to the strengthening of the dollar, particularly against emerging market currencies and down at this stage. We're looking at an FX impact of about 20 cents to the bottom line, which can obviously impact mark.

Since two.

But we're really saying good signs of recovery right now and we're very excited about you know what the future can hold even beyond 521, yes, I mean I think this is obvious but I can't help myself from stating this that.

From a revenue perspective in particular Q1 is modestly worse than Q4 because of the extra five to six weeks of impact, but we are seeing early signs of of the recovery. It's you know maybe too early to extrapolate that all throughout the year, but it's we're seeing faster than we anticipated.

Especially in Europe and Wes.

And for sure.

Q1 is the trough.

Thanks, David Karma next question. Please. Your next question is from a line of Bob Hopkins would be a please go ahead with your question.

Oh, thanks for taking the questions and good luck to Omar and Jeff.

Just two things I would love a comment on and I'll listen both upfront in the interest of time for one and I apologize goal short term I just.

Wanted to dig a little deeper on your comments on the on the upcoming first fiscal quarter.

I'm sorry, if I missed this but could you give a sense for.

What you're seeing in the month of May just trying to get a sense or what kind of improvement you're you're assuming from may to get to that total Q1 comment that you made and then I was also wondering if you just maybe offer up a quick comment on the upcoming diabetes data that we're going to see it 88, because I know in the past you have commented that you do expect the timing range of around it.

<unk> percent and just wondering if that is still the case. Thank you very much.

Yeah. Thanks, Bob I'll, just talk about the month of May quickly.

We are seeing encouraging signs and particularly as we look at our largest regions in China, and the U.S. and Western Europe.

In in China, where we had in a stronger declines in February and March of around 46%.

We said, we thought April declines of around 21% and now we're seeing declines in China in the high teens. So you know continued improvement there and in Western Europe, where we saw declines in April of around 32% in May we're seeing declines of around 20%. So again continued improvement in.

Western may and Western Europe, and in the U.S. and the pictures a bit cloud Ed when we look at April because of our bulk purchases.

We're clearly, saying procedural improvement across the us and in May in a declines of around 30% just in the first few weeks of May which is better than what we had an April yep and just the to build on that in the U.S. I mean I'm no can give you the numbers.

In anecdotally were getting.

Tax calls.

From hospital see how big health system Ceos purchasing people.

You know basically.

Indicating.

Faster than anticipated recovery and many parts of the of the United States and basically saying are you guys ready buckle up so that's two things I like about that one.

Encouragement to that they're talking to us about these things and so it's.

Yes, the northeast is going to be a little slower I think the patient fear factor is a little higher there because the virus hit harder in New York and asset usage, but other parts of the U.S. very optimistic so.

So anyway, that's why that's why we're thinking Q1 for us as the trial and we're starting the trough rather and we're seeing the we're starting to see encouraging signs here on the on the second question, Bob I think I'm going to ask as Sean Sean said, Tom and answer that one.

John.

Yes, yes. Thanks, a question about so we'll have to datasets coming up a bit AJ. The persuaded the first of which is going to be a randomized study out a new Zealand, which serves as the CE Mark data and the second one is the adult portion of the.

It's hard to close with data, which will be 60 future Baron just one thing to your.

Patients, but that really evaluate a number of different things that study, but most importantly, we looked at targeting the glucose studies with patients at two different levels. One is the usual level that we have with 670 today and the other one is a more aggressive lower target and we are evaluating safety of that so as you look at those results you will.

See that.

There's a really a lot to unpack there, but we're very confident and and the product and look forward to share in the results next month.

Thank you.

Great. Thanks, Bob.

Our next question please Carmen.

Your next question is from the line of Kristen Stewart with Barclays. Please go ahead with your question.

Hi, Thanks for taking the question and act.

Omar it's been great, having you as CEO and Jeff welcome to their first cost. So definitely interesting time for you guys have descent change over here.

I guess my question is just.

As you guys are thinking just kind of longer term and bigger picture.

Jeff just thinking about.

About kind of your earlier comments on I guess couple of quarters ago, just kind of on the M&A landscape and you guys clearly have very good balance sheet and Karen Senate great job just improving the cash flows at a company. How are you just thinking about deployment of capital now you guys have the opportunity I guess to.

