Q2 2022 Medtronic PLC Earnings Call

Why spending vice President and head of Medtronic Investor Relations.

Speaker 1: Vice President and Head of Medtronic Investor Relations.

Speaker 1: Before we start the prepared remarks, I'll share a few details about today's webcast. Joining me are Jeff Martha, Medtronic Chairman and Chief Executive Officer, and Karen Parkhill, Medtronic Chief Financial Officer.

Before we start the prepared remarks I'll share a few details 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 second quarter, which ended on October 29, 2021, and our outlook for the remainder of the fiscal.

Speaker 1: Jeff and Karen will provide comments on the results of our second quarter, which ended on October 29, 2021, and our outlook for the remainder of the fiscal year. After our prepared remarks, our portfolio executive VPs will join us and will take questions from the sell-side analysts that cover the company. Today's event should last about an hour.

Year after our prepared remarks, our portfolio executive V piece will join us and we will take questions from the sell side analysts that cover the company todays event should last about an hour.

Speaker 1: Earlier this morning we issued a press release containing our financial statements in divisional and geographic revenue summary.

Earlier. This morning, we issued a press release containing our financial statements the divisional and geographic revenue summaries. We also posted an earnings presentation that provides additional details on our performance.

Speaker 1: We also posted an earnings presentation that provides additional details on our performance.

Speaker 1: The presentation can be accessed in our earnings press release or on our website at investorrelations.metronic.com.

<unk> can be accessed in our earnings press release or on our website at investor relation stop Medtronic Dot com.

Speaker 1: During today's webcast, many of the statements we make may be considered forward-looking statements, and actual results may differ materially from those projected in any forward-looking statement. Additional information concerning factors that could cause actual results to differ is contained in our periodic reports and other filings that we make with the SEC, and we do not undertake to update any forward-looking statements.

During today's webcast many of the statements we make maybe 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 up.

Any forward looking statements.

Speaker 1: Unless we say otherwise, all comparisons are on a year-over-year basis, and revenue comparisons are made on an organic basis.

Unless we say otherwise all comparisons are on a year over year basis and revenue comparisons are made on an organic basis second quarter organic revenue comparisons adjust only for foreign currencies 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.

Speaker 1: Second quarter organic revenue comparisons adjust 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.

Our revenue growth.

Speaker 1: References to sequential revenue changes compared to the first quarter of fiscal 22 and are made on an as-reported basis, and all references to share gains or losses refer to revenue shared in the third calendar quarter of 2021 compared to the third calendar quarter of 2020, unless otherwise stated.

References to sequential revenue changes compared to the first quarter of fiscal 'twenty, two and are made on an as reported basis and all references to share gains or losses referred to revenue share in the third calendar quarter of 2021 compared to the third calendar quarter of 2020, unless otherwise stated.

Speaker 1: Reconciliations of all non-GAAP financial measures can be found in our earnings press release or on our website at investorrelations.metronic.com

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

Speaker 1: 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.

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.

Speaker 1: With that, let's head into the studio and get started.

With that let's get into the studio and get started.

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Speaker 2: Hello everyone and thank you for joining us today.

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Hello, everyone and thank you for joining us today.

Speaker 2: This morning we reported Q2 results, which despite a challenging market backdrop, reflects solid execution around new product launches and strong underlying earnings growth.

This morning, we reported Q2 results, which despite a challenging market backdrop reflects solid execution around new product launches and strong underlying earnings growth.

Speaker 2: Obviously, our end markets were impacted by the COVID-19 resurgence and the health care system staffing shortages, particularly in the U.S., which affected our quarterly revenue growth.

Obviously, our end markets were impacted by the COVID-19, resurgence and the health care system staffing shortages, particularly in the U S, which affected our quarterly revenue growth.

Speaker 2: Procedure volumes were lighter than expected in markets where our technology is used in more deferrable procedures like our spine.

Procedure volumes were lighter than expected in markets, where our technology is used in more deferrable procedures like our spine business.

Speaker 2: or those that require ICU bed capacity, like CAVR. Yet in markets where procedures are less deferrable, like pacing, we experience stronger growth.

For those that require ICU bed capacity liked havre yet.

Yet in markets, where procedures are less deferrable like pacing, we experienced stronger growth.

While the U S market was a headwind many of our international markets. We're much stronger we delivered 6% revenue growth outside the U S, including mid teens growth in emerging markets and.

Speaker 2: While the U.S. market was a headwind, many of our international markets were much stronger. We delivered 6% revenue growth outside the U.S., including mid-teens growth in emerging markets.

Speaker 2: And our emerging market growth is up 9% versus pre-pandemic levels in Q2 fiscal 2020.

In our emerging market growth is up 9% versus pre pandemic levels in Q2 fiscal 'twenty.

In the midst of these market headwinds, we focused on managing what was in our control and executed to advance our pipeline launch new products and win share and when you look at our sequential revenue performance are 2% decline was slightly better than most of our large cap med tech competitors.

Speaker 2: In the midst of these market headwinds, we focused on managing what was in our control and executed to advance our pipeline, launch new products, and win share. And when you look at our sequential revenue performance, our 2% decline was slightly better than most of our large-cap MedTech competitors.

Speaker 2: While the pace of the recovery from pandemic headwinds is hard to predict, our markets will recover. And as that happens, Medtronic is one of the best positioned companies in health.

While the pace of the recovery from pandemic headwinds is hard to predict our markets will recover and as that happens Medtronic is one of the best positioned companies in health care.

Speaker 2: The underlying health of our business is strong and it's getting stronger. We have an expansive pipeline of leading technology, a robust balance sheet and an expanding roster of proven top talent.

The underlying health of our business is strong and it's getting stronger we have an expansive pipeline of leading technology, a robust balance sheet and an expanding roster of proven top talent.

Speaker 2: Coupled with our revitalized operating model and new competitive mindset, we remain poised to accelerate and sustain growth. As I've done in prior quarters, let's start with a look at our market share performance.

Coupled with our revitalize the operating model and new competitive mindset, we remain poised to accelerate and sustain growth as I've done in prior quarters, let's start with a look at our market share performance year over year market share is an important metric that our teams are evaluated against in their annual incentive plans along with revenue growth profit.

Speaker 2: Year over year market share is an important metric that our teams are evaluated against in their annual incentive plans, along with revenue growth, profit, and free cash flow. And right now, the majority of our businesses are winning share, driven by our innovation and increased competitiveness. And this is exactly the sort of market share performance that gives us confidence in the deep strength of our businesses.

And free cash flow and right now the majority of our businesses are winning share driven by our innovation and increased competitiveness and this is exactly the sort of market share performance that gives us confidence in the deep strength of our businesses.

And to avoid any confusion about how we're performing when we talk about our share dynamics will refer to revenue share in the third calendar quarter to keep a directly comparable to our competition.

Speaker 2: Share momentum in our three largest businesses continued. In the cardiac rhythm management business, we extended category leadership, adding over a point of share year over year, driven by our differentiated micro-family of pacemakers, cobalt and chrome high-power devices, and our Tyrex antibacterial envelope.

Momentum in our three largest businesses continued in the cardiac rhythm management business, we extended category leadership, adding over a point of share year over year, driven by our differentiated micro family of pacemakers, cobalt and crome high power devices, and our tire ex anti bacterial envelopes.

Speaker 2: In surgical innovations, we outperform competition with strong performances in endo-stapling and suture.

In surgical innovations, we outperformed competition with strong performances in Endo stapling and sutures.

Speaker 2: And our Signia-powered stapling system and tri-staple technology continues to see great market adoption. In cranial and spinal technologies, we're winning share and launching new spine implants that enhance the overall value of our ecosystem of preoperative planning software, imaging, navigation, and robotic systems, and powered surgical instruments, which is transforming care in spine surgery. Our new

And our Cigna powered stapling system and Tri staple technology continues to see great market adoption and cranial and spinal technologies, we're winning share and launching new spine implants that enhance the overall value of our ecosystem of preoperative planning software imaging navigation and robotics systems and powered surgical instruments, which is.

Transforming care in spine surgery.

Our new implants also go directly at the competition, starting this past quarter with our catalyst expandable inner bodies to specifically attract globus users.

Speaker 2: Starting this past quarter with our Catalyst Expandable Interbodies to specifically attract Globus.

Speaker 2: In addition to our three largest, a broad array of our other businesses have increased their competitiveness, are launching new products, and winning share in their end market.

In addition to our three largest a broad array of our other businesses have increased their competitiveness or launching new products and winning share in their end markets. So for example in patient monitoring we're winning share with our Nellcor pulse oximetry sensors, and our monitors and.

Speaker 2: So for example, in patient monitoring, we're winning share with our Nelcor pulse oximetry sensors and our monitors.

Speaker 2: In respiratory interventions, we picked up four points of share in premium ventilation due to our ability to respond quickly to spikes in demand from COVID-19.

In respiratory interventions, we picked up four points of share in premium ventilation due to our ability to respond quickly to spikes in demand from Covid resurgence.

Speaker 2: and in neuromodulation, we want to share across our product lines, including PaintStim and DBS, as we continue to launch new products.

And in Neuromodulation, we won share across our product lines, including pain, Stim and DBS as we continue to launch new products.

Speaker 2: and pain stem despite the sequential slowdown in the market. We're gaining share with our Intelis with DTM technology and our Vanta recharge free.

In pain stim, despite the sequential slowdown in the market, we're gaining share with our Intel us with D. T M technology, and our Vance our recharge free system.

Speaker 2: In DBS, we had a very strong quarter, winning over six points of share. We're executing on the launch of our Percept Neurostimulator with BrainSense technology paired with our Sensite Directional

And D. B S. We had a very strong quarter, winning over six points of share we're executing on the launch of our percept neuro stimulator with brain sense technology paired with our sensate directional lead.

Speaker 2: And we continue to be the only company with sensing capabilities. Since launching Sensite in the U.S. earlier this fiscal year, we've surged ahead of the competition in new implant share. Sensing has redefined what it takes to compete in DBS. Our competitors don't have it. And as a result, we're expecting a long runway of share gains as we build upon our category leaders.

And we continue to be the only company with sensing capabilities.

Since launching send site in the U S. Earlier this fiscal year, we have surged ahead of the competition in new implant share sensing has redefined what it takes to compete in D. B S. Our competitors don't have it in as a result, we're expecting a long runway of share gains as we build upon our category leadership now while the majority of our businesses are we.

Speaker 2: Now, while the majority of our businesses are winning share, we do have a few businesses that are flat or losing share, and we're focusing our efforts and our investments to grow above the market. In cardiac diagnostics, we're focused on improving supply to reverse share declines, and we're investing in new indications and novel AI detection algorithms to expand the market and drive growth.

Sure. We do have a few businesses that are flat or losing share and we're focusing our efforts and our investments to grow above the market and cardiac diagnostics, we're focused on improving supply to reverse share to clients and we're investing in new indications and novel AI detection algorithms to expand the market and drive growth.

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Speaker 2: In cardiac ablation solutions, we expect to win shares as we expand the rollout of our Diamond Temp RF ablation system.

In cardiac ablation solutions, we expect to win share as we expand the rollout of our diamond tempt RF ablation system and drive awareness and adoption of our Arctic front advance pro cryo ablation as a first line treatment for paroxysmal AF and diabetes, while we lost share again this quarter, we remain pleased with the momentum we're building outside.

Speaker 2: and drive awareness and adoption of our Arctic Front Advanced Pro Cryo Ablation as a first-line treatment for perichysmal AF.

