Q1 2022 Medtronic PLC Earnings Call
Good morning, and welcome to Medtronic fiscal year 'twenty 'twenty, two first quarter earnings video webcast I'm, Ryan why spending 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. Joining me are Jeff Martha Medtronic, Chairman and Chief Executive Officer, and Karen Parkhill, Medtronic, Chief Financial Officer, Jeff and Karen will provide comments on the results of our first quarter, which ended on July 30th 2021 and our outlook for the.
Remainder of our fiscal year <unk>.
After our prepared remarks, our portfolio executive Vps will join us and we'll take questions from the sell side analysts that cover the company todays event should last about an hour.
Earlier. This morning, we issued a press release containing our financial statements and divisional and geographic revenue summaries. We also posted an earnings presentation that provides additional details on our performance. The presentation can be accessed in our earnings press release or on our website at Investor Relations Dot Medtronic Dot com.
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 statements.
Additional information concerning factors that could cause actual results to differ is contained in our periodic reports and other filings that we make with the SEC and we do not undertake to update any forward looking statements.
Unless we say otherwise all comparisons are on a year over year basis and revenue comparisons are made on an organic basis first quarter organic revenue comparisons adjusted only for foreign currency as there were no acquisitions or divestitures made in the last four quarters that had a significant impact on total company or individual segment quarterly revenue growth.
References to sequential revenue changes compared to the fourth quarter of fiscal 'twenty, one and are made on an as reported basis and all references to share gains or losses refer to revenue share in the second calendar quarter of 2021, unless otherwise stated.
Reconciliations of all non-GAAP financial measures can be found in our earnings press release or on our website at investor relation stopped Medtronic Dot com and finally, our EPS guidance does not include any charges or gains that would be reported as non-GAAP adjustments to earnings during the fiscal year.
With that let's head into the studio and get started.
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Hello, everyone and thank you for joining US today, we started off fiscal 2022 with a strong first quarter, beating Street estimates on revenue margins and EPS, we drove market share gains across a number of our businesses, including three of our largest cardiac rhythm surgical innovations and spa.
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Our results reflected the recovery of elective procedures during the quarter with most of our businesses, finishing at or above pre COVID-19 levels now while the Delta Varian is having an impact on procedure volumes in certain geographies.
We believe the effects will be manageable health care systems are really just better prepared and vaccination rates continue to increase our new operating model and the Medtronic mindset culture enhancements are delivering results as our first quarter performance demonstrates our employees are energized by the transformation of our organization.
The structure and the competitive culture.
And our most recent employee engagement survey results were the strongest that we've ever had.
We continue to focus on accelerating and sustaining higher top and bottom line growth of Medtronic. In fact, we've already made a number of discipline and targeted capital allocation decisions that drive that acceleration.
We've increased our investments at the front end of major product launches and surgical robots and renal denervation, which represent large new markets for Medtronic.
We're growing our R&D investments broadly across the company complementing a long list of organic opportunities with disciplined tuck in acquisitions, such as our recently announced our intent to acquire intersect D. N. T. Now we expect these actions to drive share gains in our markets today, which we've talked a lot about.
And to increase our weighted average market growth rate producing stronger returns for our shareholders.
Now turning to the details of our first quarter results will start again with a brief look at our market share performance.
It's an important metric that our teams are being evaluated against along with revenue gross profit and free cash flow.
We continued to see a number of our businesses winning share driven by our innovation and increased competitiveness and it's worth noting that when we talk about our share dynamics, we're referring to revenue share in calendar quarter Q2.
We gained share in our three largest businesses this quarter, our cardiac rhythm management business continued to perform well above the market, adding over three points a share driven by our differentiated micro family of pacemakers, cobalt and crome high power devices, and our tire ex anti bacterial envelopes.
In surgical innovations, we gained share as our endo stapling and advanced energy technology continues to be the preferred and trusted instruments used by surgeons all around the world.
And in spine the ecosystem that we offer of spine implants, biologics and enabling technologies like the preoperative planning software robotics imaging and navigation resulted in above market growth for Medtronic and it's not just our largest businesses that are winning share. We also had share gains in some of our faster growing business.
<unk> like to have or pelvic health and pain stim as new evidence technology and sales execution resulted in Medtronic outpacing our competition.
In pain Stim, we did we did observe gradual slowdown in permanent implants, and trialing procedures in the latter parts of our quarter due to the Delta variant and we do expect that this will affect the market. During Q2 that said, we continue to win share and have a lot of momentum in our Intel us with D. T M technology and with the launch.
Of the advance of recharge free system, our portfolio is complete highly competitive and well positioned.
Now, while we're winning share in a number of our businesses, we still have areas, where we have work to do in cardiovascular we continue to lose share in our cardiac diagnostics business. However, we do expect these trends will reverse over the course of our fiscal year as we ramp up supply of our link to and suitable cardiac monitoring system.
