Q2 2021 Medtronic PLC Earnings Call
Have come so far what this gave me more than anything I hope I never had hope that I could ever get out of the good.
Good morning, and welcome to the Medtronics fiscal year 2021 second quarter earnings video webcast I'm, Ryan Weispfenning, Vice President and head of Medtronic Investor Relations.
Before we start the prepared remarks, I'm going to share with you a few details to keep in mind about today's webcast join.
Joining me are Jeff Martha Medtronic, Chief Executive Officer, and Karen Parkhill, Medtronic, Chief Financial Officer, Jeff and Karen will provide comments on the results of our second quarter, which ended on October Thirtyth 2020.
After our prepared remarks, we'll take questions from the sell side analysts that cover the company.
Today's event should last about an hour.
Earlier. This morning, we issued a press release containing our financial statements and the divisional and geographic revenue summary.
We also posted an earnings presentation that provides additional details on our performance, which can be accessed from our earnings press release or on our website at Investor Relations Dot Medtronic dotcom.
During today's webcast many of the statements we make may be considered forward looking statements and actual results may differ materially from those projected in any forward looking statement additional information concerning factors that could cause actual results to differ is contained in our periodic reports and other filings that we make with the SEC and we do not undertake the update.
Any forward looking statement.
Unless we say otherwise all comparisons are on a year over year basis and are given on an organic basis, which adjust for foreign currency the.
There were no acquisitions made in the last year that had a significant impact on our quarterly revenue growth.
All references to share gains or losses or on a calendar quarter basis, unless otherwise stated.
Finally, reconciliations of all non-GAAP financial measures can be found on the attachment to our earnings press release or on our website at Investor Relations Dot Medtronic dotcom.
And with that let's get started.
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Hello, everyone and thank you for joining us today.
Our Q2 results were significantly stronger than Q1 and came in well ahead of our expectations.
Our recovery from the depths of the pandemic has been faster than expected and we are now approaching year over year growth.
Now, while we continue to monitor code the resurgence around the globe.
Health care systems are by and large better prepared and patients are more willing to seek the care they need.
Obviously, there's some near term uncertainty.
But I am encouraged by the steps we've taken over the past year to position Medtronic not only for continued recovery.
But to maximize our performance over the medium and long term.
Now building on the strength of our pipeline.
We're going on the offensive in winning share in several of our businesses.
We're investing in opportunities to create and disrupt big markets and we're seeing the results.
We are supplementing our pipeline with an increasing cadence of tuck in M&A.
And we're in the process of implementing our new operating model and Reenergizing, our businesses with the competitive the focus on market share and being bold.
All of this all of this is aimed at accelerating our growth and creating value for society and for our shareholders.
Now like last quarter, I am going to lead off with the discussion on market share.
And I'm pleased to note that we're winning share in an increasing number of our businesses.
Our pipeline is coming to fruition.
And we're benefiting from recent product approvals across the company.
Since last quarter.
We've received 50 product approvals.
Bringing our total to over 180 regulatory approvals in the US Europe, Japan, and China since the start of the calendar year.
We're also benefiting from the actions we took earlier this year to partner with our customers through the pandemic.
We've helped our customers in areas such as environmental safety.
Hospital productivity patient engagement and remote monitoring support.
And these partnerships are leading to increased market share in a number of accounts.
In cardiac rhythm were notably outperforming the competition, we estimate we gained nearly two points of share year over year.
The pacemaker product line grew 6% globally as our micro legalise pacemaker family continued to perform extremely well growing 75% globally and 84% in the U.S. Michael.
Micro is now annualizing at approximately $350 million.
We also continue to see the benefit of a recently launched cobalt of chrome highpower devices with Blue think distance programming and the patient app for remote monitoring.
These are both important features in the current environment.
Our care link remote monitoring adoption is up 10% globally and transmissions on our unique care like express system, which enables unattended in clinic follow ups increased 40% quarter over quarter.
Our CRT D product line grew 4% driven by the cobalt chrome launch in our improving replacement cycle.
In addition, we're continuing to see strong adoption of our TYRX antibacterial envelopes, especially important during a pandemic where there is a renewed emphasis on avoiding infections of any kind of TYRX revenue more than doubled and it is utilized in over half of our U.S CRM implants.
In cardiac diagnostics, we estimate we gained modest share year over year as the launch of our linked to his offsetting Boston scientific's entry into the market.
In drug coated balloons, we grew in the high single digits and gain share both year over year and sequentially. We're seeing strong adoption of our impact AB DCB driven in part by its pivotal data that was published earlier. This fall in the New England Journal of Medicine in surgical innovations we held share.
Share year over year in our share is up nearly a point versus the prior quarter driven by strong gains in advanced energy.
We're earning share with superior products like our lygus share exact the sector and our son assistant curve job ultrasonic day sector.
We're also winning back share from Reprocessors in.
In advanced Stapling, our share was down year over year with difficult comps given changes recall in the prior year. However, we did gain share sequentially on the strength of our Tri staple technology.
In our restorative therapies group, we're beginning to see important share gain from recent product launches stock.
Starting with pelvic health, we estimate we regained eight points of share in the us and two points in Europe sequentially from exotics.
This this is the result of our very successful launches of our interest in micro rechargeable device and our share scan MRI leads.
Quickly recapturing share in the rechargeable space with micro as we get on contract in more and more accounts.
From our FTC approval in August to the end of October we believe our share of the US rechargeable chargeable market has gone from zero to over 50% in just three months.
And we continue to see high trip trailing rates at a 125% of pre coded levels driven in part by our basic evaluation lead which is a strong leading indicator of future growth in pain Stim, we continue to see strong momentum as the markets adopt our DTN therapy on our entellus platform.
While we are facing headwinds in replacements, given where we are in our cycle. We estimate that we gained new implant share in the us.
Also our new SCS implants in the US grew in the high single digits in the quarter and we saw strong trialing increases year over year, a leading indicator of future growth in this business.
