Q1 2024 Medtronic PLC Earnings Call
<unk> and robotic technologies.
Speaker 1: imaging, navigation, and robotic technologies.
Speaker 1: Now moving to surgical regrew 7%. Supply continued to improve and this drove high single-digit growth and advanced surgical technologies. And we had particular strength in advanced energy as we continue the rollout of our ligature XP and cordless sonocision 7.
Speaker 1: Cardiac rhythm grew 5% with mid single digit growth in defibrillation solutions, diagnostics, and cardiac pacing. And now with in pacing, we had strong mid teens growth in our micro leadless pacemaker franchise.
Speaker 1: and we launched our next generation micro devices, AV2 and VR2 in the US.
Speaker 1: We're also seeing EPs rapidly adopt conduction system pacing as an alternative to traditional single or dual chamber pacing. Our 3830 lead is the only one approved for conduction system pacing in the US, and it grew 45% in the quarter. Looking ahead, we're preparing to launch the Aurora EVICD later this year. Aurora is a game changer for the ICD space. It delivers the benefits of a traditional ICD, including the same size, longevity, and pacing features, but without leads in the heart or veins.
Speaker 1: Peripheral vascular grew mid-single digits with low double digit growth in drug-coated balloons and high single digit growth in superficial vein therapy. Neuromodulation grew mid-single digits in both pain stim and brain modulation, driven by new implants of Intellis with DTM and Percept PC with BrainSense. And just last week, we received CE mark approval for our next generation spinal cord stimulator Inceptive, which will be available in Europe in the coming months. Inceptive incorporates closed loop therapy with ECAPS, the result of decades of Medtronic R&D to unlock the ability to listen and respond to the vascular strain that can help us in purple dressed mold.
Speaker 1: to signals along the spinal cord. Both our largest and synergistic businesses had really strong quarters and our businesses that compete in high secular growth medtech markets, they did as well. All combined, these businesses made up 20% of our revenue and grew in the high single digits in Q1. We continue to disproportionately invest in these businesses
Speaker 1: and we expect them to become a larger part of our revenue mix and be large contributors to our durable growth in the future. Starting with structural heart, transcatheter valves grew 11% globally, including 12% growth in the U.S. and 21% growth in Japan.
Speaker 1: We're seeing strong adoption of our shield technology for treating aneurysms, which is available on our Pipeline Flex and Pipeline Vantage flow diverters. And cardiac ablation solutions grew 5%. And as you know, pulse-filled ablation has become one of the most anticipated technologies in MedTech. And we will be leading the way in bringing PFA catheters to market for both focal and single-shot segments. We're continuing the limited market release in Europe for our Phara mapping and ablation system, including our Sphere 9 focal catheter.
Speaker 1: Sphere 9 can perform both PFA and RF ablation and delivers high density mapping, all from the same catheter. Turning to our single shot PFA catheter, pulse select,
Speaker 1: We filed for approval with US FDA and expect to be one of the first companies with a PFA catheter in the US market.
Speaker 1: With our PFA catheters and the Afera Map-Nab system, combined with our leading Arctic Front-Crow solution and differentiated Accu-Cross transeptal access system,
Speaker 1: We're poised to become a more meaningful player in the fast-growing $8 billion EP ablation space.
Speaker 1: In robotic surgical technologies, we increased our installed base as we continue the international rollout of our differentiated Hugo robotic system.
Speaker 1: And we've activated new sites in our EXPAND-EURO-US PIVITAL trial, which continues to progress the plan.
Speaker 1: We expect Hugo to be a meaningful growth driver for us in the years ahead, given its differentiated value proposition, our leading position in minimally invasive surgery, and the low penetration of robotic surgery around the world.
Speaker 1: And in diabetes, we had a good quarter as we continue to see very strong demand for the mini med 780G AID system in markets around the world.
Speaker 1: 780G is a true second generation AID system.
Speaker 1: is a true second generation AID system and is the only one.
Speaker 1: with 5-minute adjustments and auto corrections and meal detection technology.
Speaker 1: We're getting great feedback that users are feeling a difference within one to two days.
Speaker 1: And our real-world evidence indicates that 90% of users are achieving or exceeding their glycemic targets when using our recommended settings as well as getting burden reduction and their diabetes management.
Speaker 1: And this differentiated value proposition is showing up in our results.
Speaker 1: Non-US developed markets grew 18%, our highest growth in four years.
Speaker 1: driven by both 780G adoption and increased CGM attachment rates.
Speaker 1: And in the US, we're seeing great results and momentum from the 780G launch. First, the launch drove low 30s growth in our US durable pump sales.
