Good morning. Thanks so much for joining us. My name's Matt Miksic. I'm U.S. Medical Device Analyst here at Barclays, and we are very pleased to have with us today Medtronic, specifically CFO Karen Parkhill. Thanks again so much for joining us.
Thank you, Matt.
I wanted.
Great to be here.
Thank you. Yeah, we're pleased to have you. I wanted to give Karen a couple of minutes here to make some opening remarks, and then we'll get into some Q&A. And, of course, welcome audience participation. If anyone has a particular topic or question they wanna get into, please let us know. But Karen, take it away.
Yeah, thank you, Matt. Listen, thrilled to be here and thrilled to be talking about Medtronic because we are on a really great trajectory. You've seen us deliver, over the last year, 5 quarters in a row, actually, mid-single-digit top line growth. Last quarter, delivered that mid-single-digit top line against a comparable of mid-single digits. Our guidance implies that again for Q4. So clear turnaround on driving the durability of our top line. We're really excited about that durability continuing. When you look at our really strong pipeline, this is the best pipeline we've ever had across the company. You know, just a few products to name. We've got extravascular ICD. We've got a couple really great products in pulsed field ablation to treat AFib, between PulseSelect, between Affera.
We've got, you know, great products, right now in spinal cord stim and deep brain stimulation. We're on a turnaround amazing trajectory in diabetes with our 780G pump and now paired with our new sensors from Simplera Sync in Europe. And then, you know, on an ongoing trajectory, we've got renal denervation coming and just super, super excited about our pipeline. We've also been driving a really strong performance-driven culture focused on execution, focused on doing and delivering what we say we're gonna do. And you're seeing that happen on the top line, and we're driving the earnings power and transformation down the bottom line.
It starts with, you know, stabilizing and improving our gross margin, which we are incredibly focused on, ultimately delivering pricing and cost down ahead of inflation, and then leverage down the P&L on SG&A to, you know, ultimately drive a strong and growing bottom line, which when paired with a really strong and growing dividend, you know, delivers a double-digit total shareholder return.
Oh, thanks so much for that, for that intro. So on the topic of growth, and some of the products driving that, today and kind of expected to drive in the next, next few quarters, I wanted to maybe touch first on diabetes. So, you know, improving momentum throughout fiscal 2024 so far. Expectations of continued momentum into Q4. Maybe talk a little bit about, you know, where that can go this year and maybe some of the products, even though you're not giving timelines, some of the products that you expect to see reaching the U.S. and.
Yeah.
Driving that further in 2025.
Yeah, thanks for that question on diabetes. You know, we have been driving a significant turnaround in that business, and we are super pleased with the performance and the trajectory from here. We've delivered really strong growth with the 780G over in Europe. We've moved that growth into the United States. Last quarter was a really strong quarter for diabetes where we returned to growth in the United States and ultimately globally for the business, delivered more than 10% growth in the quarter. And we're just starting from here. So, you know, we've got a new very competitive sensor coming to market right now, in limited release in Europe. It's the Simplera Sync. It is 50% smaller than our current sensor. It's seven-day wear. It's easy insertion. It's no tape, no fingersticks. It's just highly competitive. And we're really excited to bring that to the United States.
We're gonna be submitting to the FDA in the first half of this calendar year for our 780G and Simplera Sync. And so, you know, the diabetes franchise is back and just improving from here.
And on the sensor, and forgive me, but I think it's fair to say that investors have been skeptical about the turnaround. It's been, you know, there was a long wait to get the 780G to the U.S., I think. You know, there's been some disappointment in the community, and this is going back, say, five years as to when we're gonna see innovation and, you know, new products coming out of Medtronic. We're seeing those. I think, you know, we hear it from educators on the ground at meetings that notice the algorithm. They notice the 7-day infusion set. They, you know, as even though it's not, you know, Simplera, they've noticed even the improvement in the in the sort of Guardian sensor platform.
But, you know, maybe talk a little bit about what's, you know, limited launch in Europe is, you know, what's the capacity buildout look like for that platform? And then, you know, what's your priority to reach the U.S. in terms of standalone CGM and, and integrated Simplera?
Well, a lot in that question, but.
Sorry.
But no, we're on a tear in diabetes. You know, we changed leadership. We've been focused on driving, you know, innovation continually year after year. We've got this seven-day insertion set that you mentioned, Matt, that is highly differentiated, and we've gotten great feedback on that. And now we're coming out with a, you know, really competitive smaller CGM that I talked about. And we're, you know, we're focused on ramping the manufacturing of that. That's what we're focused on right now. You know, our algorithm is the best in market, and it's got the highest time and range out there. It's highly differentiated, and we're not finished innovating. We are gonna be focused on next-gen algorithms, next-gen sensors, patch pumps, you know, smaller durable pumps, all of that in our pipeline.
And ultimately, we're not gonna rest till we've got, you know, the true artificial pancreas, which we're further ahead than anybody else on that algorithm.
Yeah, well, that's what we hear as well. But, you know, I think folks are looking for the numbers to back that up, and I think we'll be looking for more color on the pipeline, on smaller form factor and potentially patch pump if you're willing to share an idea. But we're not gonna.