Importantly, we're seeing the majority of our new implant and trailing growth coming from competitive accounts as we win share from competitors. This is all being driven by the strength of our DTN data, which showed superiority over conventional stem at three months, but.
But we strengthen this evidenced last month when we showed GTM superiority the is sustained at 12 months.
In brain modulation, we're building momentum with our per sub PC device, the first and only Tvs system that can sense brain signals.
We launched Percepta knee last this past quarter, while our us share was down year over year per sub drove increasing new implant share gains each month as we went through the quarter returning brain modulation to growth.
In the anti wish we gain share both sequentially and year over year, we launched several new products in the quarter, including our next Gen and nerve monitoring program NIM vital our P.T.I. system for parathyroid detection.
And Stealthstation flex NTM, our new NAV system to support outpatient TNT procedures.
And going forward, we expect these launches to continue to drive share gains and market growth.
In Neurovascular, we had a good quarter, an aspiration coils and access resulting in the overall growth for our neurovascular business.
While we had share loss and flow diversion due to new entrants in the US market, we estimate that our share in neurovascular increased overall as we won share from both the number up and to remodel.
Turning to the businesses, where we are holding share we estimate that our procedure share was steady in both drug eluding stent and TAVR on a sequential basis.
NDS, we were one of the winners in the Chinese National tender and will receive volume that is being reallocated from our multinational and local competitors, whose tendered bids were not accepted.
While our volume will increase significantly this will be more than offset by significant price declines as dictated by the tender.
This will impact our business over the coming quarters.
That said, we believe participating in the Chinese stent market is a long term strategic opportunity.
As our increased access to more Chinese hospitals will provide opportunities to pull through our full product line today as well as in the future with products like TAVR and renal denervation.
Speaking of TAVR we.
We held for sheet procedure share in the Us Europe and Japan sequentially.
We expect to be back to gaining share year over year in the US next quarter as we anniversary our share loss from our fiscal third quarter last year.
The market is responding to our competitive messaging on our valve hemodynamics, which is a key determinant of valves selection and low risk patients.
We're also getting favorable customer response to our data in bicuspid patients, which make up a large portion of the low risk population.
And we're continuing to increase our field personnel and open new accounts in the us, which we expect to lead to share gains going forward.
Both from Edwards as well as winning share in Boston scientific accounts, giving the recent decision to remove the Lotus valve from the market.
In MIT Gee, we estimate we held share in both GE and respiratory.
In respiratory we saw strong acceleration and ventilator sales with our revenue increasing nearly four fold year over year and growing nearly 50% over Q1.
This is driven by our ability to increase production and shift our mix to our high acuity PV 980, ventilator to fulfill back orders and meet customer demand, particularly in the us in Europe.
We do expect ventilator revenue to decline sequentially in the back half of our fiscal year, returning to more normal levels and F y 22.
In spine, we estimate that we held share year over year with the slight gain in the U.S.
We're seeing strong double digit growth in our surface enhance titanium interbodies. The came from our acquisition of Titan spine last year, which is now in our organic results.
In spite of robotics, while large capital equipment purchases continue to be pressured as the result of coated.
We estimate that we sold over one of the half times the number of robots that low this did.
We continue to seek to grow our share in the spine robot market, which is a good leading indicator of our future spine implant sales.
In addition, we are expanding the capabilities of our Mazor X robot we received approval earlier this month for our navigated inter bodies as well as our Midas Rex high speed powered drills.
While we're growing in holding share in many important businesses. There are also areas in which we are losing share and we're working to improve.
In diabetes, we've discussed with you our plans to return this business to market growth and we're seeing positive early signs as we lay the groundwork to create a business that can compete and win.
We performed better than expected in Q2, but there is much more to do and we're laser focused on doing what it takes to return to market growth.
The mini med Seveneighty GE launch is off to a great start in Europe.
And we just started the limited release of the 770 GE in the U.S. last week.
As a reminder, we plan to enable 770 GE users to upgrade their pump to 70 GE through a software download once we get 70, the GE approval.
We're also pleased by the recent CMS proposal to cover all CGM devices.
If finalized it would ensure patients transitioning into Medicare have continued coverage for the integrated CGM.
And we'll open up the use of Medicare market to our closed loop insulin pump systems as early as April.
Regarding companion medical the acquisition closed in September and we're excited to have the team on board.
Companion revenue was minimal in Q2, but we expected to become more meaningful going forward, we announced the integration of our CGM data into the companion intent App two weeks ago. This will allow in pen users to have their medtronic CGM readings in real time alongside insulin dose information all in one view.
We were able to deliver the solution ahead of schedule in just two months instead of two quarters and this speaks to the strong integration work that is happening between our diabetes team and companion medical.
It's also a great example of how Medtronic is operating with speed and a sense of urgency across the company.
Now, let's turn to our pipeline, which has a number of future opportunities for us to win share as well as create and disrupt big markets.
We covered this in detail with the last month at our Investor day, So I'm going to give the abridged version today.
Starting with CVG, we continue to make good progress on several opportunities highlighted at Investor day.
It appears to have been missed by the Street last week.
The last Monday was a huge day for the treatment of AFE.
Arctic front cryo balloon was the subject of a simultaneous ha data presentation.
And the Winland Journal of Medicine publication.
The promises to redefine the role of our Cryoablation technology make.
Making it first line therapy in the treatment of Peck ASML AFE.
We currently have CE mark for the syndication and anticipate FDA approval in the first half of next calendar year.
Regarding our diamond temp cardiac ablation system. It continues to rollout in Europe, and we're targeting a us launch in the first half of next calendar year.
Also in CVG, we're enrolling pivotal trials for our extra vascular IC di our intrepid Transcatheter mitral valve.
Our poll select pulse, the ablation system, and our simplicity spyral renal denervation system.
Now already and represents one of our biggest opportunities to.
To become an important therapy to treat the millions of patients around the world who struggle with hypertension.
We're aiming to complete the unmet trial and present the data next calendar year and then my TG, we're excited about bringing our soft tissue robotic system to the market. We continue to expect to file for CE, Mark and us I'd approval in the first calendar quarter of 2021.
