Q1 2020 Earnings Call
After the speakers remarks, there will be a question and answer session.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If you would like to withdraw your question Bryce and key I would now like to turn the conference over to Ryan Weispfenning, Vice President Investor Relations, Sir you may begin.
Thank you good morning, and welcome to Medtronics fiscal year, 2021st quarter conference call and webcast.
During the next hour Omar Ishrak, Medtronic, Chairman and Chief Executive Officer, and Karen Parkhill, Medtronic, Chief Financial Officer will provide comments on the results of our first quarter, which ended on July 26, 2019. After our prepared remarks, we'll be happy to take your questions.
First a few logistical comments earlier. This morning, we issued a press release containing our financial statements into revenue by Division summary.
We also issued an earnings presentation that provides additional details on our performance and outlook.
During today's earnings call. Many of the statements made may be considered forward looking statements and actual results may differ materially from those projected in any forward looking statement.
Additional information concerning factors that could cause actual results to differ is contained in our periodic reports and other filings that we make with the SEC.
And we do not undertake to update any forward looking statement.
For this call unless we say otherwise rates and ranges are given on a constant currency basis, which compares to the first quarter fiscal year 2019, after adjusting for foreign currency.
References to organic revenue growth, excluding the impact of material acquisitions and currency.
Reconciliations of these and all non-GAAP financial measures can be found in the attachment to our earnings press release or on our website at Investor Relations stopped Medtronic dotcom.
Finally, our EPS guidance does not include any charges or gains that would be reported as non-GAAP adjustments to earnings during the fiscal year.
With that I'm now pleased to turn the call over to Medtronic, Chairman and Chief Executive Officer, Omar Ishrak Omar.
Thank you Ryan and thank you to everyone for joining us this morning.
<unk> solid quarterly results and we're off to a good start to the fiscal year.
Despite tough comparisons we delivered revenue growth operating margin on EPA is all ahead of street expectations.
Q1 revenue grew 3.5% constant currency with on performances in CVG, MTG and or TG, one diabetes matched our expectations. This reflects the success in the market to find innovation and the benefit of our business and geographic diversification.
Our adjusted operating margin expanded 90 basis points, including currency and 70 basis points constant currency as we continue to see the benefits of our enterprise excellence initiatives, particularly on the Austrian Airlines.
On the bottom line, we grew diluted dps, 7.7% or 9.4% constant currency. Despite a 230 basis point headwind on EPS growth from the increase in our non-GAAP nominal tax rate.
This is because some of the more important drivers of our performance starting with our minimally invasive therapies group, which delivered another strong quarter since your boss to our expectations growing 4.8%.
Through diversifying our sterilization supply network, we overcame the challenges related to its suppliers sterilization facility shut down in February returning to full sterilization capacity during the quarter.
In surgical interventions advanced Stapling grew mid single digits and advanced energy high single digits. This was driven by new innovations and our tri staple and Lucretia franchises, including our new E circular steeper mispriced people technology, I know Luke you're sure exactly sector.
Respiratory G.I. Unreal also had a strong quarter led by double digit growth in judge solutions, a mid single digit growth in respiratory and patient monitoring.
In CVG, we grew 1.4%, which was ahead of our expectations see reuse growth continues to be tempered by challenges in drug coated balloons.
Overheads.
As well as CRM replacement devices, given the longer life batteries, we launched several years ago.
Regarding DC bead, we're encouraged by our better than expected performance I don't case volume increased following the FDA panel in June .
We were also encouraged by the ball forward offline by the FDA and then let turn to physicians who earlier this month.
And she already true are beefing business is strong growing 5% as our disruptive innovation the micro single chamber across catheter ablation system is taking share and expanding the mark.
Are you a single chamber peacemaker share is now over 65% with a revenue share over 80%.
However, we saw both the market and our growth accelerate to the mid teens in Q1 on the back of the low risk data presentations at HCC.
CMS published the final diver Mcd memo in June and we expect this will result in approximately 200, new delver centers in the us.
We're already in active negotiations with about half of these centers, which are ready to start as we aim to become their preferred partner Interbody devices.
In CVG. It is also worth noting that double digit growth contributions from our Valiant Navion Karasik stent graft.
Our venous closure system.
And also our directs absorbable antibacterial envelope, which continued to accelerate both are up a data presentation that HCC.
In addition, we'll review Lincoln suitable cardiac monitor and Arctic front Cryoablation products grew in the high single digits.
In diabetes, we grew 5.4%.
And this was despite our U.S. business declining mid single digits because of competitive challenges and the difficult comparisons versus the prior year when our U.S. business grew 23% our international business, which represents approximately half of our diabetes revenue grew 20%.
The mini Mensik seven to G, which drove strong growth in the U.S. last year no experiencing that same strong consumer demand internationally as we launch into new markets.
We now have approximately 200000 people using the 670 g.'s system globally.
In addition, we experienced strong adoption.
Off the Guardian connect smart CGM system, which grew in the high Eightys.
In order to G., we had another strong quarter growing 4.6% as we successfully offset declines in our pain therapies business.
Our brain business continues to deliver exceptional results.
Growing 11.4% with strength in both neurovascular and neurosurgery.
Neurovascular, we grew in the mid teens.
Our market leading share improving through the strong adoption of our recently launched solitaire extent retriever as well as our riptide aspiration system and react to catheters.
Neurosurgery, our capital equipment sales continued to be robust.
This is led by our Ms Orix so.
Navigated robotic system.
Which not only is meaningfully outpacing the competition.
What is also resulting in strong pull through.
Well for other market, leading a differentiated capital equipment.
Sales of parks Constitution navigation system grew over 20% this quarter.
And are all arm surgical imaging system grew close to 30%.
In the Q1 organic spine revenue growth was the highest in nine quarters.
In addition, when you combine our spine division sales with the sales of our capital equipment from a brain therapies division used in spine surgery.
