Q3 2024 Medtronic PLC Earnings Call
At the same time, we've had a rapid cadence of new product approvals and we're continuing to differentially invest in our pipeline of highest growth opportunities. We're advancing innovative core technologies like robotics, AI and closed loop systems.
And with five AI products already FDA approved we're leading the way in bringing the tech into Med Tech.
We also continue to make progress on our comprehensive transformation of the company.
We're incorporating a performance driven culture, that's based on execution speed and playing to win.
And we're leveraging our scale to drive efficiencies. So when you look at our financials. This quarter Youre seeing the early results of our focus on restoring earnings power and converting our earnings into strong cash flow and were using that cash to both invest in high return opportunities and return value to our shareholders.
So we're executing and we're delivering and we expect to continue over the coming quarters and years, given our momentum our ongoing transformation, our breakthrough innovation, our exposure to strong secular growth markets and our numerous catalysts across the business.
Speaker Change: Now before I get into the details of our Q3 results I do want to mention that we provided a portfolio management update this morning on our patient monitoring and respiratory intervention businesses.
Speaker Change: After a comprehensive review.
Speaker Change: We have decided to exit our unprofitable ventilator product line.
Speaker Change: And retain and bring together our remaining P. M. R I businesses into one business, which we're calling acute care and monitoring.
Speaker Change: Now we have determined it is in the best interest of Medtronic its stakeholders, the ACM business, both near and long term to exit events because of its increasing unprofitability and market preference shift to lower acuity ventilators now.
Speaker Change: Now as we exit events I want to recognize the strong legacy of our business and the Puritan Bennett brand.
Speaker Change: And we're committed to serving the needs of our customers and honoring our ventilator service contracts.
Speaker Change: And I also want to thank the employees and our ventilator business, who played an incredible role during the pandemic to dramatically expand production to get ventilators to the communities around the world that needed them.
Speaker Change: And while we exit we.
Speaker Change: We do believe that existing manufacturers can meet the customer demand for new ventilators going forward.
Speaker Change: Now at the same time, we decided to retain and refocus the remaining PMI businesses three.
Three main factors have driven this decision.
Speaker Change: First we have strong conviction in our ability to lead and drive growth in acute care and monitoring given our improved competitive position.
Speaker Change: And our ability to properly fund this business with savings from exiting Vance.
Speaker Change: Second the importance of data in this space is changing rapidly.
Speaker Change: It's becoming the basis of innovation and this fact further improves our competitive differentiation.
Speaker Change: And lastly, as a company more broadly we continue to prioritize profitable innovation driven growth and category leadership and ACM can deliver both.
Speaker Change: That does not mean, we will shy away from additional portfolio moves going forward.
Speaker Change: But the bar is high for any strategic activity that the Lutz our focus on our profit and growth.
Speaker Change: So when you take these decisions together, we're able to provide increased investment for acute care and monitoring using the savings from Vance and bringing two businesses together.
Speaker Change: All without creating dilution to our P&L.
Now, let's get into the details behind our Q3 results.
Speaker Change: We continue to look at our portfolio in three categories established market leaders synergistic and highest growth businesses and this quarter. All three grew in line with our expected growth algorithm.
Speaker Change: Our established market leader and synergistic businesses grew mid single digits, while our highest growth businesses posted high single digit growth and we expect their contribution to our overall growth to further accelerate in the quarters ahead.
Speaker Change: Now looking first at the established market leaders combined they made up just under half of our revenue and grew 4%.
Speaker Change: Starting with cranial and spinal technologies.
Speaker Change: We're driving consistent above market growth on the continued adoption of our able ecosystem sees.
C S T delivered high single digit growth in core spine mis.
Speaker Change: Mid teens growth in biologics and high single digit growth in enabling technology, we had strong double digit unit growth and stealth station navigation O arm imaging and Missoula robotic systems, a leading indicator for future growth in this business.
Speaker Change: We also continue to see strong adoption of unit adaptive spine intelligence, our integrated AI based surgical planning solution.
Now with Abel more offering a complete robust ecosystem of enabling technologies and associated implants for spine surgeons.
Speaker Change: Our global footprint.
Speaker Change: Which includes over 10000 systems.
Speaker Change: Is over four times greater than the nearest competitor.
And with this scale and extensive and rapidly increasing install base, we're transforming the spine industry. We are leading the way as more surgeons adopt our integrated spine technologies and in an environment, where there is disruption from consolidation, we're attracting the best sales teams to medtronic to grow in.
Speaker Change: Expand our business.
Next in surgical we grew 3% our wound management business one share growing in the high teens on the strength of our V lock barbed sutures we.
Speaker Change: We also had solid mid single digit growth in hernia products as we won share in synthetic permanent mesh with our pro grip platform and.
Speaker Change: And as expected our surgical growth continue to have a modest impact from declines in bariatric surgery.
Speaker Change: Now we still believe this impact will be temporary as more patients become eligible for surgery and as patients seek a more permanent treatment to weight loss.
Speaker Change: To wrap up our established market leaders cardiac rhythm also grew 3% driven by high single digit growth in cardiac pacing our micro leave as pacemakers continued to post strong results growing 15% driven by the launch of our next generation micro Avi to N V. R. Two devices.
We're also benefiting from the adoption of conduction system pacing and alternative to traditional single or dual chamber pacing or.
Speaker Change: Our 38 30 lead the only one on the market approved for connection system facing continued to grow strong double digits.
Speaker Change: In CRM, we also began training and the limited launch of our Aurora EV ICD.
Speaker Change: Now, we expect the EV ICD to Reaccelerate, our defibrillation solutions growth in the coming quarters as I've shared with you in the past Aurora is a game changer in the ICT space.
Speaker Change: It delivers the benefits of a traditional ICD, including similar size longevity and pacing features.
Speaker Change: But without the leads and the harder veins.
Speaker Change: And these benefits can be realized with one device.
And only one implant procedure.
Speaker Change: We expect our advantages will not only displace the competitors device.