Although these filings are likely to occur later in the calendar quarter as coal that is slowing some of our onsite activities.
In our TG, we're making large investments in new products for neurovascular and the NT.
And in enhancements to our Missouri X spine robotic system.
We're also focused on expanding indications and spinal cord stimulation and bringing to market, our steerable lead and closed loop system in DBS.
In diabetes, we continue to work with the FDA on the most efficient filing strategy for the 70 the G well.
Well on the sensor front, we submitted our Zeus the sensor to the FDA in October.
And Weve completed our synergy pivotal trial and we'll file it when we complete the manufacturing module.
We continue to get great feedback on synergy, which is disposable it's much easier to use and half the size of our current sensor.
These are just a few of the many innovative products in our pipeline.
We expect them to be the foundation for material future revenue growth.
And we're excited to keep you updated on our progress.
I will now have Karen take you through a discussion of our second quarter financials and our outlook.
And then I'm going to come back with some concluding remarks before we go to QNX.
Karen over to you.
Thank you Jeff.
Our second quarter organic revenue of 7.6 billion declined one in the half percent.
And adjusted EPS of one dollar to decline 22% from last year.
However, compared to the prior quarter, our revenue increased 18% and adjusted EPS grew by 65% as our end markets continue to recover.
In fact, we continue to see sequential revenue improvement each month.
And despite the number of kind of the case is rising and many of our markets October was better than September and all of our groups and regions with the exception of China, given the impact of the national tender in drug Eluting stents.
Net she led the way with its growth rate, increasing by over 20 points and surgical innovations and respiratory G.I. in Reno.
As I benefited from increased elective procedure volumes in Europe, and the United States driven in part by elective procedures that were delayed from the spring and early summer.
RG ours improvement came from strong ventilator sales as well as from G.I. patient monitoring and renal care products.
The cross met G., we had growth in a number of our businesses in the second quarter, including advanced energy lung Health Airways ventilators and patient monitoring.
CVG NR TG also delivered double digit improvements from the first quarter with increased procedure volumes and share capture.
And several businesses return to growth from the prior year.
In CVG, we grew and pacing crts, TYRX aortic and drug coated balloons.
And in art TJ, we grew in Tvs, Neurovascular, pelvic health and China Orthopedics.
On the piano, while we continue to see the expected de leveraging year over year the recovery in our business is evident in the sequential improvement in our adjusted margins.
Over 300 basis points, and our growth margin and nearly 600 basis points and our operating margin.
Our of better than expected revenue flow through to the bottom line, resulting in EPS well ahead of expectations.
Turning to our balance sheet, our financial position remains strong.
In the quarter, we completed the another year of debt offering $6.25 billion and use the proceeds to reduce our U.S. dollar of that and Prefund. Our March year, our debt maturities driving roughly 80 million of additional annualized savings.
This is our 30 euro transaction in the past year and a half.
Combined we have issued over 18 billion and our portfolio now sets, where the weighted average maturity of over 12 years, and a weighted average coupon of less than 2%.
Among the lowest of the large cap issuers and the lowest among our competitors and medtech.
As I shared with you at our Investor Day last month, we remain focused on investing both organically and inorganically through tuck in acquisitions and minority investments to drive our long term growth strategies.
Last month, we announced the acquisition of AI biomet to expand our NTM portfolio.
In addition, we closed our acquisition of Avenue medical and peripheral vascular earlier this month and.
And we announced the completion of our medical via acquisition and spine last week.
We expect both organic and inorganic investments to fuel a longer term revenue growth acceleration.
Ultimately, creating strong returns for our shareholders supplemented by our strong and growing dividend.
We are an S&P dividend aristocrat, having increased our dividend for 43 years and our current yield of 2.1% places and the upper quintile of S&P 500 healthcare companies.
Now turning to our outlook.
Particularly with the rising cases of Cove it around the world the impact to our business remains difficult to predict.
So we will continue to not provide our typical guidance.
That said I do want to give you a sense of the recovery ahead.
While it is still early in our third quarter, we've seen our average weekly sales track ahead of the same weeks in the second quarter.
So while there are pockets of more restrictions and delayed procedures around the globe the impact to EPS has thus far been limited.
As we've said before hospitals are better equipped now to handle covert patience and remain open to serve non covered patients.
And over time and with education patient fear is not of heightened as it was last spring and early summer.
While there is still uncertainty ahead, if the recovery trend continues as it has to date, our third quarter revenue could be flat to slightly up year over year on an organic basis.
And we would continue to expect to return to normal organic revenue growth on a two year stacked basis by our fiscal fourth quarter.
By group next quarter Michie growth could be in the low single digits, a little lower than the second quarter given the benefit we had from strong ventilator sales.
Our TG in diabetes to deliver improvements from the second quarter with the decline in the low single digits.
And CVG should be roughly flat as we continue to recover and take share.
On the TNL well, we are continuing to invest in our product pipeline and launches during the pandemic, we still expect sequential operating leverage as we recover.
For both our gross and operating margins, we would expect the couple of points of improvement in the third quarter versus the second.
And we continue to expect to return to more normal operating margins in the fourth quarter.
Regarding currency.
Assuming rates hold constant the tailwind on revenue in the third quarter should be similar to the second.
And the full year benefit could the of roughly $150 million.
On the bottom line, we'd expect a four cents headwind per quarter for the remainder of the year.
As I wrap up one of the pandemic could impact our outlook art.
Our ability to continue to invest in our pipeline develop our markets and execute on product launches will allow us to outpace our markets.
I'm proud of the hard work from our employees this year and I'm excited about the impact we are having on millions of patients lives around the world.
With our competitive spirit and focus on being bold, we will be at the forefront of the recovery.
Back to you Jeff.
Okay. Thank you Karen.
Now to wrap up I hope you're seeing the strong execution that organization is delivering.
I want to take a moment to thank our employees across the globe to the great performance. They have collectively produced this quarter.
To sum up the second quarter.