Our spine division grew 4.7% with our U.S spine business growing at 6%.
This is how our competitors report.
It represents a strong indication that our strategy of offering or enabling capital equipment with our spine implants is working.
As we are growing well above the spine market growth.
Now turning to emerging markets, which represent 16% of our revenue.
We continue to drive strong growth in these markets as we optimize the distribution channel and in some markets localized R&D and manufacturing.
In Q1, we grew emerging markets, 12% with strength coming from markets around the globe.
China grew 11% eastern Europe , 23%, including 28% growth in Russia.
And the Middle East and Africa grew 15%.
In addition, South Asia grew 13% Southeast Asia at 12% and Latin America grew 9%.
Our strategy of emerging market diversification around the world is working as evidenced by our consistent delivery of double digit growth every quarter overcoming economic cycles over the years in the different countries.
As a result of this quarter's outperformance and confidence in our outlook, we raised EPS guidance. This morning.
Q1 was clearly a good quarter, despite several headwinds and otherwise tough comparisons.
As we look forward, we're even more excited about what lies ahead as we expect investments we've made in our pipeline to begin to pay off with multiple pipeline customers accelerating revenue growth and value creation for our shareholders.
In CVG upcoming launches included cover low risk indication, which has just received last week.
Our next generation of new pro plus cover about I know DCB fistula indication.
CVG also at silver launches coming up in CRH.
Including the review link 2.2, inscrutable cardiac monitor the diamond.
Ablation system in Europe , and our micro Avi pacemaker.
And then my TG, we're excited to host analysts and Hartford next month, that's one of the world's leading robotics centers with the analysts would experience in robotic assisted surgical procedures that as part of our development and clinical testing process using our soft tissue robotic system.
In our DG, we're launching the Midas Rex a moderate growth platform this quarter and continued to advance our bovie killed the pipeline having started the regulatory approval process.
For interest in two of them are recharge free system.
And our interest in micro within MRI, which is preseason volume recharger.
We expect to launch both of these products next spring.
In addition, we have next generation products, and neurovascular and spinal cord stimulation all of which are launching or preparing to launch in the next couple of quarters.
In diabetes, we have submitted our non adjunctive labeling application to the FDA and we are preparing for the launch of the minimum seven HPG, our advanced hybrid closed loop system with Bluetooth connectivity in the second half of this fiscal year.
We're also making good progress on our pivotal trial preserves our next generation I CGM sensor that would reduce fingersticks by 95%.
Therefore, several more product launches to preparing for across the company I won't cover them all today.
But I will say that we were making great progress across the portfolio as we keep you updated as we progress through this fiscal year and I'll leave you with what I noted last quarter that we expect our growth rate to accelerate over the course of her appointment.
With the second half growing faster than the first as we anniversary recent headwinds and bring multiple new products to market over the next several quarters.
Moreover, we expect our topline momentum to build and appointed a new one with each of our four groups, having the potential to accelerate revenue growth next fiscal year as we get the increasing benefit of Fytwenty product launches.
As well as the benefit from the products slated to launch in that slide 21.
Let me now lost Karen to take you through a discussion of our first quarter financials Karen.
Thank you.
As Omar mentioned, we delivered first quarter revenue growth of 3.5%.
And adjusted EPS was $1.26 growing 7.7%.
While we came in eight cents above the midpoint of our guidance.
It's worth noting that two cents resulted from better than expected FX, which at current rates will give back over the balance of the year.
The other six cents was operational outperformance, including better than expected revenue and operating margin expansion and a modest benefit from tax.
Our adjusted operating margin was 28.2%.
Reflecting improvement of 90 basis points with currency or 70 basis points constant currency.
We delivered a very strong improvement in EPS DNA as we continue to implement and drive efficiencies and improvements across the company under our enterprise Excellence program.
In addition, we are seeing the benefits of the recent inclusion of operating margin as a component of our annual incentive plans across our groups and regions, which is driving increased focus on this important metric across the organization.
In the first quarter, we successfully executed a 5 billion euro debt offering.
And use the proceeds to reduce U.S. dollar denominated debt.
This followed the similar 7 billion Euro transaction, we executed in the fourth quarter. The combined 12 billion Euro issuances carry a weighted average coupon of less than 1%.
The result of the combined fourth and first quarter transaction is an annualized reduction to our net interest expense of over $300 million.
Savings that will benefit Medtronic for years to come.
Our adjusted nominal tax rate was 15.1% lower than expected due to the increased benefits associated with the finalization of taxes owed on certain returns and changes and operational results by jurisdiction.
Generating strong free cash flow remains a priority across the company.
First quarter free cash flow was $1.2 billion.
We continue to target an 80% conversion rate above our peer average over our long range plan.
We remain committed to disciplined capital deployment balancing investment in R&D and tuck in acquisitions with returning a minimum of 50% of our annual free cash flow to our shareholders in the form of dividends and net share repurchases.
In the first quarter, we returned over $800 million or 70% of the cash we generated.
Resulting in a total shareholder payout of 50% on adjusted net earnings.
We also increased our dividend by 8% in June making this our 42nd consecutive year delivering a dividend increase.
In fact, our dividend has grown by 77% over the past five years.
Before turning the call back to Omar I would like to update our annual revenue growth and EPS guidance.
For the fiscal year, we continue to expect organic revenue growth to be approximately 4%.
While the impact of currency as fluid if recent exchange rates hold foreign currency would have a negative impact on full year revenue growth of approximately 80 to 120 basis points.
Looking at annual organic growth by group, we now expect CVG to grow 2.5%, a 50 basis point increase from our prior expectation of 2% plus or minus.
For our TG, we continue to expect growth of 4% to 4.5%.
And for diabetes, we're comfortable at the lower end of our 6% to 8% range.
Finally for mid Jay we now expect growth of 5% an increase versus our prior expectation of 4.5% to 5%.
We expect our second quarter organic revenue growth to look similar to the first quarter with currency, having a negative impact of 70 to 130 basis points at recent rates.