Speaker Change: We will expand the population far beyond the existing segment M. B, a strong growth driver for CRM.
Speaker Change: Now turning to our synergistic businesses combined they grew mid single digits in Q3, and I'll highlight some of the drivers here lets start with aortic, which grew 13% on supply recovery and continued momentum of our endurant AAA franchise.
Speaker Change: Cardiac surgery grew 10% driven by strength in perfusion, and cannula and E. C. O S oxygenated given competitor quality issues and the strong sales in international markets of our avail of surgical valve.
Speaker Change: Coronary grew 7% driven by double digit growth in both guide catheters and balloons, and we increased our drug Eluting stent share in U S and in Europe on the continued rollout of our Onyx frontier drug Eluting stent.
Speaker Change: Now turning to businesses in our highest growth markets as I mentioned earlier together. These businesses grew in the high single digits. This quarter and we expect their contribution to our growth to accelerate going forward a diabetes led the way growing double digits on the global adoption of our game changing many med seven AG system.
Speaker Change: We're seeing strong sequential momentum growing 5% over the prior quarter.
Speaker Change: Our customer base is growing sequentially and we're driving more revenue per customer.
Speaker Change: In the U S. We not only returned to growth. We grew mid single digits driven by nearly 50% revenue growth in insulin pumps, we doubled our new users year over year, attracting those on multiple daily injection as well as users of competitor systems.
Users are choosing seven AG for the outcomes it delivers with intensive insulin users these outcomes matter and the seven EG is highly differentiated.
Speaker Change: It's the only AI D system to automatically adjust and correct sugars every five minutes. It offers flexible glucose targets as low as 100.
Speaker Change: And features our proprietary meal detection technology listen.
This leads to high time and range for users and this type of glycemic control is coming with less effort and burden as users realize the relief that comes from spending more time in and automation with our smartcard technology.
Speaker Change: It's worth pointing out that in a recent third party survey of nearly 2000 U S diabetes pump users. The seven AG scored number one in overall pump satisfaction among type one CGM users our guardian for sensor mirrored competitor sensors and overall satisfaction.
Speaker Change: And during the quarter, we secured CE mark for our some player a sink sensor for use with the seven AG and we look to begin a limited release this spring and in U S. We're planning to submit the seven AG with some players sync two the F D. A in the first half of this calendar year.
Some players sink is half the size of our current sensor.
Speaker Change: It is a disposable design and is much easier to put on.
Speaker Change: Now we've been driving the diabetes turnaround for some time and I got to tell you. It's certainly feels really good to return to double digit growth.
Speaker Change: But we're not finished here there is definitely more work to be done as we work to bring to market, an even more robust ecosystem of differentiated technology for people living with diabetes, including next generation durable pumps, smart pens patch pumps sensors and algorithms and as the intensive insulin management space move.
Speaker Change: Move to using smart dosing through either a I D or smart MDI, we expect an acceleration in the growth contribution from our diabetes business.
Speaker Change: Now turning to cardiac ablation solutions, we delivered 11% growth in international markets, including 9% growth in Western Europe, our strong international growth as well as our overall performance continues to be driven by our leading Arctic front cryo solution as pulsed field ablation is still in the early stages, we're seeing though a.
Speaker Change: Lot of enthusiasm in the market for our PFA products in.
Speaker Change: In Europe, we're the only company with PFA offerings for both the single shot and the focal segments and in single shot. We have now started the limited market release of our pulse select PFA system here in fiscal Q4, and we're seeing very efficient procedures and after just a couple of cases and so the learning curve is really short the Cathy.
Speaker Change: Or handling and maneuverability has been excellent due to its small shaft and our custom 10, French bidirectional sheath.
Speaker Change: Clinicians are also reporting no noticeable muscle contraction with our PSA product, which is beneficial for patient experience.
Speaker Change: And focal we continued to ramp manufacturing of the affair mapping system and sphere nine catheter and remain in limited market release in Europe.
Speaker Change: <unk> is the only catheter that can perform both pulse sealed ablation and radiofrequency ablation and high density mapping, it's really in an all in one catheter.
Speaker Change: In the U S. Our cash business declined in the quarter.
Speaker Change: We faced the first full quarter of competition in the cryo ablation space, which is the space, we created and had been the only player.
Speaker Change: In addition, many customers actually held back purchases as they wait to the launch of our pulse select PFA catheter, which is now commercially available.
Speaker Change: We do expect to improve from here as we rollout. The recently approved next generation Nitron crowd console and pulse select the only PSA catheter FDA approved for both paroxysmal and persistent AF and.
Speaker Change: And in addition to the European feedback clinicians have consistently commented on how well, it's visualized and how easily it connects to their mapping system.
Speaker Change: So we're also making progress in bringing our a fair mapping system answer your nine catheter to the U S.
Speaker Change: With the last patient follow up in our sphere per AF pivotal trials now completed.
Speaker Change: We expect to see the results at a medical meeting in the first half of this calendar year.
Speaker Change: You know with an 8 billion dollar market size expanding our share in this underpenetrated cardiac ablation space is a big opportunity for us we expect our growth profile to improve overtime first moving towards market growth and then winning share.
Speaker Change: As we bring our rich pipeline of innovation to patients who need this technology.
Speaker Change: In neurovascular. This corner, we grew high single digits. When you exclude sales in China, where the market is subject to volume based procurement. We continue to have strong double digit growth in flow diversion globally.
This is being driven by our innovative shield technology for treating brain aneurysms, which is available on both pipeline flax and vantage flowed voters.
And robotic surgical technologies, we continued growing the install base for our differentiated Hugo robotic system in international markets.
In the U S or expand your pivotal trial continues to enroll and we expect to have first enrollment in our hernia trial very soon.
Speaker Change: We expect Hugo equipped with advanced digital capabilities to be a meaningful growth driver for us in the years ahead.
Speaker Change: We believe surgeon preference for our open console and modular design, our leading position in minimally invasive surgery and instrumentation are connected digital ecosystem and data enabled insights along with our world class surgical training program and partnerships will meaningfully advance the low penetration.