Speaker 2: In diabetes, while we lost share again this quarter, we remain pleased with the momentum we're building outside the US, not only with the 780G insulin pumps, but also with the positive customer feedback we've heard on our extended infusion set and finger stick free Guardian Sensor 4.

The U S not only with the seven atg insulin pumps, but also with the positive customer feedback we've heard on our extended infusion set and finger stick free Guardian sensor for.

And we expect our U S results to turnaround as we launch these new products next lets turn to our product pipeline I've already talked about the impact our strong flow of new products is having in the market.

Speaker 2: and we expect our U.S. results to turn around as we launch these new products. Next, let's turn to our product pipeline. I've already talked about the impact our strong flow of new products is having in the market. We've launched over 180 products in the U.S., Western Europe , Japan, and China in the last 12 months.

We've launched over 180 products in the U S Western Europe, Japan, and China in the last 12 months at the same time, we continued to advance new technologies that are in development. We're heavily investing in this pipeline with a targeted R&D spend of over $2 $7 billion. This fiscal year, which is an increase of over 10%.

Speaker 2: At the same time, we continue to advance new technologies that are in development. We're heavily investing in this pipeline with a targeted R&D spend of over $2.7 billion this fiscal year, which is an increase of over 10%, the largest dollar increase in our history. We're expecting these investments.

The largest dollar increase in our history.

We're expecting these investments to create new markets disrupt existing ones and accelerate the growth profile of Medtronic.

Speaker 2: disrupt existing ones, and accelerate the growth profile.

Speaker 2: Let's start with our simplicity renal denervation procedure for Hypertension.

Let's start with our simplicity renal denervation procedure for hypertension.

Speaker 2: While we weren't able to end our on-med study early, we remain confident in our program and our ability to serve the millions of patients who make up this multi-billion dollar opportunity.

While we werent able to enter on Med study early we remain confident in our program and our ability to serve the millions of patients who make up this multibillion dollar opportunity.

As a reminder, our previous three sham controlled simplicity studies, all reached statistical significance, including the pivotal off Med study and the on Med study remains powered to detect a statistically significant and clinically relevant benefit at the final analysis.

Speaker 2: We expect that on-med follow-up will complete in the second half of next calendar year, and then we'll submit the PMA to the U.S. FDA for approval. When we think about renal denervation,

We expect that on med follow up will complete in the second half of next calendar year.

And then we'll submit the PMA to the U S FDA for approval.

When we think about renal denervation, let's start with the patients who have indicated that they want options like the simplicity blood pressure lowering procedure to treat their hypertension as confirmed by our patient preference study presented earlier this month at TCT.

Speaker 2: who have indicated that they want options like the simplicity blood pressure lowering procedure to treat their hypertension as confirmed by our patient preference study presented earlier this month.

Speaker 2: We believe demand will be high, and we continue to expect this to be a massive opportunity that we will lead.

We believe demand will be high and we continue to expect this to be a massive opportunity that we will lead.

Another opportunity for Medtronic as surgical robotics, where we were entering the soft tissue robotics market as a second meaningful player.

Speaker 2: where we are entering the soft tissue robotics market as a second meaningful player.

Speaker 2: We achieved a major milestone when we received CE mark for Hugo last month. And we also completed our first procedures with Hugo in our Asia-Pacific region at Apollo Hospitals in Asia.

We achieved a major milestone when we receive CE Mark for Hugo last month, and we also completed our first procedures with Hugo in our Asia Pacific region at Apollo hospitals in India.

Speaker 2: The first surgeons to use Hugo in a clinical setting have told us they believe Hugo addresses the cost and utilization barriers that have held back the growth of robotic surgery.

The first surgeons to use Hugo in the clinical setting had told us they believe Hugo addresses the cost and utilization barriers that have held back the growth of robotic surgery.

Speaker 2: Look, demand is high and we're building a long list of hospitals that want to join our Partners in Possibility program and be among the first in the world to use Hugo and participate in our global registry, which will collect clinical data to support regulatory submissions around the world. Our robotic program is making progress toward a broader launch, and we remain well-positioned in this critical field relative to every other potential new entry.

Look demand is high and we're building a long list of hospitals that want to join our partners impossibility program and be among the first in the world to use Hugo and participate in a global registry, which will collect clinical data to support regulatory submissions around the world. Our robotic program is making progress toward a broader launch.

And we remain well positioned in this critical field relative to every other potential new entrant.

Speaker 2: As we prepare for this broader launch, we're working hard to ensure an outstanding customer experience. We're also focused on optimizing our supply chain, manufacturing, and logistics to prepare for scaling this.

As we prepare for this broader launch we're working hard to ensure an outstanding customer experience. We're also focused on optimizing our supply chain manufacturing and logistics to prepare for scaling this business.

Speaker 2: We're making steady progress on these activities, but not at the pace that we'd originally planned.

We're making steady progress on these activities, but not at the pace that we had originally planned and as a result sales this fiscal year likely to come in below our $50 million to $100 million target now that said, we still expect double digit millions in sales this fiscal year and we continue to expect a strong ramp in FY 'twenty three.

Speaker 2: And as a result, sales this fiscal year are likely to come in below our $50 to $100 million target. Now that said, we still expect double-digit millions in sales this fiscal year, and we continue to expect a strong ramp in FY23.

Speaker 2: We're off schedule, but we're not off track. And while we're disappointed in the revenue push out for this important program, we're confident that we have line of sight to the solutions we need to be successful and to optimize the customer experience.

We are off schedule, but we're not off track and while we're disappointed in the revenue push out for this important program. We're confident that we have line of sight to the solutions, we need to be successful and to optimize the customer experience.

Speaker 2: Demand remains high, surges continue to do cases, our order pipeline continues to build, and we're looking forward to starting our US IDEC.

Demand remains high surgeons continue to do cases, our order pipeline continues to build and we're looking forward to starting our U S. IDE E. Soon we remain confident in the success of this program and we believe that we're poised to meaningfully expand the soft tissue robotics market and drive growth for years to come.

Speaker 2: We remain confident in the success of this program and we believe that we're poised to meaningfully expand the soft tissue robotic market and drive growth for years to come.

Speaker 2: In cardiac rhythm, we just launched our microAV leadless pacemaker in Japan earlier this month. We also completed the U.S. pivotal study enrollment for our EVIC-D, which follows our CE mark submission in Q1.

In cardiac rhythm, we just launched our micra Avi <unk> pacemaker in Japan earlier. This month, we also completed the U S. Pivotal study enrollment for our EV ICD, which follows our CE Mark submission in Q1.

Speaker 2: Just as we disrupted the pacing market with Micra, we intend to do the same in the implantable defibrillator space with our EVIC-D. Our device can both pace and shock without any leads inside the heart and veins.

Just as we disrupted the pacing market with micra, we intend to do the same and the implantable defibrillator space with our EV ICD, our device can both pace and shock without any leads inside the heart and veins in.

Speaker 2: And it does this in a single device that is the same size as a traditional ICD.

And it does this in a single device that is the same size as a traditional ICD <unk>.

In structural heart, we're starting the limited U S launch of our Nexgen <unk> system. The evolute FX. This month with a full market launch planned for fiscal Q4.

Evolute FX enhances ease of use with improvements and deliverability implant visibility and deployment stability.

We're also making progress on our Transcatheter mitral program at.

Speaker 2: At TCT earlier this month, we presented very encouraging early data of our transfemoral delivery system for our intrepid mitral valve, and we will be rolling that system into our Apollo Pivotal trial.

At TCT earlier. This month, we presented very encouraging early data of our Transferal delivery system for our intrepid mitral valve and we will be rolling that system into our Apollo pivotal trial.

Speaker 2: In diabetes, our MiniMed 780G insulin pump combined with our Guardian 4 sensor continue to be under active review with the FDA.

And diabetes are many med seven atg insulin pump combined with our Guardian for sensor continue to be under active review with the FDA.

Speaker 2: When approved and launched in the U.S., we expect the 7-AG system to drive growth, as it will be highly differentiated and further address the burden of daily diabetes management.

When approved and launched in the U S. We expect the seven AG system to drive growth as it will be highly differentiated and further address the burden of daily diabetes management.

Speaker 2: and for the first time ever is helping hard-to-manage pediatric and adolescent patients achieve outcomes mirroring well-controlled adults. The user experience has

And for the first time ever is helping hard to manage pediatric and adolescent patients achieve outcomes nearing well controlled adults.

The user experience has also improved markedly.

Speaker 2: And these outstanding results were achieved with our 780G paired with our Guardian 3 sensor. So we expect the experience will be even stronger with Guardian 4.

And these outstanding results were achieved with our seven AG paired with our Guardian three sensor. So we expect the experience will be even stronger with Guardian for.

Speaker 2: And the value of our offering will be further enhanced when we bring our Synergy Sensor, which is now called Simplera, to market. Simplera is disposable. It's easier to apply and half the size of Guardian 4. And we expect to submit it to FDA later this fiscal year. In pelvic health, we're awaiting FDA approval for our next-gen Intersim recharge-free device, which we expect in the first half of next calendar year.

And the value of our offering will be further enhanced when we bring our synergy sensor, which is now called some player to market. Some player is disposable it's easier to apply and half the size of Guardian for and we expect this submitted to FDA later this fiscal year and pelvic health were awaiting FDA approval for our Nextgen intercity.

M recharge free device, which we expect in the first half of next calendar year with its best in class battery constant current and full body MRI compatibility at both one and a half and three Tesla. We expect this device will extend our category leadership in this space and Neuromodulation. We recently submitted our <unk> closed loop spinal cord.

Speaker 2: With its best-in-class battery, constant current, and full-body MRI compatibility at both one and a half and three Tesla, we expect this device will extend our category leadership in this space.

Speaker 2: In neuromodulation, we recently submitted our eCAPS closed-loop spinal cord stimulator to the FDA. We're calling this device Inceptiv-SCF.

Stimulator to the F D a.

Calling this device Inceptive SCS and we expect it to revolutionize Ses with closed loop therapy to optimize pain relief for patients.

Speaker 2: And we expect it to revolutionize SCS with closed-loop therapy to optimize pain relief for patients.

We also continue to make progress on expanding indications for SCS into nonsurgical refractory back pain, painful diabetic neuropathy, and upper limb and neck chronic pain.

Speaker 2: We also continue to make progress on expanding indications for SCS into non-surgical or factory-backed

Speaker 2: painful diabetic neuropathy, and upper limb and neck chronic.

Speaker 2: Finally, in DBS, we continue to enroll patients in our ADAPT PD trial, studying our closed-loop adaptive DBS therapy in patients with Parkinson's.

Finally in D. B S. We continue to enroll patients in our adapt PD trial studying our closed loop adaptive DBS therapy in patients with Parkinson's, we're expecting enrollment in the trial to complete later this fiscal year.

Speaker 2: We're expecting enrollment in the trial to complete later this fiscal year.

Okay.

Speaker 2: Now, before I turn it over to Karen, the one thing I most want to emphasize is that despite the ups and downs of the pandemic and its collateral impacts on hospital procedures, nursing and staffing shortages, and the supply

Now before I turn it over to Karen the one thing I most want to emphasize is that despite the ups and downs of the pandemic and its collateral impacts on hospital procedures nursing and staffing shortages and the supply chain, our underlying business remains strong medtronic.

