Medtronic Q3 2022 Earnings Call Transcript

Quartr
Provided by Quartr
February 22, 2022

Key Takeaways

  • Q3 FY22 organic revenue grew 2% with adjusted EPS in line with guidance, despite Omicron-driven procedural slowdowns and absenteeism.
  • Around 60% of business units gained year-over-year market share, led by CRM (+150 bps), neurovascular (+200 bps), peripheral vascular, and endoscopic ultrasound.
  • Several segments lost share due to supply constraints and competitive pressures in cardiac diagnostics, structural heart (aortic), Surgical Innovations, and diabetes.
  • The company has restructured into 20 focused operating units and is accelerating supply chain, quality, and portfolio management initiatives to drive innovation, availability, and cost reduction.
  • Key pipeline milestones include the fully enrolled Aurora extravascular ICD study, rollout of DiamondTemp and PFA ablation systems, HUGO robot expansion, and next-gen neuromodulation and diabetes therapies.
AI Generated. May Contain Errors.
Earnings Conference Call
Medtronic Q3 2022
00:00 / 00:00

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Ryan Weispfenning
Ryan Weispfenning
VP and Head of Investor Relations at Medtronic

Good morning, and welcome to a balmy February morning here in Minnesota. I'm Ryan Weispfenning, Vice President and Head of Medtronic Investor Relations, and I'm pleased that you're joining us for Medtronic's Fiscal Year 2022 Third Quarter Earnings Video Webcast. Before we start the prepared remarks, I'll share a few details about today's webcast. Joining me are Geoff Martha, Medtronic Chairman and Chief Executive Officer, and Karen Parkhill, Medtronic Chief Financial Officer. Geoff and Karen will provide comments on the results of our third quarter, which ended on January 28, 2022, and our outlook for the remainder of the fiscal year. After our prepared remarks, our portfolio executive VPs will join us, and we'll take questions from the sell-side analysts that cover the company. Today's event should last about an hour. Earlier this morning, we issued a press release containing our financial statements and divisional and geographic revenue summaries.

Ryan Weispfenning
Ryan Weispfenning
VP and Head of Investor Relations at Medtronic

We also posted an earnings presentation that provides additional details on our performance. The presentation can be accessed in our earnings press release or on our website at investorrelations.medtronic.com. During today's webcast, many of the statements we make may be considered forward-looking statements, and actual results may differ materially from those projected in any forward-looking 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. Unless we say otherwise, all comparisons are on a year-over-year basis, and revenue comparisons are made on an organic basis. Third quarter organic revenue comparisons adjust only for foreign currency, as there were no acquisitions or divestitures made in the last four quarters that had a significant impact on total company or individual segment quarterly revenue growth.

Ryan Weispfenning
Ryan Weispfenning
VP and Head of Investor Relations at Medtronic

References to sequential revenue changes compared to the second quarter of fiscal 2022 and are made on an as-reported basis. All references to share gains or losses refer to revenue share in the fourth calendar quarter of 2021 compared to the fourth calendar quarter of 2020, unless otherwise stated. Reconciliations of all non-GAAP financial measures can be found in our earnings press release or on our website at investorrelations.medtronic.com. Finally, our EPS guidance does not include any charges or gains that would be reported as non-GAAP adjustments to earnings during the fiscal year. With that, let's head into the warm studio and get started.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Hello, everyone, and thank you for joining us today. This morning we reported Q3 results delivering solid earnings growth in a challenging market. We felt the short-term impacts of Omicron in January, particularly in the U.S., causing our Q3 revenue to fall short of our expectations. The COVID resurgence affected not only procedure volumes, but also created acute periods of worker absenteeism with our customers, suppliers, and in our own operations and field teams. Now that said, COVID infections in the U.S. are declining. Available hospital ICU capacity is increasing and procedure volumes are picking up. While some of the impacts from the pandemic, like inflation, supply chain issues, and healthcare worker shortages will linger, we do expect that our markets, our customers, and our industry are on the path to recovery.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Over the last 18 months, we've made significant changes to our operating model, moving to 20 focused operating units, as well as making major enhancements to our culture and incentives. These changes have improved our pace of innovation and our competitiveness, as evidenced by recent product filings and approvals that came faster than expected. We're not finished driving change. We're accelerating improvements to our global supply chain and operations, leveraging our scale to further improve quality, increase product availability, and reduce costs. In addition, we've enhanced our portfolio management and capital allocation processes. Our new operating model is giving us line of sight into what is required to compete and win over the long term in each of our businesses. As a result, we're looking at our portfolio with a more critical eye, with a focus on growth and creating shareholder value.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

I'd be surprised if there weren't changes over the coming fiscal year, but I don't know yet if they will be smaller or more significant. Now let's look at our third quarter results, starting with our market share performance. Now, market share is an important metric and a reflection of the culture and incentive changes that we're making in the company. About 60% of our businesses held or won share in the last calendar quarter. While that's down slightly from last quarter due to some supply constraints and where certain businesses are in their product cycles, it is a significant improvement from where Medtronic was just 18 months ago. Starting with our Cardiovascular Portfolio, in Cardiac Rhythm Management, one of our largest businesses, we continued to build on our category leadership, adding over 1.5 points of share.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

We're winning share in both high and low power devices. We recently launched our Micra AV leadless pacemaker in Japan and Micra VR in China, resulting in international Micra growth of over 50% in Q3. In peripheral vascular health, we won about a point of share with strong growth in our Abre deep venous stents and VenaSeal closure system. In cardiac surgery, we gained over a point of share on the strength of our extracorporeal life support products. In our Medical Surgical Portfolio, we estimate we gained share in GI, driven by momentum from the recently launched Emprint HP generator and our Beacon endoscopic ultrasound franchise. In respiratory interventions, despite the year-over-year headwind as ventilator sales continue to return to pre-pandemic levels, we estimate we gained about 400 basis points of share.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

We won share in premium ventilation with our Puritan Bennett 980, in video laryngoscopes with our McGrath MAC, and in core airways with our TaperGuard endotracheal tubes. In our Neuroscience Portfolio, we increased our market share in cranial and spinal technologies. We're launching new spine implants that enhance the overall value of our ecosystem of preoperative planning software, imaging, navigation, and robotic systems, as well as powered surgical instruments, all of which are transforming care in spine surgery. In neuromodulation, we have great momentum from new products in both pain stim and brain modulation. In pain stim, despite the headwinds from Omicron, we estimate we gained over a point of share, driven by both our Intellis with DTM technology and Vanta recharge-free systems.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