Speaker Change: <unk> of robotic surgery around the world.
Speaker Change: Now turning to structural heart, we grew high single digits in the quarter, including mid single digits sequentially as we see ongoing adoption of evolute effects, and it's improved design and market leading valve performance.
Speaker Change: In Europe, where FX was was launched for the first full quarter. We grew double digits in Japan grew in the low twenties on the continued adoption of X.
Speaker Change: I'm pleased to share the news today that we have submitted evolute FX plus to the FDA for approval FX plus has three windows in the frame to allow easy coronary access while providing the same dependable valve performance of our evolute platform.
Speaker Change: And we were also pleased to hear that one year trial results of our smart trial will be presented as a late breaker at ACC on April 7th we're excited to see the results and are looking forward to having both FX plus and the smart trial as well as the continued strength of our four year low risk.
Speaker Change: Data as catalysts for our structural heart business.
Speaker Change: Now with that let's go to Karen for a deeper look at our Q3 financial performance and our fiscal 'twenty four guidance raise Karen.
Karen: So looking at our financials, our third quarter was another quarter, where we delivered on our commitments.
Karen: Our revenue grew 4.6% ahead of expectations and adjusted EPS was $1.34 above the midpoint of our guidance range we.
Karen: We attribute the beat to stronger than expected revenue growth and gross margin offset by four cents from greater than anticipated currency impact.
Karen: Primarily from the devaluation in the Argentine peso in December.
Karen: We're delivering durable mid single digit revenue growth and have now for several quarters.
Karen: As Jeff mentioned international markets were an important driver for us our non U S developed markets grew 6%, including 8% growth in Western Europe, and 7% growth in Japan.
Karen: In fact, we had double digit growth in several of our businesses across both of those regions.
Karen: Emerging markets grew 10%, we had high teens growth in the Middle East and Africa, and mid teens growth in South Asia.
Karen: China grew low double digits as some of the V. P. We expect that there continues to be delayed.
Karen: And eastern Europe grow in the low single digits, given Russian sanctions.
Karen: In the last week or 2%, we have several new product approvals that are at the earliest stages of their launches and expect those launches to positively impact our U S growth over the next couple of quarters and beyond.
Karen: Looking down the P&L, we delivered a strong quarter.
Karen: Both our adjusted gross and operating margins were ahead of expectations are.
Karen: Our adjusted gross margin of 66, 1% improved year over year, overcoming a 60 basis point headwind from foreign exchange and continued elevated inflation.
Karen: We attribute the favorability primarily to the delayed China V P and lower freight costs.
Karen: We also continue to see traction from our pricing efforts and an early benefit from our comprehensive Cogs efficiency efforts.
Karen: While our adjusted operating margin of 25.2% declined 70 basis points. It was entirely driven by currency.
Karen: In fact, the operating margin on a constant currency basis was up 160 basis points from improvement in gross margin and strong SG&A leverage as we continue to drive efficiencies across the enterprise.
Karen: Below the operating margin line, our adjusted tax rate was a little higher than anticipated mainly due to the jurisdictional mix of profits.
On the flipside income on our investments was also a little better than expected with higher rates.
Karen: It's worth noting that while our adjusted EPS was flat year over year. It grew eight 5% on a constant currency basis from the leverage we drove down the P&L.
Karen: We also significantly improved our free cash flow and conversion in the quarter.
Speaker Change: Now turning to guidance.
Speaker Change: Given our top and bottom line beat and continued strength in our underlying fundamentals.
Speaker Change: Tell us we're raising our full year revenue and EPS guidance.
Speaker Change: We now expect full year organic revenue growth of four and three quarters to 5%.
Speaker Change: For the fourth quarter, we're expecting organic revenue growth to be in the range of four to four 5%.
Speaker Change: On a comp adjusted basis. This is an acceleration from the third quarter as we continue to ramp our recent product launches.
Speaker Change: With the exit of ventilators that we announced today, we are moving the associated revenue to the other segment starting in the fourth quarter.
Speaker Change: As is the case with all revenue and other we will exclude it from our organic revenue growth.
Speaker Change: And additional details can be found in our third quarter earnings presentation.
Speaker Change: Regarding currency based on recent rates, we would see a full year revenue impact in the range of an unfavorable $15 million to a favorable $35 million, including an unfavorable impact of $70 million to $120 million in the fourth quarter.
Speaker Change: On the bottom line with the beat in the third quarter, we're raising our full year EPS guidance by four cents at the midpoint to a new range of $5 19 to 521.
Speaker Change: I point out that given our durable performance, we've been able to increase this guidance by 15 cents at the midpoint from where we initially started the year.
Speaker Change: For the fourth quarter, we expect adjusted EPS of $1 44 to $1 46 and.
Speaker Change: Regarding currency based on recent rates, we're seeing an unfavorable impact of 7% on full year, EPS, including an unfavorable 5% impact in the fourth quarter.
Speaker Change: Lastly, well, we'll give our fiscal year 'twenty five guidance on our earnings call in May after we finish our planning I want to share our early thoughts.
Speaker Change: You've seen us deliver durable revenue growth for several quarters, and we expect that to continue.
Speaker Change: Down the P&L inflation currency and tax are currently headwinds to earnings growth and we expect to continue to increase our investments in R&D.
That said, we're very focused on driving offsets, where we can and improving the earnings power of the company.
Speaker Change: And regarding the portfolio management decisions, we announced today.
Speaker Change: While the Street's FY 'twenty five numbers didn't yet reflect the potential separation with today's decision, we're able to increase investment in innovation driven growth without near term earnings dilution or an ongoing impact to cash flow all with a focus on optimizing long term shareholder value.
Speaker Change: I want to close by expressing my sincere gratitude to all of our employees for your hard work and unwavering commitment to the Medtronic mission.
Speaker Change: Your dedication was instrumental in achieving our results this quarter and making a difference for so many people around the world. Thank you.
Speaker Change: Jeff turning it back to you to take it home.