Be potentially a little bit more aggressive on the M&A front and do you think this is the opportunity now to go out and do that or are you guys can it be a little bit more watchful and waiting to see how that landscape shakes out just given confident and the backdrop.

Thanks.

Thanks, Chris and thanks for the comments thanks for the question.

And yes.

Coming his new role.

Definitely how they are even more of appreciation for the cash flow and I'm, a little forgiving of all the grief. The carrying gave me about the generating more cash flow and my prior role I'm thinking her now for that.

But when it comes to M&A.

We're not going to be walks when we're waiting to see how cove and plays out or the economy I mean that we believe that.

The healthcare and med tech the areas that were in like we said earlier.

Are going to come back and Aaron indicated earlier in the call that we believe buyout by our our Q4 that our revenue growth two year stack basis will be back to normal levels and profitability. So I mean, we feel.

Like this is a hit obviously is very difficult financial impact for everybody, but we do feel bullish on on the future here of the market and then us as well so we won't hold back for those reasons.

You know and like I said earlier in the call that we're looking for you know permit mainly focused on tuck in deals that are going to create long term.

Improvements to our weighted average market growth rate and allow us to you know.

To better position us strategically so tuck in deals or what were looking for I tend to prefer it will do various sizes I you know I like the.

You know the.

Mediums.

Billion dollar put you know those that range because it has a bigger impact on our growth rate.

But so that's what we're looking for and for sure.

The.

You know the viruses impact on the markets and prices asset prices has is going to help.

Is going to make certain assets more attractive I hope that helps.

No if that answers your question.

Yeah, and just in terms of on thinking through I'd say more from a.

Opportunity and as he has different business as that you had has cooled bid or just kind of thinking through the landscape changed the different areas that you would look opportunistically, whether it would change our view on whether to tuck in more on the cardio side or whether a tuck in.

More in the they gave out like tele health or or any of those areas does it change kind of where you would think it lay kind of your chips from more of a product or our service oriented or anything like that.

Thanks again.

I wouldn't say.

Changes by our that the business areas I mean the.

You mentioned, where might we what we're going to be making investments more investments in remote capabilities of our of our product than of our business model quite frankly, so whether it be remote programming of devices remote monitoring of devices, a remote case support did.

Total medical education, and things like that so investing and this is an area, where I think medtronic as a company as an enterprise. This is an area, we can add value to our different business units by.

I am making investments like these that can scale across a lot of them, whether that's I don't know that that needs to be M&A and if there could do there are some some opportunities there that we're looking at.

That that are more around that that whole idea of remote but also just organic investments in partnerships with large and small tech technology companies like I mentioned in the commentary I mean I was.

Really.

Blown away by how some of these other companies can augment our technologies like whether it be sell or some of the you know theres a lot of smaller companies as well augmenting our capabilities to be more virtual to be more remote and so I think the partners some partnership opportunities so in the.

Virtual area, its or the remote areas, it's organic investment partnerships, including partnerships with other companies and potentially some some some of it. So that's that's one area that I would argue is definitely increased in terms of our focus.

But nothing I wouldn't I can't think of anything that between the different businesses.

Thanks, Chris and let's go to the next question. Please.

Your next question is from line, if Peto Chickering with Deutsche Bank. Please go ahead.

Good morning, guys and thanks for taking my questions.

So like we sit back and look at the impact on Kobe, It looks like the healthcare systems globally.

I'm prepared to deal with a large scale respiratory pandemic.

Another it appears that of course is behind us maybe certain having discussions with tighter use about the infrastructure investment needed.

To deal with the next wave for next pandemic.

So.

For example, widespread or with sprint monitoring or ventilators.

Excellent.

Yeah. Thanks. Thanks for the question. If you live you know I'm the answer that is yes, and right now and maybe AOS, Bob the comment as well, but but right now.

We have a big focus on emerging markets, specifically regarding a cove it and other respiratory other viruses and we're pulling our portfolio together.

Between our ventilation portfolio our.

No cap Naga fee ESP go too.

And our monitoring capabilities.

To put to provide I'll call them, you know standing up.

A lot more hospital capacity.

For these for the patients in these areas.

With all those devices and how they work together and providing solutions.