Speaker 1: Second, we're seeing our prescriber base rapidly expand. Since we last talked to you at ADA in late June , we've had a 30% increase in unique prescribers, with now over 13,000 since launch.
Speaker 1: Third, we've had over half of our 770G install base upgrade or place an order for the 780G since launch.
Speaker 1: And not only is demand coming from our existing installed base, but we're also getting competitive conversions.
Speaker 1: And finally, we're seeing very high CGM attachment rates in the 7-EG install base, which will drive our economics and gives us confidence in accelerating growth.
Speaker 1: So the turnaround in diabetes is real and underway, and I am pleased with the progress the team is making.
Speaker 1: And we're just at the beginning of this inflection point for the business.
Speaker 1: As we shared with you at our ADA investor briefing in June , we see the intensive insulin space moving from primarily standalone CGM today to one that is smart dosing through either AID systems or smart MDI.
Speaker 1: And we are well positioned for this trend. We continue to invest heavily in next generation durable pumps, smart pens, patch pumps, sensors, and algorithms.
Speaker 1: with multiple programs under development.
Speaker 1: And importantly, we're the only company assembling this complete ecosystem of differentiated technology for people living with diabetes.
Speaker 1: With that, I'll turn it over to Karen to discuss our financial performance and our Fiscal 24 Guidance Raise. Karen? Thanks, Jeff. Okay, Heather, can you give yourself a hand?
Speaker 2: As Jeff mentioned, we had a strong start to our fiscal year, with 6% revenue growth coming in ahead of expectations.
Speaker 2: We also had good growth on the bottom line with non-GAAP EPS of $1.20, up 6%.
Speaker 2: This was nine cents above the midpoint of our guidance range, with seven pennies coming from better than expected operational performance.
Speaker 2: and 2 cents from FX.
Speaker 2: We're focused on positioning Medtronic to drive durable growth.
Speaker 2: You've seen that over the last several quarters on the top line.
Speaker 2: And as we talked about on our last call, stabilizing and then ultimately improving gross margins remains a priority for us.
Speaker 2: The breadth of our revenue growth this quarter is notable.
Speaker 2: As Jeff mentioned, each of our four business segments grew 6%.
Speaker 2: And by geography, non-U.S. developed and emerging markets both grew in the high single digits.
Speaker 2: with the US growing mid-single digits.
Speaker 2: Western Europe grew 8% again this quarter.
Speaker 2: with high single-digit growth in cardiovascular and medical surgical, and high teens growth in diabetes.
Speaker 2: Emerging markets grew 8% and were affected by new sanctions in Russia and ongoing VBP impact in China.
Speaker 2: That said, China growth at 4% was better than expected given some provincial VBP delays to later in the year and strong procedure recovery.
Speaker 2: Excluding China and Russia, emerging markets grew in the high teens, with mid-teens growth in Southeast Asia and the Middle East and Africa, and high teens growth in Latin America and South Asia.
Turning to margins, our adjusted gross margin was relatively stable year over year and ahead of expectations.
with better than expected pricing and less than expected impact from currency, offsetting inflationary pressures.
Our operating margin increased 90 basis points, driven by revenue outperformance and our focus on expense management, particularly in our G&A line.
Below the operating profit line, our adjusted nominal tax rate was 15.8%.
above expectations, driven by a change in Puerto Rico tax law. The change drove an approximate 120 basis point increase in our tax line, offset by a corresponding decrease in other operating expense. So the change was net neutral to earnings.
Turning to capital allocation, we're prioritizing investments in innovation as we disproportionately invest in high growth, high return opportunities.
We do this through multiple channels, including organic R&D, minority investments, strategic partnerships, and disciplined acquisitions. At the same time, we prioritize returning a minimum of 50% of our free cash flow to our shareholders.
primarily through our strong and growing dividend. We also continue to advance our active portfolio management.
Last quarter, we moved our Renal Care Solutions business into a joint venture with DaVita. We've been focused on the separation of patient monitoring and respiratory interventions.
And as we noted in our 10-K, we now expect to complete the separation in the first half of next fiscal year, if not sooner, as weíve been evaluating different types of transactions to maximize shareholder value.
We've always said a spin sets a high bar, and it remains the likely way we'll separate these businesses.
Now, turning to guidance. With our outperformance in the first quarter and improved underlying fundamentals.
We're raising our full year revenue and EPS guidance. We now expect Fiscal 24 organic revenue growth of 4.5%, an increase from the prior range of 4 to 4.5%.
This guidance excludes the impact of foreign currency and revenue from our new Other segment. I direct you to the guidance slide in our earnings presentation for additional details.
In the second quarter, we're expecting organic revenue growth to be in the range of 4 to 4.5 percent.
