Medtronic Q2 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 21, 2023

Key Takeaways

  • Medtronic delivered 5% organic revenue growth in Q2, with mid-single-digit performance across cardiovascular, neuroscience and surgical segments and high-single-digit growth in diabetes.
  • The company raised its full-year guidance, now targeting 4.75% organic revenue growth and non-GAAP EPS of $5.13–$5.19, up from prior ranges.
  • Key product approvals and launches fueling future growth include the EVICD system, pulse-field ablation catheters, Ardian renal denervation, Evolut FX TAVR data, Hugo surgical robotics and the MiniMed 780G diabetes system.
  • Transformation initiatives—such as centralizing global operations, enhancing quality and supply chain, and reallocating capital to fast-growth medtech markets—are expected to drive long-term efficiency and innovation.
  • After modeling detailed data from the SELECT trial, Medtronic anticipates negligible long-term impact from GLP-1 drugs on its procedural markets, aside from a modest temporary effect on bariatric surgery.
AI Generated. May Contain Errors.
Earnings Conference Call
Medtronic Q2 2024
00:00 / 00:00

Transcript Sections

Skip to Participants
Ryan Weispfenning
Ryan Weispfenning
VP and Head of Investor Relations at Medtronic

Good morning! Welcome to a crisp fall morning here in Minnesota. I'm Ryan Weispfenning, Vice President and Head of Medtronic Investor Relations, and I appreciate that you're joining us this morning for Medtronic's fiscal 2024 Q2 video earnings webcast. Before we go inside to hear our 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 Q2, which ended on October 27, 2023, and our outlook for the remainder of the fiscal year. After our prepared remarks, the executive VPs covering our segments will join us, and we'll take questions from the sell-side analysts that cover the company. Today's program should last about an hour.

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

Earlier this morning, we issued a press release containing our financial statements and divisional and geographic revenue summaries. 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 program, 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.

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

Unless we say otherwise, all comparisons are on a year-over-year basis, and revenue comparisons are made on an organic basis, which excludes the impact of foreign currency and Q2 revenue in the current and prior year reported as other, which stems from prior business separations. There were no acquisitions made in the last 4 quarters that had a significant impact on total company or individual segment quarterly revenue growth. References to sequential revenue changes compared to the Q1 of fiscal 2024 and are made on an as reported basis, and all references to share gains or losses refer to revenue share in the third calendar quarter of 2023, compared to the third calendar quarter of 2022, 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.

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

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 studio and hear about the quarter.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Hello, everyone, and thank you for joining us today. Q2 was another good quarter for us as we executed and delivered mid-single-digit revenue growth. The underlying fundamentals of our business are strong, and our growth was broad-based across multiple businesses and geographies, with cardiovascular, neuroscience, and medical surgical all growing mid-single digits and diabetes accelerating to high single-digit growth. Our new product launches are performing well and driving growth across many businesses. We look ahead to the back half of our fiscal year. Those launches, combined with several recent regulatory approvals, give us confidence in our ability to continue delivering dependable growth. At the same time, we're executing on our comprehensive transformation, including enhancing our global operations, quality, and supply chain.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

We're decisively allocating capital into fast growth med tech markets and fueling innovative technologies in areas like robotics, AI, and closed-loop systems that will drive our growth over the next decade. We're forging the path to durable growth as we execute on the actions needed to create long-term value for our shareholders. Now let's get into the details behind our Q2 results. We continue to look at our portfolio of businesses in three categories: established market leader businesses, synergistic businesses, and highest growth businesses. Looking first at the established market leaders, we had a very strong performances across cranial and spinal technologies, surgical, and cardiac rhythm management. Combined, they made up just under half of our revenue and grew 6% organic again this quarter. Starting with cranial and spinal technologies, continued adoption of our AiBLE ecosystem is driving consistent above market growth.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

In Q2, we grew 7%. Digitization is transforming the competitive landscape in spine, and we're leading the way with AiBLE. With our global footprint of over 10,000 systems, over 10,000 systems, we're over 4 times greater than the nearest competitor. We are the first and only solution with integrated AI-based surgical planning with UNiD Adaptive Spine Intelligence. Our Mazor robotic system is the first and only to offer bone cutting, a feature that was well-received when we unveiled it at the North American Spine Society Conference in Los Angeles just last month. And we remain the clear leader in the intraoperative imaging and navigation space with our O-arm and StealthStation technologies, both of which grew double digits in the quarter.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

As surgeons adopt AiBLE, and we continue to expand our sales teams and invest in future innovation, we expect to maintain our leadership and extend our share gains in spine. Now moving to surgical, we grew 6% here. There was broad-based strength across our surgical franchise. Hernia and electrosurgery both grew in the double digits on strong sales of our ProGrip and Dextile Mesh and Valleylab smoke evacuation systems. Advanced stapling and wound management both grew mid-single digits. Cardiac rhythm grew 4%, with high single-digit growth in cardiovascular diagnostics and cardiac pacing. In pacing, our Micra leadless pacemaker franchise grew 13%, driven by our U.S. launch of our next generation Micra AV2 and VR2 devices. We're also seeing strong growth in conduction system pacing, an alternative to traditional single or dual chamber pacing.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Our 3830 lead, the only approved lead for this novel form of pacing, grew strong double digits again this quarter. And late in the quarter, we received FDA approval for our Aurora EV-ICD system, a game changer for the single chamber ICD space. Now we're ramping up our training of implanting cardiologists on the Aurora technology. So Aurora delivers the benefits of a traditional ICD, including similar size, longevity, and pacing features, but without the leads in the heart or veins. And these benefits can be realized with one device and only one implant procedure. And just to drive this point home on size, there's a big difference here versus the competitor's device, and I mean big. Here's an X-ray of an Aurora EV-ICD patient with the competitor's right next to it just for comparison.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

So in addition to all the clinical benefits of our EV-ICD, you can see that it's meaningfully smaller and of course, lighter than the competitor's. And here's the model that we're giving our reps to explain the difference to customers. Now, this is the size of the competitor's device, and we can actually pop out the Aurora to show how much smaller it actually is. So, it's like those nesting dolls, except here, we just pop out—we start with a big guy, and then we go right to the small guy. So let me pop this out. So you see inside the model, here's Aurora. Much smaller, much lighter. And speaking of weight, we actually had to put a series of weights inside of here to get the bigger device to exactly replicate the weight of our competitor's.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