Now we also lost share year over year in neurovascular, but we were pleased with our momentum as we ramped our recent product launches. This included our two new float of orders the pipeline flex with shield technology in the U S and the pipeline vantage in Europe, as well as our Salt Air X three millimeter stent retriever.
And finally in diabetes, we continue to execute our turnaround strategy, but as expected we continue to lose share in the U S. As we wait for new product approvals.
We understand the current challenges we face in diabetes, and we believe our product pipeline and our differentiated technologies will return us to market growth as these products move through development approval and ultimately become available to patients.
Now speaking of new products, let's now turn to our product pipeline today.
Today, you're seeing the strong flow of new products launching across our businesses.
We've launched over 190 products in the U S Western Europe, Japan, and China, and just the last 12 months.
We also continued to advance the innovation we have in development, we are increasing our R&D spend by more than 10%. This fiscal year. This is the biggest dollar increase in R&D spend in our company's history.
The investments, we're making in our pipeline will play a key role in accelerating our topline growth and we're at the front end of some large opportunities to win share create new markets and disrupt existing markets.
Starting with one of our largest future growth drivers renal denervation, we're making good progress on our solution to go after this multibillion dollar hypertension opportunity we.
We expect that the results of our on med pivotal trial will be ready for presentation at the TCT conference in November assuming the interim look at this Bayesian design study reaches statistical significance.
The on Med clinical trial represents the final piece of a large body of evidence that we intend to submit to the FDA for approval.
The progress on our surgical robotics business has been impressive in recent months and we have momentum on a number of important milestones and initiatives, but most notable and something that has energized our entire company in the robotics team. The first procedures with Hugo were performed at clinical Santa Maria in Chile by Dr. Ruben all of areas in June.
And as I said, a picture's worth a thousand words, so let's watch this short clip detailing this important milestone.
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It's truly amazing to see our robotic technology in use and I want to thank the hundreds of Medtronic employees that have worked tirelessly over many years as well as the surgeon and hospital leaders, whose partnership help make Hugo a reality.
We look forward to expanding the surgical robotics market by addressing the per procedure cost and utilization barriers that have limited robotic surgery to date.
And shortly after the first geological procedures in Chile, we had the first gynecological procedures performed last month at the Pacifica salute hospital in Panama.
We're receiving positive feedback from early users for approach to robotic surgery, including our thoughtful design choices. For example, as you can see by this picture are open console design allows for natural interaction and participation of the entire surgical team and it's just one of the many important differentiated features of Hugo.
Looking ahead, we remain on track for CE, Mark approval of Hugo falling our submission in late March and we continue to make progress towards starting our U S expand euro pivotal trial, where the first procedures in the U S will occur.
Around the globe a number of hospital systems have expressed interest in our partners' impossibility program, joining a group of pioneering hospitals that will be among the first to use Hugo.
In cardiac rhythm, we filed for CE Mark for Extravascular, ICD this quarter and enrollment is going well and our U S. Pivotal trial EV ICD represents a disruptive technology in our implantable stimulator space as it can pace and shock without leads inside the heart.
And they can do all of this in a single device with the same size and longevity of a traditional ICD and <unk>. We continue to advance our evolute platform and I am pleased to share with you. The news today that we just received FDA approval last week for our next generation Evolute FX to have a system.
Now this innovative system is designed to improve the overall procedural experience through enhancements and deliverability implant visibility and deployment stability.
We're planning to start rolling out. This next gen system in the U S market later this fall.
In Neuromodulation in addition to receiving FDA approval in the quarter for our van to recharge free spinal cord Stimulator. We also received FDA approval for our sensate directional deep brain stimulation lead.
Now since I combined with our recently approved Percept PC system is the only DBS system on the market that can sense and record brain activity. In addition to providing normal stimulation to treat diseases like Parkinson's and essential tremor.
We're also remain on track to submit our <unk> spinal cord stimulator to the FDA later this calendar year, which has the potential to be a disruptive technology in pain stim.
Now moving to our pelvic health business as you know, we don't reveal all of our development programs underway at Medtronic for competitive reasons, but I'm going to unveil a new one today, we've been working in stealth mode on our Nextgen inner stem recharge free device and earlier. This month, we submitted our PMA supplement to the U S FDA seeking.
Approval of this device has some very attractive specs is designed with a 10 year battery.
It's got constant current and its full body MRI compatible at both one five and three Tesla.
We're expecting approval in the first half of next calendar year, and we can't wait to have this best in class recharge free device available for patients.
In diabetes, the international launch of her many med seven atg insulin pump continues to go well the seven AG has the highest reported time and range of any insulin pump.
And starting this fall people with diabetes and many international markets will not only have access to the seven AG, but also our no calibration seven day Guardian for sensor and our seven day extended infusion set.
The longest lasting set on the market. This complete offering will be highly differentiated and east patient burden and we're working to bring this technology to other markets in the U S. The 70 D G and Guardian for sensor continue be under active review with the F. D. A.