To these countries and they don't have today and the scale and I really think it's not just a onetime event I do think this will introduce these technologies to the emerging markets and help that become more of a standard of care because they are under penetrated today. So I do think it'll have a longer lasting and longer term impact as well.

Bob you want to make any comments to that yet Jeff just to build on what you said and you said it really well we think we're really uniquely positioned.

With our combination of technologies and kept Nagase pulse oximetry ventilation you. An example of this is we were key player in standing up the job et cetera, and in New York City, and we think the opportunity is emerging market stand device using care theaters that medtronic will be there with them to do that.

As Jeff mentioned, we're seeing tremendous interest from governments around the world as they look not only to stockpile and built their ventilation capability, but how they think about it because what we're seeing great recovery in the markets a Karen and Jeff mentioned this pandemic is still going to hit emerging markets in a pretty big way.

Fortunately, we want a theater supportive so that's at Jefferies really well position to capitalize on that.

Thanks, Bob and then lastly, I'd say that appears we also have a business that does remote patient monitoring.

We do a lot of remote patient monitoring for chronic co morbid patients in the and the VA in the United States and that that business is really gotten an uptick of interest and and we're positioning it more strategically to support.

Patience.

And the pandemic.

So in a number of ways.

Great. Thanks, so much.

Thanks, Peter next question please.

Your next question is from a line of Joanne watch with Citibank. Please go ahead.

Hi, good morning, everybody and or you will be nest and Jeff Congratulations I might just spend a few minutes on that topper franchise that was a bit of a problem child on this fiscal year third quarter I'm confident that evolved what did you see early in the cycle and how did the you how do you see dr. pop much.

New role congrats on that higher too. Thank you.

Right.

And thanks for the question obviously, we got the issues in Q3, we talked about extensively on the last call, where we were very disappointed with the U.S. performance of Tibor given that we had you know procedural growth rates in call. It the 14, 15% range when the market was growing double that a little bit into thirtys.

With strictly U.S. issue as you recall, we were actually growing with the market a little ahead of the market outside of the United States.

We talked a lot about how well we were refocusing sales forces and repositioning them back into large high volume accounts, where they had been basically being deployed into the startup of new accounts with the NCD.

And increasing the Schmidt from Chardan, so the messaging around our our benefits of the Super annual design that we have a relative to.

Better gradients and a better hemodynamics.

We were very encouraged actually with where things were headed during the course of Q4 in the first half in those news for seven weeks. So we actually grew in the high teens and in fact, as we were exiting that seven week period. So the last three to four weeks.

There were actually well north of 20% in terms of procedural growth rate now while that still below the market very good traction that we were seeing in then obviously in the last five weeks of six weeks for the quarter. Obviously, we saw though the impact the pandemic hit that market pretty pretty dramatically of course the other.

Benefit that we that we had was the HCC data releases, where we saw very significant.

Positive data coming in the bicuspid area or we put the immobility or that we put from both the state and some data that was a little more problematic for one of our competitors. So so collectively we really like where we're positioned in terms of pushing our messaging for our for our product and design obviously the recovery.

Taking place.

Currently we now and as Jeff mentioned to Karen mentioned, we're very encouraged by the trends that we're seeing in terms of now five weeks of continuous improvement in terms of overall procedural growth in in that period. So so we are encouraged with where things are headed and we're thrilled with the addition of Dr products to our to our team.

He is obviously one of the leading.

Physicians in the area of structural heart.

And has just been instrumental in support of our program over the years and guiding our program and we think he will really help us with the the messaging of our product for low risk patients from port bicuspid patients and in our clinical design and development. So we're very very excited about where our TAVR programs said it.

Thank you.

Thanks Joanne next question please comment.

Your next question is from the line of Larry Biegelsen with Wells Fargo. Please go ahead.

Good morning, guys. Thanks for taking the question.

Just I'll ask both of might upfront here.

You talked about some of the improvement and you've seen in may across geographies, but but I'd be curious to hear what segments are coming back faster any surprises you know is it more the emergent versus the elective procedures is it more inpatient versus outpatient and as those the trends you expect to continue over.

Over the.

Coming quarters here just second Bob.

Since it's such an important product any anymore color on the delay to the surgical robot.

Just curious why preclinical testing would be delayed.