Speaker 2: our underlying business remains strong. Medtronic is advancing a pipeline of meaningful innovation that we believe will not only enhance our competitiveness, but will accelerate our total company growth going forward.

Medtronic is advancing a pipeline of meaningful innovation that we believe will not only enhance our competitiveness, but will accelerate our total company growth going forward.

And with that I'll turn it over to Karen to discuss our financial performance and our guidance Karen.

Speaker 2: And with that, I'll turn it over to Karen to discuss our financial performance and our guidance. Karen? Thank you, Jeff.

Thank you Jeff.

Speaker 3: Our second quarter organic revenue increased two percent, reflecting the marked impact of COVID and health system staffing shortages on procedure volumes, primarily in the United States.

Our second quarter organic revenue increased 2%, reflecting the market impact of Covid and health system staffing shortages on procedure volumes, primarily in the United States.

Speaker 3: Despite the softer end markets, our team executed to deliver strong margin improvement and earnings growth.

Despite the softer end markets, our team executed to deliver strong margin improvement and earnings growth.

Speaker 3: In fact, our adjusted EPS increased 29 percent – significant growth reflecting the pandemic impact last year.

In fact, our adjusted EPS increased 29% significant growth, reflecting the pandemic impact last year.

And our adjusted EPS was three cents better than consensus with two cents from stronger operating profit and a penny from a lower than expected tax rate.

Speaker 3: And our adjusted EPS was $0.03 better than consensus, with $0.02 from stronger operating profit and a penny from a lower than expected tax rate.

Our second quarter revenue growth came in lower than we were expecting back in August.

Speaker 3: Our second quarter revenue growth came in lower than we were expecting back in August .

Speaker 3: We did see improving trends in our average daily sales each month of the quarter as COVID hospitalizations declined.

We did see improving trends in our average daily sales each month of the quarter as Covid hospitalizations declined.

Speaker 3: That said, the bounce back in the U.S. wasn't as fast as we had expected or had seen in prior waves.

That said the bounce back in the U S. Why isn't as fast as we had expected or had seen in prior waves.

Speaker 3: We recognize many of our customers are dealing with staffing shortages on top of increased COVID patients, and we believe that had an increasing effect on procedure volume.

We recognize many of our customers are dealing with staffing shortages on top of increased COVID-19 patients and we believe that had an increasing effect on procedure volume.

Speaker 3: Looking down our P&L, we had strong year-over-year improvement in our margins.

Looking down our P&L, we had strong year over year improvement in our margins 360 basis points on gross margin as we continue to recover from the significant impacts from Covid last year.

Speaker 3: 360 basis points on gross margin as we continue to recover from the significant impacts from COVID last year.

Speaker 3: and 470 basis points on operating margin, given savings from our simplification program tied to our operating model.

And 470 basis points on operating margin given savings from our simplification program tied to our operating model.

Converting our earnings into strong free cash flow continues to be a priority.

Speaker 3: Converting our earnings into strong free cash flow continues to be a priority.

Our year to date free cash flow was $2 4 billion up 58% from last year, and we continue to target a full year conversion of 80% or greater.

Speaker 3: Our year-to-date free cash flow was $2.4 billion, up 58% from last year, and we continue to target a full-year conversion of 80% or greater.

Speaker 3: Turning to capital allocation, we continue to allocate significant capital to organic R&D, and we continue to seek attractive tuck-in acquisitions to enhance our businesses.

Turning to capital allocation, we continue to allocate significant capital to organic R&D.

And we continue to seek attractive tuck in acquisitions to enhance our businesses.

Speaker 3: For example, Intersect ENT, we announced our intent to acquire back in August .

For example, intersect N T, we announced our intent to acquire back in August.

Speaker 3: Intersex assets complement our own and are accretive to our wham-girls.

Your sex assets complement our own and are accretive to our Wham Gar.

Speaker 3: plot we believe we can accelerate their growth around the globe

Plus we believe we can accelerate their growth around the globe.

Speaker 3: We're also returning capital back to our shareholders, with a commitment to return greater than 50% of our free cash flow, primarily through our dividends.

We're also returning capital back to our shareholders with a commitment to return greater than 50% of our free cash flow primarily through our dividend.

Speaker 3: Year-to-date, we've paid $1.7 billion in dividends. And as a dividend aristocrat, our attractive and growing dividend is an important component of our total shareholder return.

Year to date, we paid 1.7 billion in dividends and as a dividend aristocrat are attractive and growing dividend is an important component of our total shareholder return.

Looking ahead.

Speaker 3: Looking ahead, although the environment remains fluid, we are seeing some improvement in procedures and our average daily sales in the first few weeks of November .

So the environment remains fluid we are seeing some improvement in procedures and our average daily sales in the first few weeks of November.

Speaker 3: So we're encouraged that the negative impact of the pandemic and healthcare system staffing shortages on our markets could be moderating.

So we're encouraged that the negative impact of the pandemic and health care systems staffing shortages on our markets could be moderating.

Speaker 3: And while our operations team has done a terrific job managing our supply chain to date, like other companies, we are dealing with an elevated risk of raw material supply shortages.

And while our operations team has done a terrific job managing our supply chain to date like other companies, we are dealing with an elevated risk of raw material supply shortages.

Speaker 3: As a result of these potential headwinds, and given we're only midway through our fiscal year, we believe it is prudent to update our Fiscal 22 Organic Revenue Growth guidance to 7-8% from the prior 9%.

As a result of these potential headwinds and given we're only midway through our fiscal year. We believe it is prudent to update our fiscal 'twenty, two organic revenue growth guidance to 7% to 8% from the prior 9%.

Speaker 3: If recent exchange rates hold, foreign currency would have a positive impact on full year revenue of $0 to $50 million, down from the prior $100 to $200 million I gave last quarter.

If recent exchange rates hold foreign currency would have a positive impact on full year revenue of zero to $50 million down from the prior 100 to 200 million I gave last quarter.

Speaker 3: By segment, we expect neurosciences to now grow 9 to 10 percent.

By segment, we expect Neurosciences to now grow 9% to 10%.

Speaker 3: cardiovascular, and medical-surgical to grow 7.5 to 8.5 percent.

Cardiovascular and medical surgical to grow seven and a half to eight 5%.

Speaker 3: and diabetes to be down low single digits, all on an organic basis.

And diabetes to be down low single digits.

All on an organic basis.

Despite the headwinds we face on revenue, we will manage well what we can control.

Speaker 3: Despite the headwinds we face on revenue, we will manage well what we can control, which includes expenses not directly tied to our future growth.

Which includes expenses not directly tied to our future growth.

Speaker 3: we will continue to invest heavily in R&D and market development. And on the bottom line, we reiterate our non-GAAP diluted EPS guidance range of 565 to 575.

We will continue to invest heavily in R&D and market development and on the bottom line, we reiterate our non-GAAP diluted EPS guidance range of $5 65 to 575.

Speaker 3: This continues to include a currency benefit of 5 to 10 cents at recent rates.

This continues to include a currency benefit of five to 10 cents at recent rates.

Speaker 3: For the third quarter, we're expecting organic revenue growth of three to four percent year-over-year.

For the third quarter, we're expecting organic revenue growth of 3% to 4% year over year.

Speaker 3: This assumes no real pickup in organic comp-adjusted growth versus pre-pandemic levels from what we saw in the second quarter, despite the improving trends we saw in September and October .

This assumes no real pick up inorganic comp adjusted growth versus pre pandemic levels from what we saw in the second quarter.

Despite the improving trends we saw in September and October.

While we are encouraged by those trends and by what we're seeing in November we wanted to err on the side of caution with near term guidance given the dynamic macro environment.

Speaker 3: While we are encouraged by those trends and by what we're seeing in November , we wanted to err on the side of caution with near-term guidance given the dynamic macro environment.

At recent rates, we're expecting a currency headwind on third quarter revenue of $80 million to $120 million.

Speaker 3: At recent rates, we're expecting a currency headwind on third-quarter revenue of $80-$120 million.

Speaker 3: By segment, we expect cardiovascular to grow 5 to 6 percent, neuroscience 4 to 5 percent.

By segment, we expect cardiovascular to grow 5% to 6% neuro.

Neuroscience, 4% to 5%.

Speaker 3: medical-surgical 2 to 3 percent, and diabetes could be down mid-single digits, all on an organic basis.

Medical surgical 2% to 3% and diabetes to be down mid single digits, all on an organic basis.

Speaker 3: We expect EPS between $1.37 and $1.39, with a currency tailwind of $0.02 to $0.04 at recent rates.

We expect EPS between $1 37, and $1 39, with a currency tailwind of two to four cents at recent rates.

Speaker 3: While we expect our markets will continue to be affected by the pandemic in the back half of our fiscal year, we remain focused on delivering solid revenue growth, strong earnings growth, and investing in our pipeline to fuel our future.

While we expect our markets will continue to be affected by the pandemic in the back half of our fiscal year. We remain focused on delivering solid revenue growth strong earnings growth and investing in our pipeline to fuel our future.

Speaker 3: We also remain confident about the underlying strength and competitiveness of our business and our ability to accelerate revenue growth ahead.

We also remain confident about the underlying strength and competitiveness of our business and our ability to accelerate revenue growth ahead.

Speaker 3: Finally, I'd like to take a moment to acknowledge our incredible employees around the world who have worked tirelessly to overcome the many challenges created by the pandemic.

Finally, I'd like to take a moment to acknowledge our incredible employees around the world who have worked tirelessly to overcome the many challenges created by the pandemic.

Speaker 3: executing our operations and supply chain, helping our customers, and through it all, continuing to invent, develop, and deliver the healthcare technology of tomorrow.

Executing our operations and supply chain, helping our customers and through it all continuing to invent develop and deliver the health care technology of tomorrow.

Speaker 2: I also want to recognize a new member of our team, who many of you know. We couldn't be more excited to have Bob Hopkins, the top-rated medtech analyst over the past three years, join our team as head of strategy. And we look forward to his strong contribution and influence in the years ahead. Back to you, Jeff. Okay. Thank you, Karen. And yes, it is great to have Bob here at Medtronic.

I also want to recognize our new member of our team who many of you know we couldnt be more excited to have Bob Hopkins. The top rated med tech analysts over the past three years join our team as head of strategy.

And we look forward to a strong contribution and influence in the years ahead back to you Jeff.

Okay. Thank you Karen and yes, it is great that Bob here Medtronic.

For the last few quarters I've been closing by commenting on the progress the company is making in various areas of ESG or environmental social and governance impacts.

Speaker 2: For the last few quarters, I've been closing by commenting on the progress the company is making in various areas of ESG, our environmental, social, and governance.

Speaker 2: Part of the S in ESG is our focus on inclusion, diversity, and equity, and high employee engagement, which I discussed last quarter. And this makes Medtronic an attractive destination for top.

Part of the S. In ESG is our focus on inclusion diversity in equity and high employee engagement, which I discussed last quarter and this makes medtronic an attractive destination for top talent.

In the release, we issued last week, you read about how Bob Hopkins and other highly sought after world class leaders chose to join Medtronic and drive our transformation to become the undisputed global leader in health care technology. It's.

Speaker 2: In the release we issued last week, you read about how Bob Hopkins and other highly sought-after world-class leaders chose to join Medtronic and drive our transformation to become the undisputed global leader in healthcare technology.

Speaker 2: It's very important for our culture that we're bringing in new ideas and diverse perspectives to add to those of our talented leadership and employees across the country.