In brain modulation, while we continue to face headwinds from replacement devices, our business grew 15% on strong adoption of our Percept neurostimulator with BrainSense technology, paired with our SenSight directional lead. Medtronic is the only company with sensing capabilities in our deep brain stimulators, which drove about 10 points of new implant share and over a point of overall DBS share in Q3, and we expect this momentum to continue. Another business with momentum is our neurovascular business, where we are back to winning share, picking up about two points this quarter. We're seeing strength from our Pipeline family of flow diverters for treating intracranial aneurysms. Our flow diversion launches in Japan, CE Mark countries, and the United States, coupled with broader portfolio growth in China, propelled neurovascular to 12% growth this quarter.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Now, while the majority of our businesses are winning share, we have some businesses that lost share in Q3, where we are focused on improving our performance. In cardiac diagnostics, despite year-over-year share loss, we gained share sequentially for the first time in many quarters. We've made good progress increasing our manufacturing capacity for our LINQ II insertable cardiac monitor, and we began our rollout of our AccuRhythm artificial intelligence algorithms, which were just enabled for all LINQ II patients in the U.S. We expect ongoing supply improvement and additional AI detection algorithms, along with new indications to expand the market and drive growth. In our structural heart and aortic business, we lost share in aortic due to supply constraints and continued pressure from our Valiant Navion recall and competitive launches. At the same time, though, we maintained our TAVR share in Q3, growing in the mid-teens.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

In our surgical innovations business, we lost a little over half a point of share overall due to an acute resin shortage that impacted our flagship LigaSure vessel sealing portfolio. This was partially offset by increased share in advanced stapling, given strong market adoption of our Tri-Staple reinforced reloads, as well as share gains in hernia and sutures. The good news here is that our teams have improved our resin supply, and we expect to be able to meet demand in Q4. In patient monitoring, we estimate we lost a few points of share due to a difficult comparison from the strength we had last year in pulse oximetry and capnography monitor sales. However, our share has been relatively consistent for the past four quarters. In pelvic health, procedures slowed this past quarter, and we lost some share.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

We expect this market to recover, and we are well positioned to compete. In ENT, we lost share for the first time in a long time, given some temporary supply chain disruptions that we expect to have resolved going forward. In diabetes, we continue to lose share, predominantly in the U.S. Look, we're extremely focused on resolving our warning letter and bringing new products to the U.S. market, although timing is difficult to predict. In December, CMS expanded coverage for our CGM sensors, including those integrated with our insulin pumps, and we're pleased that this will take effect for Medicare patients at the end of this month. In the international markets, we launched the 770G in Japan last month, making it the first hybrid closed loop system available in that country.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

In Europe, we continue to see success and strong adoption of our 780G with the Guardian 4 sensor. Next, let's turn to our product pipeline. We've launched over 200 products in the U.S., Western Europe, Japan, and China in the last 12 months, and these are having an impact across our businesses. At the same time, we continue to advance new technologies that are in development with increased investments in R&D. We're expecting these investments to create new markets, disrupt existing ones, and accelerate the growth profile of Medtronic. Now, starting with our Cardiovascular Portfolio, we continue to make progress in cardiac rhythm management on disrupting the ICD market with our Aurora extravascular ICD. Our U.S. pivotal study is fully enrolled.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

We continue to expect CE mark approval later this calendar year and U.S. approval next calendar year. Our EV-ICD can both pace and shock without any leads inside the heart and veins, and it does this in a single device that is the same size as a traditional ICD. We believe Aurora will accelerate adoption of EV-ICDs and make this a $1 billion market by 2030. In cardiac ablation solutions, we're advancing a number of technologies to become a leader in the $8 billion EP ablation market. We're rolling out our DiamondTemp RF ablation system, as well as our exclusive first-line paroxysmal AF treatment indication using our cryoablation system. We also continue to make progress with our anatomical PulseSelect PFA system, which has breakthrough device designation from the FDA.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Our global pivotal trial completed enrollment back in November, and we're very excited about how our PFA system could disrupt the EP ablation market. Last month, we announced our intent to acquire Affera. Affera has several development programs underway, including a differentiated mapping and navigation system that closes a competitive gap in our product portfolio and a focal PFA system that is a separate and complementary platform to our anatomical PFA system. We're looking forward to welcoming the Affera team into Medtronic. Moving to our Symplicity renal denervation procedure for hypertension, we continue to enroll our ON MED study and expect to complete the six-month follow-up in the second half of this calendar year. We'll then submit the data to the FDA, as ON MED is the final piece of our submission to seek approval for Symplicity.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Adding to our body of evidence, three-year data from our ON MED pilot study will be presented at the ACC Scientific Sessions in April. In structural heart, we now expect to begin the limited U.S. market release of our Evolut FX valve in Q1, followed by full market release later in fiscal 2023. Evolut FX enhances ease-of-use improvements in deliverability, implant visibility, and deployment stability. In China, we expect to launch our Evolut PRO valve this quarter, our first entry into this large and under-penetrated TAVR market. We also continue to advance our transcatheter mitral and tricuspid development programs. In our Apollo pivotal trial for TMVR, we just had the first implant using our transfemoral delivery system, and we expect this new system to meaningfully accelerate patient enrollment.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Moving to our Medical Surgical Portfolio and our surgical robotics program, we've made progress improving our supply chain and manufacturing and remain focused on scaling production. At the same time, we continue to add regulatory approvals and expand our limited market release, most recently in Canada, Australia, and Israel, and we intend to start our U.S. urology clinical trial soon. In addition to uro and gyn cases, surgeons in Panama, Chile, and India are now performing general surgery procedures with Hugo, including advanced cases like colorectal and lower anterior resection surgeries. We announced earlier this month the first Hugo procedures in Europe. In diabetes, our MiniMed 780G insulin pump, combined with our Guardian 4 sensor, continue to be under active review with the FDA, with approval subject to our warning letter.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

When approved and launched in the U.S., we expect this system to be highly differentiated and accelerate growth in our diabetes business. We continue to expect submission of our next-generation sensor, Simplera, to the FDA this quarter. Simplera is fully disposable, easy to apply, and half the size of Guardian 4. Finally, we're making progress on multiple next-gen sensor and pump programs, including patch pumps, although we haven't disclosed details for competitive reasons. While it will take time, we expect the technology pipeline investments we're making will result in our diabetes business being accretive to total company growth and eventually grow with this important market. Now turning to our neuroscience portfolio, we were pleased to receive FDA approval for our diabetic peripheral neuropathy indication for our Intellis and Vanta spinal cord stimulators last month.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