So we're really excited about this as we've got a meaningfully better option for patients. Our advantages will not only displace the competitor's device, but will expand the population far beyond the existing segment. We think this can grow to become a billion-dollar plus segment. Turning to our synergistic businesses, combined, they grew mid-single digits in Q2, and we had several standout performances. Aortic grew 9% on strong momentum in our Endurant AAA franchise, following the 10-year real-world durability data presented at the Charing Cross Symposium earlier this year. Our coronary business grew 6%, as we gained share in international markets on the continued rollout of our Onyx Frontier drug-eluting stent. Cardiac surgery grew 9%, driven by strength in perfusion and cannula, as well as the Nautilus ECMO oxygenator. Our endoscopy business grew 13%, driven by continued adoption of GI Genius.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

GI Genius uses the power of artificial intelligence to detect polyps in real time during a colonoscopy, integrating seamlessly into a GI doc's existing workflow. GI Genius results in a 50% reduction in missed polyps versus a standard colonoscopy, which plays an important role in the prevention of colon cancer. Turning to businesses in our highest growth markets, cardiac ablation solutions grew 6% on strong market procedural growth. Now, over the coming years, we expect this business to be a very meaningful growth driver for Medtronic. We are leading the way in bringing pulse field ablation catheters to market in both the focal and single shot segments. In focal PFA, we continue to ramp manufacturing of the Sphere-9 catheter and remain in limited market release in Europe.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Sphere-9 can perform both PFA and RF ablation and drives high-density mapping, all from the same catheter, and it integrates seamlessly with our differentiated Affera mapping system. In the U.S., we expect to complete the 12-month follow-up in the pivotal trial for Sphere-9 in the coming weeks, and then we'll prepare for FDA submission. In single shot PFA, we just received CE mark for our PulseSelect catheter, and it will be commercially available early next calendar year. We are now the only company with approved catheters for both single shot and focal PFA. In the U.S., the FDA is reviewing our PulseSelect submission, and we expect to be one of the first companies with a PFA catheter in the U.S. market.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Now, with our PFA catheters and the Affera MapNav system, combined with our leading Arctic Front cryo solution and differentiated FlexCath Cross transseptal system, we expect to drive strong long-term growth in the fast-growing $8 billion EP ablation space. Now, turning to structural heart. Overall, the TAVR space continues to grow in the high single- to low double-digit range. In Q2, we grew mid-single digits, which was below the market. Now, we declined slightly in the U.S., comping difficult prior comparisons when we initially launched Evolut FX and customers purchased for stock. Yet we grew 4% sequentially, evidence of the strength of our product. In Europe, we grew high single digits and received CE mark for Evolut FX at the end of the quarter. And in Japan, we continued to win share and grew in the mid-30s on the continued adoption of Evolut FX and expanded ESRD indication.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Our Evolut platform has now shown superior valve performance compared to surgery in randomized trials that extend to 5-10 years after initial procedure. Last month, our landmark Evolut low-risk trial was presented at TCT and published in JACC. The trial randomized patients to Evolut or best-in-class surgery. As you can see in this chart, Evolut, which is the blue line, had a lower rate of death or disabling stroke, and the difference continues to diverge each year, going from a 2% difference at two years to 2.9% at three years and growing to a 3.4% difference at four years. This resulted in a 26% reduction in death or disabling stroke with Evolut at four years, and no other transcatheter valve has shown better valve performance and outcomes compared to surgery. Valve design matters, and this differentiates us competitively.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Physicians understand this data. This is compelling to them, and it's compelling to patients. So as we look ahead, we expect the combination of this data, coupled with the global rollout of Evolut FX, to drive our TAVR growth above market. In neurovascular, we grew high single digits when you exclude sales in China, where the coils market is subject to volume-based procurement. We continue to see very strong growth in flow diversion, which was up low twenties globally. This is being driven by our innovative Shield technology for treating brain aneurysms, which is available on both the Pipeline Flex and Pipeline Vantage flow diverters. In robotic surgical technologies, we increased our installed base as we continue the international launch of our differentiated Hugo robotic system.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

In the U.S., our EXPAND URO pivotal trial continues to enroll and is on plan, and we're happy to announce that we have FDA approval to start our U.S. hernia indication pivotal trial for Hugo. Adoption of Hugo is positive, with surgeons appreciating features that are core to the system, including Touch Surgery Enterprise digital technology. This AI-powered video solution, currently available for both robotic and laparoscopic surgery, creates a new paradigm for case review and performance improvement. We've already deployed it in over 20 countries, and we're continually developing our connected digital ecosystem, and we're excited about the upcoming launch of Touch Surgery Live Stream to enable live streaming and sharing of procedures securely and seamlessly. We expect Hugo, equipped with advanced digital capabilities, to be a meaningful growth driver for us in the years ahead.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

We believe surgeon preference with our open console and modular design, our leading position in minimally invasive surgery and instrumentation, our connected digital ecosystem and data-enabled insights, along with our world-class surgical training program and partnerships, will meaningfully advance the low penetration of robotic surgery around the world. In diabetes, our customer base is expanding sequentially as users around the world purchase the MiniMed 780G system. 780G is the only AID system to make correction boluses every five minutes, offer flexible glucose targets as low as 100, and feature meal detection technology. This combination is resulting in high time and range. Users are achieving or exceeding their glycemic targets and, importantly, realizing the relief that comes from burden reduction in their diabetes management.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

In Q2, our diabetes business grew 7%, its highest growth in 10 quarters or 5 years when you exclude the COVID comp in Q4 of FY 2021. In international markets, we continue to see robust mid-teens growth, driven by the recurring revenue from CGM and consumable sales to customers that have adopted our AID technology. In the U.S., this was our first full quarter of the 780G launch, and we're meeting or exceeding our launch goals. Our U.S. pump sales increased over 30% sequentially. The number of unique 780G prescribers has increased over 20% since last quarter, with many returning to Medtronic as they learn about the differentiated outcomes users are getting with 780G. And we also continue to see very high CGM attachment rates in our 780G installed base, meaningfully above the rates prior to launch.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

All of these leading indicators give us confidence that we'll see a significant ramp in our CGM and consumable sales in the U.S., and return to year-over-year growth in the back half of this fiscal year. We've been driving this turnaround, and as we look ahead, we expect diabetes to drive even more meaningful growth for us. We expect the majority of the intensive insulin management space to move to smart dosing through either AID systems or smart MDI. And we're well positioned to take advantage of this trend, as we're the only company investing in a complete ecosystem of differentiated technology for people living with diabetes, including next generation durable pumps, smart pens, patch pumps, sensors, and algorithms. So with that, let's go to Karen for a deeper look at our Q2 financial performance and our fiscal 2024 guidance raise. Karen?