Bye bye bye coated.

And is it are there some tweaks or you are making is that also part of it and should we just speak about this Bob is maybe a couple of quarter.

Delays at the best way to think about it right now thanks for taking the questions guys.

Well I'm wondering maybe I'll start on the first question that I might ask Mike Coyle to comment a little bit too and then we'll turn it over to to Bob for the the robot question I'd say on the in terms of the recovery and the and the procedures.

The the recovery.

In summary, I'd say, just kind of makes sense for us in terms of the rates of the recovery the the therapies and products that are more.

Urgent if you will or less deferrable are definitely you know coming back up faster.

Like a neurovascular and our TG.

TAVR, Mike mentioned stance cardiac rhythm, they're coming back faster and then the more little more deferrable.

Procedures are taking longer like.

Our pelvic health franchise and our TG for example, but we're seeing really strong.

You know about data coming in on cardiac rhythm for a number of reasons and maybe Mike you can talk to that for second grade. Obviously those are the ones that are the we listed in our 8-K is being leased elective are the ones that are coming back a quick us. So in a cardiac surgery franchise, obviously ecmo has seen a lot of significant growth, but pacemakers.

Our coming back.

Very quickly.

Just given the symptomatic nature of the patients and their needing to be treated and it was just playing extremely well for things like micro where we.

Show data of the 60% reduction in implant complications associated with pacemaker implants, using lycra that keeping patients out of the IC you right. Now is is a big priority and so that and TYRX, which is getting a significant increase in utilization in order to keep patients out of the hospital has been has been significant but as Jeff mentioned.

That's what mentioned I think the thing that probably has the most encouraged says that moderately elective a group of technologies things like the Cds CRT.

The TAVR and coronary stent. These are areas that we're seeing a very nice rebound, especially over the very consistent rebound over the last five to six weeks.

And we were even beginning to see in some of the less elective procedures like each repopulation and our diagnostics business, a very similar trend, although obviously a trailing behind the others in terms of the rate of recovery. So as we said.

The it's encouraging what we're just seeing over the last five six weeks.

Some of the is the market and I think some of that in the case of Implantables ER CVG Implantables is how how they're positioned with the remote capabilities the distance programming.

For example, and the lower complications I think thats, helping as well flurry of so.

Maybe ill turn it over to Bob here for the robot question, Yes, Thanks, Jeff and Larry. Thanks for the question in certainly as Jeff mentioned during his commentary covert has limited to Pacer, which we can really complete the record software system of preclinical testing and Larry just shows up and I think the impact in three ways first our engineers.

<unk> have been forced to work remotely and those really limited access to the hardware in the robot sums itself to surgeons you know our staff have no ability yet to travel to participate in lab testing and that's had an impact and then three.

Well ability of our external partners insights to conduct some of the testing is you know as I talked about previously we have software development and testing centers around the world all of which have had impact on productivity.

And then as I shared with you previously we certainly been working through the software development and integration challenges that took US a took spirit longer and set us back as well, but the thing I would leave you with our team is looking at every single creative way to expedite our work related to the program and we're seeing some amazing some chasing creativity, but true. It is just mentioned given you.

Turning to pandemic, it's too early to give you an update on timelines at this point fixler.

Thank you Larry.

We have time for one more question Carmen.

Last question please.

Your final question will come from the line Vijay Kumar with Evercore ISI. Please go ahead.

Hey, guys. Thanks for squeezing me and then on congratulations on your tenure here at that Medtronic, maybe it's just one quick one for me Karen I think you mentioned that Q4 back to normalized growth in that you guys look it goes from a double stack up perspective, I just want to me.

In the clarify.

Q4 of 28 was down 25.

You know what do you mean that up into Q4 or 521 will be up 25, plus so on a double stack basis, we're back to growth just one clarification on that and then Jeff on the pipeline here I think you mentioned that interest and micro precept Tds and.

Just maybe up in a normalized environment right.

What kind of share gains or what kind of impact could we expect that from these products. Thank you.

Yes, so on that on your first question VJ on what's normal and Q4.

And obviously things are uncertain and so we're not giving specific guidance because of that uncertainty, but just as we look forward right now.

When we talk about a return to normal grows on a two year stack basis.

We're talking about normal.