This came following the FDA's rigorous review of our clinical submission and years earlier than we had previously communicated. The approval represents the beginning of a multi-year market development process, which we are uniquely suited to execute given our presence in both the pain stim and the diabetes markets. We believe the DPN market opportunity will reach $300 million by FY 2026, and with an annual TAM of up to $1.8 billion, making DPN for SCS one of the biggest market opportunities in med tech. In addition to DPN, we also continue to make progress on expanding indications for SCS into non-surgical refractory back pain and upper limb and neck chronic pain. If that was not enough for pain stim, we're also excited about our Inceptiv ECAPs closed-loop spinal cord stimulator, which we submitted to the FDA late last year.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

We expect Inceptiv's closed loop therapy that optimizes pain relief for patients to revolutionize the SCS market. Finally, in pelvic health, we're expecting FDA approval for our next gen InterStim recharge-free device in the first half of this calendar year. With its designed best-in-class battery, constant current, and full body MRI compatibility at both 1.5 T and 3 T, we expect this device will extend our category leadership in sacral neuromodulation. With that, I'll turn it over to Karen to discuss our financial performance and our guidance. Karen?

Karen Parkhill
Karen Parkhill
CFO at Medtronic

Thank you, Geoff. Our third quarter organic revenue increased 2%. While we were tracking to our quarterly guidance in early January, the impacts from this latest wave of COVID affected our revenue in the last month of the quarter. Despite the challenging revenue, we controlled expenses and delivered adjusted EPS in line with our guidance and a penny ahead of consensus. From a geographic perspective, our U.S. revenue is flat and non-U.S. developed markets grew 1% given the impacts of Omicron. Our emerging markets were relatively stronger, growing 7%, with strength in South Asia, Latin America, and the Middle East and Africa. Converting our earnings into strong free cash flow is a priority. Our year-to-date free cash flow was $4.3 billion, up 23% from last year, and we continue to target a full year conversion of 80% or greater.

Karen Parkhill
Karen Parkhill
CFO at Medtronic

We remain focused on allocating our capital to generate strong future growth and shareholder returns. We are increasing our organic R&D investments broadly across the company to fuel the pipeline that Geoff walked through earlier, and we are supplementing this with attractive tuck-in acquisitions. Since the beginning of last fiscal year, we've announced eight acquisitions totaling over $3.2 billion in total consideration, including last month's acquisition of Affera in our cardiac ablation business. At the same time, we're increasing our minority investments in companies that could become future acquisitions, as was the case with Affera. We have a commitment to return more than 50% of our free cash flow to our shareholders, primarily through our attractive and growing dividend. We are an S&P dividend aristocrat, and fiscal year to date, we've paid over $2.5 billion in dividends to our shareholders.

Karen Parkhill
Karen Parkhill
CFO at Medtronic

Finally, particularly in periods where we see share price dislocation, we look to execute opportunistic share repurchases, as was the case this quarter. Fiscal year to date, we've repurchased over $1.1 billion of our stock. Turning to guidance. While procedure volumes are still impacted from Omicron in the first few weeks of February, we are beginning to see improvement. Our outlook assumes continued procedure volume recovery through March and April, and we expect to be back to pre-COVID levels in most of our markets before the end of the fourth quarter. Assuming that holds, for the fourth quarter, we're comfortable with current street consensus for our organic revenue growth of approximately 5.5%. At recent foreign exchange rates, currency would be a headwind on fourth quarter revenue of approximately $185 million.

Karen Parkhill
Karen Parkhill
CFO at Medtronic

By segment, we would model cardiovascular at 7%-8% growth, neuroscience at 2.5%-3.5% growth, medical surgical at 7.5%-8.5% growth, and diabetes down 6%-7%, all on an organic basis. On the bottom line, we expect fourth quarter non-GAAP diluted EPS in the range of $1.56-$1.58, in line with current consensus. At recent rates, we expect currency to have a flat to slightly positive impact on the bottom line. Before I send it back to Geoff, I want to acknowledge the additional strain that the recent COVID resurgence has placed on our customers and our employees over the past couple of months.

Karen Parkhill
Karen Parkhill
CFO at Medtronic

I am truly grateful for the perseverance that both healthcare workers and our employees have demonstrated to ensure patients receive our life-changing therapies around the world. Back to you, Geoff.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Thank you, Karen. For the last few quarters, I've been closing by commenting on the progress the company's making in various areas of ESG, our environmental, social, and governance impacts. Today, I want to highlight that we recently released our Global Inclusion, Diversity, and Equity 2021 annual report entitled Zero Barriers. The report shares how we are accelerating our efforts to remove barriers to opportunities by creating an inclusive work environment, doubling down on removing bias, and amplifying our impact in our local communities. Our commitments to ID&E and the UN Sustainable Development Goals compel us to solve health inequities faster. Systemic, socioeconomic, racial, geographic, and even generational factors all contribute to a person's ability or inability to achieve good health and reach their full potential as a contributing member of society.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

We're committed to urgently addressing barriers to education, diagnosis, and treatment as the global crisis of health inequity can be solved by accelerating access to healthcare technologies. One such inequity is mortality from colorectal cancer. While colorectal is one of the most preventable cancers, low screening rates make it one of the deadliest, with mortality rates 40% higher for the Black population in the United States. In addition, Hispanic and Latino adults are more likely to be diagnosed in later stages of the disease when it's more difficult to treat. Today, I'm pleased to announce that Medtronic is collaborating with Amazon Web Services and the American Society for Gastrointestinal Endoscopy to place GI Genius modules at facilities that support low-income and underserved populations across the United States.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Our GI Genius system improves the quality of colonoscopies using AI to assist physicians in detecting both precancerous and cancerous growths. Increasing access to technology that can improve clinical outcomes through earlier and more accurate detection can provide a significant positive impact for communities most vulnerable to colorectal cancer. We continue to look for creative solutions like this one to address health inequities. Now, let me close on this note. While the pandemic and its associated impacts have affected our revenue the past couple of quarters more than we expected, we haven't lost sight of the big picture. We've made significant changes in the company, and we're strengthening our operations, supply chain, and global quality systems. We're also laser-focused on capital deployment and portfolio management processes with a deep commitment to creating shareholder value. We have several exciting growth catalysts in our pipeline.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

We expect to benefit as market procedures re-accelerate post-Omicron and as we lead in high-growth med tech markets. While it's been a bumpier ride than I would have liked, and we still have challenges to work through, I'm confident in our organization's ability to accelerate and sustain our growth profile over the long term to grow at or above our markets, and as we do so, create value for our stakeholders. Finally, I want to join Karen in thanking all of our employees around the world who, despite the challenges we faced, day in and day out engineer the extraordinary so that we can serve our customers and patients in all four corners of the globe. As a result of your efforts, we can fulfill the Medtronic mission, alleviating pain, restoring health, and extending life for millions of people around the world. Now let's move to Q&A.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

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. If you have additional questions, you can reach out to Ryan and the investor relations team after the call. With that, Wynne, can you please give the instructions for asking a question?