On a comp-adjusted basis, this represents an acceleration over the first quarter.
And we expect a steady acceleration and underlying growth in the back half of the year as well.
While the impact of currency is fluid, based on recent rates, foreign currency would have a neutral impact on full year revenue, including a favorable impact of $85 to $135 million in the second quarter.
Moving down the P&O, as we have said before, we expect inflation and currency pressures this fiscal year.
And we do expect some of the delayed impact from the provincial VBPs that benefited us in the first quarter to come later in the year. However, you are beginning to see the results from the actions we are taking to drive structural changes in our global operations and supply chain.
To give a few examples, we're moving to fewer, more strategic suppliers that are giving us better terms.
and we're implementing improvements to run our factories more efficiently and reliably.
There is more to come, and we expect this will drive stabilization in our gross margin over time and then improve it from there.
On the bottom line, we're raising our Fiscal 24 non-GAAP diluted EPS guidance to the new range of $5.08 to $5.16.
An increase from the prior range of 5 to 5.10. This is a 7 cent increase at the midpoint, in line with the first quarter operational beat. The guidance range continues to include an unfavorable 6% impact from foreign currency, based on recent rates..
The projected 6% annual FX impact is unchanged from May, as the 2 cents of FX upside in the first quarter is now offset later in the year.
For the second quarter, we expect EPS of $1.16 to $1.20, including a 6% unfavorable impact from foreign currency based on recent rates.
Before sending it back to Jeff, I'd like to acknowledge our employees who are watching today.
I truly appreciate your focus on driving change to execute well and deliver on our priorities.
It is that focus that contributes to these results.
and fulfills our enduring mission to alleviate pain, restore health, and extend life for millions of patients around the globe.
fulfills our enduring mission to alleviate pain, restore health, and extend life for millions of patients around the globe. Thank you.
Back to you, Jeff. Okay, thank you, Karen. Now before we go to the analyst questions, I'll close with a few thoughts.
First, Q1 was a strong start to our year and we're establishing a track record of delivering dependable mid-single digit growth. We're executing and bringing innovation to the market.
We're making progress in countering the impacts that inflation and currency are having on our margins.
we expect this to lead to stabilization and then improvement over time.
We're also seeing improved underlying fundamentals in our supply chain and in our markets.
across our businesses and geographies. And like I said earlier, we're at the beginning of an inflection point in our diabetes business.
and we're seeing strength in our established market leading businesses like CRM and Spine.
And with our pipeline, we have several important growth catalysts that we expect to come to market over the coming quarters.
So we're on the right path and building momentum.
And underneath all of this, what may be less visible to you are the steps we've taken to transform the company, tackling the root causes of what have made our growth less dependable in the past.
We're ensuring a performance-driven culture, partially driven by a number of new leaders in the company.
We're advancing our capital allocation and portfolio management priorities to take advantage of high-growth opportunities. And we're executing on the programs that we believe will lead to scale advantages.
Whether that's in our now centralized global operations and supply chain organization, or in how we go to market with large enterprise customers around the world, or in how we're leveraging core technologies and implementing new innovations across our businesses.
Now, to accelerate this last area, we created a new position of Chief Technology and Innovation Officer and hired Ken Washington this past quarter to fill that role.
Ken was recently at Amazon where he led consumer robotics and before that was chief technology officer at Ford Motor Company and VP of the Advanced Technology Center at Lockheed Martin Space Systems.
I look forward to sharing more details in the quarters ahead on how Ken is leading our efforts to leverage technologies like robotics and AI across the enterprise, which we believe will lead to new, differentiated therapies for patients and better experiences for our customers.
So this is an extensive transformation. Yes, there's still work to be done, but you're seeing some of the benefits in our results. And you should expect to see more of this over time as we continue to work toward delivering durable revenue and earnings growth.
which combined with a growing dividend is a winning formula for creating value for our shareholders. Now let's move to Q&A where we're going to try to get to as many analysts as possible so we ask you to limit yourself to just one question and only if needed a related follow-up. If you have additional questions.
you can reach out to Ryan and the investor relations team after the call. I also want to note that today is the first time we have Mike Maranero, who runs our surgical and our endoscopy businesses, joining us for the Q&A.
Now Bob White's focus is on the PMRI businesses as we separate, which is a heavy lift.
we have Mike focused on the other two MedSurg businesses.
So today, if you have questions on surgical or endoscopy, direct them to Mike. And PMRI, questions can go to Bob.
With that, Brad, can you please give the instructions for asking a question?
For the cell site analysts that would like to ask a question, please select the participants button and click raise hand.
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Lastly, please be advised that this Q&A session is being recorded.