Karen Parkhill
Karen Parkhill
EVP and CFO at Medtronic

Thanks, Geoff. Looking at our financials, overall, it was another good quarter. Our revenue grew 5%, ahead of expectations, and adjusted EPS was $1.25, $0.07 above the midpoint of our guidance range, with about $0.03 from stronger than expected revenue, $0.03 from better gross margin, and approximately $0.01 coming below the operating profit line. As Geoff mentioned, we remain focused on delivering durable growth. Based on the changes we've made, including our operating model, incentives, and capital allocation, we've positioned the company to deliver sustainable mid-single-digit growth on the top line, and you are seeing that play out for four quarters in a row now. Looking at our Q2 revenue growth, you can see the diversification coming through, which is important to driving long-term durability. As Geoff stated, our three portfolios grew mid-single digits, and diabetes accelerated to high single-digit growth.

Karen Parkhill
Karen Parkhill
EVP and CFO at Medtronic

The broad-based growth also came through on a geographic basis. Western Europe grew high single digits, with strength across many cardiovascular businesses, diabetes, neurovascular, and pelvic health. Japan grew mid-single digits and was also driven by strong results in many cardiovascular businesses, as well as surgical and neurovascular. Emerging markets grew 9%, or 13% when excluding Russia, given the sanctions. We had low-20s growth in the Middle East and Africa, high-teens growth in South Asia, mid-teens growth in Southeast Asia, and low double-digit growth in Latin America. China grew high single digits, as some of the VBP that we expected was delayed until later in the fiscal year. While our adjusted gross and operating margins declined in the quarter, both were ahead of expectations. With gross margin, about a third of the year-over-year change was due to currency, and the remainder was driven by inflation.

Karen Parkhill
Karen Parkhill
EVP and CFO at Medtronic

Our adjusted op margin decline was entirely driven by currency. On a constant currency basis, it increased 40 basis points. We're executing to implement efficiencies in our expense structure, and you can see this in the 90 basis point improvement in SG&A. Below the operating margin line, we benefited from higher global interest rates on our investments, and this was partially offset by a higher than expected tax rate, mainly due to jurisdictional mix of profits, as well as a lower benefit from stock-based compensation. Turning to capital allocation, we continue to prioritize investments in innovation to fuel and sustain our long-term growth. We're disproportionately investing in some of the fastest growth markets in med tech, and we have a long-standing track record of returning capital to our shareholders, primarily through our strong and growing dividend.

Karen Parkhill
Karen Parkhill
EVP and CFO at Medtronic

And to the extent that we don't find high growth, high return tuck-in M&A, we would expect to return additional capital to our shareholders by retiring shares. Now, turning to our guidance. Given our Q2 outperformance and continued strength in our underlying fundamentals, we're raising our full year guidance today on both the top and the bottom line. We expect fiscal 2024 organic revenue growth of 4.75%, an increase from the prior 4.5%. For the Q3, we're expecting organic revenue growth to be in the range of 4%-4.5%. And while the impact of currency is fluid, based on recent rates, foreign currency would have an unfavorable impact on full year revenue of $100-$200 million, including an unfavorable impact of $0-$50 million in the Q3.

Karen Parkhill
Karen Parkhill
EVP and CFO at Medtronic

On a comp adjusted basis, our Q3 guidance represents acceleration from the Q2, and we expect this trend to continue into the Q4 as we're ramping a number of recent product launches in the back half of the year. In diabetes, we're projecting the U.S. to return to growth in the second half of the year on the continued adoption of 780G and the associated CGM and consumable sales... In Medical Surgical, we have the continued rollout of the Hugo surgical robot and GI Genius. In Neuroscience, there's our AiBLE ecosystem and spine, our Inceptiv closed-loop pain stim device in Europe, and we're awaiting FDA approval for both Inceptiv and our Percept RC DBS device.

Karen Parkhill
Karen Parkhill
EVP and CFO at Medtronic

In cardiovascular, we're ramping our TAVR and PFA launches in Europe, starting the rollout of EV-ICD in the U.S. and Europe, and we are now starting our RDN sales in the U.S. This all gives us confidence in the continued durability of our top-line growth. Moving down the P&L, our margins this year continue to reflect the impact of currency and inflation, and some of the volume-based procurement tenders in China that were expected in the first half have shifted to later in the year. That said, we're focused on continuing to drive efficiencies in our expense base, and we've got our global operations and supply chain centralized to take advantage of our scale. As you know, stabilizing our margins and then improving from there remains a top priority.

Karen Parkhill
Karen Parkhill
EVP and CFO at Medtronic

On the bottom line, we're raising our fiscal 2024 non-GAAP diluted EPS guidance to a new range of $5.13-$5.19, an increase from the prior range of $5.08-$5.16. While we expect FX and tax to be a few pennies more unfavorable in the second half, we are pleased with the momentum we have demonstrated and our pipeline from here. For the Q3, we expect EPS of $1.25-$1.27. And on foreign currency, based on recent rates, we're seeing an unfavorable impact of 6% on full year EPS, including an unfavorable 5% impact in the Q3. Before sending it back to Geoff, in the spirit of Thanksgiving, I want to extend my gratitude to our 95,000 employees around the world who come to work every day to deliver on our mission.

Karen Parkhill
Karen Parkhill
EVP and CFO at Medtronic

You all play important roles in alleviating pain, restoring health, and extending life for two patients every second, which makes this world a far better place. Back to you, Geoff.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Okay, thank you, Karen. Now, I know GLP-1s have been on your mind, as the promise of these drugs has certainly had an outsized impact on med tech stocks, including ours, over the past four months. So I thought it would be helpful to share with you our view on their potential impact on our markets. Now, GLP-1s are clearly an exciting class of drugs for patients, and the SELECT data presented at AHA suggests the potential for a large market. That said, the key takeaway from our analysis is that outside of a modest impact on the bariatric surgery market, which we believe will be temporary, we don't see these drugs impacting Medtronic's growth outlook, even long term. This expectation is based on our extensive science-based work.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Like many of you, we've modeled potential uptake and impact based on epidemiology, based on what we've seen historically with other drugs, and based on the relative risk reductions and adherence rates seen in SELECT. So given the SELECT results showed smaller impacts on the more obese patients, we believe that bariatric surgery will remain the gold standard for addressing obesity. We also know that many of the patients that try these drugs do not stay on them for more than a year, likely due to durability, side effects, or affordability, which creates opportunities for new patients to consider surgery. For these reasons, we believe the current headwinds on US bariatric procedures will stabilize over the next several quarters and return to growth by calendar year 2025. This is modest and manageable within our broader, diversified surgical business.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Now, with diabetes, our customers are primarily Type 1, with only 10% of our installed base in Type 2 insulin-dependent patients. We do expect growth in our Type 2 business going forward, but Type 2 pump penetration rates are so low that even using aggressive GLP-1 modeling assumptions, we don't see any meaningful change in our diabetes growth outlook through 2030. Now, we'd be happy to discuss this in more detail in Q&A, including our view on the SELECT trial and its potential implications for MedTech. Now, before we go to the analyst questions, I'd like to close with a few brief concluding thoughts on our progress. You're seeing in our results that many of the challenges that have held back our growth have largely been mitigated, whether that's diabetes, China, or the issues in our supply chain.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