Operator

For the sell-side analysts that would like to ask a question, please select the Participants button and click Raise Hand. If you're using the mobile app, press the More button and select Raise Hand. Your lines are currently on mute. When called upon, you'll receive a request to unmute your line, which you must respond to before asking your question. Lastly, please be advised that this Q&A session is being recorded. For today's session, Geoff, Karen, and Ryan are joined by Sean Salmon, EVP and President of the Cardiovascular Portfolio and the Diabetes Operating Unit, Bob White, EVP and President of the Medical Surgical Portfolio, and Brett Wall, EVP and President of the Neuroscience Portfolio. We'll pause for a few seconds to assemble the queue. We'll take the first question from Robbie Marcus at JP Morgan. Robbie, go ahead.

Robbie Marcus
Robbie Marcus
Equity Research Analyst covering MedTech and Healthcare at JP Morgan

Oh, great. Thanks a lot and congrats on the quarter. Maybe my first question, you know, I think one of the bigger investor questions that's building here, especially with some of the warning letter and delays in diabetes and some of the inflation pressure we're seeing with some of your competitors. Any early thoughts on how we should be thinking about fiscal 2023? There's a wide range on estimates, so just wanted to get any early sense you had for us. Thanks.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Sure, you know, maybe I'll first of all, thanks for the question. I agree, it's a big question, and maybe I'll turn this over to Karen to provide some color commentary on FY 2023.

Karen Parkhill
Karen Parkhill
CFO at Medtronic

Thank you, Geoff and Robbie. I would first say it's early, and obviously, you know we're going to give our full-year outlook on our Q4 call in May. We're working through our planning process as we speak. We've noted before with you that there are more puts and takes than normal for next fiscal year. Let me help by sharing some broad thoughts. On revenue, we continue to drive to our long-term organic revenue growth goal of 5%+, for sure. Although I would say on the plus side of that LRP may be more difficult in FY 2023, just given some of the challenges that we've talked about. We are, as you know, expecting really great product launches. Geoff talked about several of them on the call.

Karen Parkhill
Karen Parkhill
CFO at Medtronic

We do expect a continued rebound in procedure volumes in our markets. As we think about FX on the top line for next year, think about that as being a few hundred million headwind at recent rates. On the bottom line, you've heard from others around the increased pressure from the macro environment, and you know, we've got that same increased pressure on things like inflation and wage adjustments. We noted last month that currency is expected to flip from a tailwind to a headwind next fiscal year. We've also shared that we've got some dilution from our Affera acquisition. Those last two combined could impact EPS by a few hundred basis points.

Karen Parkhill
Karen Parkhill
CFO at Medtronic

While, you know, we continue to work to offset these headwinds, we certainly don't want to shortchange our investments and our meaningful growth drivers for the future. It's those investments that are really gonna help us deliver on that plus side of the 5%+ over the long-range plan. I would say, you know, FY 2023 will be a unique and challenging year just given the macro environment and the timing of our major pipeline launches. On the bottom line, we do expect to grow EPS next year, certainly. At this stage, we don't expect it to be above revenue growth. I want to make sure, though, that you take away from this that we are still very committed to our long-range plan.

Karen Parkhill
Karen Parkhill
CFO at Medtronic

We've got investments in quality along with the more than modest FX dilution next fiscal year that should subside going forward. While it's hard to predict the macro factors like inflation and wage adjustments, you know, I'm not sure they'll continue at the pace that we're currently experiencing. Obviously, as we look forward, we expect to have meaningful revenue growth to go along with those investments that we're prioritizing, which will ultimately help drive EPS growth. I hope that color's helpful, Robbie.

Robbie Marcus
Robbie Marcus
Equity Research Analyst covering MedTech and Healthcare at JP Morgan

Yeah. That's great. Then as my follow-up, Geoff, at the JPMorgan conference, you first mentioned maybe doing some bigger changes to the business. You mentioned it again today. I was just hoping you could give us a little flavor for what you're thinking. You know, is it divestitures? Is it a bigger breakup of the company? You know, what's the timeframe we should be thinking about for some of the larger potential actions? Thanks.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Sure, Robbie. Yeah. We're, you know, definitely looking at the portfolio more intently. You know, however, at this point, I can't really get into specifics. I'll say we're looking to improve our WAMGR. We're looking to improve the consistency of our growth. You know, our North Star, to summarize it, our North Star is durable growth. We're looking at our businesses, and we're evaluating them for, one, how well they fit into the portfolio, how well they fit into our strategy. You know, are we the right owners of these assets? How we, Medtronic, add value and grow these businesses. You know, it's still at this point, like I said at the conference, we don't know if these changes will be significant or, you know, more limited.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

I can assure you we're deeply committed to doing the right things for shareholders and on all the Medtronic stakeholders. You know, we intend to get through this analysis, you know, and I think have more over the next several, you know, over the course of the next fiscal year is what we said at the JPMorgan. I don't have any more update from that in terms of timing.

Robbie Marcus
Robbie Marcus
Equity Research Analyst covering MedTech and Healthcare at JP Morgan

Great. Thanks a lot. Appreciate it.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Thank you.

Ryan Weispfenning
Ryan Weispfenning
VP and Head of Investor Relations at Medtronic

Thank you, Robbie. Next question please, Wynne.

Operator

Next question comes from Vijay Kumar at Evercore ISI. Go ahead.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Vijay, are you there? Do you wanna go to the next question and then come back to Vijay? Or-

Vijay Kumar
Vijay Kumar
Senior Analyst covering Medical Technology at Evercore ISI

I'm so sorry about that.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Oh, there he is.

Vijay Kumar
Vijay Kumar
Senior Analyst covering Medical Technology at Evercore ISI

Hi, Geoff, Karen. Good morning, and thanks for taking my question. I guess maybe one. My first one is on the guidance comments you made, which was helpful. What is FY 2023 assuming on diabetes? Did you guys have that second meeting with the FDA? Is the warning letter going to be delinked with the approval, or how are you treating diabetes in that comment of five plus, with plus being difficult? Is that still assuming a 50-100 basis points of headwind from diabetes?