We're improving our growth.
Advancing our pipeline and winning share.
And we're doing all of this while operating in the midst of the global pandemic and while we make bold and comprehensive changes to our operating model.
And one last note regarding our operating model, we're making solid progress on decentralizing and de layering our businesses.
We're empowering our 20 operating units.
Gaining greater visibility into our end markets upping, our competitive game and holding our business leaders more accountable.
We're leveraging the strength of our enterprise by centralizing manufacturing and certain core technology development.
We've increased our focused on allocating capital to our best opportunities.
And were supplementing this with an increased cadence of tuck in acquisitions.
And we're enhancing the culture of this company by increasing our competitiveness and being bold.
Adding these on top of all the great attributes of our mission driven culture.
We expect this we expect this to lead to more innovation accelerate our growth and unlock a lot of value for our shareholders.
So with that let's now move to Q and a.
It's net downtime for the Medtronic earnings call Q, and a session, where Medtronic executive will answer live questions from the sell side analysts covering the company for the sell side analysts if you'd like to ask a question. Please select the participants button and click on res hand.
If you're using the mobile app pressed the more button and select raise hand. Your lines are currently on mute when youre called upon you will receive a request to Unmute. Your line, which you must respond to before asking your question. Please also be advised the this QNX session is being recorded.
Today's session, Jeff Martha and Karen Parkhill are joined by like Coyle, SVP and president of the cardiovascular portfolio, Bob voice, SVP and president of the medical surgical portfolio, Brett wall, the VP and president of the neuroscience portfolio and Sean seminar Dvp and president of the diabetes.
Operating unit Ali.
Ill now turn it over to the moderator Ryan Weispfenning. Please go ahead.
Great. Thank you, let's first go to the line of Bob Hopkins from the of a securities Bob.
Great. Thank you very much and good morning, everybody.
So the first question I'd Love your guys. The car is some of the geographic results showed in the quarter because the found the the break down really interest.
Specifically I'd love to hear thoughts on the looks like Europe was was up in the quarter, China was down in the quarter, maybe comment on some of the trends that are driving those results in Europe, and China and specifically the on the trying to tender was that worse than you thought in terms of the final outcome, there and was that tender contemplated when you gave.
The the long term guidance that you provided at the analyst day. Thank you.
Yes. Thank you Bob for that question, we were pleased with the geographic results that we saw you're right Europe was up and certain parts of Asia were up.
China was down but that was really due to the to the national tender absent the impact of the national tender China would have been in strong growth territory and on the tender and it was really close to what we expected.
You know we have it's hard to predict but we are pleased to be one of the five finalists in the tender. So we expect to be and gaining share of gaining gaining share and volume as the result of that.
That's the it just Bob on the tender I say I'd think gum.
It is the in the in the net over the next couple of quarters, it's going to be a headwind because we're going to of a lot of volume increase here a matter of fact that but it's going to be offset by the the the price decrease and.
And so, but we view it as strategic overtime 'cause. This is going to be of you know one of the tip of the spear. If you will for more aggressively taking our commercial organization into the lower tier cities. The rural cities in China tier two tier three and it will also help us pull through the other products around coronary today plus in the future with the tavern.
And renal denervation. So you know not happy about the short term impact I think long term. This is like a set of strategic and we'll see the volume you know the Chinese government is the I've been reaching out to us and working with us to make sure we're prepared because the they're expecting us to have a pretty dramatic increase in volume here. So we'll see how this plays out but we do think the over the next couple of quarters.
More of a headwind than a tailwind.
Okay, and then just really quickly for share in your comments on current trends I. Appreciate the those the just wanted to be clear. So are you, saying that what you're seeing so far this quarter is not worse than what you saw in October in terms of your of your growth.
That's correct what we've seen at first couple of weeks in November it's higher than what we thought and the similar weeks in the second quarter in of that said the first few weeks of the quarter don't necessarily make a trend.
So we'll be closely watching any impact of.
From the Cove at Serge I would say that if the trends continue and there's only a limited impact from the covert surge yeah, we do expect our or our revenue could be flat to slightly up in the third quarter.
Thank you very much.
Great. Thank you Bob What's next go to the line the of David Lewis from Morgan Stanley. David. Please go ahead.
Good morning, Thanks for taking the question just two quick ones from me I'll start with Karen. So secure ended the revenue numbers in the quarter and the Florida mentioned the is very impressive is the drop through on margins Karen in the second quarter was actually weaker than the first quarter. So maybe just talk about the where are those investments going how should we think about drop through into the back half of the year.
For it and where are we on the cost plan none of quick follow up.
Thanks for that question, David clearly, we have been focused on investing for the long term through the pandemic and as a result, our margins are a little bit more depressed than than normal in the we have said that we expect to be back the more normal margin in the fourth quarter, all along and we continue to expect that in.
In terms of the drop through the additional revenue. We did have some period expense thing on the manufacturing of front as well similar to last quarter, and we expect that to not be a headwind next quarter and we continue to invest of below the.
The gross margin line.
Particularly as we're focused on driving the.
The right commercial launches of some of our new products and so we're focused on on investing appropriately and ultimately getting our margins back to normal by the fiscal fourth quarter.
Okay very helpful. And then Jeff finished the year me interest in the $1.6 billion of balance sheet deployment of the the relatively near term.
The next six to 12 months is should we expect a similar cadence of deals should we expect sort of higher or lower and then it carried if there's any sort of quantification of crossed the 1.6 billion in terms of what the revenue impact to be here over the next six months or so that the super helpful. Thanks, So much.
Yes, David on the on the M&A. It's obviously, it's hard to predict right I mean, but I would I would suspect a similar cadence of these of these tuck in type of deals again. Its it is hard to predict but it is the like you said part of our strategy of something that we're looking to do to augment our.
Our R&D.
Yeah, and David in terms of the revenue contribution much of what we thought of it. This year are really early stage tuck ins and it goes along the lines of grow what we buy don't buy growth. So and these acquisitions are really expect it to the larger contributors to revenue in the years ahead of the combined expected revenue.