It's very important for our culture that we're bringing in new ideas and diverse perspectives to add to those of our talented leadership and employees across the company on.

Speaker 2: On the E front of ESG, as you know, we set an aggressive goal last year to be carbon neutral in our operations by the end of the decade.

On the Eve front of ESG as you know we set an aggressive goal last year to be carbon neutral in our operations by the end of the decade.

Speaker 2: And two weeks ago, we upped our game, announcing our ambition to achieve net zero carbon emissions by FY45 across our value chain.

And two weeks ago, we upped our game announcing our ambition to achieve net zero carbon emissions by FY 45 across our value chain.

Speaker 2: This ambition outlined in our FY45 decarbonization roadmap will focus on operational carbon neutrality, supply chain greenhouse gas emissions reductions, and ongoing logistics improvements.

This ambition outlined in our FY forty-five de carbonization roadmap will focus on operational carbon neutrality supply chain greenhouse gas emissions reductions and ongoing logistics improvements to support.

Speaker 2: To support our progress, as well as progress across our entire industry, we joined the International Leadership Committee for a net-zero NHS in the UK. And we're taking a leadership role with the U.S. National Academy of Medicine Action Collaborative to decarbonize the U.S. healthcare.

Our progress as well as progress across our entire industry. We joined the International leadership Committee for a net zero NHS in the UK.

And we're taking a leadership role with the U S National Academy of Medicine action collaborative to Decarbonize, The U S health care sector.

Speaker 2: Our ESG efforts are gaining recognition as last week Medtronic was elevated from being a constituent of the Dow Jones Sustainability North America index to joining a select group of companies in the Dow Jones Sustainability World Index. Look, we are really proud of this achievement. In addition, I hope many of you were able to watch our inaugural ESG investor briefing last month. And if you haven't, I encourage that you watch the replay on our investor relations website.

Our ESG efforts are gaining recognition as last week Medtronic was elevated from being a constituent of the Dow Jones sustainability, North America index to joining a select group of companies in the Dow Jones sustainability World Index look we are really proud of this achievement. In addition, I hope many of you were able to watch our inaugural ESG investor briefing.

Last month, and if you haven't I encourage that you watch the replay on our Investor Relations website.

Now let me close on this note the.

Speaker 2: The lingering effects of the pandemic, combined with health care system staffing shortages, impacted our Q2 revenue more than we originally anticipated.

The lingering effects of the pandemic combined with health care systems staffing shortages impacted our Q2 revenue more than we originally anticipated.

Speaker 2: We have both puts and takes on the timing of our pipeline, and the supply chain dynamics pose near-term challenges. But our challenges will be manageable.

We have both puts and takes on the timing of our pipeline and the supply chain dynamics pose near term challenges.

But our challenges will be manageable. We've got this our pipeline is delivering and we're poised to deliver more innovation over the coming quarters and the next several years.

Speaker 2: Our pipeline is delivering and we're poised to deliver more innovation over the coming quarters and the next several years. We have to show you that we

We have to show you that we can deliver.

But robotics is coming already and is coming close loop SCS is coming in our diabetes turnaround is coming.

Speaker 2: Ardian is coming, closed-loop SCS is coming, and our diabetes turnaround is coming.

Speaker 2: and EvoluteFX and Mitro and EVIC-D and the pending acquisition of Intersect D&T, these are all coming.

In Abu F X in mitral and EV ICD and the pending acquisition of intersect Ent's. These are all coming.

Speaker 2: We're ready to execute and capitalize on these opportunities. We're in good markets and we're focused on innovating, winning share and maintaining and or achieving true category leadership across our business.

We're ready to execute and capitalize on these opportunities were in good markets and we're focused on innovating winning share and maintaining <unk>, achieving true category leadership across our businesses.

I know, we have more to prove but I'm confident that our organization our talented and dedicated 90000 plus global employees are up for the challenge we're focused we're hungry and ultimately.

Speaker 2: I know we have more to prove, but I'm confident that our organization, our talented and dedicated 90,000 plus global employees are up for the challenge. We're focused, we're hungry, and ultimately, we're going to deliver on these opportunities to accelerate our growth.

We're going to deliver on these opportunities to accelerate our growth.

Speaker 2: And as always, we remain deeply committed to creating value for you, our shareholders. And with that.

And as always we remain deeply committed to creating value for you our shareholders.

And with that lets now move to Q&A.

Speaker 2: Now, we're going to try to get as many analysts as possible, so we ask that you limit yourself to just one question, and if you have additional questions, you can reach out to Ryan and the investor relations team after the call.

Now, we're going to try to get as many analysts as possible. So we ask that you limit yourself to just one question and if you have additional questions you can reach out to Ryan in the Investor Relations team after the call.

Speaker 2: With that, Wynn, can you please give the instructions for asking a question?

With that win can you. Please give the instructions for asking a question for the south side analysts that would like to ask a question. Please select the participants button and click right hand.

Speaker 4: For the Cellsight analysts that would like to ask a question, please select the Participants button and click Raise Hand.

Speaker 4: If you're using the mobile app, press the More button and select Raise Hand.

If you're using the mobile App, Preston Moore button and select race fans.

Speaker 4: Your lines are currently on mute. When called upon, you'll receive a request to unmute your line, which you must respond to before asking your question.

Your lines are currently unmeet when called upon you'll receive a request on mute your line, which you must respond to you before asking your question.

Speaker 4: Lastly, please be advised that this Q&A session is being recorded.

Lastly, please be advised that this Q&A session is being recorded.

Speaker 4: For today's session, Jeff, Karen, and Ryan 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'll pause for a few moments.

For today's session gas, Karen and Ryan 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.

And Brett Wall, EVP and president of the neuroscience portfolio.

We'll pause for a few seconds to assemble the queue.

Speaker 4: First question comes from the line of Robbie Marcus at J.P. Morgan. Go ahead, Robbie.

The first question comes from the line of Robbie Marcus at Jpmorgan go ahead Robby.

Great. Thanks for taking the question good morning, everyone.

Speaker 5: Great. Thanks for taking the question. Good morning, everyone.

Speaker 5: You know, I think everyone's happy to see the ETS guide reiterated here, but I think the top line guide is a little bit surprising, particularly where you have third quarter organic sales guidance.

You know I think everyone's happy to see the EPS guide reiterated here, but I think the topline guide is a little bit surprising, particularly where you have third quarter organic sales guidance.

Speaker 5: given I believe you made the comment that November was trending better. So I was hoping you could talk through that and maybe just walk through the Hugo launch delay, what you're seeing there. Is it an adoption issue, a technology issue, or is it purely difficulty getting into hospitals with COVID-19 going on? Thanks.

Given I believe you made the comment that November was trending better. So I was hoping you could talk through that and maybe just walk through the Hugo launch delay what youre seeing there is it an adoption issue with technology issue or is it purely difficulty getting into hospitals with COVID-19 going on.

Hey, Robbie thanks for the questions I'll I'll, let.

Speaker 2: Hey Robbie, thanks for the questions. I'll let Karen answer the guide question and maybe I'll hit the robotics question.

Karen answer the guide question and maybe I'll hit the robotics question.

Speaker 3: Thanks Ravi and you know what I'm gonna for the guide I'm gonna walk you through the quarters a bit to to help give you and set the context. You know and I'm going to start with Q2 because versus if you look at versus pre-pandemic levels or two years ago our growth in Q2 was about one percent organically.

Thanks, Ravi and you know what I'm going to for the guide I'm going to walk you through the quarter's a bit too.

To help give you and set the context.

You know what I'm going to start with Q2, because versus if you look at versus pre pandemic levels or two years ago. Our growth in Q2 is about 1% organically.

Speaker 3: It was a little below peers but you got to keep in mind that our inventory levels were lower back then because that was before we made the change to bulk purchasing. So if you adjust for that inventory issue and and a little bit of a tougher comp our Q2 growth was in the two to three percent range versus pre-pandemic levels.

It was a little below peers, but you got to keep in mind that our inventory levels were lower back then because that was before we made the change to bulk purchasing so if you adjust for that inventory issue and a little bit of a tougher comp. Our Q2 growth was in the 2% to 3% range versus pre pandemic levels.

Speaker 3: And if you look at it sequentially, you know, our revenue from Q1 to Q2 declined less than 2%. And that was, you know, while most of our peers saw declines of 3 to 5%. So our performance in Q2, we believe, you know, is in line, you know, at least in line with what we're seeing from our peers. And then if you look at Q3 in our guidance, we're expecting that same 2 to 3% growth as we saw in Q2 versus the pre-pandemic levels.

And if you look at it sequentially.

Our revenue from Q1 to Q2 declined less than 2% and that was you know while most of our peers saw declines of three in 3% to 5%. So our performance in Q2, we believe.

As in line at.

At least in line with what we're seeing from our peers.

And then if you look at Q3 and our guidance, we're expecting that same 2% to 3% growth as we saw in Q2 versus the pre pandemic levels.

Speaker 3: And yes that that equates to you know a slight deceleration from what we saw in October

Yes that is and that equates to a slight deceleration from what we saw in October.

Speaker 3: And we're, you know, we're encouraged by what we've seen in October and into November . But given the dynamic environment, we focused on wanting to err on the side of caution with our Q3 guide. And then for Q4, you know, we're assuming normal sequential seasonality just because it's our fiscal year end. So you'll see sequential improvement in Q4. So hopefully that's helpful.

And we're we're you know we're encouraged by what we've seen in October and into November, but given the dynamic environment, we focused on wanting to err on the side of caution.

With our Q3 guide and then for Q4, we're assuming normal sequential seasonality just because it's our fiscal year end. So you'll see sequential improvement in Q4, so hopefully that's helpful.

Speaker 2: Okay, so then maybe on the robotics question, let me first by saying, no, it's definitely not a demand issue. The demand remains high, higher than we can fill at this point.

Okay. So then maybe on the on the Robotics question I mean, let me first by saying no. It's definitely not a demand issue or the demand remains high higher than we can fill at this point and you know we're kind of we're continuing with our regulatory filings around the world.

Speaker 2: you know, we're kind of, we're continuing with our regulatory filings around the world. We're, we're going to begin the US IDE here very soon. You know, insurgents are continuing to do cases. You know, we're doing

Uh huh.

Where we're going to begin the U S. I D E here very soon.

And surgeons are continuing to do cases, you know were doing so.

Speaker 2: uh so far euro and and guine cases and we're close to i think we're in any day now like our our first general surgery case so so and like i said demand continues

So for Euro and Gyn cases, and we're close to I think we're in any day now our first general surgery case so.

So and like I said demand continues to build so the issue that this is more of a limited release phase that's where we are right now and we're focused on optimizing the user experience and the issues that we're managing through are some supply chain issues and some initial manufacturing issues.

Speaker 2: So the issue that we're dealing with, this is more of a limited release phase. That's where we are right now. And we're focused on optimizing the user experience. And the issues that we're managing through are some supply chain issues and some initial manufacturing issues.

Speaker 2: And those are the issues that we're working through right now, and we're really focused on, you know, making sure that these initial experiences with surgeons...

And those are the those are the issues that we're working through right now and we're really focused on.

Making sure that these initial experiences with surgeons are really good and so that that's that's the reason for the slower.

Speaker 2: are really good. And so that's the reason for the slower revenue this year. But then again, next year we expect, next fiscal year, a really strong ramp.

<unk> revenue this year, but then again next year, we expect the next fiscal year, a really strong ramp.

Great. Thanks, a lot.