We've established a track record of delivering durable, mid-single-digit revenue growth, which we expect to continue in the back half of the fiscal year. We have some really compelling product approvals that drive our growth not only in the back half, but for years to come. There's been a number of things that have happened recently, big things. In the last four weeks, in particular, with our TAVR data that gives us just such an advantage in the marketplace. New product approvals like EV-ICD, geographic and indication expansions. And last Friday, we got RDN approval. This opens up a multi-billion-dollar market opportunity for us. And with over 1 billion people worldwide with hypertension, the opportunity is massive. In fact, just 1% penetration of the target market represents over $1 billion of revenue.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

We're focused on executing to deliver the top line, and at the same time, we're taking action to run our businesses more efficiently to counter the impacts that inflation and currency are having on our margins. We've been implementing an extensive transformation to improve the durability of our growth. We've changed our operating model, brought in extensive new leadership, increased capital allocation to our highest growth opportunities, and are implementing a culture based on execution, speed, and playing to win. Now we're positioning the company to take advantage of our scale in areas of operations and supply chain, core technology, and how we go to market with large customers around the globe. You're already seeing results from this today, and as we go forward, our focus is on translating the durable revenue growth that we've established into durable earnings power.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

This is a winning formula for creating value for shareholders, and we are laser focused on making that happen. Now, with that, let's move to Q&A, where we're going to try to get to as many analysts as possible. So we ask that you limit yourself to just one question and only if needed, a related follow-up. If you have additional questions, you can reach out to Ryan and the investor relations team after the call. With that, Brad, can you please give the instructions for asking a question?

Brad Welnick
Brad Welnick
VP of Investor Relations at Medtronic

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 will 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 Que Dallara, EVP and President of Diabetes, Mike Marinaro, EVP and President of the Surgical and Endoscopy businesses, Sean Salmon, EVP and President of the Cardiovascular Portfolio, Brett Wall, EVP and President of the Neuroscience Portfolio, and Bob White, EVP and President of the Medical Surgical Portfolio. We'll pause for a few seconds to assemble the queue. We'll take the first question from Robbie Marcus at J.P. Morgan.

Brad Welnick
Brad Welnick
VP of Investor Relations at Medtronic

Robbie, please go ahead.

Robbie Marcus
Robbie Marcus
Managing Director and Senior Equity Research Analyst at J.P. Morgan

Oh, great. Good morning, everyone, and thank you for taking the question. Maybe I'll ask both of them up front. The first, Geoff, you talked about how, you know, most of the headwinds are largely mitigated. I look at the guidance implied in the second half of the year. It's a point of growth or so below the first half. So maybe just talk about how we should think about the lower growth in the second half versus the first half and the reasons for that. And then part B, if I look to 2025, or fiscal year 2025, the Street has you pretty close to your long range plan of 5% plus on the top and 8% plus on the bottom. Is that the right way to think about next year?

Robbie Marcus
Robbie Marcus
Managing Director and Senior Equity Research Analyst at J.P. Morgan

Are there any, you know, headwinds or tailwinds we should think- be thinking about here, like potential dilution from the monitoring business? Just wanna try and get Street numbers correct as we head into year-end. Thanks so much.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Sure. Well, let me kick it off, and I'll... Thanks for the questions, Robbie. I'll kick it off and then hand it over to Karen. In terms of the headwinds, you know, being mitigated, you know, what I'd say is the markets are, you know, pretty stable, especially relative to what we've seen over the last couple of years, with procedures, I think back to normal growth and the staffing issues that were hurting the procedural growth are, I think, you know, more or less under control. Pricing has been stable. We're, you know, we can talk China later. We're working through the China VBP, but that's largely behind us. Still a little bit more to go, but largely behind us.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

So, you know, and then, and then our own internal, you know, the changes to our global operations and supply chain, that, that was a big one for us and has been a big one, and, you know, we're seeing, our, our teams, you know, perform much better. And like I said, we're, we're turning that into a strength for us, a strategic long-term strength, and, and our supply is in a, in a much better situation. So that's, you know, and then, of course, our, our pipeline is, is coming in, and, and I'm sure we'll get into that in the, in the call here with a lot of, new approvals, plus the, the prior approvals we're, we're starting to, to launch, and, and they're having meaningful, meaningful uptake. So that's where the optimism is.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

In terms of, you know, how to think about the back half, you know, versus the first half and then getting into FY 2025, I'll turn that over to Karen.

Karen Parkhill
Karen Parkhill
EVP and CFO at Medtronic

Yeah, thanks, Geoff and Robbie. So just on the back half, Robbie, our comps do get a little tougher, as you know, but we've got a really strong innovation pipeline that we talked about, and that's driving a growth acceleration, actually, from the first half to the second half. You know, we've got our diabetes business returning to growth in the second half. We talked about our extensive pipeline, EV-ICD, PFA, Hugo, Evolut FX, and now the Affera approval. And so we're confident in this growth acceleration, and we're confident that that's gonna continue, you know, beyond the back half of next year. You know, when we think about FY 2025, you know, it's still early. We have two quarters left in this fiscal year, and we're, you know, laser focused on delivering the rest of this year.

Karen Parkhill
Karen Parkhill
EVP and CFO at Medtronic

We're also at the beginning of our planning process, so we're not ready to give specifics. But I do know that all of you are working on your calendar year models for our competitors. So happy to give you some perspective based on what we know today and what we're thinking about. I'll start with revenue, because we've been focused on consistently delivering that mid-single-digit revenue growth, and you've seen us do that for 4 quarters now. Our new full year guide for this fiscal year is 4.75. And as I mentioned, we've got the strength of those numerous product approvals in big markets that are launching around the world to help drive our back half growth. And obviously, we're confident that strength will continue into next year and beyond.

Karen Parkhill
Karen Parkhill
EVP and CFO at Medtronic

On margins and down the P&L, there are some puts and takes. You know, we've got inflation stabilizing a bit, but it's still higher than historical. But again, it's stabilizing. You know, currency is dynamic, and as you know, the US dollar has been strong, so we're likely facing a headwind from FX, but we'll see, we'll see how that shakes out. You know, global tax reform will likely be a headwind, but as always, we're focused on driving offsets everywhere that we can. Geoff talked about it. We've made progress on cost of goods sold and cost out, you know, starting with centralizing our global ops team. We have work to do, but those teams now have tangible programs in place, to drive that work, and we'll continue to drive pricing as an important lever.