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

On the very last part of the question, I'll let Karen and maybe Sean chime in. You know, in terms of, look, the dialogue with the FDA is ongoing. I mean, we've got an ongoing dialogue on the 780G approval. We've got an ongoing dialogue on the warning letter. Our priority is, you know, they're both priorities, but our first priority is to work the warning letter issues that we've been working these, like as we talked about for two years now, even before the warning letter was issued. The dialogue with, like I said, with the FDA is ongoing, and it's very constructive, I would say.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

You know, Karen, you wanna talk about the last part of the question there?

Karen Parkhill
Karen Parkhill
CFO at Medtronic

Sure, Vijay. Good morning. You know, it's still too early to get specific. We're in our planning process, and as we talked about before, there are a variety of outcomes and ranges that can happen depending on the approval. We're obviously focused on getting that approval out as quickly as possible, and we'll be working toward that. But too early to get specific on you know, guidance. We'll give that guidance, including for our business units in the fourth quarter call.

Vijay Kumar
Vijay Kumar
Senior Analyst covering Medical Technology at Evercore ISI

Understood. Maybe, Geoff, my second question on the robot. Some early feedback seems to be positive. You know, you did mention supply chain has been resolved or, you know, you're ramping up production. Maybe some sense for where production is, or some color on how many surgeons have been trained, what is the order book looking like for the robot, would be helpful.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Maybe I'll bring in Bob here in a second to provide some of that more color on that. Overall, we're making progress on the robot. Demand continues to be strong. We continue to get the additional regulatory approvals, a couple more last quarter. You know, we did our first surgery in Europe and are getting good feedback from surgeons there, which I think is a great sign. The breadth of our procedures you know continues to grow, get more complex. You know, we're feeling good about where the robot is.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Like that we've got something really powerful on our hands here, and we're gonna achieve our long-term objectives here. As we've said before, you know, we anticipate, you know, strong ramp in FY 2023. You know, I'll give Bob. You know, Bob, do you wanna add some color here?

Bob White
Bob White
EVP and President, Medical Surgical Portfolio at Medtronic

Yeah. Thanks, Geoff. And Vijay, thanks for the question. It was nice to read your report after the time you spent with Professor Mottrie as well. Certainly what we've seen, Vijay, is we've seen some nice progress. We're installing more systems across the world. As you know, now that we have our CE mark approval, Geoff mentioned some of the general surgery procedures taking place. We certainly expect to continue to expand the regulatory approvals in more countries. We're certainly looking to expand in the future to thoracic, colorectal, hernia, bariatric procedures. Obviously, Hugo was designed with all those procedures in mind, working with all those regulatory agencies. The feedback itself has been really positive, Vijay. The open console has been excellent.

Bob White
Bob White
EVP and President, Medical Surgical Portfolio at Medtronic

The visualization, staying connected with the OR staff. What we like about that, you know, we really think the console and our whole system's designed for where healthcare is moving, which is a real kind of cross-functional team-based approach to physician care delivery. Obviously, as you know, you picked up some of this feedback. The way our system's designed, it's also allowing to train multiple surgeons in parallel. To your question, you know, we're training lots of surgeons. We have training centers now opened up in geographies across the world and seeing really good traction there as well. We're gonna do what we told you consistently throughout, which is expand our limited market release into these markets and continue to make progress. Thanks for the question, and thanks for spending time with Professor Mottrie.

Vijay Kumar
Vijay Kumar
Senior Analyst covering Medical Technology at Evercore ISI

Thanks, guys.

Bob White
Bob White
EVP and President, Medical Surgical Portfolio at Medtronic

Thank you, Vijay.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Thanks, Vijay.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Next question, please, Wynne.

Operator

The next question comes from Pito Chickering at Deutsche Bank.

Pito Chickering
Pito Chickering
Senior Analyst and Healthcare Equity Research covering Healthcare Equipment and Devices at Deutsche Bank

Good morning, guys. Thanks for taking my questions. On the guidance questions, I understand that the macro environment for 2023 is pretty challenging. As you look at both labor and material inflation, do you think that would change your long-term EPS targets, or do you need more revenue growth to offset these margin pressures, or do you think that you can pass some of this cost on to your customers over time?

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Let me take a stab at that. First, there are things that we're doing. I'll let Karen talk about some of this in a second here. We are in addition to, we are obviously facing these inflationary pressures. Even before the inflation kicked in, as part of our organizational new operating model, one of the areas we've talked a lot about, moving to the 20 operating units and putting more into R&D and really speeding up the pace of innovation. I think that is working.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

We're getting good evidence around that this is working in terms of the pace of our product launches, and some of these product launches coming much faster than we anticipated, like we talked about, and I talked about in the commentary, like in our pain stim market with DPN, diabetic peripheral neuropathy approval. I can go off on a couple other lists. Our ECAP submission for pain. These are areas that we just sped things up. I feel good about that. Another area that we had planned to address and now are accelerating is the operations area, and there's an opportunity there to get some more benefits of scale that we have and simplify our global operations. In simplifying that's gonna.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

I think we're gonna also invest in some enhanced capabilities there. That is going to give us a lower cost to serve, if you will, and set us up for, you know, cost of goods sold improvements over time. That is going to help address some of this. You also mentioned price. Again, those plans were put in motion before the inflation, but we've, you know, we've been accelerating it since the inflation has hit. Then price. I mean, price. We are looking more, you know, acutely at our new technology. We have a lot of new products coming out, and we are looking at the pricing of that in the wake of some of this inflation.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

There are select markets around the world, where I think we have the ability, we have the opportunity to improve our pricing. We are looking at pricing as well. Both those levers, reducing our cost to serve and setting ourselves up for cost of good, in better cost of goods sold, you know, over time, and then the pricing that I just mentioned. Now, Karen, do you wanna add?

Karen Parkhill
Karen Parkhill
CFO at Medtronic

Yeah, I'll just add a little bit. You know, while it varies by geography, we are seeing a wage inflation in our direct labor currently of almost 9%. So that is much higher than typical, and that's just a near-term headwind that we're dealing with that you know, will impact us a bit in FY 2023. On materials right now, you know, we're typically able to drive net material savings through productivity efficiencies and cost down initiatives. You know, right now we're expecting 200 basis points of inflation on that, just in the near term. Again, over the long term, you know, we're focused on driving revenue growth, on driving continued cost down and expense efficiencies, pricing opportunities where we have them.

Karen Parkhill
Karen Parkhill
CFO at Medtronic

You know, we're focused on and remain committed to that long range plan.

Pito Chickering
Pito Chickering
Senior Analyst and Healthcare Equity Research covering Healthcare Equipment and Devices at Deutsche Bank

Great. Thanks so much.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Thanks, Pito. Next question, Wynne.