The contribution for the rest of this fiscal year is small and will obviously evaluate whenever a revenue from an acquisition becomes meaningful to the business. We will certainly adjusted from our organic results until we anniversary that.
So the one that we may end up and adjusting for starting in the next quarter its companion medical.
Because it could be and impactful to the diabetes business alone, but certainly not to the total company.
Thank you David What's next go to the line of Robbie Marcus of JP Morgan. Please go ahead Robby.
Hi, Thanks for taking the question and congrats on a nice quarter.
I was looking at diabetes, which to me is one of the businesses that could have the most upside potential. It is your turnaround plan of works out I was hoping you could walk us through maybe the next six to 12 months in terms of new product cadence, how that should impact numbers and also I know you've been deferring pump sales for a long time.
I'm waiting for Seveneighty GE in the upgrade program, how do we expect that to play out in the numbers of next 12 to 18 months when Seveneighty GE hits the U.S.
The Ravi I will turn that one over to Sean with one at it not if it happens, but when the turnaround happens.
So Sean will channel talk to that.
Great. Thanks, the fixed the krave. So over the next six to 12 months you know really the the focus is going to be on rolling of the new pulp platforms. We're off to a really really good start for the European launch of the.
The seventyg sort of I think now to levels countries will continue to roll those out.
As time goes on here in the certain 70 trees as Jeff said just started its initial launch the U.S., we had a really strong demand for that.
We cut the number of these upgrade pathways in place so of the pathway to upgrade from existing 672 as well as the index tech pathway to get people to.
Coming to the new pumps, we've seen an increase in the proportion of patients as the new starts in the U.S. as compared to just replacements of in warranty patients coming out of warranty and of course.
Force companion Medicals kind of be a big focus we've got some.
Now the integration with art.
CGM.
In real time, which is a big deal as we improve the sensor experienced that's going to be even more of the big deal, but more importantly, we've dug trained up and.
Of the entire sales force.
With that with this in their bag sales in the U.S. as opposed to just the small sales force that came with the creative acquisitions. So I think the near term those are the priorities that the roll that forward into what's next obviously the 780 g. launch for the U.S. Big deal.
The two sensor of gold.
Globally will be really important driver for us than smaller product, but an important one.
We just started of limited launch in Finland. Its for a seven day infusion sets. This allows you to where the infusion set for almost twice as long as what the is normally required and that that product. The rate you asked the just lock the database on that so we should expect that to be the part of the the mix going forward of course all of this.
You know flow. So you have the hardware out there it's upgradable by software. It says 70 80 of young you've got the compatibility of designed in sort of the sense of pipeline as well as extend of where infusion sets. So we're setting up for a really nice cadence of products metal drivers of growth.
And maybe just a quick follow up but current there's a lot of nuance as we look at the fiscal of 22, which is where I think a lot of the street is focused in terms of valuation. So anything you could sit here today I know, it's impossible to call the recovery trend that keeps that but anything that you see in March.
Sales that stand out that you want to point people to as they think about modeling into the fiscal 2002, whether it's on the top line or where the the expense cadence. Thanks Warren.
Thanks for that question Robby.
The early obviously, we're still five months away from from the starting our fiscal 22, and we're really working on our plans right now plus the pandemic makes it a little more difficult to forecast and so I would say and we'll we'll wait to give more more color or guidance on halfway 22.
The likely as we normally do on our fourth quarter earnings call, but clearly you can expect that our growth should be higher than normal next fiscal year off of the depressed faith and because we continue to to launch in our pipeline of product.
The thank you Robby lets the next go to the line of Vijay Kumar from Evercore ISI BJ. Please go ahead.
Hey, guys back in the heavy.
We can.
Excellent. So I guess I had the two quick questions one non financial and one that one on I guess I'd diabetes.
Non on I guess, the financial part when were looking at the CR on your organic growth could you perhaps the.
Quantify what the impact from.
At the moment to consignment shelves the move the shift away from all the order was in the quarter because it looks like GAAP.
The next those impacts of perhaps organic year on year was up in the low singles territory positive true I just want to make sure. My math is correct and I think I heard you say Karen.
Q on Q extra margin is to be up a couple of hundred basis points. Some of if revenues are almost flat to up into the queue perhaps.
Perhaps talk talk about any margin headwinds for ups the Q.
Sure VJ and let me start with a that the conversation on bulk we mentioned last quarter of that the vast majority of the Woking impact was behind us, but there are still pockets in certain businesses, where we continue the two on the to look at you know on the year.
Over the year comparisons because of the bulk I would say biologics and spine as one of those areas to have her as another and the if you look at the total company and the impact from both the largely behind us.
And in terms of the quarter over quarter margin, we said that we expect both growth and operating margin too.
To be up a couple of points sequentially from the second quarter and so if you look at the the street model of you know, particularly on growth margin. It can be a little higher than what than what the street currently has.
That answering your question.
Yeah eight dead day, then I guess on on non because I guess I was confused on the tower commentary.
On the on share the market share being stable sequentially.
As I look at your clothes pure there were up the matching those new guys from minus the it's I just want to make sure of how you get to the sequential stable share of Matt.
Yeah, I know it via the I know I understand it's a little difficult the track one way of Mike Coyle walk us through that the that math there.
Thanks for the question of VJ. So we would estimate that the overall TAVR market for the quarter was on a constant currency basis of around 2% and as you. Just noted our reported numbers on a revenue basis year over year are down about six but when you basically consider the U.S.
The market dynamic of the de loading activity that weve, that's been taking place where essentially the we have shifted away from doing both purchasing and have actually moved customers onto the consignment.
Especially when the whole inventories if you look year over year or or hospital hell of inventories of fabric products are probably down around $25 million. So that basically when you correct for that in terms of just the year over year comparisons of it.
Were essentially flat in terms of our global sort of.
However margin.
So so thats the difference between sort of the year over year versus the quarterly comparisons as we look in the quarter sequentially from last quarter.