And we're expecting to submit our nextgen synergy CGM sensor to the FDA in Q3 synergy as disposable easier to apply and half the size of our current sensor.
I'll now turn it over to Karen to discuss our financial performance and our guidance Karen. Thank you Jack.
Our first quarter organic revenue increased 19%.
And adjusted EPS increased 127%.
And if they can't growth as we anniversary the downturn from the pandemic impact last year.
Our end markets are recovering and we continue to launch new technology and gain market share, which is reflected in our growth and profitability.
Our adjusted EPS with nine cents better than consensus with the entire beat coming from higher revenue growth and operating profit.
As I noted on our last earnings call, we did not adjust our first quarter results for the extra week of sales last year, given the concurrent reduction of customer both purchases as these two items roughly offset each other at the total company level.
That said not all areas of the company had large quarter end customer bulk purchase activity diabetes for example.
As a result, I would point out that our diabetes growth rate would be roughly six points higher than the first quarter had we adjusted for the extra week.
On our cadence of recovery the monthly improvement trends continued.
Average daily sales in June were stronger than May and July was stronger than June.
That said, we did begin to see a slowdown in certain businesses in the last few weeks of July related to the spread of the Delta variants in the United States.
If not for the Covid impact in July our first quarter performance would have been even stronger.
Turning to our P&L, we saw significant year over year improvement in our margins.
670 basis points on gross margin and over 1000 basis points on operating margin.
Our operating margin was better than expected as investments we initiated in the first quarter. It took longer to ramp but are expected to pick up starting in the second quarter.
Turning to capital allocation, we continue to balance our investment for future growth, while returning cash to our shareholders, primarily through our strong and growing dividend.
As we've noted for several quarters, we are increasing our level of tuck in acquisitions, having announced seven for a total of $2.3 billion since the start of fiscal 'twenty one.
Less than three weeks ago, we announced our intent to acquire intersect N T.
Our E&P business has quietly been a strong performer for US led by a great team with a track record of consistently outperforming the market.
With the addition of intersex complementary products, we can accelerate the growth profile of this business for years to come.
The deal is accretive to our weighted average market growth rate.
Initially neutral, but quickly accretive to earnings and has expected returns well ahead of our cost of capital.
Now turning to our guidance.
As you know it is still early in our fiscal year.
We had a strong first quarter and despite the current impact from Covid, we are optimistic about the outlook for the year.
Given how early it is in the air we are maintaining our revenue guidance for the full year at 9% plus or minus.
If recent exchange rates hold foreign currency would have a positive impact on full year revenue of $100 million to $200 million.
<unk> from the prior 400 to 500 million I gave last quarter.
By segment, we continue to expect cardiovascular and neuroscience to grow 10% to 11% Matt.
Medical surgical to now grow 8% to 9% and diabetes to be roughly flat all on an organic basis.
On the bottom line, we are raising the lower end of our guidance by our first quarter beat.
All set by a lower expected benefit from FX.
We now expect non-GAAP diluted EPS in the range of $5.65 to $5.75.
An increase from our prior range of 560 to 575.
This includes a currency benefit of five to 10 cents at recent rates.
Down from the 10 to 15 cent benefit we signaled last quarter.
Our second quarter is likely to reflect the current impacts from COVID-19.
Typically in a handful of businesses and cardiovascular and neuroscience.
So we expect organic growth in the quarter of around 4% with a currency tailwind of zero to $50 million at recent rates.
Keep in mind that we are facing a particularly tough comp in our ventilator business, which peaked in the second quarter last year.
Ex ventilator sales, we expect organic growth in the quarter around 6%.
By segment, we expect cardiovascular to grow 5% to 6%.
And there are signs, 6% to 7% and both medical surgical and diabetes to be flat to up 1% all on an organic basis.
Excluding ventilator sales medical surgical is expected to grow 8% to 9%.
We expect EPS between $1.28, and $1.30, with a current tailwind of about four cents at recent rates.
As previously mentioned, we do believe the near term Covid impact to our business will be relatively less severe than prior waves, given hospital preparedness and increasing vaccination rates around the globe.
That said to be conservative our guidance does not assume that procedures canceled in the near term will be rescheduled.
So to the extent those procedures are simply delayed that should be upside.
We are confident as ever in the strength of our underlying business, our execution and the impact of our new products, we saw that in the first quarter.
And as we move past the current impact of Covid, we feel really good about the underlying strength for the rest of the year.
Before I send it back to Jeff I'd like to step back and acknowledge how much our employees have accomplished over the last year since the pandemic started.
Our results this past quarter reflect that unwavering focus by our global team to drive our business and fulfill our mission and for that I'm incredibly proud.
Back to you Jeff Okay. Thanks, Karen.
Next I'd like to cover a few ESG related topics inclusion diversity and equity as well as product quality.
First inclusion diversity and equity something that is personally important to me and important to our success at Medtronic.
Now we best fulfill our mission when we have a workplace, where I D knee for all of our employees has championed.