Jeff: Thank you.
Jeff: But before I wrap up.
Jeff: I want to note that Tom Holleran passed away last week at the age of 94.
Jeff: Tom provided decades of leadership to our company.
Jeff: First as general counsel that as president and as a director on our board for many many years.
Jeff: In the early sixties, Tom was one of the instrumental people who created our Medtronic mission together with our founder Earl Bakken.
Jeff: Tom was also a significant leader in the twin cities and beyond and served on several company boards.
Jeff: Our thoughts are with Tom's family as they celebrate his life.
Jeff: Now before we go to analyst questions I'll close with a few brief concluding comments on our progress.
Jeff: You've seen now for several quarters in a row that we're delivering on our commitments with durable mid single digit revenue growth.
Jeff: And when you look over the last couple of quarters, we've had a rapid cadence of meaningful innovative product approvals. Many of which are just getting started including EV ICD, both pulse selected a farah and PSA and.
Inceptive for SCS Percept, RC for DBS and of course, our new simpler sinks sensor in diabetes.
Jeff: And we can't forget simplicity for hypertension.
Jeff: When you combine these with our investments to enter surgical robotics, along with the strong execution, we're having in businesses like spine and diabetes. This is what gives us confidence in our ability to continue delivering durable growth.
Jeff: At the same time, we've been sharing with you our efforts to restore the earnings power of the company and we're seeing those efforts begin to show up in our financials.
Jeff: And the comprehensive transformation that we've been working on streamlining our operating model aligning incentives revamping, our capital and portfolio management activities and instilling a performance driven culture well. This is also having an impact.
Jeff: These changes take time, and we're certainly not done, but it's very encouraging to see our progress and where we stand today and equally exciting are the catalyst that that we see coming.
Jeff: Which we believe will lead to significant advancements for patients and value creation for both health care systems around the world and.
Jeff: And our shareholders.
Speaker Change: So with that let's move to Q&A, where we're going to try to get to as many analysts as possible. So we ask that you limit yourself to just one question and only if needed a related follow up.
Speaker Change: If you have additional questions you can reach out to Ryan in the Investor Relations team after the call.
Speaker Change: With that Brad can you. Please give your instructions for asking a question.
Brad: For the sell side analysts that we'd like to ask a question. Please select the participants button and click raise hand.
Brad: If you're using the mobile app pressed them more button and select raise hand your.
Brad: Your lines are currently on mute when called upon you will receive a request to Amit Your line, which you must respond to before asking your question.
Brad: Lastly, please be advised that this Q&A session is being recorded.
Brad: For today's session Geoff Karen and Ryan are joined by Q to Lora, EVP and president of diabetes.
Brad: Marin Arrow, EVP and president of the medical surgical portfolio.
Brad: Sean Salmon, EVP and president of the cardiovascular portfolio, and Brett wall, EVP and president of the neuroscience portfolio.
Brad: We'll pause for a few seconds to assemble the queue.
Larry Biegelsen: Alright, we will take the first question from layer Eagleson at Wells Fargo Baird. Please go ahead.
Lacy Eagleson: Good morning, Thanks for taking the questions and congratulations on another nice quarter in here I wanted to just focus my one question on the fiscal 2025 comments.
Eagleson: And Karen you talked about durable growth.
Eagleson: Should we think about that as mid single digit organic growth and just help us I think there'll be some concerns about what we're seeing in the afib business.
Eagleson: Given the low double digit decline in the U S. What are the.
Eagleson: Puts and takes to consider there and on earnings Karen can you quantify those headwinds inflation tax and FX in fiscal 'twenty by the consensus is at about 5%.
Speaker Change: Comfortable with consensus EPS growth. Thank you for taking the question.
Karen: Well first of all thanks for the question questions Larry.
Speaker Change: Maybe I'll start with the the cast one and and then Karen maybe Shawn and I will take the Afib, one and then Karen can talk about the the.
Speaker Change: FY 'twenty five questions, so I'm going to phone a friend tap Sean here in a second here, but on but on our Afib business.
Speaker Change: We are confident in the investments that we made that are that are going to bear fruit here. Yet you haven't we haven't seen that translate into financials, yet, but theres lots of leading indicators here that we're seeing that give us that give us confidence both in well one in in continued.
Yeah I think.
Speaker Change: Stronger performance than than people might think and cryo, but.
Importantly in PSA for both pulse select organic program and then a farah, but Sean do you want to comment on this little more specifically for Larry Yeah sure Jeff's solar in the U S. What we have experienced was the first time ever our competitor and acquire segment. So we had 100% market share we have better ramp up their production, we felt that in the fourth quarter.
Sean Salmon: I think there's also some some interest patient for some new products for Washington, Clayton Nitron causal a refresh of our capital equipment for our cryo.
Speaker Change: Of course, the pulse select which just started this launch knives test after the quarter close.
Speaker Change: Very very well the feedback has been exceptional doing well in the United States to all outside the United States and I think those catalysts of growth of pulse filled.
Speaker Change: For both the pulse swept that's the single shot technology as well as our point by point ablation is driving a lot of enthusiasm so I'm not going to see a return to growth and into next year, we'll really feel the full force of those launches.
Speaker Change: So.
Speaker Change: It's a step back certainly in the United States to be 11% growth worldwide.
Speaker Change: Our outside United States, I should say is giving us a lot of confidence this is our.
Speaker Change: Our pipeline, that's poised to return us to growth in that segment.
Speaker Change: Thanks, Sean.
Sean Salmon: And on FY 'twenty five Larry I would just start with the fact that we're really pleased with our performance through these last several quarters in Q3 was another solid quarter, our fifth consecutive quarter of solid mid single digits and I would point out that we drove that mid single digit growth this quarter off of mid single digit comps last.
Here and that's what we expect to continue into FY 'twenty five you know we've been working through our planning process and we expect to wrap that up.
Larry Biegelsen: In advance of our Q4 earnings call. So we'll give our guidance in may.