Karen Parkhill
Karen Parkhill
EVP and CFO at Medtronic

We've built a new muscle on pricing, and our focus is to keep it strong. We've been working hard on controlling expenses, and that includes maintaining discipline on our largest driver of our expense, which is our headcount. So I hope that gives you some color on just the puts and takes. You know, but to summarize, I'll remind you what hasn't changed, and that's our long-range commitment of driving durable mid-single-digit top growth, of driving leverage down the P&L, of driving a strong free cash conversion and a growing dividend, which all combined, ultimately, delivers a double-digit total shareholder return. You know, what has changed, though, is our progress toward that, toward that commitment. You know, you've already seen us at mid-single-digit top line.

Karen Parkhill
Karen Parkhill
EVP and CFO at Medtronic

We've talked about the strong pipeline that gives us confidence in its durability, and obviously, we've talked about the programs we have in place, whether it's in headcount management, COGS cost down, pricing discipline, and they're all levers to help us offset the headwinds, and over time, establish that same durability on the bottom line.

Robbie Marcus
Robbie Marcus
Managing Director and Senior Equity Research Analyst at J.P. Morgan

Thank you.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Thanks, Robbie. We'll take the next question, please, Brad.

Operator

The next question comes from Travis Steed at Bank of America. Travis, please go ahead.

Travis Steed
Travis Steed
Managing Director and Senior Equity Research Analyst at Bank of America

Hey, hey, everybody. Congrats on a good quarter. Karen, just to, just to sum up all those comments on FY 2024, I heard the, the leverage down the P&L comment. It sounds like, you know, based on what we know today, unless there's some kind of major surprise, there, there's still a good ability for there to be enough offsets to, to drive EPS growth faster than revenue growth. Just wanted to kinda make sure that's, that's a fair comment. And then, and Geoff, I did want to follow up on, on your thoughts on, on GLP-1s, you know, post the SELECT trial. First, if there's any, any color you'd add on, on the SELECT trial and, the cardio endpoints in diabetes prevention that maybe you didn't mention in the prepared remarks.

Karen Parkhill
Karen Parkhill
EVP and CFO at Medtronic

Yeah, Travis, thanks for the question. Clearly, you know, next year and beyond, we're focused on driving that leverage down the P&L that I talked about. And obviously, when you drive leverage, it's you know, your bottom line's faster than your top line. But at, you know, at this stage, it's still early. We're at the beginning of our planning process, and, you know, we're gonna give you, you know, more on FY 2025 as we are ready to guide.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Hey, Travis, good to hear from you. You know, on GLP-1s, so, you know, so first of all, I just wanna make it clear that, like, we see that it's an exciting class of drugs with a, with a large opportunity. And I'm sure, just like you, I, you know, I talked to many patients that are, that are benefiting from, from these, from these drugs. From a weight perspective, from a mental health perspective, it's, it's, you know, it's pretty amazing. You know, that being said, you know, we've done a lot of work, and, and outside of the near term, you know, temporary impact on bariatric surgery market, you know, we don't see these drugs impacting our, our growth outlook, even in the long term.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Then, on the bariatric piece, that, you know, as we mentioned, it's a small part of our revenue, low single digits, and the rate of decline is stabilized there. I think we see that coming back here in the coming year, even. So, we did a lot of work here, and I'm gonna, you know, it was, like I said, science-based and, you know, looking at epidemiology and really digging into SELECT. We do have on the call here our Chief Medical Officer, Dr.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Laura Mauri, and I thought I'd, you know, maybe kinda call her in here, bring in a relief pitcher here on that question, to talk a little bit more about SELECT and kinda what we're seeing out of that. So, Laura, can you chime in here?

Laura Mauri
Laura Mauri
SVP and Chief Scientific, Medical and Regulatory Officer at Medtronic

Sure. Thanks, Geoff. Yeah, Travis, the SELECT trial results, you know, that were presented at AHA gave us a lot more detail beyond the top line that we heard about back in August, to really look at the endpoints and look at the drug adherence... understand the details of the trial results. And, you know, as you know, these were obese patients with a history of cardiovascular disease. And as Geoff said, this was a very important advance for this patient population, but the results didn't change our overall impression that there will be a negligible effect on the growth of cardiovascular procedure volumes. And that's based on a couple of things that we saw in the detailed results.

Laura Mauri
Laura Mauri
SVP and Chief Scientific, Medical and Regulatory Officer at Medtronic

First, the number needed to treat was much higher, and that means it's setting a higher bar for treatment, compared with other things that are used in guidelines. Then, you know, we saw that there was a lack of effect on cardiovascular death, and, you know, that's something that, if it had been present, would've spurred more adoption. And, the lack of that is important 'cause it will not spur the wide adoption and coverage, that we might have been looking at if, if that had been positive. Then, you know, the only effect on the composite endpoint was non-fatal MI, not stroke, or cardiovascular death, as I mentioned. And, you know, as you know, the discontinuation rates were in nearly a third of patients due to the nausea and GI side effects.

Laura Mauri
Laura Mauri
SVP and Chief Scientific, Medical and Regulatory Officer at Medtronic

Clearly, we know from practice that rates of adherence are even lower, and that results in lower treatment effects. Then there were a couple of interesting findings in the trial. You know, as Geoff mentioned earlier, the higher BMI population didn't seem to have as much benefit, and there was no significant treatment effect in the North American subgroup, which is certainly something that, you know, I think we'll wanna understand better going forward. Using, you know, a range of assumptions, we updated our models across the major cardiovascular procedures.

Laura Mauri
Laura Mauri
SVP and Chief Scientific, Medical and Regulatory Officer at Medtronic

And the inputs to that were looking at U.S. procedure volume, across different procedure areas, using data on the prevalence of obesity for each of these procedure populations, and then a range of penetration and adherence assumptions, all the way up to including, you know, what we've seen over time with statins, which, as you know, are really well-tolerated and just freely available and part of guidelines for the past 30 years. And then we also input, obviously, the risk reduction seen in each of the endpoints from the SELECT trial or literature based on weight loss, to look at treatment effects. And the bottom line is that the reduction to TAM growth, over the next 10-30 years is really negligible on the cardiovascular procedure outlook.

Laura Mauri
Laura Mauri
SVP and Chief Scientific, Medical and Regulatory Officer at Medtronic

I think it's really important to also note, you know, what this analysis doesn't include, and that's that there will probably be offsets in the markets that are really underpenetrated or new, like PFA or RDN, because of the, you know, growth, the rapid growth in those areas. And then, you know, there's, there's, in fact, potential upside for patients and procedure growth, because of the potentially longer survival or lower BMI that makes a greater funnel of patients eligible for cardiovascular procedures. So I'll pass it back to Geoff. I know there was a question as well, about the effect on Hemoglobin A1C.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Yeah, well. Yeah, thank you, Laura. You know, and while we're on the topic, maybe on that one, I mean, Que, any comments on diabetes relative to GLP-1s?

