Q4 2021 Medtronic PLC Earnings Call
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Hello, everyone and thank you for joining US today, we reported a strong quarter. This morning, the expectations that we set for Q4 on the last earnings call were seen by many of the financial community as aggressive.
Yet, we executed and we delivered beating street estimates on revenue margins and EPS.
Most of our end markets are returning to near normal pre COVID-19 growth.
For some geographies are lagging due to COVID-19 for persistence momentum built throughout the quarter and we feel confident about the year ahead.
Karen will give you more color on our guidance later on this call, but the key takeaway is that we're guiding above street estimates on the topline while simultaneously accelerating our investments at the front end of major product launches in surgical robotics and renal denervation.
Now in robotics, and renal denervation, we're investing in our marketing customer service and support capabilities to maximize these product launches. We're also investing in R&D broadly with meaningful programs across the company.
As we talked about on our Investor day last year, we have of packed pipeline across our businesses with the number of meaningful opportunities.
And our top priority is to invest on our business and pipeline to take advantage of those opportunities as a result, we plan on increasing our R&D spend by more than 10% in FY 'twenty 2 the biggest dollar increase in R&D spend in our company's history, all while delivering strong EPS growth.
We are ultra focused on accelerating our topline growth.
And we're making incremental investments to put us in a place to drive of sustainable higher level of growth than you have historically come to expect from Medtronic.
Before I get into some details on the fourth quarter.
I'd like to reflect on the past year My first the CEO.
It's certainly been a difficult environment with the pandemic, but our organization has risen to the challenge and achieved so much in such a short period of time and under unique circumstances.
Now it's become cliche for companies to say that they're expecting to emerge from the pandemic stronger as I've heard this phrase echoed for many of our competitors.
But you've been hearing this from us from day, 1 and.
And I think you'll find it hard to name another company in our space that has done more to emerge from this pandemic stronger than Medtronic.
Whether it was investing in our employees, helping our customers and patients sustaining our R&D programs are changing our operating model and putting in place of new Medtronic mindset culture.
This past year was transformational for us.
In fiscal 2021 customers eliminated the vast majority of their quarter and bulk purchases, resulting in a more balanced order flow across the quarter.
This has improved our predictability in our pricing made our business easier to manage and reduce stress on our operations.
This past fiscal year, we also accelerated our tuck in acquisitions.
Adding key technologies like AI, driven spine planning tools for meta Korea and.
And market, leading smart pen technology from companion medical among others.
We also advanced our organic pipeline with more than 230 regulatory approvals in the U S Europe, Japan, and China in FY 'twenty 1.
FY 'twenty 1 was also the year that we stepped up and helped our customers and communities during the pandemic.
As a leading manufacturer of high acuity ventilators, we significantly increased our production and open sourced our IP to allow others to produce our ventilators around the world.
We continue to support communities in need most recently as the key member of the Global Task Force on pandemic response, which was organized by the U S Chamber of Commerce and supported by the business Roundtable.
With the help of other task force members, we're working to supply 1000 ventilators to India.
Medtronic and the Medtronic Foundation also just announced an additional 3 million for Covid relief efforts in underserved areas of India, Brazil, and the U S and other regions, which brings our combined support of COVID-19 efforts to $56 million.
And in FY 'twenty, 1 we announced our goal of becoming carbon neutral in our operations by the end of the decade we.
We've set aggressive targets to reduce our environmental footprint as we focus on creating a sustainable future for our business our communities and our planet.
We've always had a strong mission to guide this company, which includes integrating a strong corporate purpose into our strategy and maintaining good citizenship.
And this year, we've enhanced our corporate culture to emphasize our commitment to being bold more competitive and moving with greater speed and decisiveness, which we believe will help drive the execution of our mission.
We're also focused on becoming a more diverse and inclusive organization and I was very proud. The Medtronic was recognized earlier this month as number of 11 on diversity Inc's top 50 U S companies for diversity, 1 of the biggest jumps by any company.
We know we have room to improve and we're striving to be a company that attracts develops and retains top talent from all gender and ethnic backgrounds.
To sum up F. 'twenty 1 it was the year marked by progress and accomplishments that will propel us into FY 'twenty, 2 with a stronger foundation for growth and a greater ability to execute deliver and exceed our own expectations, we have momentum energy and a pipeline that gives.
Our team optimism about what we can accomplish this year.
Now, let's turn to the fourth quarter results and start with the look at market share as we've been doing the last few earnings calls.
We continue to gain share in an increasing number of our businesses driven by our differentiated product offerings.
And we've put in place operating mechanisms to ensure that we continue to drive this competitive culture across the organization.
Market share is 1 of the key metrics that we will hold our teams accountable to deliver in evaluating performance and in FY 'twenty..2 it will be included as a metric in our annual incentive compensation.
While the impact of Covid on procedures, along with the timing of our quarter does mask some of the underlying market dynamics, we are seeing a growing trend of share gains for medtronic.
Leading the list for share gains this quarter is 1 of our largest businesses cardiac rhythm management, which has gained share.
Share over the past several quarters, we estimate that our CRM business has gained 2 to 3 points year over year and CRM is now at the highest share level in more than a decade with strong gains from around the globe.
Now these gains have been driven by micra are lila's pacemaker, which grew 74% in Q4 and is now annualizing at nearly 400 million micros.
Micra is a great example of the innovation and disruption that we're driving at Medtronic, but.