Speaker 4: Thanks, Robbie. Next question, please. When next question comes from Vijay Kumar at Evercore ISI.

Thanks Robbie next question. Please when next question comes from Vijay Kumar of Evercore ISI.

Speaker 6: Hey guys, thanks for taking my question. Jeff, I had a two part, you know, product related question, one on micro. There was an FDA letter earlier this month.

Thanks for taking my question Jeff.

Uh huh.

Product related question.

One on micra.

There was an FDA later.

This month.

Speaker 6: on complications related to perforations. How should we think about that micro, is that something the street needs to worry about? And one on RDN, you expressed a lot of confidence in the outlook. I mean, we've had a couple of trials where some of your peers have missed eight points.

On complications related to perforations.

Should we think about Mitra.

No.

Is that something the street needs to worry about.

And not one in Rd, and you expressed a lot of confidence in the outlook.

Had a couple of trials, where oh someone computers have missed eight points.

Speaker 6: Is your trial design different from your peer? Because when I look at your peer, you know, they added a four drug and that's when you saw the control arm improve. If your trial design is similar to your peers, then, you know, what is the confidence we have that your trial will hit the primary endpoint a year from now? Thank you.

It is they're trying to sign different from your peer because when I look at your pure.

<unk> added a four drug and that's when you saw the control arm.

True.

Improve.

The trial design is similar to your peers to now.

Where does the confidence we have.

Europe Cocoa Ah trial will be.

A year from now thank you.

Alright, Thanks P J.

Speaker 2: All right, thanks, EJ. I'm going to turn this one over to Sean, but before I turn it over, because both the mic and the audience question fall into his world.

I'm going to turn this one over to Sean, but before I turn it over because both the micro and the already in question Paul and his world.

Speaker 2: I'll give you my short answer on micro. Don't worry about micro. Micro is doing really well. I'll let Sean provide a little more commentary on the FDA letter.

I'll give you my short answer on micro don't worry about micro micro stewing really well I'll, let Shaun provide a little more commentary on the on the FDA letter and then an audience. You know look we're trying to give you more details, but we're very confident about this we've we've got a lot of data here, we've had a registry going for a long time, we're falling a lot of patients picking up a lot of data here.

Speaker 2: And then on Ardian, look, we're, and Sean will give you more details, but we're very confident about this. We've got a lot of data here. We've had a registry going for a long time. We're following a lot of patients, picking up a lot of data here. And I'll remind you that our trial wasn't designed to end early. I know some expectations got ramped up about it ending early.

And I'll remind you that our trial wasn't designed to end early I know some expectations got ramped up about it ending early and we're we're confident on this one and and you know the patient preference you know the FDA has seen the patient preference data they worked with us on this and patients really want this FDA knows that.

Speaker 2: um and we're we're confident on this one and and the f you know the uh patient preference you know the fda is seeing the patient preference data they work with us on this and patients really want this fda knows that and uh look i've been out myself in the

And look I've been out myself in the last couple of months talking with and.

Speaker 2: talking with, and in the last couple weeks especially, talking to a number of our investigators and this book, this work.

And in the last couple of weeks, especially talking to a number of our investigators in this book This works.

Speaker 1: this works and patients like it, and the FDA knows that and we're confident in our trial. But I'll let Sean give you some more commentary on that. Sean, you want to chime in here? You got on mute. And Vijay, thanks for the question. I think first on micro, this FDA letter was more just a reiteration about the importance of being mindful of implant safety.

This works in patients like it and the FDA knows that in and we're confident in our trial, but I'll, let Chuck give you some more commentary on that Sean you want to chime in here you got on mute.

Yes.

Thanks for the question I would say first started mitra.

Okay levers more of just a reiteration about.

So being mindful of it.

Safety.

Speaker 1: But, you know, the actual rate of perforation that we've seen in the continued access study, the continued evidence development study, which we just reported out to your results at

The actual rate of perforation that we've seen in the continued access study at IPG over the skull study, which we just reported out two year result sets at the ESC.

Speaker 7: at the ESC is actually below what we showed in the preclinical work and the preapproval trial.

It was actually below what we showed in the preclinical work in the pre approval trial and the overall compensation rates for latest Pacemaking are about 30% lower at two years and what we see with transfer units.

Speaker 7: And the overall complication rates for leadless pacemaking are about 30% lower at two years than what we see with transvenous.

Speaker 7: So there's certainly no no concern here and the customer reception has been really really excellent and continues to be despite the letter the FDA just emphasized, and on the on the clinical trial.

There's certainly no no concern here in the customer reception has been really really excellent. There continues to be quite deliberately FDA described stocks.

EMEA.

On the clinical trial front for <unk>.

Speaker 7: know you are right there are differences in the clinical trials and we remain this just said very confident that our on meds trial is going to make a standpoint. I think what you're referring to is the radiance study that was reported at radiance trio study which at six months they did a forward titration of drugs to get patients to their goal. So that was a you know part of their study to

You are right there are differences in the clinical trials and we remain as Jeff said very confident that our unmatched trials going to make us standpoint.

I think what you're referring to is the radiant study that was reported this trio of study, which is six months. They did a forward titration of drugs to get patients to their coal. So that was part of their study design was.

Speaker 7: you know, after the primary endpoint in two months, they added drugs on until blood pressure went down. And that's kind of the point of renal denervation in general is that you can get there without as many drugs. And we saw something similar in the pilot study for on meds where we were able to forward titrate drugs after the primary endpoint and get people's blood pressure there without having to go to diuretics, which patients really hate taking. So yeah, there.

After the primary endpoint of two months added drugs onto blood Crystal went down and that's kind of the point of renal denervation in general is that you can get there without as many drugs and we saw something similar in the pilot study for unmatched, where we were able to afford titrate drugs. After the primary endpoint and get People's blood pressure there without have.

Dakota Diuretic switch patients really hate taking.

Yes, there is.

So there's nothing to read through on that one there are probably good in Japan, and Korea was a little different it's more of the <unk> III, where the data control medications.

Speaker 7: There's nothing to read through on that one. There probably did in Japan and Korea, was a little different. It was more like H10-3, where they didn't control for medications. They had none of those types of controls. So that's more of a legacy study design that didn't leverage the learnings that we got from H10-3. Understood, thank you guys.

Controls so that's more or.

Legacy.

Sorry that didn't leverage learnings, we got permission in three.

Understood. Thank you guys.

Thanks, Vijay next question please.

The next question comes from Larry basal fan at Wells Fargo Go ahead Larry.

Speaker 4: The next question comes from Larry Beigleson at Wells Fargo. Go ahead, Larry.

Speaker 8: Good morning. Thanks for taking the question. So one on diabetes, the quarter was in line, but you took down the guidance. You know, why is that, you know, what are your expectations for the timing of 780G and Guardian 4? And Jeff, we've seen a wave of spins recently. You know, what's your view of spins in general? And do you see opportunities at Medtronic for spinning off non-core or underperforming segments? Thanks, guys.

Good morning, and thanks for taking the question.

So one on diabetes.

Quarter was in line, but you took down the guidance.

Why is that what are your expectations for the timing of 700, Atg and Guardian or <unk>.

Jeff we've seen a wave of students recently.

What's your view of spins in general do you see opportunities at Medtronic.

Spinning off noncore or underperforming segments. Thanks, guys.

Speaker 2: Thanks for the questions, Larry. I'll take the spin one and then I'll let Sean take the diabetes one.

Thanks for the thanks for the questions Larry I'll take the spin one and then I'll, let Sean take the diabetes one well.

Speaker 2: Look, as we've talked about in the past, you know, looking at our portfolio and capital allocation is a high priority in this new operating model.

Look as we've talked about in the past.

<unk>.

Looking at our portfolio and capital allocation as a high priority in this new operating model the Executive Committee.

Speaker 2: The executive committee, my leadership, the leadership team here, we spent a lot more time on looking at our portfolio and capital allocation than we have in the last 10 years since I've been here, that's for sure. Orders of magnitude more time.

Leadership the leadership team here, we've spent a lot more time on looking at our portfolio and capital allocation.

And the last 10 years since I've been here that's for sure orders of magnitude more time.

Speaker 2: And um, I look there's I we're always looking at our different businesses including our high performance businesses and high growth businesses to make sure We're the right owner because I do think you know

And.

Look there is we're always looking at our different businesses, including our high performance businesses in high growth businesses to make sure. We're the right owner because I do think you know.

Focus.

Speaker 2: uh is important and making sure that you can provide the right amount of capital and and other synergies uh between businesses that matter and we're always looking at this.

As important and making sure that you can provide the right amount of capital and are there synergies.

Between businesses that matter and we're always looking at this.

Speaker 2: And debating this and we've engaged our board as well, you know quite a chunk of our time

And debating this any we've engaged our board as well.

Cool quite a chunk of our time.

Speaker 2: uh in each board meeting is spent on this as well so yeah i do i do see opportunities i'm not signaling anything but i i can tell you that this is something that uh you know that that we're we're constantly looking at and i don't see ourselves as like a ge or j and j that have like dramatically different businesses but but uh it's i do think it's an opportunity for us over time

And each board meeting we spend on this as well so.

I do I do see opportunities I'm not signaling anything but I can tell you that this is something that.

But we're constantly looking at and I don't see ourselves as like a G. E. R. A J&J that are dramatically different businesses, but but I do think it's an opportunity for us over time.

Sean you want to.

Take a diabetes one.

Yeah.

Speaker 7: Yeah, sorry, Jeff, my mute button was broken there. Yeah, Larry, so nothing different than what we've been talking about all along. We've got really strong uptake of 780G and Guardian 4Sense outside the United States. In the U.S. we have, just we're waiting for that approval to come through.

Yes, sorry, just by me, but it was broken here.

Yes.

Nothing different than what we've been talking about all along we've got really strong uptake of 700, Atg and Guardian for outside the United States in the U S. We have.

Just we're waiting for that approval to come through and.

Speaker 7: And we've had very good interactive conversations at the FDA. I think we're making excellent progress there. But do remember that when we launch a new product in diabetes, there's a there's a training element to that that takes some time. So it pushes the revenue outward.

And we've had very good interactive conversations FDA, if we're making excellent progress there, but do remember that when we launch new products and diabetes. There. So there is a training element to that and it takes some time so that pushes the revenue outwards.

Before it starts to gain traction what.

Speaker 7: before it starts to gain traction. What we've seen in the US is while we're growing pump share right now, globally, we do have a lot of patients that came out of the install base, you have to kind of rebuild that install base to get momentum going. And that's really going to be driven by the 780 with Guardian Force sensor launch.

What we've seen in the U S is while we're growing pulp share right now.

Globally, we do have a lot of patient that came out of the assault basically have to kind of rebuild that installed base to get momentum going and thats really going to be driven by the seven maybe with Guardian for sensor launch.

Thanks, guys.

Thank you Eric will take the next question. Please.

Speaker 4: Thank you, Larry. We'll take the next question please, Lynn. The next question comes from Matt Taylor at UBS. Go ahead, Matt.

Our next question comes from Matt Taylor at UBS go ahead, Matt.

Alright, thanks for taking the question.

Speaker 7: All right. Thanks for taking the question. I had two small follow ups. One on the overall environment when you're talking about the use of COVID-19 vaccines for the

Two small follow ups one on <unk>.

<unk> environment, we're talking about these COVID-19 impact.