Operator

The next question comes from Matt Miksic at Credit Suisse.

Matt Miksic
Matt Miksic
Senior Research Analyst covering Healthcare and MedTech at Credit Suisse

Hi. Thanks so much. Can you hear me okay?

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Yep, we can hear you, Matt.

Matt Miksic
Matt Miksic
Senior Research Analyst covering Healthcare and MedTech at Credit Suisse

Great. I had one quick one on sort of your portfolio comments and then just a clarification on the 2023 guidance comments, if I could. Geoff, I think sometimes when folks ask about portfolio changes or, you know, puts and takes to your businesses, they're thinking of, you know, just to put it bluntly, commitment to diabetes, frankly. Love to get your thoughts on your commitment to that business and how important it is to the portfolio. You know, where you stand in terms of the process of getting it back on its feet. I have just one clarification, as I mentioned, for Karen.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Sure. On the comments we made about the portfolio, let me start by saying it wasn't intended to be focused on diabetes. It's a real, I guess, deep dive, I would say, on the whole portfolio, okay? More intent than we've done in the past. Regarding diabetes, look, I'd say we are confident in our turnaround story here, right? You know, I know the warning letter didn't help, but we are confident in the turnaround story. We believe we have a solid pipeline of new technologies and some near-term growth opportunities. You know, our clear priority though is resolving the FDA warning letter and getting these new products to market, especially in the U.S., right?

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

It's a situation when we see the products working in other markets, we know it'll have a huge impact, you know, on patients here in the U.S. as well. We have multiple shots on goal to deliver, you know, competitive pump and CGM technology through our organic R&D, through the Blackstone partnership, and through some structured investments. As we mentioned, in the JP Morgan conference, you know, we do have some parts of the pipeline that we haven't, you know, provided much detail on for competitive reasons. You know, we feel. You know, wish we were further along in diabetes, you know, in terms of not having the warning letter. You know, it doesn't change the narrative in our mind. We have the technology, we have the pipeline.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

It's a high-growth market, and we feel good about it.

Matt Miksic
Matt Miksic
Senior Research Analyst covering Healthcare and MedTech at Credit Suisse

That's great. Thank you. Just on Karen, appreciate the color on 2023, and understand it's, you know, we're a quarter away here from formal 2023 guidance. You know, the few hundred basis points impact on EPS you mentioned from FX and some other items, dilution from Affera, just to put a finer point on it, you know, that's inclusive of the diabetes impact, you know. Also just to make sure we have the math right, that's somewhere in the range of $0.15, $0.15-$0.20 or something like that of a headwind from those items. Thanks.

Karen Parkhill
Karen Parkhill
CFO at Medtronic

Yeah, Matt. Thank you. Those items, the few hundred basis points that I talked about are just from the foreign exchange flipping from a tailwind this fiscal year to a headwind next year and from the dilution. You can see the magnitude just from those, you know, two temporal items. That foreign exchange, you know, flip, I think, at least at current rates, we would say is much more than modest. That's why we point them out.

Matt Miksic
Matt Miksic
Senior Research Analyst covering Healthcare and MedTech at Credit Suisse

Great. Thanks.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Thanks, Matt. Next question please, Wynne.

Operator

Next question comes from Larry Biegelsen at Wells Fargo. Go ahead, Larry.

Larry Biegelsen
Larry Biegelsen
Senior Healthcare and MedTech Analyst at Wells Fargo

Good morning. Thanks for taking the question. Just one on the recovery and a related one on China. You know, it looks like January was soft, you know, given your comments at JPMorgan, and the results today. A little bit more color on what you've seen in February and the confidence in the Q4 guidance. You know, it does imply a pretty significant increase, I think, sequentially. Just lastly on China, it was flat in Q3, versus, you know, growing high teens in the second quarter. Any color on that and how you guys are thinking about, you know, VBP there. Thanks for taking the question.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Sure. Larry, on the first part of the question, Omicron, you know, impacted cases and it caused broad-based absenteeism, right? We use the word absenteeism to separate it from healthcare worker shortage. The healthcare worker shortage, I think, is gonna last a bit longer into FY 2023 versus the absenteeism, you know. That's driven by all the things you've heard about, like, burnout, people leaving the workforce, versus absenteeism was more short-term and acute, caused by this, the broad number of Omicron cases. Absenteeism applies not just to healthcare workers but our own employees working in factories and our distribution centers, our suppliers. It was broad-based.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

That absenteeism plus the COVID cases suppressing elective cases in hospitals peaked the second half of January and into the first half of February. You know, trends are now favorable as we've, you know, highlighted and indicated with our Q4 guidance. We think procedure volumes will improve throughout March and April and back to pre-COVID levels by the end of our fiscal Q4. You know, however, you still have these chronic staffing shortages that will be, you know, from what we're hearing from hospital administrators, persistent to FY 2023, or into 2023, sorry.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

They will be mitigated by these traveling or temporary staff, where the hospitals are just paying more for these, you know, these employees and technologies like remote monitoring and telehealth. We think that those mitigants will allow them to get back to the normal levels. It will maybe limit them from going, you know, 110% or 120% of pre-COVID levels like we saw in prior waves prior to Delta and Omicron. That's how we're seeing it, and it does imply a big improvement here in Q4. We don't see that hospitals have the capacity to kinda handle 110%-120% kind of levels like we've seen in other waves. I hope that answers that question.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Maybe on the China piece, I'll turn that over to Karen.

Karen Parkhill
Karen Parkhill
CFO at Medtronic

Yeah. Thanks, Geoff. You know, on China, it was a bit flat in Q3, and we did see some regional tenders happening or beginning to happen in the trauma space. And as we see those tenders happening, the channel slows down their buying. So that just happens in advance. But just on VBP in general in China, we do expect the government to focus on the top 10 medical device products by public insurance spending. And as you know, we've been through stents, and other industry players have gone through large joints. I mentioned we're now seeing this regional trauma tender. And we see two more potential national tenders on that list where we have exposure, and that would be in spine and surgical stapling.

Karen Parkhill
Karen Parkhill
CFO at Medtronic

Obviously, there's a lot of uncertainty around these tenders, including timing. But just so you know, if we look at our spine and stapling business in China, our gross exposure is somewhere between 1% and 1.5% of the total company revenue. Based on what we experienced with stents, there should be offsets to that ultimate number so that the net would be, you know, less than the gross that I mentioned because we've got pull-through of products, and we'll obviously be working those. We are anticipating at least one of those tenders to happen in FY 2023. These are among the things that put pressure on the plus side of our long-term 5%+ goal for next year. I hope that's helpful.