But it's not just micro generating our share gains our cobalt and crome high power devices are also contributing driving our CRT D product line to 74% growth in Q4.
And tab of our share was up over a point year over year and was stable sequentially.
We reached an all time record of U S to have or implants in the quarter.
Late last month, we announced interim results of our optimized pro study, which showed that our new implant technique is resulting in single digit pacemaker rates.
In addition last week at Euro PCR, we announced very strong low risk data, which showed that the advantages of our evolute tavern system are maintained over surgical valves at 2 years post procedure.
<unk>, our data showed no conversions of the tavern and savard curves for death or disabling stroke as well as continued low valve thrombosis rates out of the year 2.
This stands in contrast to our competitions partner 3 data.
And we will leverage this data with implanting physicians as we continue to go on the offensive and win share in this important growth market.
And our gastrointestinal business, we estimate that we gained share both year over year and sequentially. Our Gi diagnostic product lines grew in the low fifties driven by high sixties growth of a pill Cam lie.
Last month, we received FDA clearance for our GI genius module, which uses artificial intelligence to assist physicians in detecting both precancerous and cancerous growths during colonoscopy.
GI genius can highlight lesions real time and identify polyps that might otherwise go undetected by the human eye, improving the quality of colonoscopy.
And our cranial on spinal technologies business, we estimate that we gained share in both spine and neurosurgery both year over year and sequentially our strategy of bringing of digital ecosystem of enabling technology to spine procedures is working we had record sales of our stealth station navigation systems O arm.
Imaging systems, Midas, Rex capital and advanced energy products, and we estimate that our Missouri of robotic system continues to outpace our closest competitor.
And Ian T. We estimate that our share is up over a point year over year, the ongoing launches of our NIM vital neuro monitoring system and stealth station flexi and T navigation system.
Coupled with share gains in disposable sinus blades are driving our above market performance.
In pelvic health share gains continued with the momentum created by the launch of interest in micro and the sheer scan leads our sales growth outpaced acts on it on the calendar first quarter and we did this despite having a far larger sales base.
While the European sacral Neuromodulation market remained sluggish due to COVID-19 resurgence the U S market continues to accelerate.
Turning to Neuromodulation, we estimate that we have gained about a point of pain stim share year over year and even more sequentially.
Our SCS product line grew 73% in Q4, and we continued to outpace the competition in the calendar first quarter.
The market continues to show strong enthusiasm for our D. T M SCS therapy, which now carries of superiority label from the FDA.
And our strategy of going after competitive account conversions is yielding great results are D. T. M trial adoption remained robust and grew sequentially a good leading indicator for future growth in our pain stim business.
And brain modulation, while we estimate we lost a couple of points of share year over year, we continue to gain sequential share on the back of the percept PC launch.
Percept has resulted in 10 points of new implant share gains in the U S. Since its launch last summer.
So there are a number of businesses, where we're gaining share.
But there are still some businesses, where we've got some work to do.
And cardiac diagnostics as we discussed last quarter, we continued to be supply constrained with our new link to system in Q4 as.
As we ramp our unique wafer scale manufacturing.
We estimate we lost about a point sequentially and mid single digit share points year over year, primarily to Boston scientific.
We're working through the supply ramp up and expect to have improved supply in the back half of the fiscal year.
In addition, we implemented a product ship hold on the link to last week as we analyze an issue in.
In the meantime customers are continuing to use our reveal linq once we resolve the issue we're confident that the proven market leadership of of reveal linq and the competitive differentiation of linked to will allow us to continue to win in the space.
In our aortic business, we announced the voluntary recall of our Valeant navvy on thoracic stent graft system. In February we also announced that we would be working to ramp production of our previous generation product the valeant captive here.
But that we would not be at full production until September.
The loss of Navient had a 35 million dollar impact to revenue in Q4 and resulted in us losing high teens share in the thoracic stent graft market that said our customers have expressed strong interest in using the valeant captivity of product when inventories available and looking ahead, we're estimating that the quarterly revenue impact will decrease.
<unk> as we go through FY 'twenty, 2 from $30 million in Q1 to 15 million in Q4.
In Neurovascular, we estimate we lost a couple of points of share year over year, driven primarily by new competitive flow diverse from Stryker and true Moe that.
That said, we saw our share stabilized sequentially as we launched our Solitaire X 3 millimeter stent retriever in the U S and started the limited launch of our pipeline vantage flow divertor in certain CE Mark countries, we expect our new products to drive sequential share gains going forward.
In diabetes, we continue to execute on our turnaround strategy growing 9%. This quarter. This is still below market and we estimate we lost about 5 points of share year over year.
However, our share was stable sequentially, our new mini med 770, <unk> and 7 atg insulin pumps are giving us momentum, resulting in very strong double digit global insulin pump growth.
Next let's turn of our pipeline, we're launching a number of products across the company and even more coming.
We expect a robust pipeline to be the key driver of accelerating our topline growth as we're at the front of some large opportunities to win share create new markets and disrupt existing markets.
And as I noted earlier, we're continuing to fuel our R&D investments such that our pipeline can be of continuous source of sustained revenue growth over the coming years.
Starting with cardiovascular 1 of our largest future drivers is renal denervation as we develop our solution to go after the multibillion dollar addressable market in hypertension.