Yeah, and again, we're just getting started. There's a lot more great things to come in diabetes.
So another exciting area that a lot of folks in MedTech are focused on is pulse field ablation and AF ablation or cardiac ablation, as you refer to the business in at Medtronic. PulseSelect launching in the U.S., competitor product also launching in the U.S.. You know, importantly, kind of second-gen or, you know, Affera, which is considered to be kind of a much more, you know, versatile and, you know, a system backed up by mapping launching in Europe, maybe help us understand what investors can expect from the cadence of those two launches over the next, you know, three, six, 12 months.
Yeah, so cardiac ablation is another area that's gonna be a really good long-term growth driver for the company, for many years to come. We are super excited about what we've got in our pipeline there. You mentioned it. First, I'll start with PulseSelect, which is our single shot catheter that we now have on, you know, limited market release, and we're excited to get that to full market release globally. That's gonna be an important growth driver for us. But that plays in a certain segment of the market, and we're super excited about Affera that we've got coming, which plays in the broader market, 85% of the market. This is our focal catheter and our mapping technology. We are getting amazing feedback both on PulseSelect, the single shot, and on our Affera.
You know, physicians are really excited about the mapping technology, the fact that with Affera, we've got dual energy, both RF and PF, in the same system, the fact that you can do mapping, ablation, and validation all with one catheter. There is nothing like it on the market, and we are getting amazing feedback on it. So we're super excited to take that to the market very soon. You know, with PulseSelect, we're gonna be announcing our 12-month Sphere -9 data in the U.S. from our pivotal trial in the first half of this calendar year. We've also, on reimbursement, applied for NTAP. You know, while that's while most of ablation is done outside of the hospital setting, you know, we decided that we didn't want anything holding it back. So we've applied for NTAP, and we should hear from that soon, assuming we get it.
You know, we'll have that in the fall.
Okay. I mean, the current status is that business in the U.S. was down in fiscal Q3. Maybe talk about expectations for, you know, improvement in trends and, you know, when, you know, what are the catalysts that get that back to sort of market growth in the coming quarters?
Yeah, the catalysts are this innovation that's coming, and we fully expect, you know, growth here in the fourth quarter and sequentially every quarter from here.
Great.
You know, we've had strong growth outside the U.S., and we're expecting that in the U.S. and, and globally.
Okay. And so growth in the U.S. and Q4 would be great, a nice bounce back, 'cause there was a little bit of a pause, but exciting times and brilliant ablation. Anyway, I thought I saw maybe a hand go up in the audience, but, if, you know, another topic that's come up in the last several quarters has been VBP in China. So I'd be remiss not to, you know, talk about what that impact looks like on the top line while we're talking about the top line. There's been a delay in some of those VBP programs. Does that pick up here in Q4? Does it, you know, pick up over the next few quarters in terms of pressure? Maybe talk a little bit about that.
Yeah, I'd start with saying that V from VBP, the vast majority of that is behind us. You know, by the time we end this fiscal year, we said that we expect 80% of the products that we think will go through VBP to be done. So that's gonna be far less of a headwind as we look ahead. You know, that said, there are some minor delays that we've had in parts of neurovascular and parts of aortic, where some tenders have moved from provincial tenders to national tenders, and that's just a little bit of a delay. So there can be quarter-to-quarter fluctuation in our expectations of when that will hit, which can have some minor impact on us. But overall, you know, we expect the vast majority of VBP to be behind us.
Okay. So back to the good stuff, I guess, and EV-ICD, so just beginning to launch. You know, when do we get to co-launch? You know, maybe if you could give some color as to what kind of impact or, you know, when that starts to be visible in the sort of CRM lines.
Yeah, again, EV -ICD is another great product in our pipeline that we expect to be a really long-term growth driver for us to come. You know, just like Micra was with our cardiac rhythm management business where we had breakthrough innovation, in that business, and it's been a really strong growth driver for us and a way for us to, you know, continue to capture market share. Same with EV -ICD. You know, the market for EV -ICD is already a $300 million market, and we expect it to grow substantially from here. So it's gonna be a long-term growth driver for us, Matt.
Okay. And premium product, premium to ICDs, obviously.
Yep.
Transvenous, but.
Yep.
Premium to the competition. Maybe talk about what differentiates, EV-ICD.
Yeah, so our size is a big differentiator to the one competitor out there, so much smaller size. And if you've seen our earnings calls, we've demonstrated the big difference in size. But just being extravascular is a big difference to the current product offering out there. And so again, we expect this to be taking share and driving growth for many years to come.
Okay. Another topic I think I'd be remiss not to mention, even though, you know, how much you'll tell us about it, but, SMART trial small trial data coming up at ACC in about three weeks. We picked up a fair amount of feedback from CRT this past weekend on expectations. You know, I guess maybe talk about the impact that you expect or the business hopes to gain from that data readout and, and some of the other things that you're doing to try to, you know, move, you know, growth out of a market, move share back in your favor and tap it.