By group, we expect organic growth in CVG, an opportunity to look similar to the first quarter.
For diabetes to grow low single digits, as we await new product launches.
And for mid to growth to accelerate to five and a half to five and three quarters percent driven by new products.
And as I noted last quarter, we continue to expect our total company organic revenue growth to accelerate north of 4% in the second half of the fiscal year.
Turning to margins, we continue to expect operating margin expansion and the full fiscal year of approximately 40 basis points on a constant currency basis.
Driven by our Enterprise Excellence initiative.
For the second quarter, we would expect a more modest improvement in operating margin offset by a slight currency headwind as we invest ahead of multiple new product launches.
Given our recent euro debt offerings that I mentioned earlier, we expect our non-GAAP interest expense to be in the range of $170 million to $180 million per quarter for the remainder of the year.
In addition, we continue to expect our adjusted nominal tax rate to be in the range of 16% to 16.5% per quarter for the remainder of the year, which when combined with our Q1 nonrecurring benefit would imply an annual range of 15.8% to 16.2%.
We remain focused on optimizing our underlying operating tax rate over time as the U.S. tax reform regulations are finalized with respect to earnings we are increasing our fiscal year 20, EPS guidance to a range of $5.54 to $5.60.
A 10 cent raise from the prior range of 544 to 550.
This includes a negative 10 cent impact of currency at recent rates.
With a slightly worse impact over the balance of the year offsetting a better than expected benefit in the first quarter.
For the second quarter, we expect EPS of $1.27 to $1.29, including a two cents currency headwind at recent rates.
Now I will return the call back to Omar.
Thanks, Karen and lets now move onto Q and a.
In addition to Karen or full group Presidents, Mike Coyle Wallboard, Jeff Martin Hooman Hakami are also here to answer your questions. We want to try to get to as many questions as possible. So please help us by limiting yourself to one question and if necessary a related follow up.
If you have additional questions. Please contact Ryan and our Investor Relations team after the call.
Operator first question please.
Your first question comes from the line of Bob Hopkins with Bank of America. Please go ahead.
Great. Thank you and good morning, just wanted to.
First congrats on a really strong quarter and see if I could get some commentary about two product areas.
First on diabetes.
I noted that you were nicely in line. This this first quarter, but is switched the guidance to the low end of the range. Just curious if you could talk about that a little bit and then the other product question. I had was just on the robotic focused analyst day for September 24th.
I'm really looking forward to that day and getting all the details, but I was just wondering if in front of that Jay you would be willing to give us at least a little directional sense.
For just launch timelines in the US you know is that more than a year away within a year.
Thank you those are the only two questions I have.
Let hooman and Bob can comment little bit you know first of fall.
On the diabetes you know.
I know, we don't know the numbers, a little bit but that doesn't remove our our excitement regarding the upcoming launches here the advanced hybrid closing with Bluetooth connectivity in particular towards the end of the fiscal year is one of the true zeroing in on them and the clinical trials and so on or are in progress we've had more competitive pressure than we'd like in the in the us in the first quarter. So taking that into account, we decided to be prudent about what our guidance should be but let's not take anything away from.
The product launches that we're anticipating in the second half of those are on time and.
We will see what the result, and we're pretty excited about them I don't know, Matt if you want to add anything to that or sure. Bob. Thanks for the question, maybe first a little bit of a a little bit of color on the dynamics.
That drove Q1 and that I think will also sort of drive the guidance.
If you recall from 88, the quarter was pretty much in line with what we talked about at 88, we anticipated strong or U.S. growth Chuck.
We in the U.S., we expected consistent consumables and CGM revenue from the installed base Jack.
We.
He said that we expected to renew our patients coming out of warranty in line with historical rates, we're able to do that and then we said the most vital thing was really the conversions in the use of patients coming from MD.
And that also sort of.
Factored in.
We were able to you know.
Balance all of that and deliver in Q1 now as far as the rest of the year goes it's largely as Omar stated.
It's a it's a function of the pipeline, which remains on track versus what we discussed at the 88.
Now in Q2, we did expect to get some reimbursement for 670 in Germany and that we were hoping that that would be an incremental contributor to offset some of the U.S. pressure that was discussed but we're now assuming we don't get that and we'll get it next quarter. So for all of the reasons mentioned this is why we're maintaining the range we're leaning towards the lower end of the correct.
Well, yes sure Bob Thanks for the question regarding the robot we are excited as Omar mentioned too heavy investment community experience a preclinical validation lab in Hartford next month.
And the reason we're doing it there is it's certainly part of our preclinical testing an experience and it's actually you get to see it in action versus.
Just on a state so it's a really important.
Event as we continue to gather preclinical data and experience on our system and in addition, during the day there'll be panels with Medtronic Executive management will have some expert surgeons, there as well and I know that Ryan sent the save the date about recently.
Save the date out recently and the invited becoming from Ryan over the next couple of weeks, but as a respect your question Bob we've not changed our commitment on our launch timelines to to launch the product again, you specifically asked about the us but of course, we're going to launch outside the U.S. enough. Why 20. This is a team that continues to hit its milestones were excited about the program and we look sorry that were looking forward to seeing you next month.
Okay. Thank you.
Your next question. Your next question comes from the line of David Lewis with Morgan Stanley .
Good morning, just two from me one for Karen and one for Jeff Karen just thinking about the guidance. The second quarter I think last quarter, you suggested 4% growth for the second quarter, now you're sort of suggesting something closer to 3% to 5%. So is the relative change simply diabetes and you still need some momentum in proven frankly sequentially do you get to that number and what drives that that confidence and then just for Jeff just on surgical robotics, sorry on spine robotics.
You definitely saw a significant change in relative growth versus market sequentially. So things definitely true to the core spine business just kind of can you grow above market in core spine. This year and if you could give us the mass or system placement number in the quarter that would be that'd be great. Thanks, so much.