Larry Biegelsen: And I'm not ready to give you real specifics, but from a high level. We've had no major changes to the puts and takes for next year that we discussed on our earnings call in Q2.
Larry Biegelsen: And we're focused on obviously setting up guidance that that sets us up for success prioritizes innovation and allows us to deliver on our commitments.
Larry Biegelsen: But just just on margins and down the P&L.
Larry Biegelsen: There are puts and takes we've got inflation that stabilizing a bit but it's still higher than historical currency is always dynamic but at recent rates. We are facing a decent headwind from FX and and we'll just have to see how that shakes out.
Larry Biegelsen: Global tax reform is likely to be a headwind.
Larry Biegelsen: But as always we're focused on driving offsets where we can.
Larry Biegelsen: And as you know we've made we've made good and real progress on our Cogs cost out work and that started with centralizing, our global ops and supply chain and and <unk>.
Larry Biegelsen: Focusing those teams on putting in place tangible programs that we now have in place to.
Larry Biegelsen: To drive that cost out work.
Larry Biegelsen: And always you know, we're continuing to focus on driving pricing as an important lever, we built a new muscle around pricing and we're just making it stronger and stronger.
Larry Biegelsen: And then you know we're always focused on controlling expenses, we've got and in a discipline on our largest driver of our expense, which is our head count and we expect that to continue so really no major changes from from what we laid out last quarter.
Speaker Change: Pretty much.
Speaker Change: Okay.
Speaker Change: Thanks, Larry and I'll remind the analysts please stick to one question and a related follow up if needed Brad can we take the next question. Please.
Speaker Change: The next question comes from Robbie Marcus of Jpmorgan Robbie. Please go ahead.
Robbie Marcus: Oh, great. Thanks, and good morning, everyone I wanted to ask on the patient monitoring business. The original intent was to try and sell it or spin. It you know keeping it in exiting the ventilator business, just maybe walk us through the thought process what happened in the market and why this is the best outcome from Medtronic.
Robbie Marcus: Thanks.
Speaker Change: Sure I'll take that one Robby.
Speaker Change: So a couple of things I'll start with a couple of things have changed and I'll start with what we have we do have strong conviction and driving a.
Robby: Profitable category leadership.
Robby: In this what we're calling acute care and monitoring business.
Robby: And then in a couple of dynamics of change and just to remind the monitoring component. The patient monitoring component is the biggest part of the of this of that of those businesses that we intended to to spin.
Robby: I think the biggest thing that changes are.
Robby: Two things and our improved competitive positioning.
Robby: You know is in our monitoring business in particular.
Robby: Changed over the last year, you know as we are working on the process, we continue to run the business.
Robby: And it performed well and the competitive dynamics versus our main competitor Massimo changed significantly.
Robby: For the positive for us and we believe.
Robby: That we can ensure that that change is durable with the increased investment and we.
Robby: We found a way to make that increased investment which leads to.
Robby: The decision to wind down the Vince business, it's a very difficult decision, but the the business became increasingly unprofitable throughout the last year.
Robby: Yeah, the growth slowed even more.
Robby: And the dynamics within the <unk> segment are changing now moving to lower acuity of ventilators and are are kind of I'd say unique and worthy contributions are more in the higher acuity hospital basin, and so with that market changing and are becoming increasingly profitable our decision to wind that down.
Robby: The oxygen the investment if you will that we can fund the monitoring side of the equation here.
Robby: And ensure that this are our competitive positioning versus Massimo.
Robby: If we can if we feel like we can extend it in another dynamic.
Robby: That has emerged as the use of data and the importance of data in this space and that's been changing and becoming increasing and actually I'd say, it's the basis for innovation and our confidence in taking that data and translating that into meaningful.
Robby: Iteration.
Robby: <unk> iterations as well as disruption over time is pretty is pretty high given what we've been able to do with with AI and other parts of the company.
Robby: And so you add all this together and I'd, probably say that the last thing I'll make a comment on us as a company more broadly we continue to prioritize profitable growth and category leadership and when you take all these factors together.
Robby: We believe we're able to provide increased investment for this acute care monitoring business or were calling at ACM now using the savings from brands and also bringing the two there. These were two separate businesses or respiratory intervention business with ventilators in it in our mining business, bringing them together at the leadership level also creates some savings and then we can find that the incrementals.
Robby: Investment needed for the monitoring business, all without dilution to our P&L.
Speaker Change: The last thing I want to say is.
Speaker Change: This was a difficult decision and.
It doesn't take anything away from our employees, who play such a pivotal role during COVID-19 and driving ventilator innovation in responding to the global needs are during the Covid pandemic and I also want to give a nod to the gist.
Speaker Change: The.
Speaker Change: The legacy of the Puritan Bennett brand, which has been so strong in and we're proud of the lids. The rich legacy of this business and Puritan Bennett ventilators in.
Speaker Change: This decision has not been easy and you know last thing I'll say is this does not mean that.
Speaker Change: We're going to shy away from additional portfolio moves so don't read anything into that.
Speaker Change: But the bar is high.
Speaker Change: For any strategic activity, that's going to dilute our focus.
Speaker Change: Or our earnings.
Speaker Change: Okay. Thank you Robby will take the next question is breadth.
The next question comes from John Lynch Citi Joanne. Please go ahead.
Speaker Change: Yeah.
John Lynch: Good morning, and thank you for taking the question. There are a lot of products that I can ask them out so I'm just going to throw a couple of headline wins out there diabetes. Congratulations on a return to U S growth is there a way to peel that apart a little bit on new accounts or new patients versus renewals and I guess my second question.
John Lynch: It has to do with Hugo and if you can give us a little bit of a state of an update on how that responses are going outside the United States. Thanks.
Speaker Change: Well thanks Joanne for the question you know obviously, we're we've been working this.
Speaker Change: Diabetes turnaround for some time and it hasn't been a stir.
Speaker Change: Straight line, but we definitely have some momentum here on seven atg that platform and just our capabilities here.
Speaker Change: To use the data like I was talking about the patient parking business here as well.