While we know there's much more to be done we've made a lot of progress here and this is being recognized by others I.
I mentioned, our diversity, Inc Award last quarter, and we were recently recognized by several other organizations for innovative and inclusive work environment.
We were named as one of fast company's best workplaces for innovators in 2021.
As a best place to work for disability inclusion by the disability Equality Index and we were one of the 15 companies awarded the Secretary of Defense Freedom Award for our efforts to support our military and veteran employees.
Next I want to emphasize our continued focus on product quality.
Striving without reserve for the greatest possible reliability and quality in our products is a key tenant of the Medtronic mission and core to our commitment to improved outcomes for patients. In fact, there is nothing more important than patient safety in Q1, we made the decision to stop HVAD sales we.
We did this because of a growing body of clinical comparisons, indicating that our device had a higher frequency of adverse events than a competitor's product.
This decision was consistent with our commitment to patient safety importantly, we remain committed to supporting current HVAD patients their caregivers and health care professionals.
And Medtronic, we have a purpose deeply rooted in our mission and our employees translate this mission into tangible day to day actions, which in turn create an impact on our society.
When I reflect on product quality and I D. We've made progress, but there's always room for improvement.
One step is ensuring that we have the right incentives in place to drive the actions that will elevate our impact.
Our board and executive leadership have been evaluating our annual incentive plans and as a result of this we're planning to further strengthen our existing quality metrics and we intend to introduce new ideas new metrics into our incentive plans.
These will help guide our plans and drive our work on a daily basis, and ultimately hold us accountable to translate our actions into even greater impact for those of you that would like to learn more about our ESG efforts underway at Medtronic I encourage you to save the date to virtually attend our first ever ESG investor and analyst event, which we're planning to.
Broadcast on Wednesday October 13th.
You're going to hear from leaders from across Medtronic, covering important topics, including inclusion diversity equity and product quality and safety.
I'll close by noting that we are on track to accelerate our revenue growth, we're executing on our pipeline and we're winning share in the marketplace with our leading technology.
And we have some really big opportunities ahead of us with near term milestones in both renal renovation and surgical robotics businesses.
And the energy across the organization is palpable as we operate under a new model and it's still our new cultural traits, including acting boldly competing to win moving with speed and decisiveness in everything that we do.
And getting results and getting them the right way.
And to our employees, many of whom I'm sure watching today. Thank you.
I truly appreciate your efforts to deliver these results.
Look these are exciting times and I'm really looking forward to all that we're going to accomplish over the coming months more.
Momentum is building and we're creating value and there is a lot more to come.
With that now let's move to Q&A now, we're going to try to get to as many analysts as possible. So we ask that you limit yourself to just one question. If you have additional questions you can reach out to Ryan in the Investor Relations teams after the call.
With that Francesca can you please give the instructions for asking a 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.
You will then receive a request to mute your line, 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.
Yeah.
Okay.
We will take the first question from Bob Hopkins from Bofa Global Research.
Please go ahead.
Okay. Thank you and thanks for taking the question just as a technology check here can you hear me okay.
Yes, sure. We can hear you can you just fine Bob.
Excellent.
Thanks, Jeff and congrats on a good start to your fiscal year.
I guess since we're eliminating one question I'll ask.
Something of a little bit more short term oriented and that is that you guys mentioned that you know it'd be the.
The end of July has started to see a little bit of a slowdown.
I'm just curious is that slowdown stabilized at this point.
Or are things still getting worse, and if you could kind of give us a sense for what youre seeing geographically, especially in China that would be appreciated too. So just wanted to get a sense for where the things are stabilized relative to what you saw starting to happen at the end of July. Thank you.
Hi, Bob It's Karen Thanks for the question.
So the slowdown that we started to see the last couple of weeks in July has continued into August and then and we do we do expect the delta variant to impact us, particularly in the United States and as this quarter and particularly in certain of our businesses in cardiovascular.
And in neuroscience are really those businesses that are impacted by deferrable procedures like in cardiac diagnostics ICD pain, stim and spine and also in those businesses that require ICU bed capacity for the procedure like in town.
Sure.
That said, we expect this delta variance to to infection rates to peak and probably in late August early September and hospital, and ICU capacity and to improve a few weeks after that.
And so by the time, we exit our second quarter, we expect procedures to be back to more normal, but we've reflected all of this in our guidance for the second quarter and we're really bullish about the underlying strength of our business not just in the second quarter, but in the back half and the full year ahead.
And then on China, the rest of Us China yesterday.
But we've seen limited impact so far in China, much less so than in the prior ways I mean, a pretty.
Aggressive if you will when they see a COVID-19 case they.
Can isolate that that geographic area and they do reduce mobility, but they have kept consumer mobility. If you will but they've they've kept the hospitals open and I think they are handled to handle it pretty well. So we've seen limited impact so far in China.
Great. Thank you.
Thanks, Bob next question please Francesco.
We'll take the next question from Robbie Marcus from JP Morgan Robin. Please go ahead.