Yes, good morning, David Thanks for the questions.
The two Q.
Cited about the growth acceleration that we intend to drive in the second half.
Into Q.
We're seeing you know Sam.
You asked softness in diabetes that we talked about.
And you know we're seeing sounds.
Pain market.
Issues, but beyond that we're very excited about the acceleration that we're going to drive and and you know it's just the first quarter. So were you know what.
On on delivering as we move through the year.
Hey, David its Jeff So regarding the spine question, Yes, we are definitely seeing.
Strong momentum has always been a.
In addition to our our surgical synergy strategy and it's it's held its having a pretty significant network effects I'll call. It within our TG one as you pointed out on the implant side.
And.
Can we grow above the market, we're expecting to grow above the market here, we think that the whole, enabling technology and robotics strategy. That's that's where the market's going it's going to cause the market to to consolidate around a few players and we intend to lead that and take share now and going forward.
As for the other impact that by the way that the robotics Omnisource, having is it on the rest of our capital equipment portfolio, which it's not something I completely expected I mean, our our stellar standalone stealth for spine.
And.
And ER surgery as well as our alarm both grew over 20% alarm actually grew close to 30%. These are products that in the market for a while and I think this is.
The impact of having a larger capital sales force and a lot of excitement around these products.
So and as for the as for the placement the in a number of a unit sale I guess I've been told that they may be given too much information in the last few quarters on this topic.
So pretty excited about it maybe got a little but.
I can just tell you at this point you know, we're doing really well.
I can I'll just leave it at that we are doing really well above well above our expectations.
Your next question comes from the line of Robbie Marcus with Jpmorgan.
Thanks for taking the question and congrats on a good quarter.
Karen maybe we could start with a question on the TNL. This is the first time SDMA has been.
It's down year over year since first quarter 2017, and you mentioned the operational excellence program, what exactly is driving the declines and how sustainable is that.
Thanks for the question Robbie Yes, we were pleased with our performance, which clearly drove our operating margin expansion of 70 basis points on a constant currency basis and you know on SDMA. We are very focused on driving a enterprise excellence programs to drive further leverage and efficiency. We also introduced at the beginning of this year.
Ah and incentives.
Metric down into the organization on operating margin and I think that metric is also helping to drive good cost control well down into the organization.
Okay, and then on the guidance for the balance of the year you had a nice beat on the top line in the first quarter you have a number of product launches hitting towards the back ended the year can you help us just maybe with cadence for the balance of the year, how you're thinking about the 4%.
How conservative is that number still given your only out of first quarter here and some of the big product launches and how we should think about those impacts to be topline appreciate that.
Yeah. Thanks for that question too I would say look you know we just we just finished our first quarter.
And you know we had a strong first quarter and we're really excited about the acceleration that was going to drive in revenue growth throughout the year, particularly in the back half of that you know that growth is is really focused on strong product launches and the exact timing of approval and launch you know it's hard to predict but were excited about launching those in the back half that that will drive the acceleration and at this stage you know that that back half is going to have to be you know decent amount higher than we had in the first half two to end the year at 4% and we're excited about that.
Let me just to also emphasize Robby.
Look relived to Formula out we had a good first quarter the second quarter, we actually have the advantage of some of these oh comparisons being better.
So it was in solutions and deal but in other areas. So there's some growth there as well in terms of product launches everything that we should still completely in line and they are coming true. We just got Dolores could double approval.
That is something that we were expecting actually a little later, we got a little earlier so.
Older programs are completely in line, we're very excited about them, but it's only the first quarter. So.
We want to guide me would be guided.
At the beginning of the year, but.
Look there is no hesitation on our part about the quality of these launches window coming out how excited we are about them. So the dummy renewal.
Sort of confusion about that at all and just ticket in the context of this is the first quarter.
Very clear thank you.
Thanks Robin next question please.
Your next question comes from the line of Vijay Kumar with Evercore ISI.
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Hey, guys you Yep no I'm on congrats on a really nice trend here I'd just two quick ones on a the guidance here you know Karen.
And if you can see step back to early part of this year a lot of confusion around you know tax regulations as headwinds and I think you guys were very clear about l. RP not not a change in correct would the guidance raise this morning at the high end, we're looking at 7% plus on the P.S.
<unk> did you say that can you walk us through what the implications as because it's the L.R.P. going up because execution is coming in better you know for this year and as a follow up I think got tax breaks we were expecting some clarification in June July timeframe, if any clarity on on out you know what the tax rigs read out in a implications for off for the medium term. Thank you.
Yeah. Thanks for the question BJ, our long range guidance on the bottom line is 8% over the long range timeframe and that has not changed and and where a lot of change yes, a in terms of the new guidance.
On M.P.S. largely driven by the beat we had this quarter and our ability to lower our interest expense, which help to offset that tax rate increase.
And you know our guide as you know about 7% on a constant currency basis on an actual basis for E. P. S added.
On the high end and in terms of you know in terms of whether or not you know this year over the long range plan you know, we'll get to the 8%, we'll see but we're confident in our guidance right now and on tax rags certain regulations have been finalized there are numerous regulations to still be finalized and we do anticipate all the regulations to hopefully be final prior to the end of our fiscal year. We will continue to focus on opportunities to optimize our tax rate and you know where the rigs are final. We are beginning to take action to optimize but I would say, it's very early and too early to tell what our tax rate will be on a long term basis going forward I'm in the meantime, we expect our tax rate for the remainder of the year to be in that range of 16% to 16.5%. We did have some favorability in the first quarter by some non recurring.
In items, and so that helps drive or your tax rate to you know what we guided to about 15.8 to 16.2.
That's helpful. Thanks, guys, yes very helpful. Thank you.
Thanks, Richard next question. Please your next question comes from the line of Chris Pasquale with Guggenheim.
Hi, Thanks, a couple of the product specific questions first on on pain Stim, you quantified the inventory de stocking you saw there and where do you think that process fully played out into ours and once you were continued to be a drag.