Q: To create algorithms that really are differentiated and drive differentiated outcomes for patients and that's playing out globally and now in the United States. So I'll queue, maybe Q. If you can come in and answer Joanne <unk> to get that clinical Peel it apart a little bit more for Joanne I'd appreciate it.
Speaker Change: Yes.
Q: We're very pleased with the progress that we've made every quarter since <unk>.
Speaker Change: <unk> launched and we are seeing new patients.
Speaker Change: Significantly as well as Nino supply.
Q: Progressing very well.
Q: Okay, we'll take time to rebuild and so basically you can see with the pump growth that we saw in the U S.
Q: 40 high.
Q: The high 40, <unk> year over year.
Q: That can be followed by consumables in CGM glad as well. So we expect to continue to make progress every quarter.
Q: But pretty pleased with how the market reacted chain cutting production.
Q: Okay. Thanks, Q, Mike Bernero can you jumping on Hugo here.
Mike Bernero: Yeah. Thanks Joanne for the question. So we are we continue to see very good progress with Hugo outside the United States.
Mike Bernero: With an expansion of installations in countries around the globe. In fact, we entered into two new sub regions and in central and Eastern Europe.
Speaker Change: And are continuing to see very good response to the things we've talked about previously so the open console, the very crisp visualization and increasingly <unk>.
Speaker Change: Very good feedback around our touch surgery enterprise platform, which on its own continue to expand and had a very good quarter with installations.
Speaker Change: Both with Hugo and in a broader surgical business is also as Jeff noted during the commentary we continued very good progress with our expand Euro IV E. Here in the U S and are preparing for our first patient enrollment in the hernia.
Speaker Change: So in total a good reception sharpening sort of appreciation for the features of Hugo I think on an emergence of the digital ecosystem and an appreciation for that as well.
Speaker Change: Yes, I'd say Julian on this one thanks, Mike first of all and I'd say on this one.
Speaker Change:
Speaker Change: In the robotic system.
Julian: And the features are differentiated and has been and been well received but it's broader than that as Mike pointed out I mean, it's it's about the digital platform that comes with it then.
Julian: As well as the instrumentation as we transition.
Julian: Instrumentation, and our laparoscopic business onto the robot, particularly stapling and energy in all of these moves.
Julian: Build momentum both cook capabilities momentum over time, and what we're seeing we saw that play out in the spine business you know we bought resort in it.
Julian: Wasn't an overnight change you saw our last couple of quarters have been.
Julian: But it took the integration of these things you know Ms or with our navigation and imaging and then getting these AI guided surgical planning systems all of these things coming together.
Every quarter more progress have built the ecosystem. We have today, that's really driving that not just the growth for medtronic, but the growth for the spine industry right now.
Julian: And we expect to do the same thing in soft tissue surgery.
Julian: Okay. Thank you Joanne we'll take the next question please Brad.
Julian: The next question comes from Travis Steed of Bank of America Travis. Please go ahead.
Travis Steed: Hey, Thanks for taking the question can you hear me okay.
Travis Steed: Yeah, Hey, Travis how you doing good.
Travis Steed: First if you could talk a little bit more on the gross margin productivity some of the things Youre driving there and can you still get the kind of two to three X annual cost savings on the gross margin line and last month.
Travis Steed: The Investor Conference you talked a lot about leverage EPS growth I'm curious if that's a comment that it applies to FY 'twenty five or if that was more of a longer term comment.
Speaker Change: Sure, let me I'll start off and transition of Karen on the gross margin.
Speaker Change: Couple of things that I'd point out one is pricing Karen talked about that I do think what we're seeing here is a lot of innovation in the in the industry.
Speaker Change: And in a lot at Medtronic and this innovation, we're finding is valued it drives value in the health system.
Speaker Change: And I think we've gotten better at showing the health economics of of the of the innovation that applies from the innovation. In addition to the clinical value I think in the past we were pretty index on clinical value and more recently, we keep that focus and then add the health economics, and it's getting paid for.
Speaker Change: And we're I.
Speaker Change: I think.
Speaker Change: Doing a better job of making those making those points and getting that pricing and I do think it's durable. So the pricing has increased I'd say for the company overall 200 basis points or so relative to the past and I think we're going to keep pushing for even more.
Speaker Change: On the converse if you don't have the innovation be prepared for that as well because I think hospitals, who have gotten more sophisticated in their purchasing and.
Speaker Change: You know your pricing is going to pay for for that if you if you're not keeping up with the innovation, but given where we are on the product cycles.
Speaker Change: Given this pricing muscle, we feel good about that be incremental.
Speaker Change: To the historical baseline the other you asked for about as cost of goods sold productivity and the answer the short answer. Your question is yes, we do think it's sustainable we've got lots of opportunity here can you think about it we have there's pretty big footprint of factories and distribution centers and with too many suppliers I've said in the past now with Greg Smith coming in a couple of years ago.
Speaker Change: And we've centralized that we can take a strategic look across that portfolio.
Speaker Change: And we have a long list of cost.
Speaker Change: Cost down programs.
Speaker Change: And then we've ensured that we've effectively contracted those between our global operations supply chain team and our operating units because it takes released product engineering to make sure that these these thank these cost programs could happen that are in our operating units. So we.
Speaker Change: We feel good about that and we feel that that's sustainable. So those are two big changes that impact.
Speaker Change: Positively our gross margins.
Speaker Change: Now and into the future and speaking in the future I'll turn it over to Karen to talk about your FY 'twenty five leverage question. Yeah. So just on all other add on gross margins to you know we're pleased with our performance that we had this quarter and.
Karen: We overcame in a 60 basis point headwind from FX and continued inflationary pressures and a lot of that was driven by strong pricing, which Jeff talked about and we also did have some continued delays and China V B piece.
Karen: And aortic and peripheral vascular and stapling and those b b piece could be coming through this coming fourth quarter of this current fourth quarter.
Karen: And potentially into next year. So that's just something going on in gross margins.