Oh, great. Thanks for taking the question congrats on a good quarter.
Maybe just to follow up on the last question a little bit here, Karen I know you don't give quarterly guidance, but I just wanted to make sure you know.
The street's appropriately factoring your comments you know, we're a little shy of $8.2 billion in sales for consensus and $1.35 for fiscal <unk>, maybe just help us gauge if that's an appropriate place to be given your comments on the COVID-19 impact and any other.
Cadence through the rest of the year youll be willing to point us too. Thanks a lot.
Yeah. Thanks, Robbie so so for the second quarter with the impact of of the Delta variant, we're expecting growth around 4% as we mentioned and that you know that includes what we estimate to be about 150 basis point impact from Covid.
And so a stronger underlying growth outside of Covid and I would also remind you that we've got ventilators coming down off of our peak in the second quarter last year. That's another about 200 basis point headwind and then with our decision to no longer sell and distribute <unk> in our Mcs.
Business, that's another about 50 basis points headwind.
So the true underlying strength when you take out.
Covid impacted events and Mcs is around 8% for the quarter.
In terms of EPS, we're guiding for the quarter.
Dollar 28 to $1.30, and that includes a currency tailwind of about four cents and if we think about the rest of the year. We will give Q3 guidance on our Q2 earnings call, but I would keep in mind that you can expect our investment to step up over the next over the next coming quarters really as we progressed toward these import.
New product launches.
Hopefully that's helpful. Yeah. Thanks, Karen.
Thanks, Robbie next question. Please Francesca.
We'll take the next question from Matt Taylor from UBS equities not please go ahead.
Hi, good morning.
Can you hear me okay.
Sure Matt Yeah, we can.
Okay. So I just wanted to ask you for some more color on the progression through the quarter and the reason for the question in that way as I want to understand how things were coming back as a proxy for how they could come back again after the Delta variant pass and so can you give us any color on how strong things got in July before you saw the impact.
Or help us understand what the impact was in the second half of July.
So we were we were working through the <unk>.
Prior waves backlog fairly quickly and we continued to see improvement from our last earnings call. It. So we had.
May was better than April.
June better than May and July.
The better than June and it wasn't till the last few weeks of the months that we started to see the.
The pullback and again it was it's isolated to where we're feeling it is more in developed countries the United States being a big one Japan, Australia, New Zealand and just use the United States as an example, it's really limited.
Two the areas geographically in the U S, where you have lower vaccination rates.
It's that simple.
And where you hire vaccination rates, we're not seeing it. The other thing that is if you look at like a venn diagram of concentric circles.
Those geographies and then the procedures that were seeing are just like we saw in the first wave you know who are the ones that slow down first is either the more highly electable ones like pain stem or or spine or.
Cds or in our in our world cardiac diagnostics those are more elective I would say or or and I should say as procedures that require an ICU stay like taggart.
However procedure. So those are the ones that we're seeing at the pullback.
And it's in those.
Regions of the United States, It's use that example.
We're a vaccination rates are lower and you know again hospitals are better equipped sure I already went through we think this is going to peak here at the end of August the kind of the hospitals. The infection rates. If you will hospitalization rates will trail that by a couple of weeks. We do think this is shorter lived than easier.
Managed and then the prior waves. So I mean, that's that's been the progression. So it hasn't quite P jet and I said, we didn't start seeing the the.
The pullback.
Until the last few weeks in July.
At that point, we were pretty much back.
To either 100% in some cases over 100% of pre COVID-19 levels and in our therapies.
Thanks for the color I'll leave it there. Thank you.
Thanks, Matt.
Francesco next question please.
No.
We'll take the next question is from Larry <unk> from Wells Fargo Securities. Larry. Please go ahead.
Good morning, Thanks for taking the question.
So for sure on this quarter I, probably got more questions on renal denervation than anything else.
Related to Medtronic. So I guess my question is when will you know if the interim look and positive what's your confidence that it will be positive.
Doesn't end on this interim look at this thing.
When will the trial and and any read through from that trio trial, which was another Ahmed trial that showed about a 445 millimeter of Mercury difference on.
Ambulatory systolic blood pressure, thanks for taking the question Sean.
Okay.
Yeah.
Thanks, Sean you're on mute.
Can you hear me now.
Yes, yes.
<unk> strong, but no one can hear you.
Yeah.
Listen we don't really we have no information.
We lost Sean again.
Okay. This is like our fifth earnings calls our first technical glitch.
I was feeling pretty good.
Let's see if we can get back Sean.
No.
Well he is trying to get back on you know look you starting to see Larry we really havent gotten no new information.
Since the last or since the last call we had with you.
We do anticipate you know because of the Bayesian trial design and how it's set up that we will get it and we know we get another interim look here.
<unk>.
In the fall.
There is.
There's reason for optimism here.
Because part of the denominator going in to the trial was the feasibility work that we did and we know what those numbers look like.
And it is part of our look is we still have existing registries out there.