Good.
Yeah sure I mean.
Luckily and to quantify it specifically, but.
Yeah, we had a really strong Q4 first of all and of that does that contributed to some of this and then the market slowdown also contributed to it. So I don't I don't think the de stocking will be a continued drag the market slowdown is obviously I think caught the severity of it has caused me to us and our competitors a little bit by surprise and that to me is the bigger issue.
And then on the DCB front could you just update us on the expectations for that franchise going forward. You think utilization has bottomed out post the physician communication and its use is limited to high risk patients what does that mean for the growth potential of the business going forward. Thanks.
Good.
So back in March when the original FDA notification went out where they basically were seeing it for most patients they see the risk without Rick weigh the benefits. We saw a fairly significant contraction that was about a 50% reduction in U.S. ER volumes versus what they had been before and on a global basis. It was in the in the low fortys.
Obviously as we came out of the panel meeting there was a lot more data that was presented an updates on patient follow up where you know we got to almost 95% follow up on our on our patient base, which improve the safety profile of the devices and it's very significant incremental data was presented from from claims based analysis and very large datasets that basically showed that the the signal went away in these in these large numbers and so we were very encouraged by what we viewed as a incrementally constructive at the notification here that basically said that for certain high risk patients who are at risk for re intervention that in fact, there are the benefits of DC bead technology outweighed outweigh the risks.
And so we have now seen instead of the reduction that we had indicated something more like a 40% U.S. reduction low fortys and on a global basis, that's down into the low thirtys reduction. So we think it's stabilized it's actually improving since those data were put out and we think as more data becomes available. This is going to shift from a discussion of class effect to basically the individual performance of the individual products. I mean, we're very encouraged by that because we have a very significant a randomized controlled data sets in the U.S.F. The support poor essay for the Japan study, our guar, we have our global registry data.
As well as some new data sets that are going to be released in new in other indications. So are any fistula indication is going to be a the data is going to be presented at the upcoming Searcy meeting next the next month and we're really encouraged that the more data that is coming out is basically oh, focusing on the efficacy of these products and also showing that that the signal that was of concern as more data becomes available is becoming less of a concern and so we expect there to be an improvement, but obviously, we see a return to growth until we get to the second half of the fourth quarter.
Okay. Thanks, Chris take the next question. Please Regina. Your next question comes from the line of Raj Denhoy with Jefferies.
Hi, Thank you. Good morning, one that's a couple of questions on TAVR, if I could so you mentioned there's been a couple of developments recently booked a little risk approval in the NCD. So I guess on on those fronts on the low risk approval I'm curious what your expectations are for what that will do to market growth.
And secondly for for the NCD you did mentioned you're in negotiations with a number of new centers now that are looking to come on line and I'm. Just curious upon what basis. Those negotiations are going has there been any discussion or price or anything in terms of how those centers are choosing who they're going to go with here in terms of their TAVR programs.
Mike So.
We would estimate that if you throw in the country by country, but indication, which we expect to.
It will be an area of focus with a.
Additional data availability that the low risk patient population basically expands the available market by about 50% and so that with the addition of the NCD or where we expect to see approximately another 200 centers come online.
It obviously is going to give us an opportunity for an acceleration of growth from where it was let's say last quarter, which was for us around 12% up into the mid teens, and and maybe a little bit higher than that and that basically is really being supported by these new indications for use.
And in terms of the basis of negotiation with the NCD sites. There are really no different than what we've had with the pre existing sites in terms of the compelling clinical evidence around these products basically makes any center that wants to be a full service.
The aortic valves.
Center, they need to be able to do both surgery as well as transcatheter valves and as a result.
This is more about the training and education and getting them up to speed on a on optimal techniques for for the use of these products and that's exactly what we're focused on.
Great. Thank you.
Thanks Raj next question. Please Regina.
Your next question comes from the line of Joanne Lynch with BMO.
Good morning, everybody and very nice quarter.
A number of new products that are launching over the next 12 to 18 months can you. Please give us a highlight of.
Which one g. the most excited about and also in the same vein you've got two major medical meetings coming up with Nasscom TCT well, what should we expect to see their am on any of those new products be there. Thank you.
Okay, I'm going to take that thanks, Joanne and first.
Like you point out there's a number of new products coming out enough and there's many but I'm going to go through a few fees that I think are the most exciting first of all our general surgery robotic system, which you'll see live and in person in September 2014, I promise you that will be had been exciting and eventful event for you. So we're excited about that now beyond that the micro movie look we've got 80% share in the single chamber market covering only 15% of the pacemaker population, that's going up to 55% of the population and and you know I'm not going to preempt, 80% share, but that's at least what I expect.
So that's a product and really excited about the link 2.0, which is a second generation diagnostic devices got a five year battery life Devil approved plus which is now coming on the heels of the Myrisk tougher approval.
The diabetes seven 780, G. de Minimis terminated Gee, that's got Bluetooth connectivity to hybrid advanced hybrid closed loop system as a second generation of the closed loop a based on our experience in the <unk> and the database that we have on patients already then just a micro which is a rechargeable device appreciate in volume for pelvic health, which are which we're expecting approval in the second half the diamond if a ablation catheter, which has got temperature sensing, which has some unique technology, which will launch in Europe in the second half and then there's the push up DBS system to which has sensing capability. The first time in this kind of a system and a great platform for for the first time, a closed loop system and DBS now. In addition to these launches that you mentioned in some of these meetings and then we're expecting too.
Yeah sort of share some some data as well that the U.S. pivotal trial results for the impact.
Efficient access program for dialysis patients I mean that that's one we're going to share the simplicity renal denervation program. We expect some exciting results out of that into the data for that to ensure the diamond if ambition Katherine just mentioned that I'm not sure leapfrog technology because of temperature sensing like I mentioned.
We launched that in Europe , but for sure.
Data on that.