Que Dallara
Que Dallara
EVP and President of Diabetes Operating Unit at Medtronic

Yes, I mean, we, like, well, Laura mentioned, we spent quite a bit of time studying this, and I think there's some evidence from SELECT that would say, there, there may be a slowdown in the pre-diabetic population towards insulin dependency, and maybe some in Type 2 will come off insulin. But we believe this number to be very small, and more than offset by the fact that there is low penetration of Type 2 using AID. And the fact that when you look at the funnel of 3-4 million who require basal insulin, with 25 million non-insulin Type 2s, as well as the over 100 million pre-diabetic population, it doesn't change our point of view on the long-term market size of the market, as well as the growth rates.

Que Dallara
Que Dallara
EVP and President of Diabetes Operating Unit at Medtronic

As Geoff mentioned, at the beginning, the majority of our business, more than 90%, is in Type 1. And so, you know, we remain pretty, you know, optimistic about the growth and market profile in diabetes.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

All right, thanks, Q. I mean, so, I mean, Travis and others, I mean, as you can see, you know, beyond the fact that the areas that we get questions on, Type 2 intensive, hypertension, AFib, obesity, besides the fact these are just woefully under-penetrated from a med tech perspective, we've done all the analysis that, you know, Laura and Q just gave you the tip of the iceberg of, and that's why, you know, we feel strongly that we don't see these drugs impacting Medtronic's growth, you know, medium or long term. So I hope that answers your question and then some.

Travis Steed
Travis Steed
Managing Director and Senior Equity Research Analyst at Bank of America

Yeah, super thorough answer. Thanks a lot.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Thanks, Travis. Next question please, Brad.

Brad Welnick
Brad Welnick
VP of Investor Relations at Medtronic

We'll take the next question from Larry Biegelsen at Wells Fargo Securities. Larry, please go ahead.

Larry Biegelsen
Larry Biegelsen
Managing Director and Senior Equity Research Analyst at Wells Fargo Securities

Good morning. Thanks for taking the question. Just two product questions for me, one for Sean on RDN. Congratulations. Sean, can you talk about the ASP, you know, the reimbursement pathway, and the ramp? And for Brett, you know, the slides talked about completing the six-month primary endpoint on the pivotal TITAN 2 ITNS trial. Does FDA want twelve-month data? Could you talk about the form factor here, and how you see ITNS being positioned relative to sacral neuromodulation? Thank you.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Well, Larry, it's Geoff. Good to hear from you, and thanks for the question. On, before I turn it over to Sean, on RDN, I just- I do wanna just say, look, you know, congratulate the team here in the cardiovascular space at Medtronic and leaders past. I mean, this has been the- that have been involved. This has been a long journey, and we are really, really excited about the approval. You know, we have a lot of data here in our RCTs.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

You know, we consistently saw a mean 9-10 millimeters of mercury absolute office blood pressure drops at the initial primary endpoints, in this case of 3 and 6 months, and actually more in the real-world setting, and additional drops over time from these primary assessments. So, you know, this is a game changer, and look, as compelling as the data is and as much as we have, it doesn't even tell the whole story. I mean, you talk to physicians out there that are involved in our trials, and the excitement's palpable. And patients, you know, we have a number of patients who've been on this for years, and talking to them and how it's changed their life.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

And we're actually having a patient come in and talk to the entire company here in a couple weeks. It's very exciting. And so, a big opportunity for patients and a real big opportunity for us, too. And so getting into some of the specifics, you asked about reimbursement. I'll turn that over to Sean, and then we can go to Brett to talk about... I believe you're asking about the tibial opportunity and, but, why don't we start with Sean?

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

Larry, thanks for the question. As you know, the ramp is gonna be highly gated by reimbursement, and we've been working that in parallel with the regulatory approval all along. We see the payer split to be roughly 50/50 between Medicare and commercial payers or private insurance, and we've been, of course, pursuing both local and national, coverage determinations from Medicare, and that's an important input into the private payer decisions that will happen state by state and payer by payer. We've been in contact with those private payers, the largest ones certainly, and the response so far has been very open and willing to engage with us to understand our data.

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

And what's particularly of interest to them is the long-term data, which is atypical for a new therapy like this, to have thousands of patients out three years from the therapy, so that's encouraging. Of course, you know, the Medicare population is the most important for us, and to your question, you know, there are these alternative pathways that have been established by Medicare for temporary add-on payments, both in the inpatient setting with NTAP or the new technology add-on payment, as well as in that outpatient setting for transitional pass-through payments or TPP. And given that the Symplicity Spyral system is a breakthrough device designation, we will avail ourselves to those pathways for approval over that two- and three-year period as we work to establish a more permanent reimbursement for, like, a national coverage determination.

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

On that front, you know, there is this TCET pathway or the transitional coverage for emerging therapies that we're gonna avail ourselves to. It's not finalized yet. We look forward to that ruling coming out. We've seen the commentary. It's been largely very, very positive along the way and in line with what we had been suggesting both to CMS and the Biden administration, as well as other stakeholders along the way. And of course, CMS is also considering other refinements to coverage with evidence development programs that we've used successfully as we've established many, many therapies, as you know, including TAVR, Micra, ICD, CRT devices over time, and we'll avail ourselves to those as well. So rest assured, we're working hard on reimbursement. It's really critical for the ramp of this technology, and we're getting a good reception so far.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Okay. Thanks, Sean. Brett, do you wanna answer part two here?

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

Yeah, absolutely. Larry, good to hear your voice. Thanks for the question. The TITAN 2 study was a six-month follow-up with the actual study design, and we will follow those patients for 24 months. So we'll be following those patients and have additional data as well. The form factor is about 2.8 cubic centimeters, really about the size of roughly half a stick of gum, and it fits in the ankle, same place for everyone. This opens up a significant patient population. There's over 4 million people in the United States that have discontinued their dual drug therapy or failed two drugs, and they are now receiving continence devices at-home adult continence products, as opposed to seeking additional therapy. This is a 15-minute procedure.

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

We now have established a Category 3 reimbursement, and we'll be utilizing that to further develop out the reimbursement profile. This particular product and technology opens up a substantial population that is not seeking help or seeking a therapy right now. We're in a modular submission. We'll be submitting the data here shortly, and this is an exciting new technology that opens up this field and will contribute to its ongoing growth.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Okay. Thanks, Brett.

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

Yeah, thanks, Brett, and thanks, Larry. A reminder to the analyst to stick to one question and one related follow-up if needed. We'll take the next question, please, Brad.

Operator

The next question comes from Vijay Kumar at Evercore ISI. Vijay, please go ahead.