Larry Biegelsen
Larry Biegelsen
Senior Healthcare and MedTech Analyst at Wells Fargo

Thank you so much, Karen.

Ryan Weispfenning
Ryan Weispfenning
VP and Head of Investor Relations at Medtronic

Thank you, Larry.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Thanks, Larry.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Next question, Wynne.

Operator

The next question comes from Joanne Wuensch at Citi.

Joanne Wuensch
Joanne Wuensch
Director and Senior Analyst covering Healthcare Technology at Citi

Good morning. Can you hear me okay?

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Yeah, sure, Joanne. How you doing?

Joanne Wuensch
Joanne Wuensch
Director and Senior Analyst covering Healthcare Technology at Citi

I'm doing okay. Thank you for taking my question. I wanna just build off of Karen's last comments on the plus side of the 5%, somewhat for next year, but even the year after that. What needs to happen in order for you to get there? Specifically, I do have a number of investors who think or say, you know, they can't get to the plus side without a diabetes turnaround.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Well, I think what I like about our position right now is the breadth of the strength of the current portfolio and the strength and breadth of the pipeline. You know we have several drivers. There's a lot of focus on, obviously, on Hugo, and we talked about that, and we're feeling good there. You know certainly you know by that time, we'll have worked through some of these manufacturing and supply chain issues, and we're feeling really good about the quality of what we have here and the impact that Hugo's gonna have. You know we'll get the Ardian data readout as well. You know I'll come back to you. We talked about diabetes, but beyond that you've got things like.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

I'll just highlight a few, and I'll start in cardiovascular. You've got our EV-ICD coming. We see that market to be $2 billion-$3 billion. Then our cardiac ablation solutions business there for aFib, we've got PFA. Of course our DiamondTemp rollout will peak, and we've got PFA coming. In med surg beyond Hugo, SI is hitting a nice part of its product cycle here. There's a number of products that'll have an impact coming in SI. Then our neuroscience portfolio just across the board is well-positioned.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

You know, you heard in the commentary about neuromodulation, you know, with DPN and pain, ECAPs and pain, and that's strength on strength as our DTM is doing well there. You got DBS with the sensing and the closed loop. Pelvic health, that market continues to be, you know, a strong growth market, and we've got a great product line up there. ENT will be adding Intersect, and I really believe our spine business is poised, with the broad base of enabling technology and just where that market's going. It definitely favors us. You heard today that neurovascular is back to gaining share. Over the years, we've relied on that. It's a broad base of technology.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

I think with the new operating model, I expect it to keep refilling, you know, that pipeline up. That's the focus. You know, that's what I'd say. We feel good about. As Karen said, there's more puts and takes next year than normal for sure, and she's gone through that, I think, in good detail. We're committed to the long-term plan, and it starts with this top line growth. Based on the broad nature of it, we feel good. Getting back to diabetes, remember, we do have the 780G with the Guardian 4 sensor. We will have a new sensor beyond that in that timeframe with Simplera.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

That Simplera sensor could also be paired with our pen, you know, from Companion and creating a whole new, you know, vector of growth for our diabetes business there with smart pens paired with our sensor. There's a number of drivers there, and you take it all. It doesn't all need to happen to get to that 5%+, you know, once you get past FY 2023.

Karen Parkhill
Karen Parkhill
CFO at Medtronic

Joanne, I just wanna emphasize from my seat that we are really confident in that 5%+ over the long term. It is because it's not dependent on any one thing, but it's you know, the strength of the pipeline that Geoff mentioned.

Joanne Wuensch
Joanne Wuensch
Director and Senior Analyst covering Healthcare Technology at Citi

Excellent. Thank you so much.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Thanks, Joanne. Next question, Wynne.

Operator

The next question comes from the line of Danielle Antalffy from SVB Leerink.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Hey, Danielle.

Danielle Antalffy
Senior Equity Research Analyst covering MedTech at SVB Leerink Partners

Oh, sorry. Can you guys hear me okay?

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Yeah, we can hear you just fine.

Danielle Antalffy
Senior Equity Research Analyst covering MedTech at SVB Leerink Partners

Okay. Great. Thank you so much and appreciate all the commentary you guys provided, as we look out over the next fiscal year. Just a quick question as you think about the ramp in new, major new product launches. You've talked about Hugo a little bit here, but there's obviously also Ardian. Just to follow up on Joanne's question, I guess, as we think about fiscal 2024 and beyond, so beyond the next fiscal year, how we should be thinking about that ramp. I know we're waiting for the data, but has anything changed as far as thinking about contribution for some of these major new product launches? Thank you so much.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Well, on the Ardian question, and maybe I'll pull in Sean Salmon here to provide an update on Ardian.

Sean Salmon
Sean Salmon
EVP and President of Cardiovascular Portfolio at Medtronic

Yeah. Geoff, I think, you know, the data readout on Ardian we're expecting now in that kind of late fall, early winter timeframe of this calendar year. There may be a milestone in between now and then to give you more confidence. We have the three-year data from the pilot trial on meds being presented at ACC this year. Why that's important is that'll be the first time we've had randomized data with long-term follow-up. The question around how long does the effect last, it doesn't wear out, that's gonna be really important for payers, and it's an important inflection point. You know, we remain very confident in the body of evidence that we had for Ardian has continued to be very consistent.

Sean Salmon
Sean Salmon
EVP and President of Cardiovascular Portfolio at Medtronic

You know, we're making preparations to really go after a blockbuster launch here.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Good. You know, another one that we've mentioned a little bit in the commentary, Danielle, that maybe I'll have Brett Wall comment on is, you know, two things in pain. You know, our pain business is already well-positioned with our DTM, but the diabetic peripheral neuropathy and the ECAPs submission. Do you wanna comment on those two things, Brett? 'Cause those are, I think together-

Brett Wall
Brett Wall
EVP and President of Neuroscience Portfolio at Medtronic

Sure.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

pretty meaningful.

Brett Wall
Brett Wall
EVP and President of Neuroscience Portfolio at Medtronic

Yeah, sure, Danielle. These two things are pretty meaningful. We received the diabetic peripheral neuropathy approval about 2.5 years before we anticipated that. We think that's a market that, as Geoff said in the commentary, is gonna grow to $300 million pretty quickly. We are well-positioned with that and, you know, the data there that we submitted is very strong data. It's reflective of the other data that has been presented in that same field. We have every right to win there, and we will be investing and moving accordingly. In addition, we submitted late last year our ECAPs filing. You know, ECAPs is a closed loop algorithm that will be utilized in SCS.