In the in the upcoming meetings here and then finally the diabetes system. We are also expected to complete enrollment of the patients for the next few weeks is specific to those two specific.
Events.
Mike do you have any comments that as it relates to TCT I think that's a little bit sooner than some of these data sets are going to be a available. So I think I would steer you more toward meetings later in the year and into early next year. So we will.
Around the AJ time, we'll be talking about the Marvel to data, which is our the micra Avi.
Performance.
And then as we get into next year as we look at HCC, we would expect to be able to present to the augment components of the of the simplicity spiral study and and also you know as as Omar mentioned wouldn't between here and there. We will also have the impact Admiral SBFE data. So there should be very meaningful dataset is coming but theyre more going to be later in the year into next year and then last year. So now we are planning to talk to you about a number of things a person core spine, where we have a number of launches probably the biggest of which this year is this corpectomy device. This team to find Tt's stratosphere, we've got over a single position.
And then of course, the Titan, which we just closed the integration is going very well and it will walk you through how thats going to impact our overall portfolio, but I'd say think of tightened as a surface technology platform, that's going to apply to our existing broad based the spine portfolio well. We're also talk more about surgical synergy and robotics as I mentioned earlier and how that how that how that rollout is going and our roadmap for new features that we're going to be adding to the enabling technology. Specifically you know kind of the all the enabling technology, specifically robotics, because we do have a very specific roadmap that goes out over the next two years all meant to basically drive procedural improvement both from a health economic standpoint, and a clinical outcome standpoint, and then finally biologics. We we have a general manager we put in charge of our biologics business, you know about a year and a half ago, He's really done a good job and and.
Investing not only in infuse, but our broader bio portfolio, which we can talk more about that which I think is kind of underrated right now it's actually helping drive some of our growth and then finally, one thing that's not Nash related and I think Omar ran out of breath.
Before he got to we did on on pain Stim. We did we have a new and next generation tell us device, which we haven't spoken about before that that we can talk about later in the year at NAND. So this gets back to not NASS, but obviously the broader product.
Launches were excited about we haven't really talked about this and so it NAND. This year, we'll be talking about that.
As well as some new stem pattern work, we've been doing and then of course, our 12 month vectors data, we'll be talking about it needs as well because I think this pain stim market is super sensitive.
To innovation and then were the markets on a little bit of an innovation, while versus where we were in the past 18 months and I think it's going to be put launches like this we'll get that market going again.
Thank you so much.
Sure. Thanks, Joanne next question, please or do you.
Your next question comes from the line of Kristen Stewart with Barclays.
Hi, Thanks for taking the question and congrats on a good quarter not surprised for omars ability to speak without.
Stopping give any has climbed kilimanjaro.
So just want to.
Just circle back on the product front Q2 kind of products added categories. I, just wanted to add a little bit deeper into so on the Interstim micro side, you had mentioned that Thats F Y 20, and I think you had also mentioned I guess, a rechargeable version I just want to clarify that I understand that product a little bit more is that going to be seeing the smaller device and what's kind of just the confidence around getting both of those products out and F. I 20, and then I have one follow up.
Hi, guys first is is we rechargeable and its PCC. So it is smaller but Jeff you can see I think.
We've been we've begun Chris in the regulatory process on both the current Interstim two device. The you know the primary self adding m., our AI capabilities to that but the big the bigger one will be obviously the rechargeable device. That's as Omar mentioned is very small. This we were anticipating happening you know the initial launch in Europe in the spring and then a little later in the U.S., but so when you say of white.
In Europe , and then you asked would be laid up for 20 early F Y 21, and because we don't we look we're submitting a PMA supplement we don't we don't think we need to separate clinical trial.
And we've been talking about this with the FDA to confirm are thinking so so we're really excited about this and.
The features on the combination of our smaller size. The three I'll talk about the rechargeable a the micro the smaller size the three CCC over the overdrive battery technology and the MRI capability. It really is advantage is a big advantage for us no matter what the competition staying on this this is the same novelty combo platter, that's powering and tell US whose performance has his surprise many of us and propelled us back to leadership in SCS.
Okay and then the other device was just the same size of Interstim today, but just for MRI safe version.
Exactly and that's one of the things that I think is important is that you know and I think our I think people are starting to realize this but recharge was not meant for every patient so having both a a primary so entry chargeable in a very small rechargeable I think is going to come from will cover a broader much broader spectrum of patients than just the rechargeable.
Okay, Perfect and then just broadly I guess with Mike gravy that seems to be more the significant launch you guys or I guess Omar you were just saying that you're hoping that you could see I guess, an 80% share in that market category as well how are you just feeling about bringing that to market and then also maybe just talk about the extra vascular.
I see that as well and just kind of the timelines. There I think you were supposed to be starting or did start your pivotal studies, but that product. Thanks.
Got you know without being biased towards one thing I will tell you that this is the one product that I'm certainly most excited about because of the if nothing else. The symbolism. The Medtronic was started as a.
The company, which invented the pacemaker marketing here. We are 60 years later disrupting the market through the device that is way ahead of any competition and and 80% share is actual fact into 15% that we cover so an expectation that that's going to should trend should continue over time is quite realistic, but I'll, let Mike add some more color to this well remember there are two aspects of this one is obviously the procedural penetration.
And then there's also the price increase that we get over the device, which is essentially in a single chamber market is about three ex the.
The prevailing pricing in the standard device system. So the reason you see a procedural share and including our tradition single chamber systems in the around 65% range and then having an 80% revenue share is because of that step up in price now as we move into the microarray V.. We basically have have been to date really confined to patients who needed ventricular pacing, who also headed for for relation now we any patient with a block in tech conduction in.
Or normal normal rhythm in the in the atrium.
Becomes a candidate for this device and so the available market goes from 15% of up to 55, 60% and so thats why we view it as a big opportunity to drive share and the real benefits of this technology are you know, even though pacemakers are relatively safe for implant.