We're expecting to present, our on med pivotal trial results later this year likely at the TCT Conference in November and these results are likely to be 1 of the most highly anticipated events in med Tech this year.
In cardiac rhythm management, we're planning to file for CE Mark for our disruptive Extravascular ICD technology. This quarter, let me repeat that I said this quarter.
And in our cardiac ablation solutions business, we're expecting a first line therapy indication for Arctic front cryo balloon in the U S. This coming quarter. We also continue to make good progress on bringing our disruptive posture on ablation system the market with strong enrollment in our pulsed AF pivotal trial.
In structural heart, we received FDA approval in Q4 for harmony Transcatheter of pulmonary valve. The first of its kind of breakthrough treatment for patients with congenital heart disease.
<unk> will receive low risk shown on approval in Japan and are expecting reimbursement approval. Later this fiscal year. We also expect the U S rollout of our next generation tavern valve. The evolute FX later, this calendar year, which will feature enhanced deliverability and ease of use.
Turning to our medical surgical portfolio. Another very important program is our Hugo robotic assisted surgery platform.
At the end of March we reported that we had submitted Hugo for CE, Mark and U S IDE approval.
Today I'm happy to report that the FDA has granted the ITU approval and we're preparing to commence our expand euro trial in the U S to study Hugo and Urologic procedures. We also had our first revenue from Hugo placements at hospitals outside the U S. In Q4.
These systems will collect clinical data to support regulatory approvals in the U S and around the world.
As you think about modeling the revenue from our surgical robotics business, we're expecting $50 million to $100 million in FY 'twenty, 2 and that's likely to roughly double or triple in FY 'twenty 3.
We expect soft tissue robotics to be of meaningful growth driver going forward not just for med surge, but for overall medtronic.
In our neuroscience portfolio, we have some exciting near term milestones coming in our Neuromodulation business.
We're expecting to launch our vantage of recharge free spinal cord stimulator in the first half of this fiscal year. This is a big opportunity for us to gain additional share in pain stim, given our low share in the recharge free portion of the market. We're also on track to submit our E cash device to the FDA later this calendar year.
Year, which has the potential to be of disruptive technology in the spinal cord stim space.
And in brain Mod, we're expecting FDA approval for our sense sight Directionally later this calendar year.
This will close a key competitive GAAP and further differentiate our percept PC system, which I mentioned earlier was already taken a lot of share in DBS.
And in pelvic health, we received the IDE approval last month to start our tightened 1 feasibility study.
This trial will evaluate our implantable tibial system of device that we think could substantially increase our ability to serve overactive bladder patients many of whom do not seek therapy or remain on current therapy.
In Neurovascular in addition to the Solitaire X 3 millimeter stent retriever and pipeline vantage flow. The Verder that I mentioned earlier, we're rolling out 5 additional products. This calendar year. This includes meaningful innovation for the stroke market like our pipeline she'll flow divertor in the U S and risked radio Axa.
The system.
In diabetes, we recently received CE Mark approval for our Zeus CGM sensor.
Which will be marketing as the Guardian for sensor the no calibration data that was used to support the CE Mark approval will be presented next week at the virtual ATT Day conference and the abstract is available on the ATT D website.
We're pleased with the accuracy of Guardian for and that it has now been labeled for dosing without finger sticks.
Starting this fall Europeans will not only have access to the 70 of the G with the highest reported time and range of any insulin pump.
But also our guardian for sensor with no finger sticks required and our extended infusion set with an industry, leading 7 day, where we think this is a highly differentiated product offering and 1 that we can't wait to bring to other markets.
In the U S. The 7 Atg and Guardian for sensor are under active review with the FDA for.
Finally, we're making progress on our synergy sensor, which is disposable easier to apply and half the size of our current sensor.
We intend to submit the sensor to the FDA in the first half of the fiscal year once we complete our manufacturing module.
I'll now turn it over to Karen to discuss our financial performance and guidance Karen. Thank you Jeff.
Our fourth quarter organic revenue increased 32% and.
And adjusted EPS increased to 159% significant growth as we anniversary of the downturn, we experienced at the start of the pandemic last year.
Our end markets continue to recover from the impact of Covid and.
And we continue to execute on our strategy and launched new products, resulting in a sequential revenue increase of 5% and sequential adjusted EPS growth of 16%.
Our adjusted EPS with 8 cents better than consensus with 2 cents on higher operating profit and 6 cents from a lower than estimated tax rate.
Our recovery from the Covid resurgence in December and January improved throughout the quarter as expected.
March was stronger than February and April was stronger than March.
We were particularly pleased with the strength at the last several weeks of the quarter, which we believe sets us up nicely for the start of our new fiscal year.
From a geographic standpoint, we had strong 47% growth in the United States.
Outside of the U S. Our developed markets grew 11% with continued pockets of Covid resurgence in parts of Western Europe, Japan and Canada.
Our emerging markets grew 41% driven by China growth in the low nineties.
Our adjusted margins continued to improve sequentially with 120 basis points on our gross margin and 190 basis points on our operating margin.
Our adjusted nominal tax rate was 9.6% better than initially estimated given a favorable jurisdictional mix of profits along with certain 1 time benefits.
We've said throughout this past year that the actions, we're taking during the pandemic to not only support of our employees and our customers, but also continue investing would impact our free cash flow.
That said, we're pleased that we generated for point 9 billion of free cash flow converting 81% of our non-GAAP earnings into cash just above our long term conversion target of 80%.