We essentially the health market share and in the United States on a year over year basis or case volumes were essentially flat with the prior year, which was a marked improvement over what we saw during Q1 and so as we look forward. We're we're very confident about our ability to take share for the number of reasons.
Obviously, the the most important of those being the recent announcements the Boston scientific here late in the quarter of the decision to essentially remove Lotus from the marketplace and in addition, the from the TCT meeting the scope to data that basically had the the the accurate view of product failing its non inferiority effort, we've kind of hit the trial.
First of all these are so that gives us really I think an opportunity to take share growth.
The that they have had where we get the disproportionately it's year over over prior quarters and of course, just going forward on the human dynamic.
Benefits of the product really are encouraging in terms of the how the customers are receiving that we had another great TCT meeting here in terms of you data flow supporting the benefits of of human dynamics lower pacemaker rates you know the solitaire tabby data was very encouraging in terms of direct comparisons of the expandable. So.
The expanded valves.
And we continue to rollout our customer overlap ticket for the lower pacemaker rate. So all of that we think is going to be very helpful. For us to continue to take the sequential share now the the third quarter a year ago, we saw a pretty big dips in share that we've been given sort of clawing back of so you're going to see it in the overall year over year numbers once we.
The of anniversary that Q3 event and of and of course as we get into the into Q4, we have normalized.
The prior year comparisons for.
The the hostile inventory adjustments that I just talked about so by the time, we get the Q4, we take what we will look very similar weather looking quarter over quarter or year over year in terms of the sheer dynamics.
Okay. That's helpful, Mike and Jeff One quick one for you on non diabetes I think you spoke of share gains I you see anything on the one you look at the seek the guidance down low singles and implies an improvement over.
In the Twoq, what's driving that and are you seeing anything on the pump market share. We're hearing some chatter about you know customers delaying pump up bitch of waiting for of the pipe pool algorithm to comp.
Oh wait waiting for the type full of algorithm. So perhaps talk looked up the diabetes market. Thank you.
Sure the jail the of Sean wants to jump in on that one.
Yes, so be true I think that Theres a lot of a smaller proportion of the market that is day.
Waiting for tied Fulton come available the way I think the the.
Capabilities that algorithm are really not anything advantaged over what that we have of the pipeline of certainly whats available currently in the market. So I think the the idea that this report rather it's pump you can kind of.
Pick your components is appealing to us on the into others quite.
Quite frankly, having to chase two or three companies around the in order to kind of get your questions answered truck down what's your what's the challenges maybe it's just not the kind of experience of lot of people looking for the kind of one of one stop shop, where they can get everything they need all of their questions answered the single place and that's of course of the advantage that will accrue to us.
As we get our pipeline of products out there, but I'd say, it's really much of its more of a niche opportunity.
And going out of Big focus I don't see a lot of people waiting for it.
That's helpful. Thanks, guys.
Thank you Jay Let's next the go to the line of Larry Biegelsen. The Wells Fargo. Please go ahead Larry.
Good morning, guys. Thanks for taking the question can you hear me Ryan.
We can yes, Greg alright, great one for cash and one for Jeff. So Karen you talked about operating margins of the.
Returning to normalized levels in Q4.
How do you the by that is that the 30% we saw in fiscal Q3, 2019 or should we be thinking about 29% for fiscal <unk>. You know the full year of fiscal 2019 and any comments on the consensus EPS for Q3 and Q4 based on the the commentary you've given this on this call and I had one per Jeff.
Great. Thank Larry for the question in terms of normal operating margins in Q4, we are thinking about that pre kind of it for the full year. So yeah roughly around the 29% level and then in terms of of consent. The you know, we clearly talked about revenue I'm in the third quarter.
You know if if trends continue and there's limited impact the code of it and being around the flat to slightly up which is higher than where consensus currently is and and that would flow through down to the margins as we discussed the approximately 200 bed of sequentially higher from the second quarter of.
And so flow through to the bottom line and the that that that I would say on the Q3 consensus on Q4, because we've said all along that we expect to the back to more normal growth on a two year stack basis than more normal margin you know consensus as you know roughly right there already.
Perfect, Thanks, Karen and Jeff on China.
I heard your comments on the drug eluding stent tender and the pricing. There you know China is an important market for you roughly 5% of revenue is I believe how.
How concerned are you that you know what happened with drug eluding stent could spill over the other areas of your business. How contained do you feel that is thanks for taking the questions.
Thanks, Larry for that one yes, China is the strategic market for us and we are watching this tender process.
The tender process closely you know.
Anyway, sorry to hear that you saw the line here.
A few phone and hopefully that will stop here hopefully up anyway.
In terms of China, We do think it's a we do think it's it's more contained for us at least for a couple of reasons. One you know the coronary stent business is one of the few businesses that Medtronic that you know does have less differentiated the less differentiation I would say a in the industry. The industry itself one of the products aren't as different.
Jaded as as we see in some of our other segments and the other dynamic that was unique here is that the 80% of the drug eluding stent market in China was already local so they had alternatives there and those two dynamics, the the differentiation or the lower differentiation and a robust local market that day.
Doesn't exist in most of our the segments that we have the we compete in China. So we do think it is that we don't have a lot of exposure to that type of the impact.
Impact from a tender going forward and matter of fact, the this is where diversification helps us the it we've got a lot of growth levers in China and.
You know I do believe it is still remains a bigger you know a big growth opportunity. Despite some of these these tender headwinds.
Thanks, Jeff.
Thanks, Larry Let's the next go to the line of Matt Taylor at UBI EPS Ma'am. Please go ahead.
Thanks, Ryan can you hear me okay.
We can.
Perfect. Okay. So I just wanted to ask the question about the progression of utilization, we've seen stronger recovery here and a lot of us might have expected with the current conditions. We've had a lot of good news around vaccines lately and I'm just wondering conceptually as we go through next year can you talk about how you expect.
The that the impact recovery income, we see a bolus or elevated demand after the vaccines take hold or do you think that we've.
We've kind of lost some of these patients and in the shuffle.