Almost all the complications come from either the pocket or the lead and so by being able to put a device directly into the hard and having a 10 to 12 your battery life.
This really offer significant clinical advantages to it to patients and that's why we're excited about.
Maybe I think D.C. I, maybe I should maybe LCD, we will be our beginning the pivotal trial associated with that we have we haven't talked a lot about that trial design, but it is it is getting underway now.
Yeah. Thanks, Chris next question. Please your next question comes from the line of Matt Taylor with CBS .
Okay.
Good morning, Thanks for taking the question I just wanted to start with a quick follow up on the Avi question, so like it or or is there anything different about 80 versus single chamber in terms of the speed of the launch I mean, you have people trained on single Chamber now you have reimbursement in place.
This uptake actually be faster than single chamber.
Well ill, let Mike answer that I think it is a new concept, though so that it requires some.
Some by and maybe I don't know Mike.
And the procedural aspects. It is sort of very soon were almost identical to the single chamber device and of course as you point out we've done the training associated with this but there are a number of physicians, who basically said they don't do enough single chamber device is to make it worth your time to do training now we get just device and we're going to see more physicians coming on stream.
Who want to learn the technique, which is going to be helpful to us not just in this.
This new indication for use but even in the traditional.
Single Chamber.
Pacing so that will be helpful. There are some aspects of the patient follow up that are different and we're going to be spending as we did with the initial launch a lot of time, making sure that the physicians are trained on what to look for bolt in the implant procedure and in the discharge process and so we're going to be very careful in terms of rolling out updated training even to those who have been trained before but to your point I think it should have a largely faster adoption.
Rate than what we saw with signature.
Okay. Thanks, and then just on surgical robotics I was hoping you could maybe talk about the strategy as it relates to me sort of how that informs what you might do with the soft tissue surgical robot and are you thinking about using robotics anywhere else.
Let me take the first organically. So look it's a great question the work that Jeff and his team has done with mers or absolutely is influencing how we think about.
Our commercialization approach.
With the soft tissue robot.
As Omar as mentioned many times in the past.
Medtronics uniquely positioned with high value consumables, and if you think about our leading position with end effectors into surgery space and our trusted brand that we have with surgeons.
The ability to pair those instruments with our robot is incredibly important and of course, we've been training surgeons on surgery for over 60 years and Weve pioneered innovations in that space and so when you look at what Jeff and team have done with our TG from a service capability from a commercial model capability I think we're very much aligned and learn from that piece.
Yes, let me let me also add onto the question regarding.
Let me tell you that in virtually every area that we have a procedure presence we will look at robotics, because that's how it's going to be and we're learning from our current experience, but I can tell you that the data analytics capability. We are just beginning to do involve combination with a robot with other capital equipment, especially ones for visualization and navigation dilution with Missouri is not going to be restricted to spine alone.
Planning.
Procedures blending the procedure upfront and then using that to guide the robots in specific ways. That's a that's a core.
Capability to behave.
We are starting to develop it with miserable Google translate across into surgical robots. It sometime in the future. The procedure is different. So you know there is some core areas, where we are learning.
Which we will apply to virtually every area of the required procedures and continuous a big area of focus for us both organically as well as inorganically.
And one that we expect to be leaders over the long term not just in one procedure because across all procedures and b to the company who writes the way surgeries done in the next decade. So make no mistake. This is a core area for us and we'll see much more of about robots than just the two that you are looking at today and in the future.
One area of the short term that we are moving into would be other cranial procedures. So we have so we have the.
The Missoula Renaissance, which is indicated for cranial procedures and Medtronic were launching a another cranial a smaller cranial robot and these these robots will be used for a lead placement for example.
And deep brain stimulation procedures.
EG placement for epilepsy, as well as tumor resection, you know so so tumor resection itself. So those are two different robots apply to various cranial procedures cranial procedures brain procedures as well.
Thanks for all the color.
Thanks, Matt next question. Please Regina. Your next question comes from the line of Matt Miksic with credit Suisse.
Hi, Thanks for taking the question. So I had just a couple of product related follow ups.
The first for Mike on.
On TYRX Deanna bacterial mesh product for CRM.
The rapid results, obviously didn't get the same attention that low risk whatever didn't HCC.
And yet this this could be over time.
Yeah.
Another potential share gainer for this business and.
Just wondering Mike if you could give us a bit of an update on.
What's been happening since the data was presented what kind of response as you've gotten maybe what are the next steps and drivers we can look at over the next.
12 months or so and then I had a follow up for Jeff.
So we've been very pleased with TYRX performance since the.
Cc presentation of the rapid data.
We have seen meaningful acceleration of its adoption as a result of those data. This past quarter, we were mid thirtys growth for the for the product as you point out it not only helps us in terms of revenue per procedure.
And we view the at risk patient population to represent a little over half of the patients.
Because it applies to essentially large devices. So I see the CRT device since initial procedures as well as all replacements, including pacemaker replacements.
And so as a result.
It's helping us not only in terms of our overall revenue share, but we actually are seeing in high risk patients them selecting medtronic because they want to use the TYRX product and that's helping us with initial implants share across our portfolio, especially on the on the high power and obviously our team side of things.
And then in terms of guidelines or things that may we may be able to look for over the next 12 months or so.
Well, we are working with the data sets and the.
And the professional societies to see if we can get this into indications for use. We also are expanding the application of the the envelope to other parts of the Medtronic business, including the neuro stimulation devices, both for deep brain as well as for pain as well as for Celtic public health.
And so it's helping us in both regards I'm not yet ready.
Address timing of any indication or guidelines expansion, but we are working that.
No the the diary acts as a core technology that we've we've essentially developed and.
So why does not in itself is one thing what it pulls along with it.
In terms of our devices is something that will become a true differentiator for medtronic into in the long term and we're investing in that area to make sure that we can.
Sort of.