And the body of evidence just continues to build you know.
Even outside through our registries and other activity that's going on that leads us to believe that it is positive but look this is why we do these trials and then the next look that's the question Sean.
So if you back anshan, but the.
If this interim look does is.
Isn't it doesn't get to where we need to get to what's the next interim look after the fall here.
Can you hear me now.
Yeah, Yeah yeah.
Yes.
Really it's dependent on.
No.
The difference in standard deviation, so we don't have a.
David This is Paul.
Yes, Sir when it gets there.
As a reminder, this call we had the same situation where Mr. <unk> trials.
Bayesian design.
It Didnt reach statistical significance on its first interim look but it did on the second one and of course to your results roles identical to that.
When when they found out about.
Just be pushed down there is there are three books of business.
But as Jeff said, we're confident we're going to get there for everybody to know.
We don't know and so until then.
And thats can be let us know that that works present. So that's our plan we're going at that center.
On the <unk> trio.
Leverage also sham controlled study.
I don't think the patient population a drug regimens are comparable necessarily so it really is.
Sure.
Thanks, Sean.
Yeah.
Okay. Thanks, Larry let's take the next question please Francesco.
Yeah.
The next question comes from Vijay Kumar from Evercore ISI. Please go ahead.
Hey, guys. Thanks for taking the question.
Jason.
Our solid start to the year, Jeff maybe one another products. So can you.
It is on the U S timelines.
Sure.
Approvals on Hugo.
And diabetes and I'm curious the other pure play so you give up.
Uh huh.
What has been the early learnings so far has been in line with expectations or perhaps.
I'm surprised you to the posture there.
Sure I'll, let I'll, let the secure Bob on some of the more specifics of Hugo and Sean on the on some of the cardiovascular timing there, but look I'll just say look the you saw the video and.
We were just out the the surgeon feedback has been has been great.
Very very excited and look as I talked to other health systems around the world.
There's definitely an appetite.
They want us to win here.
So that's a positive sign as the demand is high surgeon feedback initially is strong and we just had our whole leadership team at one of our operational centers here for the robotics business. They have a couple of R&D centers around the world.
A large operational center in Connecticut, We're just our whole ex com was there and it just made so much progress in it.
I mean is this.
You were feeling pretty good right now that Bob has I'll, let Bob give you more of the specifics.
Thanks, Jeff and Vijay. Thanks for the question, we are with the first cases behind us really energized by the partially that Hugo is going to bring to us and like Jeff said that the surgeon and EUR staff who've experienced Hugo has been super positive and what they liked most Vijay is really the core to which to our system design the modularity.
The European Council, the three D visualization with flexibility of the platform.
And it really starting to think about ways that 30 vehicles climate technology to expand robotic assisted surgery and the other thing Vijay I'll share with you.
Touch surgery enterprise, if you recall our acquisition of digital surgery, a couple of years ago.
Using all the Hugo cases, and the surgeons are really impressed by the analytical capabilities to benefit to the video storage capability case sharing in our lives. So really excited on the feedback and then the first part of your question with respect to U S. Commercial program is really going to depend on the time to complete.
The clinical trial and the FDA review and as Jeff mentioned as he kicked off the session today, we're making really good progress on our expand Euro trial, we're gaining ethics committee approval working through the IRB conducting site training getting clinical study site activation for competitive reasons I'm not going to go through all the sites.
But we're really excited to treat our first patient in the U S. So we're feeling good and look we are on the path of building a multibillion dollar surgical robotics business Vijay So Jeff back to you.
Okay, Thanks, and I think Vijay I had a question on the <unk>.
The EV ICD Shang.
Look I think it was the timing of approval there I believe you Jay.
Yeah.
Yes, so Vijay <unk>.
<unk> March quarter.
In the U S is currently enrolling we think that we should see the CE Mark.
For the first half of calendar year 'twenty two.
Approximately a year later.
Yeah.
Yeah.
Okay. Thank you P. J, let's go to the next question. Please Francesco.
Okay. The next question comes from Travis Steed from Barclays. Travis. Please go ahead.
Hey, good morning, and congrats on a good start to the year.
I did have another question on renal denervation and thinking about the adoption curve.
If the data look something like the Apollo study, what's the process to get payers on board how do you how do you build the referral channel and how quickly the revenue Robbins.
You think about the MTI team.
Although the delay there do you actually need that to get to that $1 billion already on market size in 2026.
Sean do you want to pick up share in that sense.
Yes. Thanks for the question Youre breakfast reimbursement is the most important thing.
Skew things so we have room for approvals in CE Mark countries right now and we have now the cardiologist.
Cardiologist.
Pension statements line rent.
Recommending ardian as part of the treatment paradigm, what kind of things guidelines recommendation sorry, Rick.
Important for payers to me.
In the U S. You're right it would be the best way to get the coverage.
That's been laid by the change in administration. That's under review right now are primarily would be whether or not and so it gives you the comfort and we just goes same way we do it every other therapies or building at Paramount pair.