Speaker 9: It sounds like you've seen things get a little bit better in November , and I was wondering if you had a hypothesis as to why that was, and could you give us more of a flavor for how much improvement has been sequential?

It sounds like you think there's been a little bit better.

In November and I was just wondering if you had a.

As to why that was.

Could you give us more of a flavor for how much improvement have been sequentially.

Sure.

Speaker 2: Sure. On the environmental side, like we said in the commentary, each month throughout our quarter, throughout our Q2 was better than the next. We didn't quantify that. It got better into November .

On the environmental study yeah sure sure that literally like we said in the commentary.

Each month throughout our quarter.

Throughout our Q2 was better than the next and we Didnt get it we didn't quantify that and then it got better in <unk>.

To November but.

The the.

Speaker 2: the procedures have bounced back, but not as quickly as prior waves, you know, and nor as fast as we hoped. There's definitely, it's definitely a fluid situation.

The procedures, so some procedures a bounce back but not as quickly as prior waves and nor as fast as we hope theres definitely it's definitely a fluid situation.

Speaker 2: And it's gotten a little bit harder, more difficult to predict, right? Before it was more of an epidemiology discussion around COVID cases and the severity of them and the impact to ICU beds. Now you've got this critical staffing shortage in hospitals around the world. I mean, really, more so in the U.S. though, particularly this nursing shortage you hear about. And that's been a little bit more difficult to predict. And I think that's the thing that I'd say surprises us a bit.

And it's gotten a little bit harder more difficult to predict right. It before it was more of an epidemiology discussion around COVID-19 cases in the severity of them any impact to our ICU beds now you've got this this critical staffing shortage in our and in hospitals around the world I mean really predict more so in the U S, though particularly this.

This nursing shortage you hear about and that's that's a little that's been a little bit more difficult to predict and I think that's the thing that I'd say surprised us a bit.

Speaker 2: last quarter. And then finally, you've got some supply chain issues, which for us have been manageable so far, but as time goes on, that gets more difficult. So we took, I think, Karen walks you through the guidance. I think we took a conservative approach here, particularly for our Q3 guide on that. But it's difficult to quantify all these things working together here. The COVID cases jumping back up like you've read about in Europe .

Last quarter, and then finally, you've got some supply chain issues, which for us have been manageable so far but as time goes on that that gets more difficult. So you know we we.

We took I think I can walk you through the guidance I think we took a conservative approach or particularly for our Q3 guide.

On that but it's a you know.

Difficult to quantify all of these things working together here the the Covid cases jumping back up like you've heard about in Europe nursing shortages in the U S and then in our global supply chain issues.

Speaker 2: nursing shortages in the U.S. and then, you know, global supply chain issues. Yeah, I think the hospitals are doing a good job managing, you know, the headwinds they have.

Yes, I think the hospitals are doing a good job managing that.

The headwinds they have and and I think we've done a pretty good job. Our team has done a really good job on the supply chain issues.

Speaker 2: Uh, and, and I, and I think we've done a pretty good job. Our team's done a really good job on the supply chain issues.

Speaker 2: You know, during COVID, we were able to build up inventory on some of these critical products, but as these issues drag on, it becomes more challenging, and that's why we've taken a, and I think a bit of a, you know, appropriate position given the uncertainty for our Q2 guide, our Q3 guide.

During Covid, we were able to build up inventory on some of these critical products, but as these issues drag on.

It becomes more challenging and that's why we've taken a I think a bit of a <unk>.

Appropriate our position given the uncertainty for our Q2 guide.

Our Q3 guide rather sorry.

Speaker 9: Thanks for that, Jeff. Maybe I could just ask a follow-up. Supply chain, you talked about some of the issues with Hugo and the impact on this year's revenue. Do you have any thoughts on how quickly that can resolve and what kind of contributions we should expect in the subsequent years versus the prior guidance that you had given?

Thanks for that Jeff maybe I can just basketball supply chain, you talked about some of the issues.

Hugo and impact on this year's revenue.

Do you have any thoughts on how quickly that can resolve them what kind of contribution we should expect in the.

Subsequent years versus the prior guidance.

Speaker 2: Right well so look first of all I'd say you know I should have mentioned this when I was answering Robbie's question you know we did underestimate

Right well so look first of all I'd say you know what.

I mentioned this when I was answering <unk> question, we did underestimate.

Speaker 2: supply chain, some of those supply chain issues and early manufacture issues in a complex program like this. This is a complex program and that's on us. We should have probably provided a little bit more.

The supply chain some of those supply chain issues and early manufacturer issues in a complex program like that like this this is a complex program. That's on US we should have probably provided a little bit more.

Speaker 2: uh cushion there um because we really like we've said all along want to make sure that we're optimizing

Cushing there because.

Because we really like we've said all along we want to make sure that we're optimizing the customer experience here. So in terms of how long. This goes on it will in terms of like first of all like we said we were still having double digit revenue this year double digit millions and we didnt corner quantifying Q you know the next year, but I'll tell you.

Speaker 2: the customer experience here. So, in terms of how long this goes on, well, in terms of, first of all, like we said, we're still having double-digit revenue this year, double-digit millions, and we're not quantifying Q the next year, but I'll tell you this, it will be a very healthy ramp off this year.

It will be a very healthy healthy ramp off this year. So like I said before because we are cases are continuing demand is building.

Speaker 2: So, like I said before, because we are, cases are continuing, demand is building. We're continuing to get new regulatory filings that we filed for and expect approvals.

We're continuing to get new regulatory filings that we filed for and expect approvals.

Speaker 2: and um starting our us ide soon so so there's a lot of activity going on here a lot of good things a lot of good feedback and um you know

And starting our U S. A D E. Soon so so theres a lot of activity going on here a lot of good things a lot of good feedback and we just.

Speaker 2: we just appropriately are optimizing, in my opinion, the end user, the customer experience here. And, you know, FY23 will be a strong year for the robot.

Do we used appropriately are optimizing in my opinion.

The end user the customer experience here and FY 'twenty three will be a strong year for the robot.

Thanks for taking my questions.

Speaker 4: Thanks, Matt. I will take the next question, please, Wayne. The next question comes from Cecilia Furlong at Morgan Stanley .

Thanks, Matt we'll take the next question. Please the next question comes from Cecilia furlong at Morgan Stanley.

Speaker 10: Great, good morning, and thank you for taking the question. I wanted to ask just on Hugo as well, Ardian, the expenses you had talked about previously, the 400 million this year, just how we should think about realizing that this year versus what gets pushed into next year. And combined with that, just how we should think about expense ramp and 23, fiscal 23 associated with your other pipeline products. Thank you. Yeah.

Hey, good morning, and thank you for taking the question I wanted to ask just on Hugo as well already and the expenses you had talked about previously the 400 million. This year, just how we should think about them realizing that this year versus what gets pushed into next year and combined with that of just how we should think about expense and <unk> 23 in fiscal <unk>.

T associated with your other pipeline products. Thank you.

Yeah, Thanks Daily I'm happy to take that.

Speaker 11: So the $400 million operating profit drag that we talked about earlier this year was not just Hugo, it was both Hugo and Ardian and the important investments we're making in those big product launches for us.

The $400 million operating profit drag that we talked about earlier. This year was not just Hugo it was both Hugo and Ardian and the important investments, we're making in those big product launches for us.

And so we will continue to have you know.

More expense on on those products in FY 'twenty three it is it is too early to give you a signal because we still have two quarters to go.

This fiscal year and we're just beginning our planning process for next fiscal year.

Speaker 4: Okay, thank you Cecilia. Wynne, next question please. The next question comes from Matt Nixig at Credit Suisse. Go ahead, Matt.

Okay. Thank you Cecilia.

When next question. Please the next question comes from Matt makes it at Credit Suisse go ahead, Matt.

Speaker 12: Thanks so much. Can you hear me okay? We can. Thanks, Matt. Great. So, lots of things we could sort of ask after, but if I, you know, just to take one question, I'd maybe come back to the staffing question. And it sounds like Jeff and Karen, you've taken a stab at the fiscal third quarter.

Alright, thanks, so much.

Sure.

We can thanks, Matt.

So.

Lots of things, we could sort of asked and answered but just to take one question.

Maybe come back to the to the staffing question and it sounds like Jim and Karen you've taken a stab at the fiscal third quarter.

Speaker 12: which is obviously an important calendar quarter for everyone in MedDevices, given kind of the traditional Q4 push.

It is obviously important calendar quarter for everyone in med devices, giving.

Given kind of the traditional Q4 push.

Speaker 12: Um, and I just wanted to maybe, uh, ask you to talk a little bit about your confidence that

And I just wanted to maybe.

Ask you to talk a little bit about your confidence badge.

Speaker 12: we sort of see a turn after that? Or is this a Q3, you know, impact with some improvement into Q4? And then maybe what, and I apologize, because I know it's a terribly uncertain topic, but just what kinds of things would give you confidence that we do get past the staffing thing, say, as we get through the spring and into mid-year or next year?

We sort of see it turn after that or is this a is this a Q3 impact includes an improvement into Q4.

And then maybe what would.

I apologize because I know, it's a terribly uncertain topic, but but just what kinds of things would give you confidence that that we do get asked this staffing things say as we get through the spring and into India mid year next year.

Yeah.

Speaker 2: Well first on, thanks for the question Matt, I mean obviously the staffing issues is a hot topic and I've been spending a lot of time with our team on this as well as our hospital customers.

Well first on <unk>. Thanks for the question, Matt I mean, obviously the staffing issues is a hot topic.

And I've been spending a lot of time with our team on this as well as our hospital customers.

Speaker 2: Um you look these the hospitals are are basically um investing more in staffing. Uh I mean and that that is I think um one of the the the biggest issues here is is is them are the biggest opportunities. They're just

Yeah.

These hospitals are basically investing more in staffing.

And that that is I think.

One of the biggest issues here as it is them are the biggest opportunities there just.

Speaker 2: they're paying more money for the staffing to get to incent people to come back.

They're paying more money for for the staffing to get to Incent people to come back and the other thing that I see hospitals doing where we're spending a lot of time with them as it is adoption on more remote.

Speaker 2: And the other thing that I see hospitals doing, where we're spending a lot of time with them, is adoption on more remote capabilities and business models. I mean, in our world, things like managing your cardiac rhythm,

You know capabilities and business models, I mean in our world things like managing your cardiac rhythm patients.

Speaker 2: using remote technologies, don't have to come back into the to the hospital and and and get their device checks. We're doing that we're doing that you know remotely and and I can go down the list to other other of our our therapies. Like another one would be you know and it's not in the U.S. yet but in in in the NHS in the U.K. they're using our pill cam. They've accelerated the use of the rollout of pill cam to do colonoscopy you know diagnostic colonoscopies.

Using remote technology, you still have to come back into the to the hospital and get their device checks, we're doing that we're doing that.

Remotely and I can go down the list of other other of our therapies like another one would be.

You know, it's not in the U S yet, but in the in the NHS in the U K, they're using our pill Cam.

They've accelerated the use of the rollout of til Cam to do a colonoscopy diagnostic colonoscopy.

For their patients because they've built up a oh.

A long waiting list of people, who are getting colonoscopy I see hospitals, one and it's not a sustainable situation, but short term.

Speaker 2: And it's not a sustainable situation, but short-term, you know, providing bonuses and incentives. And two, much more rapidly adopting some of, in our case, I mean, and they're working with other industry players as well, to adopt things that are more remote. And they're prioritizing therapies that have less complications that result in less hospitalizations.