During the quarter, we repaid in full of 300 billion yen term loan that was issued earlier in the fiscal year.
And our year end cash position remains above 10, and a half billion.
You can be assured that despite the pandemic Medtronic continues to be in a strong financial position to drive our long term strategies.
Reflecting the confidence that we and our board have in the future growth of this company. This morning, we announced that we are increasing our dividend by 9%.
We are on S&P dividend aristocrat, having increased our dividend now for 44 years and the dividend is an important part of the total return we generate for our shareholders.
We also have restarted our share repurchase program in the fourth quarter with a focus on covering dilution from our stock based compensation.
Now turning to our guidance.
We're confident in the continuing procedure recovery around the globe and the resilience of our end markets and as a result today reinstate giving formal guidance.
We expect strong organic revenue growth acceleration in fiscal 'twenty, 2% to 9% plus or minus of.
Point above current street consensus.
And while the impact of currency is fluid if recent exchange rates hold foreign currency would have a positive impact on full year revenue of $400 million to $500 million.
By segment, we expect cardiovascular and neuroscience to grow 10% to 11% Matt.
Medical surgical to gross 6% to 7%.
And diabetes to grow 3% to 4% all on an organic basis.
Youll remember that last year, we had an extra week in our fiscal calendar and these growth rates have not been adjusted for that extra week, given the offset that we had from customer bulk purchases.
As a result, we do not intend to adjust our organic growth in fiscal 'twenty 2 for the extra week in fiscal 'twenty 1 in.
In the first quarter, we're comfortable with street consensus on revenue, which implies organic growth of 17% to 18%.
On a currency tailwind between 202 hundred $50 million at recent rates.
By segment, we expect cardiovascular to grow 14% to 15% Matt.
Medical surgical to grow 18% to 19%.
<unk> to grow at 25% to 26% and diabetes to be flat.
With so many big opportunities in front of US, we're prioritizing R&D and commercial investments with growth above and beyond what you would see in a normal year.
And we're allocating this capital across our businesses to our best opportunities.
As you know 2 of our largest opportunities are surgical robotics and renal denervation.
We're purposely making significant investments in them to ensure we fully capitalize on the multibillion dollar opportunities ahead.
Just to give you a sense.
When you combine the fact that it's early in the revenue cycle of these 2 programs with our heavy investment we are planning for an operating loss of approximately 400 million next fiscal year from these combined programs.
Yeah. It is important to note that even with these kind of investments, we're still expecting operating margin expansion.
This is the power of Medtronic business model.
That we can simultaneously make large scale investments in some of the most important future technology areas in med Tech.
Cover of the dilution.
And deliver strong profitability and returns for our shareholders.
On the bottom line, we expect non-GAAP diluted EPS in the range of 560 to $5.75 in fiscal 'twenty 2.
Which includes the benefit of 10 to 15 cents from currency at recent rates.
For the first quarter, we expect EPS of $1.31, 2 of dollar 34.
Above current street consensus of $1.29 to $1.31.
And first quarter EPS would include a currency tailwind of about 3 <unk> at recent rates.
Before I hand, it back over to Jeff I'd like to take a moment to recognize all of the employees across Medtronic, who has scaled mountains of this year.
Leaning in to deliver a great year under difficult circumstances.
I'm proud to be part of such a terrific team and I couldn't be more excited about the opportunities ahead of us.
Back to you Jeff Okay. Thank you Karen.
Now I'd like to close by emphasizing that Theres a lot of energy here at Medtronic and our momentum is building.
You're seeing has performed better than our competition.
We've executed in the short term and we're investing for the long term.
We've accomplished a lot in FY 'twenty, 1 and this is a good start but our expectations are higher what will truly differentiate us is accelerating and delivering sustained revenue growth at or above our markets not just over a year or 2 but over the next decade, we have incredible programs on our development pipeline with robust.
Expected financial returns.
We're developing the next generation of medical devices that incorporate technologies like artificial intelligence big data and miniaturized electronics. These programs have the potential to truly change the future of medicine.
When we look at the opportunities ahead of us and how we expect to translate these into strong returns for our shareholders. The future is bright.
And finally to our 90000 employees around the world. Thank you for everything that you've accomplished this past year.
I'm sure they would agree with me when I say, if there's 1 thing you should take away from today's call.
It's at Medtronic, where.
We're just getting started.
With that.
Let's now move to Q&A, we'll try to get to as many analysts as possible. So we ask that you limit yourself to 1 question. If you of additional questions you can reach out to Ryan in the Investor Relations team after the call.
By the way, it's worth noting that the IR magazine recently recognized our Investor relations as the best of all companies in the United States and award we're very proud to receive as it was the result of voting from hundreds of investors and analysts.
And we look forward to continuing to provide you with transparent communication and a high level of service.
With that Francesca can you. Please give the instructions for asking the question for the sell side analysts that would like to ask a question. Please select the participants button and click raise hand.
If you're using the mobile app pressed the more button and select raise hand.
Your lines are currently on mute.
When you are next in the queue, we will notify you directly via the zoom platform chat function.
You will then receive a request to on new airline, which you must respond to before asking your question.
Lastly, please be advised that this Q&A session is being recorded.
For today's session, Geoff Martha and Karen Parkhill are joined by Sean Salmon, EVP and president of the cardiovascular portfolio and the diabetes operating unit.