Sure.
Put it in the United States.
Turning to the payment in the coding and then next steps. So theres a good proportion of the patients that can be commercial insurance anyway, and we've been doing that work and it's part of the reason why we broke out the clinical trials trial strategy, where we began showing patients on medications.
Is going to be.
Commercial world payer by payer and it's going to be for Medicare.
Yes ruling will have by the way more and more competitive.
But.
It's hard to handicap, how fast ramp down because we don't have clarity on that last point.
Okay.
Okay. Thank you Travis let's go to the next question. Please Francesco.
And we'll take the next question from Josh Jennings from Cowen and company. Please go ahead.
Hi, good morning, Thanks for taking the questions maybe a question for Sean on the tableau franchise.
Interested to hear sorry, multipart question, but interested to hear about how the marketing efforts and the data that's coming out on patient precedent patient mismatch at the cusp of electric the bringing the pacemaker rate.
The relaunch and that'll Deloitte FX here in the U S.
Expectations for share gains in the U S. And then maybe any any updates on the timing of our low risk reimbursement in Japan.
And any high level views on Medtronic stressed in the China getting a good share of market size and just timeline there for for Medtronic Teva franchise. Thanks for taking the question.
Yes, sure so we have.
This is where it was in Europe recently.
The customer overlap lowering pacemaker rate increase in predictability and procedures internally.
Helpful. Your cost per cluster.
Awesome.
As you know in Japan for the low risk indication typically spend quarter for the.
Reimbursement is in line with that.
And then of course, China is an opportunity for us we've been working on a locomotive strategy there.
We have good progress going there's a lot of it.
Our solution.
It sounds like China is a little bit.
Nascent market yet for towers, so on the growth curve.
It's restricted to just the few centers of them are very big cities at this point in time, I really the penetration into low risk everywhere.
Stacy you're confused.
And of course extended days Matt.
Now.
Boeing does.
Everything from the spring and summer months.
Covid challenges.
Concentration nature of it.
One.
We feel really good about where we are pipeline FX.
Really big improvement there.
Vehicles.
That's been one of the biggest.
So for people, who learns as smartphones animals.
Stability and plans mark around volumes, it's exactly where it should be in place of course, new implants.
Really a homerun for us.
Okay. Thank you Josh.
Let's go to the line of Anthony Petrone from Jefferies.
Please go ahead.
Great. Thanks.
Just one on the commentary on this procedure volumes.
Cracking.
Not 100% on or slightly above.
So I guess.
And through their estimates one in August that were once again at some discount to a 100% if so where does that settle and then just on diabetes. A few quick follow ups to Vijay 70 Mg launch in Europe is that still on track second half and then the 700 atg clearance as well.
ICM designation for Standalone sensors is that still expected in the second half.
With me on the on the I'll, let Sean answer the diabetes questions, but on the procedure volumes.
Like we said.
We believe the cases like if you will of Covid cases peak sometime at the end of August or early.
Early September and then hospitalizations lag that by a few weeks. So so that would peak kind of mid September.
And then and then we would make up those cases hopefully.
Over the course of the year, but we would start getting back to those pre COVID-19 levels in August.
I'll point out that our guidance.
It does not assume that we make up these cases.
You know.
That is a possibility here given the how quickly we recover the cases.
During the prior waves that were much worse than we anticipate.
The Delta Varian being but that's on the procedure volumes.
Diabetes, you mentioned 70 G in Europe that.
That is already approved so I don't know if you meant to say U S, but in Europe, the <unk> on the market.
And doing really well and that's where we're optimistic because we're seeing that the performance of Europe and the best time in range of any pump and the user feedback and the physician feedback has been.
Off the charts positive. So so we're excited about that but you had a few other questions. There about the IC GM in EMEA I am assuming maybe your question was so in AG in the U S. Though maybe Sean you want to take those.
Yes, Thanks J B.
The combination.
G.
With a sense of that doesn't require.
Confirmation on non adjunctive hasnt from United States.
Really good interaction back and forth producer, that's when you get into that.
That said Europe launch.
Right in the second quarter, where you have a no finger sticks sensor.
Where infusion set.
That's really a nice combination of course, we'd love to bring that risks as possible, but things are on track as far as we can tell.
As you May know that division FDA has been very busy with COVID-19 or to handicap timelines happen.
Good progress in radio.
Mhm.
Thanks Anthony.
Let's go next to Matt makes it from credit Suisse. Ma'am. Please go ahead.
Alright, thanks, so much.
So just to follow up on some of the comments you made.
On sort of the COVID-19 pressure in the U S and elsewhere.
Could maybe.
Give some additional color around what the strengths and weaknesses looked like regionally.
Whether you are seeing so far any indication I know there has.
Bit availability and capacity is one element and of course, the patient sentiment willingness to get cases done is another so wondering if you're seeing anything.
So is there.
The additional color.