Providing bonuses and incentives.

And to a much rapidly much more rapidly adopting some of in our case, I mean, and they're working with other other industry players as well.

To adopt.

Things that are more remote and they're prioritizing therapies that have less complications that resulted in less hospitalizations and a REIT return hospitalization. So I mean, it's it's a it's not an overnight solution, but where they are aggressively working on this I mean, no one likes to cancel a tavern case because.

Speaker 2: And our return hospitalization. So I mean it's it's uh, it's not an overnight solution But we're they're aggressively working this. I mean no one likes to cancel a tavern case Uh, because there's nobody to monitor the icu bed or cover the camera. So nobody wants to do that And uh, so they're moving fast on this and and like I said, we're seeing you know We're seeing uh progress here even in you know our results into November But it is it is fluid and and that's why we've taken the approach we've taken on the guide I don't know if you have anything to add karen to that

There's nobody to monitor the ICU bed or cover the guests. So nobody wants to do that and so they're moving fast on this in and like I said, we're seeing.

Our progress here, even as you know in our results into November but it is it is fluid and that's why we've taken the approach we've taken on the guide I don't know if you have anything to add Karen to that.

Nope.

Speaker 2: she's saying no. So, so I don't have more for you, Matt. This one's a tough one.

She's saying no so sorry.

So I don't have more freedom at this one's a tough one.

Well thanks for the color.

Speaker 13: Thank you, Matt. Take the next question, please, Gwen. The next question comes from Joanne Wench at Citi. Go ahead, Jo. Thank you for taking the question. And good morning. A couple of things I'm curious about. Do you think that there's been a change in the way that consumers are looking at healthcare?

Thank you Matt take next question. Please with the next question comes from Joanne Wuensch at Citi Go ahead Jack.

Thank you for taking the question and good morning.

A couple of things I'm curious about do you think that there's been a change in the way that consumers are looking at health care.

Speaker 2: Well, I'm not sure if there's a question underneath the question, but yeah, I think consumers have been much more engaged in healthcare, and this is something that's weighing into our strategy. You saw that we rebranded Medtronic here last quarter and gone to a different look, and engineering the extraordinary. That's part of a first step to us.

Well you know I'm not sure. If there is the question of underneath the question, but yeah I think our consumers have been much more engaged in health care and this is something that's weighing into our strategy you saw that.

We've rebranded our Medtronic here last quarter and gone.

<unk> gone to a different look and engineering the extraordinary that's part of a first step to us more.

Speaker 2: More aggressively directly reaching out to consumers and and educating them About our therapies. I mean things like, you know, pill cam genius, which I just talked about things like cryoblasts

More aggressively directly reaching out to consumers and educating them about our therapies I mean things like you know <unk> genius, which I just talked about things like our cryo ablation.

Speaker 2: uh as a first line indication for AFib you know they don't want to be

As a first line indication for Afib, they don't want to be on these regimen of drugs and so we historically have had.

Speaker 2: on these regimen of drugs and so we historically have have relied on our specialist physician partners like in the case

Have relied on our specialist physician partners like in the case of <unk>.

Speaker 2: cryoblation on AFib, it's been electrophysiologists to kind of quote-unquote build up our referral pathways in our markets.

Cryo ablation afib, it's been electrophysiologist to kind of quote unquote buildup, our referral pathways in our markets now I think given the.

Speaker 2: Now, I think given the changes in technology, the miniaturization, which leads to less invasiveness, the connectivity of our devices, the better efficacy, we're moving up in the line, in the food chain here, closer to first line, like I mentioned in AFib. Some of our businesses are already there, more of a consumer business, like diabetes or pelvic health or overactive bladder. So you're going to see us.

The changes in technology, the miniaturization, which leads to less invasiveness the connectivity of our devices.

The better efficacy, where we're moving up in the line in the food chain here closer to two to first line like I mentioned in Afib in some of our businesses are already there are more of a consumer business like diabetes, and then our pelvic health for overactive bladder, so youre going to see us.

Speaker 2: uh more engaging consumers uh and directly and we're and the reason we're bullish on this is one like i said the therapies have changed less invasive more efficacious

More engaging consumers and directly and we're and the reason we're bullish on this is one like I said the therapies have changed less invasive more efficacious.

Speaker 2: you know in some cases just a better solution clinically proven than than the uh than pharma which is the typical uh first line indication. The other thing that we're seeing getting you know to your question is like I said here's a proof point on consumers more engaging like on our Ardian trial um we that this trial filled up really quickly enrolled really quickly all through uh consumers opting in through our digital marketing effort

In some cases, just a better solution clinically proven than than than pharma, which is the typical a first line indication. The other thing that we're seeing getting to your question is like I said here is that a proof point on consumers more engaging like on are already in trial.

We did that.

This trial filled up really quickly enrolled really quickly all through our consumers opting in through our digital marketing efforts.

Speaker 2: in social media efforts in the Ardian trial, consumers self-enrolled. That's a first for us.

In our social media efforts and the Ardian trial consumers self enroll.

That's a first for us.

Speaker 2: And so we are seeing much more engagement from consumers and their care and through, you know, they're using the internet and digital platforms to get that education and that's changing our strategy.

And so we are seeing much more engagement.

From consumers and their care in and through.

They're using the internet and digital platforms to get that education, and Thats changing our strategy.

Thank you very much.

Speaker 4: Thank you, Joanne. We'll take the next question, please, Lynn. The next question comes from Matt O'Brien at Piper Zandvoort.

Thank you Joanne we'll take the next question. Please when the next question comes from Matt O'brien of Piper Sandler.

Speaker 12: Thanks for taking the question. As I look across the different segments on the surgical side, the one that's done the most from the first guidance that you provided last quarter is the cardiovascular business. And I get the whole staffing shortage issue. It's just a little surprising, you know, TAVR you can't delay those too long. So I'm just wondering.

Thanks for taking my question.

As I look across.

The different segments on the surgical side. The one that has done the most from the first guidance that you provided last quarter as the cardiovascular business.

And I get the whole staffing shortage issue, it's just a little surprising tab, where you can't delay those too long. So I'm just wondering how long that some of these pressures you think will last I mean is this something that's going to go deep into calendar 'twenty two that youre going to continue to encounter in that segment and then you know what what can really kind of what can you do to help assuage some of these <unk>.

Speaker 9: how long that some of these pressures you think will last? I mean is this something that's going to go deep into uh calendar 22 that you're going to continue to encounter in that segment and then you know what what can really kind of what can you do to help us sway some of these issues on the staffing side? Thank you.

<unk> on the staffing side. Thank you.

Well you know look it's like I said, it's hard to predict Matt the timing, but like I was just with a one of our bigger customers in the in the in the <unk>.

Speaker 2: Well, you know, look, it's like I said, it's hard to predict, Matt, the timing. But like I was just with one of our bigger customers in the south.

South.

Speaker 2: of the United States a week and a half ago and they had a couple of, and it was a cardiologist that had a couple of TAVR cases cancelled.

States take a week and a half ago.

And they had a couple of and it was.

<unk>.

Cardiologists that had a couple of tavern cases canceled that day, and there's a huge sense of urgency.

Speaker 2: there's a huge sense of urgency on because of the the nursing shortage so they have a huge sense of urgency in in correcting that issue and like i said uh they are you know prioritizing moving nurses well first of all they're they're getting more aggressive with their staffing strategies uh to attract and retain uh

Because of the nursing shortage. So they have a huge sense of urgency in and correcting that issue and like I said.

They are prioritizing moving nurses, who first of all they're.

Getting more aggressive with their staffing strategies.

To attract and retain staff there, they're reallocating resources around.

Speaker 2: They're reallocating resources around the hospital, the health system, if you will, to get more nurses into these critical care areas. They're pushing certain cases out to ASCs. We're seeing growth in surgical centers where they need less staff.

The the hospital the health system, if you will to get more nurses into these critical care areas theyre pushing certain cases out to <unk>, we're seeing growth in surgical centers.

They they need less staff.

Speaker 2: to do these cases. So we're seeing them aggressively make these, I'll call it reallocations of resources, and we're helping them as much as we can in these areas. So, like you said, you can't defer these cases.

Do these cases, so we're seeing we're seeing them aggressive aggressively make these reallocations of resources and we're helping them as much as we can in these areas.

So I I look these like you said you can't defer these cases.

Speaker 2: First of all, I don't know how, I've never liked the term elective. I think it's more deferable. And you can only defer some of these cases so long, as you pointed out. And so, you know, people are innovating. Hospital systems are innovating here. And I just don't.

First of all I don't know how I don't like I've never liked the term elective I think it's more deferrable and you can only defer some of these cases, so long as you pointed out and.

So let's.

Our people are innovating our hospital systems are innovating here and I just don't.

Speaker 2: You know, it's really hard to predict. I mean, like I said, last quarter, we, you know, we underestimated the impact of the nursing shortage, like I said, we're seeing improvement, but, and we've taken a conservative guide in our fiscal Q3 in particular, but it's, it's really difficult for us to, to, to provide, you know, much more specifics than that.

Really hard to predict I mean, like I said last quarter.

We underestimated.

The impact of the nursing shortage and like I said, we're seeing improvement, but and we've taken a conservative guide and in our fiscal Q3 in particular.

But it's it's really difficult for us to provide.

Much more specifics than that.

Speaker 11: Matt, I might add, I know you're all trying to figure out how long this will last, and, you know, if you just look at, if we just look at the the recent trends in November , we saw, you know, some good upticks last month, particularly in cardio. Now, we don't know if that's because it's pre-holiday, pre-thanksgiving, you know, but we are seeing some good encouraging trends.

Matt I might add I know, you're all trying to figure out how long this will last and if you just look at if we just look at the recent trends in November we saw some good upticks last month, particularly in cardio now we don't know if that's because it's pre holiday pre Thanksgiving you know, but we are seeing some good encouraging trends.

Yeah.

Speaker 4: Okay, thank you, Matt. Take the next question, Lynn. Next question comes from Chris Pasquale at Guggenheim. Go ahead, Chris.

Thank you Matt take the next question when.

Next question comes from Chris Pasquale at Guggenheim Go ahead, Chris.

Thanks.

Speaker 14: Thanks. Karen and Jeff, most of the focus in terms of macro headwinds has been on the U.S. so far, but some of the recent headlines out of Europe have been a bit concerning. Just curious what you're seeing in your European business over the past few weeks and whether guidance assumes any deceleration in OUS procedure trends during the third quarter.

Karen and Jeff most of the focus in terms of macro headwinds has been on the U S. So far with some of the recent headlines in Europe has been a big concerning just curious what you are seeing in our European business over the past few weeks.

Guidance assumes any deceleration in O U S procedure trends during the third quarter.

Well, Chris Thanks for the question and you're right. The Q2 was a U S story for US I mean, the other regions performed well, especially our emerging markets we're seeing.

Speaker 2: Well, Chris, thanks for the question. And you're right. The Q2 was a U.S. story for us. I mean, the other regions performed well, especially our emerging markets. You know, we're seeing, you know, really strong growth in emerging markets. But Europe performed well as well and other developed markets last quarter. Now, in the last few days and weeks, you're hearing in Europe about certain countries pulling back on elected cases.

Really strong growth in emerging markets, but Europe performed well as well.

In other developed markets last quarter now in the last few days and weeks.

You are hearing in Europe about certain countries pulling back on elective cases.