Bob White, EVP and president of the medical surgical portfolio, and Brett wall, EVP and president of the neuroscience portfolio.
We will pause for a minute to assemble the queue.
We'll take the first question from Bob have yet at the <unk>.
Securities Bob. Please go ahead.
Oh, great. Thanks, and good morning, and just to make sure. The technologies working Okay. Can you can you hear me this morning.
Yes, we can hear you Bob great. Thanks, Jeff Thanks, Jeff I appreciate the opportunity to ask the question and congrats on the momentum.
For my 1 question given that it's such an important job of chassis of such a major player around the globe.
Sure investors would love to hear a little more detail on just what youre seeing currently with the recovery in surgical procedures.
Once you saw over the course of the quarter.
Specifically.
Art things continuing to improve here early in fiscal Q1 and are you now seeing year over year growth.
The above pre Covid revenue levels currently.
Yeah. Thanks for the question Bob I mean, we the way we look at this is you know by geography, and then by by product line of therapy, but you know I'll start with the answer of overall, we're nearing of.
For recovery and we're seeing with each month of the quarter every month was better than the prior months and that continued to improve and accelerate into the into may.
Largely driven by the the U S market.
Once we hit the vaccine vaccination inflection point in the area I know a couple of months ago people were.
Worried that it wasn't moving fast enough then we hit an inflection point.
Things really opened up and so on the U S where.
Depending what therapy, you want to look at anywhere from 85 to over 100 per cent of pre COVID-19 levels.
And like I said every months got better and then you go look around the world China's pretty much back to normal.
Totally and euro.
Europe being our second biggest western Europe, if you look at that as 1 market.
That is lagging behind the U S. The look we're confident that when you have of the health care system like they have with the with that kind of infrastructure once they get the vaccine vaccinations going it'll hit that inflection point of the United States and open up but as you know there are a couple of months behind the harder the harder 1 to pay down as the emerging markets I mean places like in.
The year, where the the barrier of the.
The virus is still raging southeast other parts of Southeast Asia Latin America.
You know they don't have the same infrastructure, even when they get the vaccine and Theres a lot of people. So there's a lot of vaccines that you need to get there. So that's a harder 1 to pin down but the.
Overall the company like I said, we're nearing a full recovery despite the emerging market piece really driven by the acceleration of the United States and like I said, we expect Europe to come not too far behind.
It's also on Japan.
In Japan.
It was doing pretty well and then it slowed down a bit and it's starting to to come back, but like like like of many.
Many of the developed marketed it slowed it slowed down and.
In the December January timeframe.
But as it is starting to come back for us as well.
Thank you very much.
Thanks, Bob.
Go to the next question please Francesca.
We'll take the next question from Robbie Marcus from JP Morgan Robert Please go ahead.
Oh, great and I'll.
I'll add my congrats on the quarter.
So current maybe for you there theres a lots of unpack here on the guide and it's great to see revenues come in above the street on.
Offset a little on on EPS I was hoping you could give a bit more of colored of what's the assumed in there in terms of.
Any OLED the recovery patients over the balance of the year.
You can give us on top and bottom line cadence throughout the recovery for the year and just how we think about operating margin versus some of the below the line items would be great. Thanks.
Thanks, Robbie so in terms of of revenue clearly, we're seeing a strong end to our fiscal year and that's continuing into the first quarter and we expect we expect that momentum to continue so from a revenue perspective, we expect increasing revenue growth on a 2 year stacked basis throughout the year.
<unk>.
In terms of our in terms of the.
Joel is the of revenues and we just expect it to be steady and steady increase in terms of operating margin.
We expect an operating margin expansion this year, even with our significant increase in investment, particularly against the robot in Ardian and that's what's driving.
Our guide in line with Street expectations.
Hopefully that's helpful.
Yeah, maybe just a quick follow up there.
On operating margin because.
There's a lot of room of improvement is something like in the 28% to 28.5% range for the right place the Bay.
Yeah, I would say you can expect this viewpoint.
A few points you know roughly a little bit over 3 points of improvement.
In the in the year.
And so we're you know we're driving that expansion at the same time that we're driving important investment.
Great. Thanks, a lot.
Yeah.
Thanks, Ravi let's go to the next question. Please Francesca.
Well take the next question from Vijay Kumar from Evercore ISI Vijay go ahead Bill.
Thanks, guys application of my question, Jeff back Congrats on now.
Solid per year I did have 1 question on the surgical robotics.
Actually it's the true water 1 of the.
$50 million to $100 million.
Expectation and perhaps doubling or tripling.
What's the I guess can you talk about.
The assumptions behind the wide range is that the timing will later on on the perhaps when you might get the approvals of non major markets.
Related to that I think you guys called out.
Our 400 million of the operating losses.
Great.
With the revenue of about 50 to 100, I think that implies perhaps of billions of dollars of step up on the on.
On the Opex side.
Whereas that's been going.
And then how should the data, but the profitability on these new Jacobs. Thank you.
P J I might start by saying that the 400 million of operating losses that we shared with you is both the robot and Ardian combined and it's not just the robot.
And in terms of of our assumptions behind the 50 to 100, you can expect it to accelerate into the year, particularly on the back half in the fourth quarter and we're pleased to be launching this robot.
And we're really excited about the prospects beyond this fiscal year into FY 'twenty, 3 where we said that it should double or perhaps even triple.