Karen: As we talk as we think about leverage down the P&L clearly we're focused on on driving leverage.
Karen: And I think we talked about it last quarter Travis.
Karen: Clear Leverages, where you bottom line grows faster than your top line.
Karen: We're focused on getting there eventually and we're not ready to talk about that for FY 'twenty five its still too early for a planning guidance that ive already pointed out in a lots of different puts and takes for next year, Yeah I can sense it.
Karen: Rising on the gross margin side pricing caskets on productivity a lot of focus there Karen mentioned earlier on the call about discipline around our G&A.
Karen: Our people are the number one driver of our cost there and so we've put up.
Karen: A discipline in there that were holding too and then finally, just setting up the portfolio for profitable growth in the the decision on with the changing dynamics decision to hold our monitoring business because of the confidence in the profitable growth.
Karen: As evidence of that is setting up the portfolio the right way so.
Speaker Change: I'll leave it there on the focus of AWN on recovering the earnings power of the company and will provide more details on that FY 'twenty five next quarter.
Speaker Change: Thank you Travis next question Brad.
Speaker Change: The next question comes from Vijay Kumar of Evercore ISI Vijay. Please go ahead.
Vijay Muniyappa Kumar: Hi, guys. Thanks for taking my question and Jeff Good morning to you.
Vijay Muniyappa Kumar: I guess one on the earnings question here.
Vijay Muniyappa Kumar: I look at your peers.
Vijay Muniyappa Kumar: Their earnings have grown versus our fiscal lumpy in 2019 pre pandemic levels Medtronic earnings have essentially been flattish.
Vijay Muniyappa Kumar: Ken Medtronic commit to.
Vijay Muniyappa Kumar: You know, perhaps about trend earnings growth over the medium term as you play catch up similar to what your peers have done.
Vijay Muniyappa Kumar: I think related to that Jeff in the past you've mentioned about 400 million drag from investments in Rd, and Hugo where are we on those investments are they are they are still a drag when can those be profitable to the business.
Speaker Change: Thanks, Vijay for the questions.
Jeff: I'll start with the latter question on Ardian and Hugo.
Jeff: And.
Jeff: But karen handle the earnings growth ones in further comment on the Rd, and Hugo I'd say on look Hugo.
Jeff: The way, we're looking at Hugo as a part of our broader surgical franchise and important part of that.
Jeff: And it needs investment.
Jeff: And.
Jeff: It is a it is if you look at Hugo specifically it is taking a meaningful amount of investment to keep it going here.
Jeff: We've reached our love of the milestone that we're at now in terms of a robot that's out there that's performing well and has got great features that are valued by physicians globally. The feedback has been strong, but we still got more work to do we've got to get our instruments are on there. We've got a complete the U S trial, we've got to continue to build out a U S. Yeah. Okay.
Jeff: Equipment U S sales force. So this is a this is a tall order, but the our confidence in executing there is high.
Jeff: And it is important to this this huge business, our surgical business, which is our biggest business.
Jeff: It drives a lot of profit and cash flow and I say, our confidence is high and they were up against a strong competitor and intuitive.
Jeff: But we.
Jeff: We like our competitive positioning overall and especially against the other.
Jeff: Potential a.
Jeff: Robotic companies, they're in and the dynamics of this market. We think you know our.
Jeff: Play in our favor.
Jeff: So there is investment there.
Already and by the way, we're really trying to call. It simplicity now we gotta get.
Jeff: Well get ready for some consumer education on this hypertension therapy.
Jeff: So we're trying to get rid of the the Rd and term as much as possible. So we got a swear jar going on around here on that one but on hypertension. This one we believe will start to show.
Jeff: Some some some profits here so it's much less of a.
Jeff: Of a drag and we hope to in.
Jeff: In the next couple of quarters and in the medium term this to generate not just revenue, but income it's a highly profitable product line for us with high gross margins and it'll be a positive to our overall mix and like I said you know Hugo is.
Jeff: It's going to take investment, but this one I think will provide oxygen not in the next quarter or two but over the medium term here. So I'll leave it there and turn it over to Karen Yeah, and I would just say on the on earnings.
Karen: We've made good progress on driving the earnings power of the company just in this year.
Karen: Notice that we've been able to increase our guidance on the bottom line by 15 cents at the midpoint from where we initially started the year and that's driven by the strong track record that we've that we've drove that we've driven in the last the first three quarters of this year.
Karen: And we do expect that to continue.
Karen: Over the medium and long term, we are committed to the REIT earnings growth.
Speaker Change: There's no there's no debate about that.
And we're focused on overcoming the headwinds that we've got.
Speaker Change: Over that timeframe and delivering on that growth.
Speaker Change: Okay. Thanks Vijay.
Speaker Change: Probably have time for two more questions Brad sure.
Speaker Change: The next question goes to Matt Mexican Barclays. Matt. Please go ahead.
Matt: Alright, thanks, so much.
Matt: Can you hear me okay.
Matt: Yes, we can now.
Matt: Great. Thank you.
Matt: So maybe just a follow up here on on some of the some of the products that you mentioned recently approved in <unk>.
Matt: Some of the products that you hope to see approved.
Matt: Coming quarters, and I'm thinking of like Aurora and.
Matt: Both select and maybe some additions to the U S approved products in diabetes.
Matt: I know, Sean mentioned sort of the.
Matt: Rough trajectory for AF ablation, but maybe.
Matt: On that business for example.
Matt: Any additional color around the cadence is there something that we start to see a group in the fourth quarter or is it sort of like early to mid 'twenty five.
Matt: Kind of kind of process and some of the same commentary for sort of cadence and trajectory in Aurora and for example.
Matt: Maybe the diabetes business would be super helpful. Thanks.
Matt: Sure.
Speaker Change: So maybe I'll start with was Sean before I turn it over Sean.
Speaker Change: Put it out in the commentary.
Speaker Change: You know all the puts and takes in the.
Sean Salmon: The our ablation business, we called cardiac ablation solutions, our <unk> business, we do see an acceleration.