And that you won't see that kind of a resurgence.
You know thanks for the question Matt on on that one.
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You know right now like the Oh, we do believe or to the extent that there is a pressure from the second wave or this the the spike if you will it is I'm limited as Karen said of both in depth and time like I mentioned to you know pre pre of the vaccine hospital Ceos, we talked to.
Of them.
All the time are dozens of weekend or the the their narrative as remained the same and that they've learned a lot of lessons and how to.
Safely.
Because the continuous elect of cases, despite coded and there the they've been able to treat code of patients more efficiently and they believe that the even in the spike.
The they'll be able to continue elective cases, we are seeing some pressure in some areas, but like I said before and then Karen mentioned earlier, we do believe that limited now in terms of your question of you know once we get through once the vaccines out there a and it's like pretty much an all clear signal for patients that are considered that may.
I've been holding back I haven't heard anybody at talking about like a bolus of patients I think we have worked through by and large there is a little bit of the backlog out there still but the we have worked through a lot in the interim or more elective areas. If you will a the by and large.
We've worked through a lot of that and.
And that the backlog is relatively small and we're starting to get back to more of a a kind of steady state run rate here and so given all of that I wouldn't expect a big bolus of but but we could be surprised that this is the I wish there were a little more science around some of the numbers that were but we are.
Our trying to quantifies much of the feedback were getting but the haven't heard anything about a bolus of patients wait out there for the next year.
Okay. Thanks for the thoughts Jeff.
Thank you Matt.
Let's now most of the line of Rick Wise of Stifel. Nicholas Rick. Please go ahead.
Good morning, Ryan Good morning, everybody I'll just ask one question the.
Jeff You you were very clear of the analyst day.
About your focus on accountability execution innovation the.
But the potential for improved gross margins et cetera, et cetera et cetera.
Is the.
I guess just two aspects of that is my question.
The should we attribute how much of the excellent the.
The quarterly price, we're just looking at to do is tied to your initiatives you're actually the you're bringing your new vision of you're bringing the medtronic.
The second maybe just at a high level just talk to us about the the progress Youve made where you feel like your art.
You know how you're how we should think about the mark the plan going forward. Thanks, so much.
Thanks for the the crushers and Rick and yeah. It would be a it'd be nice to say that the you know the the Martha plan had a deck big of an impact so quickly, but I think you're in reality. It is the product launches that's what's really driving a the near term results sales of the product portfolio and the pipeline rather is the best we've ever had.
And we've got products launching now, which we listed a lot of those and then we've got products.
Over the next 18 to 24 months and the disruptive nature of those products and the 18 next 18 to 24 months in and of itself has created a lot of the energy across the company as as people can feel that the of the the near term impact of these products and things like.
You know we mentioned in the commentary here are.
You know are ablation business or Cryoablation business being but this new England Journal Medicine data.
Being now of frontline therapy for ace of and and taking that information.
And that opportunity and making the most of it that type of approach.
Is getting people excited so I think it's the right now it's the really about the product launches over time, though I think the the changes that we made the decentralization or the the unnecessary of these operating units. These 20 operating units and pushing them to the bold.
To think big be bold and maximize their opportunity and you know what don't be afraid.
To the fail or hate I mean, the we don't want to fail, but if you're if were too conservative we're not going to take advantage of these these massive opportunities in front of us like already in light green of like renal denervation like soft tissue robot you know like the example, I just gave for ablation business its of its a matter of life as a massive under diagnosed the price.
Of them here, we've got all kinds of of therapies for this so that is creating an energy across the company that I anticipate overtime will translate into of you know.
I'd say the above market the growth.
Growth and really expand the number of patients that are that were serving and I'll end on the as we talk about.
You know, we we we touch or impact the lives of two patients every second and that's a pretty amazing statistic, but when you do the math of like 80 million people of year, where there is over seven and a half billion people in the world and so I'd like to kind of re frame that question is like why are we doing so few given the technology that we haven't really expand that patient base and that kind of approach.
Is creating a lot of.
The new thinking and energy that I think over time will will it will take hold here because we've got the plans here, but what you're seeing now is good but I think we can do better overtime.
Thank you Jeff.
Right.
But the to the line of the Matt Miksic at Credit Suisse. Matt. Please go ahead.
Hi, thanks to the in here the right.
Yes.
The big so.
Just to follow up on some of the current trends commentary that you given the overall watching hospitalizations.
The has increased and.
Yeah, I'd say it sounds like your commentary was perhaps the little bit more optimal.
Optimistic in constructive despite the surge the than some folks were expecting which.
Which is great and then the numbers were terrific you're in the in the second quarter, but maybe.
Maybe if you could talk a little bit about how you're thinking about hospitalization trends.
The next conversations you're having a navy when any of.
What level of the as you become a little bit of the concern that I have I have one follow up.
Hey, basically Matt you know of what were hearing is that you know two things.
Most of our feedback I'd say, 75% of it is coming from the U.S. hospitals and then the of the rest from Europe, I'd say, but in the United States in particular the.
The two things that would have that would have to happen again, given everything we said about the lessons learned and the commitment to hospitals the commitment to keep elect of cases going the two things that could derail them is literally they run out of space.
So many covert patients and then they and so it becomes like a real estate issue at the the hospital that that would impact obviously elect of cases, they would be de prioritized there.
And in some cases, we're seeing that we're getting closer to that level of capacity of so that's what we're watching and the second would be some sort of statewide mandate that could happen you know it's a in today's political climate, a I think it it'd be force and try to predict anything, but you know some sort of state wide mandate the could happen as well.
So those those are the two things and you know.
I think the hospital Ceos and executives are more worried about the first thing.
And some of the larger systems of the luxury that are more regional of moving patients around the both both covered patients intellect of patients you can move elective procedures from one hospital to the next and some of these larger systems. So that they're really doing the best to manage those two things, but that's why we're I guess you know cautiously optimistic.
That the that the impact of the second wave will be you know will be of limited that and with the optimism of the vaccine news is another driver here.