Brett Wall
Brett Wall
EVP and President of Neuroscience Portfolio at Medtronic

We are back to gaining share really across the neuromodulation portfolio, but in SCS in particular with DTM. Now with the embodiment of our stimulation programs with the sensing capability to close the loop and allow for really more effective therapy there. The entirety of this portfolio is set up as the markets recover and as procedures recover as we wind down Omicron for you know share gain and growth across the field with more effective therapies in this entire area.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Yeah, you know, just last comment on that. I mean, look, obviously they're both great opportunities. The other piece that I really like about them is just how we did this, right? In both cases you had small, you know, smaller, and in one case with ECAPs, a startup, smaller focused companies that you know, that signaled the innovation here. You know, historically, we haven't moved that fast. Now we're moving at a much faster pace. I just love the way we put these focus teams on there, gave them this challenge in both of these instances to move fast.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Don't sacrifice quality, but move fast, you know, this is the type of thing that we wanna see, we're starting to see across the portfolio with the new operating model, with the leaders we have in place, with some of the new leaders we've brought in from outside the company. Like I said earlier, you know, also now beyond innovation, you know, moving on to really improving our capabilities and our end-to-end supply chain to make sure that it's reliable and it sets us up from a cost position as well. Like where the company's headed, those two examples in particular.

Larry Biegelsen
Larry Biegelsen
Senior Healthcare and MedTech Analyst at Wells Fargo

Thank you so much.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Yeah. Thanks, Danielle. I apologize, we're not going to be able to get to all the analysts today. We do have time for one more question. Can we take that, Wynne?

Operator

Our final question comes from Rick Wise at Stifel. Go ahead, Rick.

Rick Wise
Rick Wise
Senior Healthcare Analyst at Stifel

Thanks, Wynne. Good morning, Geoff. Hi, Karen. Geoff, maybe just given your commentary about, and the appreciation for your, stepped up R&D spending and your comment about, using a portion of cash flow for a continuing M&A, sort of in a sense an extension of R&D

Karen Parkhill
Karen Parkhill
CFO at Medtronic

Mm-hmm.

Rick Wise
Rick Wise
Senior Healthcare Analyst at Stifel

Maybe can you talk a little more, just, give us your latest thinking on how your reflections on your targets, are there a lot of opportunities to increase your minority investments? Where are you? What are you prioritizing for the calendar and the next several years? What are you targeting? Just any updates would be very welcome. Thank you.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Sure. Hey, Rick, great to hear from you. Thanks for that question. I'll answer it a couple ways. One, yeah, this is separate. These tuck-in acquisitions and venture investing, that's separate from the broader portfolio comments I made earlier. This is what we view part of our everyday business here is doing tuck-ins and. So a couple things I'd say. One, we have stepped up our venture investing. We separated our venture team maybe two years ago from our M&A team to have more focus. We have separate operating mechanisms with these, with this team, that Karen, myself, and several others from the executive committee participate in. We have stepped up those investments.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

A lot of those investments, some of them are just, you know, debt or equity, but some of them are more structured investments that give us opportunities down the line. That is significantly up. You know, on the acquisition space, I was hoping, like I said in prior calls, that during COVID, valuations would go down a bit and present opportunities. That didn't happen initially, but valuations have come down a bit and our pipeline is fuller than it has been over the last two years. You know, you see the Intersect deal.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

That Intersect ENT deal for ENT that we announced and the Affera deal for our ablation solutions business, you know, those are the type of, like, acquisitions, you know, in that, you know, billion, multibillion-dollar range that have, you know, in the case of Intersect ENT, will have an immediate impact, 'cause they've got meaningful revenue. The Affera deal, it will take a little bit longer, as it's still earlier in development, but hugely impactful. What I like about that deal is how it repositions our, you know, really strengthens our ablation business there by providing the map nav and complements our, our PFA offerings. You know, we're seeing things, you know, across the board, if you will.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Particularly, I would say, a lot of interesting things in neuroscience, a lot of interesting things in the cardiology space as well. That's how I'd answer that question.

Rick Wise
Rick Wise
Senior Healthcare Analyst at Stifel

Thank you very much.

Ryan Weispfenning
Ryan Weispfenning
VP and Head of Investor Relations at Medtronic

Thanks, Rick. Geoff, please go ahead with your closing remarks.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Okay. All right. Thanks, Ryan. Okay. Look, thanks everybody for the great questions and, you know, we certainly appreciate your support and your continued interest in Medtronic. Look, you know, we obviously Karen outlined some of the puts and takes that we have that we're working through. We also have, like, I ended on some extraordinary, you know, opportunities in the marketplace, and you combine that with the changes that we've made in the company and continue to make, that I think are having a meaningful impact. You know, I'm confident in our ability, you know, to work through these challenges and deliver on these opportunities and deliver on that plan, that long-range plan that we've outlined.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

you know, we're steadfast in our commitment to deliver durable and higher growth, full stop. look, we hope you'll join us for our Q4 earnings webcast, which we anticipate holding on May 26th, where we'll update you on how we finish the fiscal year and then even a more detailed look ahead at fiscal 2023. with that, thanks for tuning in today. you know, please stay healthy and safe, and have a great rest of your day.

Executives
    • Ryan Weispfenning
      Ryan Weispfenning
      VP and Head of Investor Relations
    • Geoff Martha
      Geoff Martha
      Chairman and CEO
    • Karen Parkhill
      Karen Parkhill
      CFO
    • Bob White
      Bob White
      EVP and President, Medical Surgical Portfolio
    • Sean Salmon
      Sean Salmon
      EVP and President of Cardiovascular Portfolio
    • Brett Wall
      Brett Wall
      EVP and President of Neuroscience Portfolio
Analysts
    • Robbie Marcus
      Equity Research Analyst covering MedTech and Healthcare at JP Morgan
    • Vijay Kumar
      Senior Analyst covering Medical Technology at Evercore ISI
    • Pito Chickering
      Senior Analyst and Healthcare Equity Research covering Healthcare Equipment and Devices at Deutsche Bank
    • Matt Miksic
      Senior Research Analyst covering Healthcare and MedTech at Credit Suisse
    • Larry Biegelsen
      Senior Healthcare and MedTech Analyst at Wells Fargo
    • Joanne Wuensch
      Director and Senior Analyst covering Healthcare Technology at Citi
    • Danielle Antalffy
      Senior Equity Research Analyst covering MedTech at SVB Leerink Partners
    • Rick Wise
      Senior Healthcare Analyst at Stifel
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