For today's session, Jeff, Karen, and Ryan are joined by Q Delaro, EVP and President of Diabetes.
Mike Marinaro, EVP and President of the Surgical and Endoscopy Businesses.
Sean Salmon, EVPN President of the Cardiovascular Portfolio.
Brett Wall, EVP and President of the Neuroscience Portfolio, and Bob White, EVP and President of the Medical Surgical Portfolio.
We'll pause for a few seconds to assemble the cue.
We'll take the first question from Vijay Kumar at Evercore ISI. Vijay, please go ahead.
Thanks for taking my question. Good execution. My first one on diabetes, the 30% U.S. growth numbers here, I think that's a revenue number. Do you know what the the amount that is compared to is higher than the average in diabetes? What kind is that? What kinds are the racetrack
the pump growth number was in the US and how much of this was existing customers is operating the sound is off _____
growth number was in US and how much of this was existing customers, how much of this growth is driven by existing customers operating the 770g users operating versus the new customers.
Thanks for the question. Yeah, well, first of all, let me just say we're really pleased with the momentum we have in diabetes. I mean, and I think we're on the kind of early stages of a growth acceleration there.
We're seeing great outcomes in patients. Like I mentioned in the commentary, a significant increase in unique prescribers.
a much higher attachment rate of CGM, which will really impact our economics. That's where a lot of the profit comes from. We think this is durable and in line with the market trends of time and range and moving to automated insulin delivery.
So we've got a nice pipeline coming down the path as well, you know, but to answer those specific questions, I'm going to turn to Q as you know, runs that business. Q do you want to touch on Vijay specific questions? Yes, thanks Jeff. Thank you, Vijay. We're really pleased with the momentum we've seen in the US so far.
In terms of what's driving the low 30s AID growth in the US, it's both our existing install base of 770G users that have upgraded. We've had more than 50% of that cohort upgrade or in the process of upgrading. But we're also seeing growth coming from new patients. We've had the highest...
I mean, Jeff, I won the wedding ball up. A lot of questions here in China. The new anti-corruption campaign, the university and some headlines, a lot of questions and how this could impact in a device company. Here's your talk about the high level purchasing in China. What was a BGP back in the quarter in any, any science that...
Perhaps the channel positive here, they can just do now anti-corruption. Thank you. Yeah, you asked about the anti-corruption and VVP. So in China, so look, on the anti-corruption, I recognize that there are concerns out there. And we're actively monitoring the situation, which is fluid in nature.
to VVP. It's worth noting that, you know, we, you could argue that we're somewhat a bit insulated from some of this anti-corruption with, you know, the coverage, you know, under VVP's. I mean, volume in this case is contracted. And with the hospital pricing is determined with VVP. And we're less reliant on, you know, the field team and distribution.
that you read about. And then regarding VBP, I mean, you know, this, it's, you know, we feel it's been, it's a two and a half year kind of impact here and we're, it, for us, that fully, that impact kind of, it fully takes in effect in this fiscal year FY24.
expected. Still well below what it used to be and where we think it's going to get back. As we kind of lap these last couple of EVP areas in FY24, we expect this revenue to get back to historical high single digit, low double digit growth.
Uh, you know, for for us. So put that answers the question. This is this is something as you look forward. It's a multi billion dollars of revenue for the company that over the last couple of years has been negative. More recently flat now starting to get positive and as we lap as we get out of FY24 again, we expect.
questions. Our next question comes from Robbie Marcus, a JP Morgan. Robbie, please go
Oh great, good morning. Congrats on a good quarter.
Maybe to start for Jeff or Karen, as we think about guidance for the rest of the year, you raised the organic sales growth from the low end of 4 to 4.5 up to 4.5. You did 6 in the first quarter. Maybe just walk us through.
Why growth is going to decelerate for the rest of the year and you know, what what are some of the? The factors affecting what could drive you about that. Thanks
Yeah, thanks for that question, Robbie. Appreciate it. You know, Q1 was a really great start to our year and we're really pleased with the breadth of our performance. As Jeff mentioned, it's the third consecutive quarter that we've had of solid mid single digit growth. And we're carrying the beat that we had in Q1 and raising.
You know, it's still early in the year and we're focused on providing guidance that sets us up for success.
You know, I've talked about some of the puts and takes that we've got. We're a little more optimistic on China. Jeff talked about it. We've had procedure volume recovery. We also had some of the VVP impacts that we expected in the first quarter delayed into the – into the – later in the fiscal year. And we're expecting Russia to be a bigger drag given the new sanctions that were –
Just on the acceleration for the rest of the year, on a comp adjusted basis, Q2 represents an acceleration from Q1, and then we expect continued acceleration into the back half each quarter of the fiscal year into the back half.
acceleration for the rest of the year on a comp adjusted basis, you know, Q2 represents an acceleration from Q1. And then we expect continued acceleration into the back half each quarter of the fiscal year into the back half. So hopefully that answers your question.