That's helpful. Thanks, Thanks for that and then the.
Just to follow up on your comment on the New England Journal article in the presentation of AJ.
Yes. The first line therapy for parents is low and you talk about maybe.
Maybe how you expect the how investors should expect to sort of show up in the numbers, there's a sort of penetration.
Penetration pathway here that the that we can expect the hear more about over the next year or so.
Well maybe of Mike of provide a little more details on that and on the data.
Sure Matt.
Currently because no of ablation therapies approved for first line therapy, the patient as the sale of a series of any arithmetic drugs before they become eligible and we'd estimate that's about a two year period of time.
With that the physicians will will essentially tied for free of any rubric medications and basically the data that was shown in the doing with journal said less than half the patients who actually go down that path will wind up being symptom free. So so essentially you're taking a large force of the the entire diagnosed portions of patients with some of them out.
The two per relation and you're you're delaying them two years from coming in and we're losing a lot of them too just to follow up there and of course of 45% of them I will just stay on the medications by basically showing the cryoablation will have 75% of those patients symptom free in the year, if we can push that.
The first line, we not only accelerate the curve, but obviously a lot of patients who wound up on the Ah Ah Ah.
Terrific, well, then essentially not required of because the they'd become simply free with the with the glacier. So theres, obviously a lot of education that has to take place at the referral channel level of we were we think these data will be very compelling to be able to have that take place obviously, the the FDA approval of the labeling indication which Jeff.
Jeff mentioned, we would expect to be of our next fiscal year, but we're very excited about being able to outreach the that referral community for the much better solution for the fish.
So much of that this is the this is like a trend that we're starting to see where our kind of definition of market development is expanding to I'm not just of the specialist physicians around the world that we're used to dealing with.
The two more you know the general says you know the the general practitioners and in this case, even in just general cardiologists into the patients themselves and so this is the muscle that the this kind of a hybrid b to C. B to b to B B to C.
This kind of go to market this muscle of the market development, we need the we need to develop because there's other areas across the company that we're seeing this obviously diabetes is more in this camp.
And this is something that Medtronic. It you know even in a lot of Medtech historically hasn't done, but I do think it's the muscle we need to develop here.
Great. Thanks.
Thanks, Matt Let's next go to the line of Chris that quality of Guggenheim Chris. Please go ahead.
Thanks, one quick one on diabetes than the one on CVG the diabetes, Sean the just clarify the expected timing of the seven aging you as long as it sounded like there may still be some uncertainty about.
How you go about the filing strategy the.
Yes sure.
So the situation we have I think as you probably already know is that the empties division that regulates.
The diabetes sector is also involved in the lot of the code of diagnostics works. So it's really been of resource drain on their part of.
The medical of yours in particular, so at the request, we're pulling together a lot of parts to that submission, including the pediatric data enough separating that out from just the adult data. So once the mission for all patients.
As well as the integration of the disease.
The zoo sensor into into that package.
So that's the summary of the package that we can consolidate of down to fewer component parts of the it'd be review, which will add efficiency for for them and the time to market for us for the entire package.
Okay, but in terms of when we should expect PTAB certain age the available for us patients the any sense.
When the accident.
That's hard to predict the review cycle time.
For 10 years submit that in this quarter.
Okay. That's helpful. Thank you.
And then just quickly on the Chinese tender the impact there in the back half of the year you characterize the 26 million this quarter as reserve, which to me implies the pulling forward of the headwind. But then you also talked about the continuing to be an issue on a go forward basis of how much of the sort of annual impact of that was recognized this quarter versus still to come. Thanks.
Yeah. Thanks for that question Chris.
The reserve a impact from the China tender as really because we've got a product in the dealer channel and we needed to too.
A couple of compensate for the price that will be impacted in the dealer channel as soon as the tenders the effective and so that's what's going on there in terms of go forward, obviously, a the price go forward as 95% low water and and so that will you know continue to impact of that it was a bit of a lot.
Merger impact now since we had the day the reserve as well as the shorter impact for the quarter.
Thanks.
The interest.
Well take one more question and go to the line of Kelatron at Truest Kayla. Please go ahead.
Hello can you guys sort of me okay.
Yes, yes, good perfect. Thanks, Ryan and thanks, guys for taking the taking our questions on that.
I you know you guys had mentioned that you're talking to you at dozens of hospital Ceos every week. So I'm just curious what you're hearing in terms of their appetite for capital spending and particularly as their budgeting for calendar 2021 day.
Any additional color there I you can add would be helpful. Thank you.
Yeah. So capital it's the you know it is.
Obviously, the capital budgets and hospitals are are pressured, but we're finding a two things that are that are helping us out one is that our capital tends to be you know is tied to you know for them profitable elective procedures like in spine and so that helps a lot.
And the other thing is providing flexible fit financing options.
It is it is the second one so of.
Although there is some pressure on the you know just general capital.
When that capital is supporting an elective procedure that is profitable and critical to the to the hospitals financial recovery.
That's really helping and into the they're continuing to have these conversations with us and they are continuing to two of by capital and I think you know talking to our spine division. The other day. They anticipate you know the of the Ms or the you know sales to get back to normal levels here.
So which is evidence of of what I, just said and the second thing that is helping as you know weve working with the number of financing.
The companys to provide the various different financial of flexible financial solutions for the for the hospitals. So those two things of really helped us.
And in the <unk>, although that it's there is some pressure it's not like a maybe you might see with general imaging or something like that.
Great. Thanks, so much for taking the question.
Thanks Bill.
I'll ask Jeff to to conclude.
Conclude with the with his remarks, Jeff Okay, and thanks, everybody for the questions and the great engagement and we really appreciate your support and and the continued interest in our company. We will we hope that you'll join US for our Q3 earnings broadcast, which we anticipate holding on February 20, Threerd, where we'll update you on.
Our continued the quarterly progress so thanks for tuning into day stay healthy and safe and for those in the U.S. I'd like to wish you and your families of very happy Thanksgiving and have a great day everybody.
Thanks.
Thanks.