Index band now perhaps on to you.
Clarify how much of that is R&D versus some of it of the commercial organization.
Yeah, I'll, let Bob White comment too, but you can expect it's a lot we're going to continue in R&D spending and we're going to be building out sales force and customer service and support as well.
Okay.
Yeah, that's right.
Aaron.
The band is really built as we now commercialize the robot and as I've talked about in the past the Jay we've got a really exciting product pipeline across those 4 vectors of innovation instrumentation data and analytics visualization and of course, the robotic system as well.
Thanks, guys.
Thanks P J.
Next question please Francesca.
And we'll take the next question from Joanne Wuensch from City Joanne. Please go ahead.
Can you hear me okay.
Yes, we can Joanne wonderful I'd like to spend just a couple of minutes on diabetes. There's 2 major medical meetings coming up a T T D and E D. A.
And you're launching the guardian sensor for and the smart in Wuhan outside the United States. So it sort of on all type of heart question, but first of all of what should we be expecting that these 2 meetings.
As it relates to the sensor could you give us some of the parameters I know there of calibrations, but I'm curious on marred and the lastly, how do you look to price. These products as you bring them first outside the United States and then into the United States. Thanks.
Okay.
Joanne maybe I'll have Sean answer those questions.
Yeah. Thanks, John Yes, we've got a lot of coming up the spigot.
Net HGTV.
You play of to the sensor data will be released the.
Jeff that's available on the website right now.
Which includes the the mark numbers.
We also have the information coming out of the 7 Atg experience, which I'd point you to look at the first 4000 patients of the real world experience for or being launched there we'll have additional smart pen data coming out at the at the.
8 of entity.
The specific question on margin, that's really not a great match.
The trick to look at it as sort of an overall average of how all of the difference of looking across the full range of the sensor, but what you really want to know is when your blood sugars high or what as low as your sensor accurate and those data are really accurate and you'll see that in the presentation.
And the other thing that's important for trending as the broker.
The the sugar reliably being.
Going up or down and that's really what matters so kind.
Kind of like a 1 sees the big average over over time for price you'd make control of tightened the range of replace that metric.
Really the accuracy of the right places on the ranges, but important and Youll see that net and the day that's being presented.
In terms of price and Theres no no plan to change the pricing between the between what we've done with Guardian, such as for everybody and such for it in any market.
Thank you.
Thanks, Joanne next question. Please Francesca.
We'll take the next question from Chris Pasquale Guggenheim Securities. Please go ahead.
Thanks, Gary on yet.
Yeah, we can hear you just fine Chris.
Great.
The follow up on the diabetes business, 3% to 4% gross coming off of the year in which sales were flat doesn't imply a ton of progress on the turnaround in FY 'twenty 2 of them I'm curious whether that guidance really assumes any contribution from 7 atg and juice in the United States.
And maybe tied into that just your latest expectations on the the timing of substantial FDA approvals for those products.
Yes, Chris I'll take the first part and I'm going to let Sean comment on the second part and then I have 1 thing to keep in mind with our diabetes guide is that we purposely did not adjust for the extra week across the whole company that we had last year because the reduction in bulk purchases offset it.
But that reduction in bulk purchases did not affect our diabetes business.
Really we need to look at it with the loss of the extra week that is indeed affecting them and that loss of the extra week is about 150 basis points on the year.
Hopefully that's helpful.
Yes, it does build on.
What kind of say, we also had a bit of of comparable issue with.
But in some international markets, where there was some stockpiling of the consumables the cadence that that's the little bit of the.
The year on year comparison, but the bigger effect for us.
Is that.
On the installed base in the last 6 months of those coming out of warranty in the last 6 months was just higher than what we're gonna see on the first half of the fiscal year. So just getting a difference of how many patients come out of it was timing.
And certainly the new product flows you mentioned 7 avian juice for the U S will be the most important for us to continue to move patients from the installed base as well as those new new patients of those coming out of the MDI or editors I don't have an update on the timing where the doctor produce Jeff said on.
On the filing of <unk>.
The review of our that's working with US is the same on that review of the 770.
So we think the depths familiarity is going to be helpful. But there is no update on timing at this point.
Thanks Bill.
No it's good to see though the pipeline certain too.
You know the show up here I mean, we're looking for it to get to the U S. But 7 atg the new sensor the extended wear infusion said, it's a pretty powerful combination and we're seeing great clinical results and great patient feedback and I think you'll see that in the in the data that comes out.
And it's a good leading indicator of.
The what we're going to see in United States went on when it gets here.
Thanks, Chris Let's go to the next question. Please Francesca.
Okay.
From Larry <unk> from Wells Fargo Securities Larry. Please go ahead.
Good morning, Thanks for taking the question 1 just 1 for Sean on the renal denervation.
Sean for the.
The on med data at TCT.
Is the pilot data of good proxy I think with the off med, we saw a little degradation in the efficacy would you expect the same here and can you have reimbursement you know how should we think about the ramp given the uncertainty around reimbursement I think we all understand it's the big opportunity you guys are really excited about it.
But how do we think about.
Is this something that could be a slow ramp because the reimbursement may not be in place.
On the approval thanks for taking the question.
Yes, Thanks, Larry.
I think there is a good proxy for that pilot study of sort of informed the decision should we continue on in the sort of studying.
The magnitude of benefit could be there, but you are right to point out that when you get into more centers for patient and physician variables things can move around a little bit. So we'll see what that looks like but we're confident that the.