Yeah, great. Thank you. Maybe just one more on margins. Margin expansion or the upside in the quarter came from gross margin. SG&A, I know you had some reductions in the headcount. So as we just try and think about operating margins.
for this year and going forward, how should we think about how much more there is to come out of SG&A and how much more upside there is in gross margin moving back towards where we were pre-COVID. Thanks a lot.
Yeah, thanks for the question, Robbie. Clearly, we're focused on driving margin expansion and ultimately on the gross margin getting back to pre-COVID levels over time. We saw improved margins this quarter, and we're increasing our full year guidance on gross margin expectations.
timing with some provincial tenders in China being delayed a bit and some of the FX improvement that we saw this quarter, you know, we expect to, FX2 impact us a little bit more in the back half of the year. So as we think about margins, we are making investments.
examples where we're consolidating our suppliers and focused on improvements in our manufacturing operations to drive continued improvement. And over time, we're focused on stabilizing and improving our margins. And so that will continue to impact us on the operating margin line.
And on SG&A, as you mentioned, we're focused on continuing to drive leverage in our SG&A line, as you've seen us do for a long period of time.
Okay, thank you, Robbie. We'll take the next question, please, Brad.
The next question comes from Larry Beigelson at Wells Fargo Securities. Larry, please go ahead.
Good morning. Thanks for taking the question. I guess, too, for Sean, given the upcoming events here with the Simplicity Ad Comm and then the Farah Pulse data this weekend, we can start with the Q&A.
Sean, how are you feeling about the simplicity panel tomorrow? And if we see a positive recommendation, help us think about timelines for approval and the ramp in the US for renal denervation. Second, we're going to see the Firepost data this weekend as well.
You guys are growing, you know, mid-single digits, looks like a little bit below the market right now. What should we be looking for in the Faro Post data and how are you feeling about being able to grow your 8-bit business, you know, at or above the market going forward? Thank you.
the next couple of weeks. Next to the question, Larry. So I guess starting with the ad com panel, obviously we've been very confident about the prospects of U. S approval, and we're exquisitely well prepared for that panel. Um I'm not going to handicap the timing, but
the recommendation. The recommendation is that you tend to see things, I would say an approval in the second half of this year 24 is certainly in order with that kind of timing. And the ramp itself of course is going to be dictated by the pace of reimbursement. And we are well prepared on that front as
Our pulse field ablation, we're looking forward to seeing the results like everyone else's. This is a randomized trials, so that comparative efficacy compared to both cryo and RF ablation for the populations being studied, and will be of interest to us.
And I think our distinction really in Pulsefield is that we are the only player that has both a focal solution as well as an anatomic solution in the bag. The anatomic solution or single shot market is about 15% of the market and the other 85% is about the same.
is what the point-by-point ablation will bring to us. Certainly very confident in both technologies, both the Pulse Select and Afera mapping and Steer 9 catheter system, which is very different than everything else that's out there. We look forward to bringing those to customers all around the world.
will bring to us. So they're certainly very confident in both technologies, both the Pulse Select and Afera mapping and Sphere 9 catheter system, which is very different than everything else that's out there. And we look forward to bringing those to customers all around the world. All right, thank you.
Thanks, Larry. Next question, please, Brad. The next question comes from Danielle Antoffee at UBS. Danielle, please go ahead. Hey, good morning, everyone. Thanks so much for taking the question, and congrats. This was quite a good quarter.
Just a quick question on GLP-1s, Jeff. I know this is probably an annoying question for you, but this is something that's been impacting the market broadly. And just curious, you guys touch on many, many areas within medical devices. How are you guys thinking about the impact of GLP-1s over the next, I would say even few years, but maybe let's focus on more of the next.
year as these drugs get more readily adopted? Sure, thanks Danielle for the comments and the question and yeah, it is interesting. First of all, I'd say it's an important class of drugs and you know, like you were monitoring to see how the the GLP-1 therapy is is being adopted.
That said, our initial work indicates minimal impact to our business. The one area we've seen some modest impact is bariatric, but this is really a small impact and this is a relatively small part of our surgery business.
And we are hearing from, you know, the work we do is our internal analysis plus, you know, dialogue that we're having with, you know, physicians around the world. We actually operate obesity clinics in Europe as well. And, you know, they're talking about longer term. This could actually bring in the bariatric space more patients into the funnel.