Thanks, Matt for the question. So in terms of regionally the impact that we're seeing is mostly in the United States and we've talked about that we do have Japan.
Certain countries in Asia Pacific Like Australia, Australia, New Zealand, and Vietnam being impacted because lockdowns are still in place there.
In Europe, we're seeing the impact in the U K.
And in Latin America, we're not seeing a big impact on the Delta variance at this point.
So hopefully that's helpful in terms of.
Patient sentiment and you know the impact around.
<unk>.
Capacity availability, we do expect the biggest impact to be short lived and really it's because hospitals are better equipped as Jeff talked about vaccination rates are increasing around the world and patient sentiment is understanding that you know that we need to have life go on with.
The COVID-19 variance and so we're seeing that and so we do expect a recovery here to be faster certainly than it was in the first wave and even in the second wave.
<unk> sentiment I would say, it's much better than it was in the.
A year ago right. There was a lot of unknowns there was no vaccination.
I think you're seeing a lot of people that are.
However, concerned have gotten vaccinated in and Theres, others that have not that you know.
Have a different viewpoint on the virus.
But all in all.
Patient sentiments in a much better spot and as Kevin pointed out hospitals are much better equipped.
Okay. Thanks, Matt Francesca, let's take next question. Please.
We'll take the next question from Jayson Bedford from Raymond James Jason. Please go ahead.
Good morning.
Question, perhaps for Karen on op margin or are you still expecting a 400 million negative.
$101 million negative impact to our margin to the ERP investments and Hugo in R&D and how much of that was realized in <unk> and then just on Q2 margin looks like it's in the 25 and a half to 2000.
Six 5% to 27% range is that fair.
Yes, thanks for that question Jason.
We are still expecting strong investment against both Ardian and and the robot and yes.
$400 million impact the operating margin for the year from those two very important programs, which represent what we believe to be the largest opportunity in med tech.
In terms of in terms of how much that hit in the first quarter, we expected some ramps in and those investments plus others in the first quarter and then.
And we didn't see all of those ramps in the first quarter. So we're expecting more in the second quarter.
Just because of.
The fact that we're hiring lots of people and you know it.
Takes a little bit of time, and so we are expecting that ramp in the second quarter.
And in the third quarter beyond that what I would say in operating margins for the second quarter is that.
We will still expect a few hundred.
Few hundred point basis point improvement in operating margin for the second quarter.
So despite all of that investment, we still expect very strong year over year improvement.
Okay. Thanks, Jason we.
We have time for one more question can we take that police Francesca.
And we'll take the final question from Danielle unhealthy from SBB Leerink.
Go ahead.
Thank you everyone. So much for sneaking me in and congrats on a good start too.
And Jeff just a question on that M&A strategy. Congrats on the engineers that you only because it makes a ton of strategic sense I guess just at a high level is that how we should be thinking about your approach to M&A going forward more on that.
Sort of in a tuck in gain and if you could comment on where now that intersection default where else we should be thinking about electronic looking to sell gas. Thank you so much.
Well, thanks for the comments and the question Daniel Yeah, like I've been saying the tuck in strategy is definitely.
Is the one that is that we're focused on and it's been consistent with what we've been doing over the last couple of last couple of quarters I think we've done.
Seven deals over the last one and a half years or so for about $2.3 billion.
This one roughly $1 billion is one of our this is this is the kind of deal I would see.
I would expect from US this one happens to be earnings neutral in the first 12 months and accretive thereafter.
<unk> two our.
Weighted average market growth rate.
Segment within E&P is growing in the mid teens.
And.
Yes, the returns are strong well well above our weighted average cost of capital. So these are the kind of deals we'd like to see and they're in areas that were strong.
So the E&C is one of our stronger business as Karen pointed out in her opening remarks. So yes, so in terms of where to look beyond that.
It's tough to forecast I'd tell you this where we are looking at all of our different operating units in the different segments that they serve we spent a lot of time.
And resources looking at different opportunities and engaging different companies and.
Yes, we've got the <unk>.
<unk> opportunities across the portfolio.
Difficult to predict where the next one next one will be but it will we are still very focused on those tuck in strategy and I'd like to say that no.
We're not buying growth here, we're growing what we buy we buy these earlier stage companies and there tends to be a lot of synergies to drive the drive growth, whether it be technical or clinical or a big one would be commercial especially outside the U S. There's a lot of these companies tend to be U S. Based these startups. So that's.
That's how I'd answer that and.
Hopefully we can continue to keep the keep is going because it does add to our weighted average market growth rate.
Okay. Thanks, Danielle Jeff. Please go ahead with your closing remarks, okay.
Thanks, everybody for the questions and we definitely appreciate your support and your continued interest in Medtronic and look I Hope you will join US for our Q2 earnings webcast, which we anticipate holding on November 23rd where we will update you on our continued progress here so with that thanks for watching today Hope you enjoyed the drum line is bad.
Jack.
Please stay healthy and safe and have a great rest of your day. Thank you.
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