The trial design properly to get us the right answer the reimbursement is certainly the hurdle. We do have CE Mark we have approval of a lot of countries of getting that paid for it because of the important and in the United States Neuro waiting eagerly the proposed rule on it.
The.
To allow for years of coverage as we develop further evidence of upon approval of that that's that doesn't cover payment. We still work to do there. We still have to go pair by pair because of lot of the patients will fall into the non Medicare bucket of patients, but we've been working that for a number of years frankly to make sure that we have the right evidence to satisfy their needs, which really frankly draw.
Of the need for an on med trial to begin with.
But yeah, we got a lot of work ahead of us, but we're very excited about the opportunity and it's a it's.
We're getting closer and closer.
Thanks, Sean.
Thanks, Larry next question. Please Francesca.
We'll take the next question from Rick Wise from Stifel. Please go ahead.
Good morning, everybody.
Jeff.
Of course, the F&B is.
Of course, Jeff.
Net cash.
Maybe talk about your cash generation of tax all of it.
On the year ahead of your broad spectrum of the key drivers there, but maybe Jeff you could expand on your your your thoughts about the use of cash in the sense that the.
You all.
Indicated the.
You're buying back stock to offset the bill.
Alicia you raised the dividend so that sort of leaves M&A.
As the year ahead, the credibility of Europe more intense M&A activity you have so much going on internally is this the priority of maybe any color about.
How you're thinking about your priorities as you look ahead. Thank you.
Sure. Thanks, Thanks for the question Rick.
In terms of like our priorities of our priorities are investing in growth and today, we announced the.
The largest increase in R&D.
In our history.
And it's because we're seeing these large market opportunities.
With clear patient need where medtronic has the right to win and so we're looking at those holistically or thinking of investing organically in R&D, but also other growth investments like we talked about our head of some certain product launches of the guardian of in the robot. So are the investing in sales and marketing and other related growth.
Vestments, but inorganic still price as a priority we did the number of you know.
The number of deals last year tuck in deals and I'd say tuck ins are still the focus.
And those tuck in deals could be up to several billion dollars I mean, the ones. We did over the last 18 months of been smaller than that but you know I.
I wouldnt mistake size for impacts some of these ones like.
Medical area.
Which is the.
The AI, a planning tool and outcomes tracking tool for for spine is a real nice piece of the puzzle for our spine strategy in the.
A couple of questions here on the call today about our smart pen the companion medical. So these are impactful deals and we look to continue those and so its still a priority.
And over and above.
The over buybacks.
And we'll see how the year plays out of its tough to predict right we're going to remain.
The discipline here, but I think the theme you I'd walk away with is that we're committed to investing in growth both organically inorganically and doing what it takes to do that and still deliver on the EPS growth for growth expectations that we set out and so that that's what the team's focused on.
On.
And you are seeing the benefits of that Oh, Karen if you want to yes, I would just add Richard first question on cash generation in the years ahead, clearly we are focused on driving strong.
The conversion of our non-GAAP EPS in the cash and then we've said we've targeted greater than 80% conversion rate that doesn't change and so we remain focused on delivering that and we also are growing cash along with our earnings and and you're we're focused on driving.
Giving continued working capital productivity and our day sales outstanding our days payable are inventory and say you can expect us to continue to have this keen focus on cash flow and driving in of driving strong results from it.
Thank you very much.
Thanks, Rick next question. Please Francesca.
We'll take the next question from that makes the ex from credit Suisse. Please go ahead.
Matt you there.
Hi can you hear me okay.
Yeah now we can are you doing on.
Well. Thanks, Thanks, so much for taking the question so.
1 on your robotic surgery programs.
Good day.
First art, if you could maybe just talk a little bit of balance how are some of the pandemic conditions around the world art.
<unk>.
The progress of bar of how Youre thinking about fiscal 'twenty, 2 and some of the some of the range that you put out there in the $50 million to $100 million and then.
Currently.
Yes, there has been this what feels like a bit of an inflection point in terms of robotic surgery.
Mentum in placements around the back end of last year and the first part of this year just wondering how yeah. If you could describe your.
You know how you compare the for fourth.
The fourth quarter to the third quarter and how the.
Cadence feels in terms of new placements of pull through on your current programs or.
Okay, Yeah, I was going to ask you to clarify because we use of robotics I wasn't sure. So so on.
On the spine side look the.
And Matt I know you fall of this for.
For years.
The strategy of surrounding the spine procedure.
And preceding the spine procedure.
And following up the science of these are weird of enabling technology from surgical planning to navigation interoperable of imaging the robot you know.
This is Ah is paying off I mean, we had a record sales last quarter of our capital equipment tied to tie the spine procedures.
And continue to outpace the competition on the on the robotics sales, but more than anything okay more important than all of that is the surgeon feedback that we're getting has hit an inflection point, they're now talking about the outcomes that they're getting from this is.
It's the planning the precision of the planning to get the right alignment plan in there and then the accuracy of executing to that plan with NAV.
And the robot and then the ability to follow it up and access images in the Pac system through met of Korea to come back and Retrain. Our you know continue to evolve our algorithms and all of the also show Surgeons are you really getting that alignment.
<unk> thought this is it.
It is coming together and we I think we are separating ourselves.
From the pack and really.