Short term we've seen some impact, again modest and a relatively bariatrics or relatively small part of our surgery business. Longer term we'll see how it plays out. There's a bit of optimism there though. No impact in type 1 diabetes which is the vast majority of our you know diabetes business and just overall I just you know don't see GLP.
our work is showing us at this point. Then I guess just one quick follow up to that, thinking about, again, the diabetes business, type two is a big growth area, you guys have an AID pen. So what are your thoughts specifically on the type two diabetes side of things? Thanks so much.
that's a great question. Thanks I'm okay I think this is a you know a ID or- you know insulin dependent you know patients whether they're type two or type one is pretty under
Thanks, Danielle. We'll take the next question. Please, Brad.
The next question comes from Travis Speed at Bank of America. Travis, please go ahead.
Hey, congrats on a good quarter. I guess I'll ask about Daver double digit growth this quarter. And curious how much success you've had with the new valve versus the five year data. I know your competitor is going to have five year data pretty soon. And then the 21 percent Japan growth really stood out. Just curious if that's sustainable or that was more of a one off in the quarter.
the new valve. Well first before I turn it over to. First over Sean. We are you know if you go back the last couple quarters we are pleased with how the our tower businesses performing relative to competition and how the new valve is performing and. And also the pipeline for the future. But you know, Sean, why don't you give the specifics on that question? Sure. Travis I think the first thing that we've been looking at is population growth. I mean, largely United States and a number of other geographies and Japan notably. The other thing that drove Japan growth was that we've got a new indication for end stage renal disease, which is something we've been lacking in Japan. So it's a large consideration for that population that really helps drive drive the performance. But yes, our our long term data have been really the signature of the long term data that we have. And the data that's been recorded out for TAVR. Will be on display. And then, of course, we have four year data coming up on our low risk. Study as well to look forward to this fall. So you know, we stand behind the valve performance all the way around and whether it's the acute ease of use of the long term durability of the valve. It's
So it's a good business and I think with more focus, I think these numbers can even improve.
All right, thanks a lot. Thanks, Travis. Next question, please, Brad. The next question comes from Matt Nixic at Barclays. Matt, please go ahead.
Thanks, Travis. Next question, please, Brad. The next question comes from Matt Nixic at Barclays. Matt, please go ahead.
Hi, thanks so much for the question. Congrats on a really strong quarter across the board. There's a lot to talk about, but maybe one question on diabetes with you and then one follow-up. Just would love to hear how things are progressing with some of the COVID-19 hubs in the Weill and JohnsonAlways save lives for good and save lives in an these weeks. fast-paced Ironically, the COVID-19 Ages and the moment continues to lag and
programs that you talked about at ADA, the next-gen sensor, and in, you know, integrated testing and the patch, the other patch pump that you're in the process of acquiring here. And then if I could on that, Jeff mentioned something about a next-gen AID pump, and I know it's way early to even ask the question, but just curious if you are ready to share any hints about that, and then one quick follow-up if I could. Yeah, thanks. Thanks for your questions. As you know, Sempera, CGM, our next-generation CGM is under review with the...
We expect to complete the PEDS enrollment in Q2.
But that's at the clinical trial stage. We're also, in terms of the patch, we're making progress there as well in terms of completing that transaction, and we expect that we would close out the airflow acquisition.
At the end of this calendar year. And again, very sorry to disappoint you, but difficult to comment on our further programs. They're progressing as we expect in our internal timelines, but at this stage, it's a bit too early to. To put details on specific time. That's that's helpful and understandable.
know, everyone's been here year to date in surgeries and procedure volumes and so on. Just just any sense of what kind of summer quarter we expect, you know, which for you, I guess, just August but, you know, softer than usual.
seasonally normal, you know, how would you describe what you've seen in July when your expectations are built into your fiscal Q2 here? Thanks.
So I would just say Travis that you know the first few weeks of the quarter and what we've seen in July are tracking well. You know we continue to have strength in the underlying performance and you know it's tracking the expectations we set in our guidance.
So, I would just say, Travis, that, you know, the first few weeks of the quarter and what we've seen in July are tracking well. You know, we continue to have strength in the underlying performance and, you know, it's tracking to the expectations we set in our guidance. That's fair. All right. Thanks so much. Great.
Thanks, Matt. We'll take the next question, please, Brad. The next question comes from Chris Pascual at Nefron. Chris, please go ahead. Thanks. Jeff, one for you and then a quick follow-up for Karen. You mentioned artificial intelligence as one of the areas Medtronic is investing in.
It's obviously a hot topic in the market more broadly. Could you provide any examples of the work you guys are doing there? Maybe talk about which businesses you see AI as being most relevant for in the near future?