Speaker 2: I really don't see this to be long lived here, given the vaccination status in these countries, you know, the high vaccination rates in most of these countries and other new therapies like the, you know, the...

I really don't see this to be long long lived here given the vaccination status in these countries the high vaccination rates in most of these countries and other new therapies like the.

Speaker 2: the oral antiviral therapies coming online. So I don't see it, you know, taking too long there, uh, you know, if it's directly from COVID, um, and, and, uh, you know, we've reflected that in our, in our guidance.

The oral antiviral therapies coming online so I don't see it.

Taking too long there are.

Directly from Covid.

And and.

We've reflected that in our in our guidance.

Thanks.

Okay, we'll take the next question please win.

Yeah.

The final question comes from Rick Wise at Stifel.

Speaker 4: The final question comes from Rick Wise at Staple.

Good morning, everybody.

Speaker 15: Maybe, Jeff, just since I'm bringing up the rear here, one bigger picture question from you, and then I'll add a question for Karen. I mean, you're obviously working hard to not exactly turn around Medtronic, but make.

Maybe Jeff just.

Bringing up the rear here.

One bigger picture question from you.

And then I'll add.

A question for Karen.

Obviously working hard to.

It's not exactly turnaround medtronic, but.

Speaker 15: Medtronic grow faster, be more potable, be more innovative, execute better. I'm sort of curious your reflections on sort of a big picture sense of, do you feel that the challenges of COVID and staffing and everything you're talking about today have slowed your personal mission?

Let's try and grow faster be more but it will be more innovative execute better.

I'm sort of curious your reflections on sort of a big picture sensor.

Do you feel that.

The challenges of covered staffing and everything you are talking about today and for your personal mission.

Speaker 15: to drive that forward. Obviously, you're highlighting innovation and all the new products, etc, but

So to drive that forward, obviously, you're highlighting innovation.

All the new products et cetera.

Speaker 15: at a high level of just wondering your evolving thoughts. And maybe shorter, Karen, if you could just.

At a high level, just wondering your evolving thoughts and maybe for Karen If you could just talk us through a little more gross margin or.

Speaker 15: talk us through a little more gross margin. I mean, geez, gross margins, despite the challenges of the quarter, better than expected. Maybe give us a little more color on, do we expect that kind of trend in the second half? And do you feel more optimistic about the longer term potential to expand?

Gross margin despite the challenges of the quarter better than expected, maybe give us some more color.

We expect that kind of trend in the second half and do you feel more optimistic about.

The longer term potential to expand.

Speaker 15: gross margins as all these new innovations roll out. Thank you so much.

Gross margins as all these new innovation rollout. Thank you so much.

Rick will thanks for the question and maybe last but definitely not least here and I. Appreciate the question look I'm its.

Speaker 2: Rick, well, thanks for the question. And maybe last, but definitely not least, Pierre, and I appreciate the question. And look, it's a great question, and I'm very bullish on where we stand, and I'll walk you through why. I mean, yeah, COVID

It's a great question.

Very bullish on.

Where we stand and I'll walk you through why I mean, yeah, Covid and in this nursing are.

Speaker 2: And in this nursing, you know this critical staffing shortage like highlighted by this nursing shortage in the u.s And just spending a lot of time talking about vaccines and vaccine mandates. Yeah, it is a a bit of a distraction But I you know, I am very happy about our bigger picture here we've won, um, what I really like is is to structurally how we've

Critical staffing shortage was highlighted by this nursing shortage in U S.

Spending a lot of time talking about vaccines and Mac vaccine mandates yet it is a.

Bit of a distraction, but.

I am very happy about our bigger picture here.

One what I really like is is to structurally how we've made.

Speaker 2: you know, made the company smaller on the front end, if you will, with these 20 operating units.

The company's smaller on the front end if you will with these 20 operating units and the clarity that we have into the end markets and the dynamics.

Speaker 2: And the the clarity that we have into the end markets and the dynamics

Speaker 2: uh, what the customers are really asking for what the competitors are doing and we've got a really good handle on Our pipeline by each of these operating units

What the customers are really asking for what the competitors are doing and we've got a really good handle on.

Our pipeline by each of these operating units.

Speaker 2: And we have gotten more aggressive.

And we.

We have gotten more.

Aggressive.

Speaker 2: uh in funding these businesses uh and and holding them accountable to making the right choices and and and prioritizing innovation and innovating faster so

In funding these businesses.

And then holding them accountable to making the right choices and prioritizing innovation and innovating faster so.

Speaker 2: You know, I feel really good about that and and and my team We spend a lot of time, you know looking at these these operating units and making these judgment calls Okay, what is the appropriate funding? What does a good pipeline look like?

I feel really good about that and my team we spend a lot of time.

Looking at these these operating units and making these judgment calls.

What is the appropriate funding what does a good pipeline look like how should we feel about the competition and it's not just like me sitting around talking to an operating leader. It's my team the different portfolio leaders, even if it's the business is not in their portfolio asking tough questions. Because every every incremental dollar funding we put in one business has one less.

Speaker 2: How should we feel about the competition? And it's not just like me sitting around talking to an operating unit leader. It's it's my team The different portfolio leaders, even if it's the business is not in their portfolio asking tough questions because every every incremental dollar funding we put in one business is one less dollar we put in another business, so

Dollar we put in another business so the rigor around this and the constructive debate and the diversity of thought coming from the different people, it's leading to better decisions.

Speaker 2: The the rigor around this and the the constructive debate

Speaker 2: and the diversity of thought coming from the different people, it's leading to better decisions. And the energy around inside the company and around the company is palpable. I mean, we're getting, you know, we're getting, you know, our employee scores remain high despite all the burnout and everything, and it's affecting employees, but still, we've got great scores and feedback. You know, we're getting attracting talent like never before. We've had a 50% spike.

And the and the energy around inside the company and around the company is palpable I mean, we're getting.

We're getting our employee scores remain high despite all the burn out and everything and it is infecting employee infecting affecting employees, but still we got great scores and feedback we're getting attracting talent like never before we've had a 50% spike in.

Speaker 2: uh in our and people applying for jobs at Medtronic. Uh, you know, the market share situation is going well And and and and so, you know, look we've got a lot to do here We've got some big drivers that we've got to show we've got to bring this robot program and ramp this

And people applying for jobs at Medtronic.

The market share situations going well and so look we've got a lot to do here. We have got some big drivers that we've got to show we've got to bring this robot program and ramp this already and we've got to get that data back and ramp that.

Speaker 2: We've got to get that data back and ramp that. We've got the diabetes turnaround. We can see it. You can just see it off in the horizon. You can see the products doing so well in Europe and other parts of the world. We've got to get that in the United States, but we're making this progress and that's why I feel good. Culturally, you're seeing a level of competitiveness and accountability.

You know we've got the diabetes turnaround we're seeing we can see it you can just see it off in the horizon you can see the product's doing so well in Europe and other parts of the world, We've got to get that in the United States, but we're making this progress and that's why that's why I feel good and culturally youre seeing a level of competitiveness and accountability. So like this quarter you know revenue.

Didn't come in where we wanted we wanted but we still had a you know an operational beat on EPS and we're holding EPS guidance for the rest of the year. That's the kind of company that we want to be.

Speaker 2: We wanted, but we still had an operational beat on EPS and we're holding EPS guidance for the rest of the year. That's the kind of company that we want to be. Disappointed about the miss on revenue. There's some environmental factors, but quite honestly, I was hoping that we could overcome all of those. We weren't quite able to this quarter, but just so you get some color commentary on how we think about it. That's how we're thinking about it. And we're going to, I know we're doing the right things. We're going to stay the course. We're going to keep making these investments, keep holding ourselves accountable to being like the undisputed technology leader and growing above the market. That's where we want to go. And so optimistic about where we're going in that direction. So with that.

Disappointed about the Miss on revenue there is some environmental factors, but quite honestly I was hoping that we could overcome all of those we werent quite able to this quarter, but just to just get some color commentary on how we think about it that's how we're thinking about it and we're going to I know, we're doing the right things, we're going to stay the course when it keep making these investments keep holding ourselves accountable.

<unk> to being like the undisputed technology leader and growing above the market, that's where we want to go and so optimistic about where we're going in that direction.

Speaker 2: Um, so with that, um, gross margin, gross margin.

So with that.

Gross margin how may take gross margin yeah.

Speaker 11: So, and I just want to emphasize something that Jeff said before I go to gross margin, Rick, and that is, you know, despite the challenges that we've had from COVID, our R&D investment is not coming down. And we said at the beginning of the year, we were increasing that 10%, and we still fully intend to do that. So, we're offsetting, you know, our headwinds in a different way when it comes to delivering the bottom line.

I just want to emphasize something that Jeff said before I go to a gross margin rack and that is despite the challenges that we've had from Covid. Our R&D investment is not coming down and we said at the beginning of the year, we were increasing that 10% and we still fully intend to do that so we're offsetting our head.

In a different way when you when it comes to delivering the bottom line.

Speaker 11: Um also on gross margin, you know, yes, our gross margin was better than expected. We're really pleased with that um, we're we've got a very concerted effort, um to improve our operations and uh To lead to better gross margin. We're focused on getting our gross margin back to pre-covid levels And from there at least sustaining it And and hopefully improving it

Also on gross margin, yes, our gross margin was better than expected, we're really pleased with that.

We've got a very concerted effort to improve our operations and to lead to better gross margin. We're focused on getting our gross margin back to pre COVID-19 levels and from there at least sustaining it.

And hopefully improving it.

Speaker 11: Um, and if you look at just the the year over year We're still focused on that two and a half to three points of improvement in gross margin uh this fiscal year You know and when I think about longer term, I I would just say too that nothing has changed From our focus on delivering that five percent plus revenue growth and that eight percent plus Bottom line growth and I would say that includes next fiscal year in fy23 You know even given some of these headwinds that we've talked about today Thank you

And if you look at just the year over year, we're still focused on that two and a half to three points of improvement in gross margin. This fiscal year and when I think about longer term I would just say to that nothing has changed from our focus on delivering that 5% plus revenue growth in that 8%.

Our bottom line growth and I would say that includes next fiscal year and FY 'twenty three even given some of these headwinds that we've talked about today.

Thanks Deepak.

Speaker 2: Thanks, Rick. Thank you, Rick. Jeff, please go ahead with your closing remarks. Okay, well, thanks everybody for the questions. We definitely appreciate your support and your ongoing interest in Medtronic, and we hope that you'll join us for our Q3 earnings webcast, which we anticipate we'll be holding this on February 22nd.

Yeah. Thanks, Craig Thank you Rick.

Please go ahead with your closing remarks, okay, well thanks, everybody for the questions. We definitely appreciate your support and your ongoing interest in Medtronic and we hope that you'll join US for our Q3 earnings webcast, which we anticipate will be on will be holding us on February 22nd where we will update you on our progress.

Speaker 2: where we'll update you on our progress and Ryan will kick off that call standing outside of our world headquarters here in Minneapolis, again without a coat on. He's promised us that no matter what the weather. So with that, thanks for watching today. Please stay, you know, healthy and safe over the holiday and, you know, and for those of you in the U.S., I'd like to wish you and your families a very happy Thanksgiving.

Ryan will kick off that call standing outside of our World headquarters here in Minneapolis again without a coat on he has promised us that no matter what the weather so with that thanks for watching today. Please stay healthy.

Healthy and safe over the holiday.

And for those of you in the U S. I'd like to wish you and your families a very happy Thanksgiving.

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