Really getting closer to what our ultimate goal here is the transform spine surgery from the art than it is today 2 of science and then demonstrated with the outcome. So that is something we're very excited like you mentioned the the momentum the momentum the the lagging India the momentum from the enabling technology like I said record sales and it's because the buses out there.
From surgeons starting to talk about the results, we're getting from using this and people that were sitting on the sidelines for jumping in.
On the buses moving of the train's left the station on this 1 and the and the feedback from our field again, a lagging indicator.
Is palpable the energy so we're feeling really good about spine and robotics and in the lessons that we learned from spine.
We are spending a lot of time, our spine team and and and and Brett wall working with Bob White and Megan Rosengarten on the on the on the soft tissue of I think of lot of those lessons learned I mean, the markets arent. The same they are different but there are some lessons learned on there are some synergies there.
We will incorporate into our.
Of our Hugo soft tissue robot launch.
Thanks, so much.
Thanks, Matt next question. Please Francesca.
We'll take the next question from Jason Bedford from Raymond James. Please go ahead.
Good morning, I, just wanted to get back to Karen.
On the operating margin commentary it looks like you did just under 24% in fiscal 'twenty 1.
You mentioned, you're expecting a little over 300 beds.
Fiscal 'twenty 2 so is the anticipation of op margin in 'twenty, 2 is going to be around 27%.
Yes, yes, so 27.27 of half in that range for the year, but keep in mind that our op margin should improve as we as we go through the year and so by the end of the year, we expect it to be above that 28%.
Okay, and just any commentary on gross margin.
Yes, the gross margin. We also expect a sequential improvement of about half of point of sequential improvement in the gross margin through the year.
Thank you.
Okay.
Thanks, Jason next question. Please Francesca.
We'll take the next question from Danielle unhealthy from Seb, Larry Danielle. Please go ahead.
Hey, good morning, everyone. Thanks, so much for taking the question I just I just wanted to follow up on a comment you made earlier regarding it depends on on the business mind at the the recovery of where the business lines that are lagging and sort of board.
When are you expecting those business lines to get back the full recovery relative just on that have already gotten there. Thanks so much.
Well in the.
Yes, I'd say in the United States, even the ones that are lagging I would expect them to get back to a full recovery in our fiscal Q1.
And the ones that are lagging or more of.
More of the more elective the.
For the more or less of the air.
Areas like E N T.
On our Gi business day, our endo venous business.
And it is it is all of those businesses that I mentioned and we talked to in the commentary about E&P in Gi gaining share. So it's not a competitive thing it really is the COVID-19 issue and.
And in the United States, we expect those to get back in.
In our fiscal Q1.
And then we.
<unk> talked about before Europe's lagging by a few months in an emerging market is hard to predict but it comes down to the elective nature, you know theres a theres a spectrum you know maybe stroke and 1 and not very electives at least for my perspective.
And on the other end you have some of these ones I just mentioned like the N T G I Endo Venus.
The answer your question Danielle.
The amount of losses.
Thanks, Danielle we will take 1 more question. Please Francesco.
Okay, we'll take the last question from Steve Lichtman from Oppenheimer. Please go ahead.
Thank you good morning, Jeff I was wondering if you could talk about the benefits you're seeing from the mortgage centralized the operating structured out now of year end as it is delivering what you had hoped any comments on the changes youre seeing on the ground would be helpful and just to clarify FY 'twenty 2 will be the first year that market.
There will be included in compensation.
Yeah. The answer to your last question is is the.
Yes, the FY.
The 20 to be the first year, we needed.
To work on how to measure this over the course of FY 'twenty on precisely enough to put it income. So in terms of the operating model I'd say look the the the the dust is still settling a bit but we are definitely past the I'd say the most difficult part I'm excited about where we're headed.
We've got an increased role clarity and accountability across the org in this new decentralized model and people are now looking forward and focused on their key metrics. So like for operating units. This innovation pipeline. It's their market growth. It's their market share as we just talked about and this market share..1 is is liberating for us because it is.
Instead of comparing ourselves to ourselves, we're comparing ourselves to the market with the clear expectation to grow at or above the market that cleared of clarifies a lot for our regions.
Things like strategic account growth over and above what we're getting.
No in the traditional med tech model of selling to the specialist position and focused on on those patients but.
In addition to that the strategic account growth for our Executive Committee right for the people on this call measurements around capital on capital allocation to the high growth segments portfolio management all in in 1 of focus to increase our overall company weighted average market growth rate right. So and then finally I'd say, there's lots of excitement more than I would've thought maybe even of.
The culture changes this thing we're calling the Medtronic mindset that has these it's really works alongside of our mission you know Medtronic zone for mission driven company, we always want to be known for that that's kind of R. R Y if you will but.
Adding these things like acting boldly competing to win the move of speeding decisiveness delivering results of the right way, adding adding these in to the mix of alongside of our mission has generated a lot of energy and it's kind of taken off organically inside the company and and so I'd say overall really happy with.
With the with where it's going and we're starting to see the results of this.
Thanks, Steve.
Jeff. Please go ahead with your closing remarks share.
Alright, well, thanks, everybody for the questions and you know.
We really appreciate your support and your continued interest in Medtronic and we hope Youll join us for our Q1 earnings for a webcast, which we anticipate holding on August 24th.
We will update you on our progress and so with that the again, thanks for tuning in today and please stay healthy and safe and have a great rest of your day.
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