Sure, well, first of all, I think, you know, for the medical device industry, you know, the kind of the intersection of traditional biomedical, you know, engineering with these digital technologies, whether it be connectivity or data analytics techniques like AI and deep learning.
um, you know, robotics. These are all, you know, just a huge opportunity for the industry. This is and these are areas that you know, we intend to lead in. Um, you know, I specifically, uh, we've got, you know, a number of businesses that have
you know, first of their kind AI powered solutions that have received regulatory approval by the FDA and other regular, you know, regulatory bodies around the world. And you know, you know, what we're seeing here is just, you know, improve from the AI is just improved outcomes and access.
And it's what it's a lot, you know, when you combine the AI with, you know, good data, you know, not just quantity, but the quality of data and that data is labeled properly. You know, we're seeing.
you know, the ability to even, you know, personally evolve and approve the advocacy over time through the AI and even personalize it. The FDA has approved a couple of products for us in the cardiac rhythm space.
and spine and GI where you have like what they call a predetermined change control plan where you're allowed to kind of approve, improve that efficacy over time. And some of the businesses that are impacted, like I mentioned, you know, our, you know, GI are now calling it endoscopy space where we have
AI in the colonoscopies, you know, you're kind of redefining traditional colonoscopies where the AI is finding, you know, polyps that physicians, you know, were missing, you know, and this is a significant amount of polyps and it's obviously good for patient outcomes because there's a high correlation to the cancer, colon cancer from these polyps and it's also economically aligned with the hospital's interest as you find more polyps and remove them, you know, in other areas in our spine business.
This is an industry that's being completely redefined by enabling technology, transformed and redefined by enabling technology. And we talk about robotics and imaging and navigation and powered instruments, but AI is a key piece of this. And we have thousands of surgeries and our AI is powering our AI algorithm. And with each, and spine is a complicated surgery, especially whether it be a degenerate or for sure deformity complex cases, highly reliant on surgeon training. And the AI is really just improving outcomes here, especially when it's combined with enabling tech.
multiple hours of productivity for these clinics around the country. And given, you know, so in this really driving the deployment of that technology. So I'd say it's a huge opportunity. It's a differentiator. I mentioned we hired a new head of technology, Ken Washington, to really help us scale this across all our businesses and better partner with some big tech companies. We've talked about our partnership with NVIDIA.
And in the end, I'd say what we're going to see over the next couple years is you may not be replacing, AI is not going to be replacing surgeons, but I tell you what, surgeons who use AI will be replacing surgeons that don't. And we are going to be right in the middle of that mix.
Thanks, those are great examples. Karen, you mentioned price as a contributor to the gross margin strength in the quarter. Can you give us a sense for what price looks like across the company today, maybe how it compares to where you were a couple years ago, and if you think that it's sustainable as we move into a less inflationary environment going forward?
Yes, thanks for the question. As you've heard us talk about, we have been building a pretty strong muscle around pricing, and we're focused on ensuring that we price for the value that we deliver. Typically, historically, pre-COVID, we would experience up to two or three years of
at the total company level. By quarter, it may not be fully neutralized depending on how VBP hits us, but we do believe that this pricing muscle that we've built is going to be lasting and we fully intend to continue to track, monitor, talk about pricing.
So that even as we move into a lower inflationary environment, we're focused on continuing this pricing muscle that we've built. I just want to re-emphasize that last point there on kind of, we'll start with on margins. On gross margins, and there was a question earlier, Karen went into detail, I'm not going to repeat that, but on gross margins, the pricing muscle.
that we've been building. I think we intend that to be enduring. And then, Karen mentioned the cost of goods sold, improvements that we're making, a productivity around our cost of goods sold line, really driven by our new structure, strategy, and capabilities in our global operations and supply chain. That'll all help gross margin.
And as you get down the P&L, we're really focused on getting leverage from SG&A and excited about stabilizing and improving the margins over time.
Okay, thanks, Chris. We'll take the next question. Please. Brett. The next question comes from Jason Bedford at Raymond James. Jason, please go ahead.
Okay, thanks Chris. We'll take the next question. Please. Brett. The next question comes from Jason Bedford at Raymond James. Jason, please go ahead. Good morning. Can you hear me? Okay.
Yeah, Jason, we can hear you. All right, thanks. So not to make this a call all around gross margin, but I did have a question. You mentioned stabilization and I just wanted to put a little context around that. What is the expected gross margin for fiscal 24?
you know, at this point, when we gave our guidance back in May, we said we expected it to be around 65 and a quarter. And at this point, we're expecting it to be about 65 and a half. You know, we've seen some improvement in the first quarter, and we're carrying some of that through. This is an uncorrected video, because you can see the contrast in this question, perhaps from here to these two visits already seen line right here.