Sean Salmon: In this business and even in the fourth quarter here, so, but I'll turn over to Sean to talk about Afib.
Sean Salmon: <unk> and Aurora.
Sean Salmon: Yeah. Thanks, Jeff.
The trajectory is obviously going to be upward for both EV ICD as well as the cash business in total.
Sean Salmon: As you're launching new technologies or some training that you have to do to make sure that the physicians are comfortable with.
Sean Salmon: Use of the products and that's of course, something we're very deliberate about to make sure that theres a good patient outcome.
Sean Salmon: Subsequent technology and that's not something we do.
Sean Salmon: Pretty frequently in our our business. So we're really really good at it and the feedback has been excellent the procedure efficiency on.
Sean Salmon: Pulse electro spend now we're getting this these cases done in like a half an hour.
Sean Salmon: And the acceptance on Aurora has been exceptional to so as I said I think it's the same story for both those technologies where.
Sean Salmon: You push growth now but into next year, we'll have the full impact of these innovations.
Speaker Change: Do you want to add color on diabetes.
Speaker Change: Yes look.
Speaker Change: We continue to push the pipeline in diabetes.
Speaker Change: Hunting with Sinclair are placed with Seamark loss September followed by <unk>.
Speaker Change: Recently approved that we announced at J P. Morgan.
Speaker Change: And we completed our clinical cost for <unk>, which completely rethinking the U S, which we expect to submit in this.
First off the calendar year, so that's the cadence that you.
Speaker Change: You should expect and as Jeff mentioned in his opening comments, we have next generation products that we discussed at Ada last year that we continue to make progress on and the question for the Navy to get next generation turbine pumps and patch pumps out to the market.
Speaker Change: Okay.
Speaker Change: Yeah. Thanks, Keith Thank you thanks, Sean.
Speaker Change: Thanks, Matt.
Speaker Change: Apologize for the analysts that we werent able to get to we have time for one more breadth.
The final question comes from Anthony Petrone Mizuho Securities Anthony. Please go ahead.
Anthony Charles Petrone: Thanks can you hear me okay.
Anthony Charles Petrone: Yes, we can.
Anthony Charles Petrone: Okay, Great, Yes, Anthony we can hear you.
Anthony Charles Petrone: One condolences on the passing of Tom to the team and his family and maybe one just going to structural heart, maybe just to set up on the Smart study quick two part question. One was that ahead of schedule was it expect it to be at TCT. Instead of ACC. So was the late breaker getting approved.
Anthony Charles Petrone: Surprise and then maybe just high level, how do you think that study will play out once we have the results. It is head to head and <unk> and high risks symptomatic severe so just thoughts on how you think that data.
Anthony Charles Petrone: As received once it's out there post ACC it at that session in the coming weeks. Thanks.
Anthony Charles Petrone: Yeah.
Speaker Change: Well, Thanks first of all Anthony Thanks for the comment on Tom a holler on Israel legend around here.
Speaker Change: And just a great guy so we're going to miss him.
Speaker Change: On structural heart.
Two comments before I turn it over to Sean first I really applaud the business.
Speaker Change: Further evidence generation in total I'm on it just did our low risk data.
Speaker Change: And we publish it.
Speaker Change: Every year not.
Not just when it's convenient.
Sean Salmon: And then they had the courage to do a head to head which is not.
Sean Salmon: Something that's often done in our space.
Sean Salmon: And so I can tell you that I for one.
Sean Salmon: Love that just the commitment to data and the competitiveness to go head to head and I'm very much looking forward to the results.
Sean Salmon: That are going to come out in early April at ACC, but in terms of the specifics of what you're asking on how it might play out I'll turn that over to Sean.
Sean Salmon: Yes. Thanks.
Sean Salmon: Yes.
Sean Salmon: <unk> of enrollment happened in October of 'twenty two.
Sean Salmon: So thats, a 12 month endpoints of the study and that pushes you really out of the window for TCT. So I think we're on schedule I would say I'm pleased to have been accepted as a late breaker at ACC.
Sean Salmon: But that's that's really as expect life sack in terms of the trial itself now be received.
Sean Salmon: That's right the momentum that we have on data from the notion 10 year data, that's low risk patients out 10 years, showing superior durability of our valves compared to surgical implants, and then our four year low risk study with <unk>.
Sean Salmon: Hard endpoint benefits and a widening benefit on.
Sean Salmon: Serious outcomes like mortality and disabling stroke.
Sean Salmon: Of course going head to head in a really important patient population dose with a small annulus. We've we said that's about 40% of the global market.
Sean Salmon: Really prevalent among women and within smaller patient populations like in Japan. For example, so that's I think it's really important and compelling data so one year outcome, which portends long term outcomes.
Sean Salmon: And I think.
Sean Salmon: <unk> for the reception of those results.
Sean Salmon: And we do think that that's a catalyst for growth for us with our really unique position in that particular subset of patients, which is a big chunk of the market at 40%.
Speaker Change: Okay. Thanks, Sean.
Speaker Change: So just to wrap it up here.
Speaker Change: One final comment.
Speaker Change: On the.
Speaker Change: The ventilation that the the monitoring and ventilation decisions as a result of these portfolio decisions.
Speaker Change: Bob White will be leaving Medtronic and he has been just such an impactful and important leader for the company for a long time and although the friendship will remain strong we are definitely going to Miss working with him day to day and I want to wish him I want to wish him well and I know that comes from the board of directors and the Executive Committee and everybody at Medtronic.
Speaker Change: Interacted with Bob just a high ethical leader and just a good guy and we wish him well.
Speaker Change:
And in terms of and so for in terms of today just want to thank everybody for the questions.
Speaker Change: Definitely appreciate your support and continued interest in Medtronic and.
Speaker Change: We hope you'll join US again for our Q4 earnings broadcast, which we anticipate holding on Thursday may 23rd and again, we'll update you on our progress and how we finished the fiscal year, but also look ahead to our fiscal 'twenty five so with that thanks for spending time with us today and have a great rest of your day.
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