Vijay Kumar
Vijay Kumar
Senior Managing Director and Head of the Medical Supplies and Devices and Life Science Tools and Diagnostics team at Evercore ISI

Fantastic. Hi, Geoff. Thanks for taking the question. I had two product-related questions here. First one, just at a high level, right? You had three pretty meaningful product approvals in the past few months between EV-ICD, PFA, and your RDN approval, right? You're already doing mid-singles. With all of these incremental growth drivers coming in, is that now a mid-singles plus? I'm just curious how you're thinking about this new product opportunities.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Well, thanks for the question, Vijay, and good to hear from you. And thanks for pointing out the robust nature of the approvals, and these are really, we believe, and as you saw in the commentary, unquestionably differentiated, you know, products. And in large markets, and growing markets that we have a high confidence in. And this gets to our commitment to make this growth durable. And, you know, as we've seen over the last couple of years, whether it be market conditions, or internal things, which we are working so hard to make sure these internal boogeymen just disappear, through changing our fundamentals.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

This breadth of approvals in these high-growth markets, I believe, you know, will help me, for the first time, sleep well, because it gives you the durability that we're talking about and that revenue number, which is so important. Everything flows from there. So at this point, you know, before, you know, before we start talking about plus, you know, I just wanna make sure that we are very durable and reliable, mid-single-digit growers in, in, you know, different types of environments, good and less good. And then we can flow from there about leverage on the P&L and things like that. So that's, you know, that's my overview on, on those three, or on the pipeline in general.

Vijay Kumar
Vijay Kumar
Senior Managing Director and Head of the Medical Supplies and Devices and Life Science Tools and Diagnostics team at Evercore ISI

Maybe my related product question here, perhaps for Mike on robotics here. You mentioned installed base went up in Europe. Any sense on what the size of that installed base is? In this U.S. clinical trial, you said it's on plan, but any sense on when this trial might end, perhaps timing for an FDA approval?

Mike Marinaro
Mike Marinaro
EVP and President of Surgical Operating Unit at Medtronic

So thanks for the question, Vijay. First, we are continuing forward with our installs, have added to the install base. We're not quoting numbers of installations at this time, but we are increasing on a quarter-over-quarter basis. Our procedure volume is picking up on a quarter-over-quarter basis. As we work through availability of our instruments and then getting the system into the U.S., we'll really start to see acceleration of our program. Geoff commented, and you just noted that the EXPAND URO study is on track, and we're very excited in speaking with our investigators there, and they're enthusiastic about the product and the program, and so that continues forward. We're not going to give timelines of U.S. approval for that, but I will tell you it's proceeding according to plan.

Mike Marinaro
Mike Marinaro
EVP and President of Surgical Operating Unit at Medtronic

And then, as Geoff noted, we're very excited about the hernia IDE approval, which allows us to take a big step into general surgery, more quickly than we had anticipated, and to start to engage the general surgeons, with Hugo here in the United States, in a segment where we are, you know, very active today. Of course, we have a large business and sales channel in the area of hernia, hernia repair. There's a real hunger for capacity, and a growing volume there, in hernia in the United States. And so now running these IDEs in parallel will allow us to start to really pick up momentum as we contemplate the entry into the U.S. market.

Mike Marinaro
Mike Marinaro
EVP and President of Surgical Operating Unit at Medtronic

So we are on plan, not giving specific dates for approval yet, but also very excited about the opportunity to move into general surgery, and in with the general surgeon with this hernia IDE approval.

Vijay Kumar
Vijay Kumar
Senior Managing Director and Head of the Medical Supplies and Devices and Life Science Tools and Diagnostics team at Evercore ISI

Thanks, guys.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Yeah, thanks, Mike. I mean, I know there's a lot of interest in this, and look, you know, I just emphasize Mike's comments. Step one was to have a robot that has the capabilities and strong physician acceptance, and we feel strongly that we have that. And now we're building up our experience, you know, primarily in Europe and of operating in Europe, the robot out in the wild. And then really, as Mike mentioned, building out that instrument portfolio and executing on the U.S. trial so that we can launch in the U.S. That'll be between the U.S. and some new instruments, that'll really drive a lot of growth here. So anyway, more to come on that, but thanks for the question, Vijay.

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

Yeah, thanks, Vijay. Next question, please, Brad.

Operator

The next question comes from Kristin Stewart at CL King. Kristin, please go ahead.

Kristen Stewart
Kristen Stewart
Managing Director and Senior Equity Research Analyst at C.L. King & Associates

Hey, thanks for taking my question. I was just wondering if you could provide any updates on the patient monitoring respiratory intervention spin?

Karen Parkhill
Karen Parkhill
EVP and CFO at Medtronic

Yeah, thanks, Kristin, for the question. You know, we're continuing to work on the separation of that, of that, and, you know, our focus through all of it is to maximize shareholder value. You know, no big updates.

Kristen Stewart
Kristen Stewart
Managing Director and Senior Equity Research Analyst at C.L. King & Associates

Perfect. Thank you. Thanks very much.

Mike Marinaro
Mike Marinaro
EVP and President of Surgical Operating Unit at Medtronic

Thanks, Kristin.

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

Next question, please.

Operator

The next question comes from Matt O'Brien at Piper Sandler. Matt, please go ahead.

Matt O’Brien
Managing Director and Senior Equity Research Analyst at Piper Sandler

Good morning. Can you hear me okay? Hey, can you guys hear me?

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Yeah, we can hear you, Matt.

Matt O’Brien
Managing Director and Senior Equity Research Analyst at Piper Sandler

Oh, good. Thank you. So just one question, Geoff, for you specifically. It's, you know, you're a $30+ billion revenue company, but you talked about more tuck-in acquisitions historically. Just given your size, given the strength in terms of, of, you know, new product flow, I'm just wondering if now is the time to be more aggressive from an M&A perspective, just, you know, given the pullbacks that we've seen at some of these, on the public company side of things. You know, just to be able to do a bigger deal to really solidify, you know, your growth algorithm going forward. Is now the time to, you know, to be more aggressive? Are you more amenable to doing bigger deals now, just given strong balance sheet, kind of, you know, got the operating model together, et cetera? Thank you.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Yeah, thanks for the question, Matt. Yeah, clearly, I think you're seeing asset prices come down, and it's a tough operating environment. I think they're gonna continue to come down in the mid-cap space in particular, and below. But that, you know... We definitely have the capabilities, as you pointed out, to do bigger deals. All that being said, our focus still is on tuck-ins, and we've got a lot of big organic, you know, or now organic programs between, you know, we just, you know, R&D and the robot, PFA, diabetes. I mean, the list goes on.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

There's a lot of big organic pipeline going up against these high growth markets that we're really focused on, and then I would augment that, you know, with the appropriate tuck-ins. So, I don't think we're really focused on and we're not gonna signal that we're focused on any kind of bigger deals at this point.