Okay, and just Karen, the drop down for the rest of the year versus first quarter levels revenue is higher. Is this just strictly a function of the VBP impact hitting more in the back half? Yes, it's both VBP and currency and you're right, you know, higher revenue growth clearly helps on the margin front.
But we have seen some timing on BBP that we talked about. We also have some timing on FX. It was a little bit better than we expected down the P&L in the first quarter. And we expect to give some of that back as we look at the currency impact going forward. Thank you.
questions. Thanks, Jason. Brad. I think we have time for two more questions. The next question comes from John Wench at City, Joanne. Please go ahead. Good morning and thank you very much for taking the question and nice quarter or nice way to start the fiscal year. Um two quick questions of volumes we've seen throughout medtech this season have been coming out. We're just catching up on some pent up demand. I'd love your opinion on that. And then for Hugo. You talked about activating new sites in the United States. Can you give us maybe an update on the thoughts on timing of a launch in the U. S and then anything else you can add for O. U s robotic placements would be appreciated. Thank you. Sure, Joanne. Um, good to hear from you. Thanks for the questions. I'll take the first one and then I'll turn it over to Mike Jaseb. Thank you...
you know, we're, as Karen mentioned, I mentioned in the commentary, they're definitely improved. And, you know, I'll start in the US where, you know, we're up about 5% or so, but the, you know, across the board, we're seeing very good procedure trends, you know, and we're largely back to pre-COVID or better. Pre-COVID levels are better, you know, as you know, over the last, I don't know, 18 months or so, the rebound has been, I'd say, held back a bit by staffing issues and those have seemed to have abated. And like I said, we're getting pretty broad-based procedural pickups and are back to pre-COVID or even better levels. And outside of the US, I'd say it's even stronger.
We're in the teens, mid-teens and high teens actually in emerging markets. Emerging markets trends are strong. I mentioned Latin America's a standout, Western Europe , so pretty good trends. We're not seeing like this, at least in the areas we're in. I've heard some area like orthopedics has been a pent up demand, but we're not seeing in the areas we're in. It's been a steady flow versus a pent up demand. So I think that's good news for the industry. On the Hugo specific questions, I'd like to turn it over to Mike Marinara who runs our surgical business, which includes Hugo and also our endoscopy, or formerly called GI business reports up to him as well. Western Europe , LATAM, North America and Canada and increased our installations again here in this quarter. I think importantly, we've also seen an increasing.
the business. Yeah, really looking excited about the setup we have for our business is a very large business for us that you know where the supply capacity has been an issue that's that's in a much better spot the robots out there might just walk through you know kind of indication expansion and and geographic expansion and update on the us trial and I like the setup you know uh and the competitive dynamics going forward over the next couple years you know one with robot one without
and we're feeling pretty good about where we are with surgery. Okay, thanks Joanne. I still see a number of people in the queue and I apologize that we won't be able to get to all of you today given timing. We've got time for one more question please, Brad.
Our final question comes from Patrick Wood at Morgan Stanley . Patrick, please go ahead.
Fabulous, thank you so much. I'll keep it to one given the timing. You know, SNOP and supply chain is obviously not a very sexy topic, but you know, you guys are doing a lot of work on that side. I'm just curious, you know, typically when we put processes and rationalization in place, there's kind of upfront costs and like your dual running systems and it's kind of difficult for people to transition. Are you seeing any, you know,
slight, let's say, short-term challenges or costs associated with that, where the payback, you know, is obviously going to come in the next, I don't know, year or two. Just help us understand how that's looking.
associated with that, whether payback is obviously going to come in the next year or two. Just help us understand how that's looking at business. Thanks.
Well, let me just start off by saying I appreciate your question on supply chain. It's been a big focus area for us. And you know, I know a couple of thousand people at Medtronic that do think it's a pretty sexy place to be. And I'm pretty proud of the work that we're doing.
To answer the question, I'll turn it over to Karen on the cost question. Yeah, thanks, Patrick. Yes, when we're working on improving processes and driving better costs down, it does take investment. That investment is included in the guidance that we've given and it's part of the reason that our gross margins are not yet stable.
But we fully expect those investments to pay off over time and to help drive costs down more than inflation as we work to bring our gross margins up. Hopefully that's helpful.
Thank you. Okay, thanks. Thanks, Patrick. Jeff, please go ahead with your closing remarks. Well, first of all, thanks everyone for the questions. And as always, we appreciate your support and your continued interest in Medtronic. We look forward to updating you on our continued progress.
on our Q2 earnings broadcast, which we anticipate holding on Tuesday, November 21st. With that, thanks again for joining us today and have a great rest of your day. We'll see you next time. See you next time. See you next time. See you next time.