Broaden the usage of TYRX overtime. So that's a key technology area of focus for us, which we think we're well differentiated. It also has helped us immensely in our value based healthcare programs from the standpoint that the.
Having performance guarantees is something that our our.
Our customer base really is looking to as.
I was having skin in the game as they shift to that risk.
Sort of arrangements with payers and we now have over $1 billion in revenue associated with.
Essentially performance guarantee program and $800 million of that is tied to TYRX.
That's super Thank you and then on.
For Jeff if I could on spine.
And pain, so spine implant growth over 2% in the U.S. and to present will blend. It does look like it's ahead of market growth to me at this point.
Jeff If you could maybe just.
Provide a little bit of color. Obviously, you are happy with the placements in the quarter.
But maybe color as to how the pull through dynamics work on the systems in place over the last.
Few quarters and on pain I know you mentioned during the prepared remarks is still kind of a.
Softer market or a tough market to sort of project, maybe some sense of when that settles out and we get a better sense of spinal cord stimulation and and what that market is really growing at.
Thanks.
Okay. So I'll take the spine one first so to kind of break it down I mean, we just we've talked about.
The use of.
Spine robotics, and the linkage with our implants and how as the utilization of miserable goes up we'll get more pull through and we're in the early early stages of that so we're getting if you're looking at three.
Kind of metrics on that you know what we're getting the robot sales that's kind of the socket race. So we are doing very well there as indicated and then when they use.
The zohr.
Our customers are using medtronic and that attachment rate is close to 70% and that's going to go higher as we get more of them as already stealth addition out there where the navigation is into.
In the interim as all remember when we talk about placements also we've got a much in Missouri is out there that we are upgrading to stealth addition, so our attachment is really strong and so what we're really driving here is the utilization and that involves a lot of training.
And so that's what we're doing we've got all kinds of demo labs and training labs at different customers and and we've built up a whole new hundred person component of our sales force that's like a Swat team that goes into these accounts.
And works with the surgeons with our team the surgical staff and like I said, our reps to to to train everybody get im comfortable doing robotic procedures. So really the early innings of that and as that increases you are going to get more pull through but what we're seeing now is it. These robots are getting us into competitive accounts, where and giving us something to engage on with Swift with surgeons and the C suite quite frankly are very engaged in this for a variety of reasons and we're using this to get into competitive accounts and once we're in there and we walk in with our broad are good good service, our broad portfolio, which now includes tightened that's having a more immediate impact. So if theres an initial impact as we get into competitive accounts and then there is a longer term impact as we drive utilization. So like I said this strategy has a long runway ahead of it and we're in the very early stages and we're already seeing impact.
For spinal cord stimulation look I.
Hi, I'm kind of like a little indefinitely industry. There are competitors and ourselves don't have a more specific answer as to what is driving that in the short term, but look I tell you I think this is a very innovation sensitive market and we had a lot of innovation come out in a pretty condensed period of time from us and our competitors and now it's come down a little bit and seeing that we've made some trade offs in our TG and have accelerated our spinal cord stimulation.
And prioritize our spinal cord stimulation pipeline. So like I said, we were accelerating the next generation and tell us.
Into this fiscal year.
I don't want to get into much of the features you want to talk about that at NAS, what it what that means but it is a next generation device.
Behind that we have a a and the next year behind that of prior new primary cell device coming out, which like I said in public health same applies for spinal cord stimulation you need a broader set of both rechargeable and.
And.
Our primary sell devices and then an additional that we're working on core route for spinal cord stimulation. We have a very active program on closed loop or you may have heard it is called E caps out in the market space. So we've got that coming as well that's a little further out.
But we've got a pretty robust pipeline that we'll have a pretty regular cadence and I think thats going to drive the Mark is I do think thats market should be a high single digit grower based on all the demographics as well as the opioid crisis here in the U.S. and a few other markets.
Thank you.
Thanks, Matt will take the last question. Please begin.
Your final question will come from the line of Danielle Antalffy with SVB Leerink.
Hi, everyone. Good morning. Thanks, so much for taking the question congrats on a really solid quarter.
Karen I wanted to follow up on I'm, not quite sure Robbie asked regarding as DNA and it does feel like that.
You are seeing benefits from including operating margin as a component of the annual incentive plan just wonder if you could parse out exactly where you are in rolling out that process across the organization and if you can quantify where you are relative to where you expect to be longer term as it relates to that personnel how much that's contributing to this quarter's operating margin expansion versus some other dynamics I see that the product pipeline are improving product mix and that's all I have thanks, so much.
Sure. Thanks, Danielle, we introduced operating and in our incentive comp at the total company level last fiscal year and then this fiscal year, we drove it down into the organization and it's hard to parse out you know the benefit of that but I would say, we do have strong cost control around the company that started last fiscal year and has continued into this fiscal year, but we're also purposely driving and greater efficiencies across the company as we work to leverage our size and scale in our back offices, and our customer service centers and and and across our enabling functions and those programs are all driven as part of enterprise excellent than we are clearly seeing a result, we are tracking the savings and you're seeing it you know now show up and our and our margin expansion.
Okay. Thanks, Daniel Okay.
So let me close this out first thanks for your questions, but before I complete included I said, just a couple of more sentences you know what we talked a lot about our product pipeline today.
But let me just remind you that almost everything we talked about is actually in the second Alphaville Fytwenty. This momentum is not going to stop going into slide 21. As was noted earlier, if I have more but I could probably continue into which will launch and therefore I truly want to it's not going to stop and I really mean, it and will mean that when we say that today, we have the strongest in the broadest pipeline that we've ever had in our history and you will see that thing play out in the in the upcoming quarters.
So it's a great excitement that I really want to close this call out and on behalf of the entire management team I'd like to thank you for your continued support.
Your interest in Medtronic, and we look forward to updating you on our progress on our Q2 earnings call, which will be which will be holding on Tuesday November 19th. So thank you all very much for your for your interest. Thank you.
This concludes today's call you may now disconnect.