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

Okay, thanks, Matt. I think we have time. I know we're running a little bit long, but let's take two more questions, please, Brad.

Operator

The next question comes from Rich Newitter at Truist. Rich, please go ahead.

Rich Newitter
Rich Newitter
Managing Director and Senior Equity Research Analyst at Truist Securities

Hi, thanks for taking the questions. Just on, you know, if we saw just more broadly in med tech, a little bit, seasonality or weaker, I think, Q3 for a number of your competitors play out. Just wondering if you could comment on the trend throughout the quarter. You know, was August, you know, unseasonally kind of weaker than what you would have thought? And what's been the normal pickup? Is it stronger than expected into the 4Q? Especially if you could talk about kind of exit trends from September into October. Thank you.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Sure. Thanks for the question, Rich. I'll, I'm gonna ask Karen to answer that one.

Karen Parkhill
Karen Parkhill
EVP and CFO at Medtronic

Yeah. Thanks, Rich. You know, I, I would say we saw strength throughout the Q2, you know, no matter what month you looked at. I think that's driven in part by, you know, just the strength of our product offering. When we look at, you know, the first few weeks of this quarter and how that's been trending, it's been trending well. You know, we're tracking to the expectations that we set in our guidance at this stage.

Rich Newitter
Rich Newitter
Managing Director and Senior Equity Research Analyst at Truist Securities

Thank you.

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

Okay, thanks. Thanks, Rich. We'll take the last question, please, Brad.

Operator

Final question comes from Shagun at RBC Capital Markets. Shagun, please go ahead.

Shagun Chadha
Shagun Chadha
Managing Director and Senior Equity Research Analyst at RBC Capital Markets

Great. Thank you so much for taking the question. Just, I guess, a follow-up on Hugo. One of your competitors recently showcased their surgical robot, you know, that had an invisible design and twin motion capabilities. I'm just wondering what your thoughts are on the competitive landscape. You know, do you see it as a rising tide? Or, you know, just how do you think about your technology offering versus competition? And then I was just wondering if it's possible to get any, you know, more specific color on how October and November is shaping out. Thank you for taking the questions.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Well, thanks for the question. I'm gonna ask Mike to take the Hugo question, and I'll follow up on that one.

Mike Marinaro
Mike Marinaro
EVP and President of Surgical Operating Unit at Medtronic

Good. Thanks, Shagun. So we were very interested to see the, you know, latest developments from our competitor here relative to their program, and I'll say that they were about as expected. You know, no surprises there. We continue to be very excited and optimistic about the differentiation of our program with an open console, with a modular design, with the ability to have flexibility in terms of location or site of care, which is highly differentiated from what we heard there, you know, in their discussions, as well as what we see in the market today. And so, you know, we see that differentiation continue and the reasons for that our customers like Hugo to continue to be, you know, differentiated reasons.

Mike Marinaro
Mike Marinaro
EVP and President of Surgical Operating Unit at Medtronic

More broadly speaking, though, the good news is that there continues to be just, you know, real interest in expanding the penetration of robotics across, you know, multiple fields in surgery. And we're seeing, you know, continued increase in procedural volumes on a quarter-over-quarter basis. And so it's good news for the field, as, you know, as that interest grows. So we're well positioned, and the field continues to expand, which is a good story for Medtronic.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

Yeah, and just to build on that, I mean, you know, we talk about—we call it robotics, but I would argue it's broader than that. And this isn't the first time we're out to change the dynamics of an entire market. That's what we're doing in the spine market right now. And then, it goes beyond robotics. It gets into intraoperative imaging or visualization, you know, navigation, you know, pre-surgical, AI-based planning, and like with Mike's world here, with Hugo, we've got Touch Surgery Enterprise, which is a leading digital platform with AI-driven digital platform. And like you're seeing in spine, that's played out over the last couple of years.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

It's changing the competitive dynamics, what, what's important in the marketplace for our physicians and even patients. And you're seeing the impact is what you're seeing in the spine market. As many competitors, it takes a lot of expertise, it takes a lot of capital to make this happen, and you're seeing competitors fall by the wayside. And there's been a big one here recently with NuVasive and Globus coming together, and we'll see how that plays out.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

But, you know, I believe we've demonstrated an ability to do this, and this is the kind of experience, and I know we're up against a big competitor in Intuitive in the surgical space, but we, you know, we believe we've got a lot to offer here, and we are going to drive a change in how people think about the space and the competitive dynamics, and we're really confident and excited about that. So with that, I think we'll bring the call to a close. Thanks for sticking with us a little longer.

Geoff Martha
Geoff Martha
Chairman and CEO at Medtronic

And I really appreciate the questions and, and the support and continued interest in Medtronic, and we look forward to updating you on our continued progress on our Q3 earnings broadcast, which we anticipate holding on Tuesday, February 20th. With that, thanks for joining us today, and for those in the U.S., I'd like to wish you and your families a very happy Thanksgiving this week. Enjoy the holiday and stay safe. Thank you.

Executives
    • Brad Welnick
      Brad Welnick
      VP of Investor Relations
    • Brett Wall
      Brett Wall
      EVP and President of Neuroscience Portfolio
    • Geoff Martha
      Geoff Martha
      Chairman and CEO
    • Karen Parkhill
      Karen Parkhill
      EVP and CFO
    • Laura Mauri
      Laura Mauri
      SVP and Chief Scientific, Medical and Regulatory Officer
    • Mike Marinaro
      Mike Marinaro
      EVP and President of Surgical Operating Unit
    • Que Dallara
      Que Dallara
      EVP and President of Diabetes Operating Unit
    • Ryan Weispfenning
      Ryan Weispfenning
      VP and Head of Investor Relations
    • Sean Salmon
      Sean Salmon
      EVP and President of Cardiovascular Portfolio
Analysts
    • Kristen Stewart
      Managing Director and Senior Equity Research Analyst at C.L. King & Associates
    • Larry Biegelsen
      Managing Director and Senior Equity Research Analyst at Wells Fargo Securities
    • Matt O’Brien
      Managing Director and Senior Equity Research Analyst at Piper Sandler
    • Rich Newitter
      Managing Director and Senior Equity Research Analyst at Truist Securities
    • Robbie Marcus
      Managing Director and Senior Equity Research Analyst at J.P. Morgan
    • Shagun Chadha
      Managing Director and Senior Equity Research Analyst at RBC Capital Markets
    • Travis Steed
      Managing Director and Senior Equity Research Analyst at Bank of America
    • Vijay Kumar
      Senior Managing Director and Head of the Medical Supplies and Devices and Life Science Tools and Diagnostics team at Evercore ISI
Powered by Quartr