Yeah. So, Structural Heart's a highly competitive market, and we are fiercely competitive in that market. You know, we wouldn't be doing a head-to-head trial if we weren't really confident about the results of it. We'll see. I don't know the data. It's coming out soon to a theater near you. But we expect, you know, good results, and, you know, we expect it to help us drive market share. Our Evolut FX, especially in the small annular space, is highly differentiated, and we're not stopping with that. We've got Evolut FX Plus coming out soon too. So, you know, we expect to compete very well in that space.
Okay. So validation of Evolut's strengths in the small annulus, potentially, which is already kind of an area of strength. And then Evolut Plus may be going after one of the drawbacks or perceived drawbacks of the stented valve that we hear about, which is, you know, difficulty in reaching coronaries. So larger cell design potentially going to, you know, chip away at that.
Yeah, yeah.
At that sort of competitive disadvantage, if you.
Yeah, yeah.
If you could call it that. Then finally, on the growth side, I guess, you know, it would be, you know, Hugo has come up again and again. Maybe any kind of update that you can, you know, experience that you've gleaned overseas? The competitive environment in the U.S. has changed quite a bit, even though there's only one, one, you know, incumbent competitor. When I say changed, I think, it's shifted much more to a, a flexible, you know, financing, purchasing, contracting environment than it was, say, five years ago. So maybe, you know, thoughts on, you know, what you've learned overseas and, and given the, the new market or new engagement with customers in the U.S., you know, what's your what's your commercial strategy to the extent you're willing to talk about it at this point in the U.S.?
Yeah, yeah. So, with our surgical robot, Hugo, we're in four continents right now. You know, we are we are doing, not just urology and gyn and hernia surgeries outside the United States. We're doing also general surgeries outside the United States. The feedback that we get continues to be super strong. You know, surgeons love the open console. They love our mapping and navigation technology. The health systems really like the modular design and the ability to move our robot into various OR suites. So feedback continues to be really strong. In the United States, we are we are working now on our IDEs, not just for urology and gyn, but we now have an IDE for hernia as well. And in terms of the go-to-market strategy, we're gonna meet customers where they are.
You know, we can offer both an ability to place systems with, you know, upfront capital and ability to lease systems and ability to pay over time. So we're gonna meet where they are, but we're not gonna compete on price. You know, we've got a really strong system, and it's not our goal to compete on price.
Okay. Also a fairly broad book of business with many of those same customers already in advanced surgery.
Absolutely. You know, we're marketing to both new to robotic surgery systems and doctors and, you know, surgeons and systems who already have the da Vinci system.
So, these are all terrific, you know, elements that we expect to support this kind of mid-single-digit growth that you've been delivering. I think, for folks that have been following the story, it's clear that what investors really are trying to figure out is fiscal 2025 earnings and margins. And if you haven't yet endorsed fiscal 2025 earnings, I'll make the, you know, requisite aside, you know, quip and say you're perfectly welcome to do it here, but, you know, not expecting that you will. But maybe run through for us what you have said, what you're willing to share about the puts and takes to 2025 from the top line to the bottom line.
Yeah. So, look, we're gonna get out our guidance for next year on our earnings call in May like we always do. You know, that's been our practice. That's what we're gonna do. And, you know, the key reason for that is we're still finishing this year. We're still in our planning process. And, you know, there are puts and takes as always. We've given those puts and takes. Nothing has changed on those puts and takes from what we talked about on our second call, on our quarterly call last quarter. But at the end of the day, you know, that doesn't change the bullishness that we feel right now. You know, we're really bullish about our durable mid-single-digit top line. We're laser-focused on driving that earnings power down the P&L.
You began to see that, you know, a bit in the third quarter. Ultimately, we're gonna be focused on driving that strong bottom line paired with our strong and growing dividend that leads to a double-digit total shareholder return. You know, that's what we're focused on.
Okay. And so just to tick through those, headwinds, inflation, FX, tax.
You got it.
Stable gross margins, which is, you know, we have to kinda read through that as to stable, really, you know, adjusted for FX or, you know, stable operationally or, you know, plenty that goes into your, your gross margin line. And then, you know, continued spending in R&D but continued aggressive control of SG&A. Is that a fair way to sum up?
Yeah, you listened well. So clearly, on our puts and takes, you know, currency has been a headwind for us. You know, if we look at rates, you know, recently at the time of our earnings call, it's likely to still be a headwind for us. But, you know, a headwind that's come down because the biggest headwind we faced was in the point delivery, on the top line. And, you know, that takes time to go through the bottom line as, you know, we have our hedges in place. So currency's still a headwind. Global tax reform is likely to be a headwind too. But every time we have tax reform, we're very focused on, you know, offsetting that as best we can. So, you know, that's what we've been driving. And then inflation. You know, we still have inflation.
It's higher than what it was pre-COVID, but, you know, that inflation has stabilized. It's not at the, you know, lower levels that we saw pre-COVID, but it's at least stabilized. And we're focused on, you know, driving cost down and our cost of goods and, you know, strong pricing, as well to work to offset that. And on the pricing side, you know, this is a muscle we've been building, over the last couple of years. And what we've done is we've driven what's typically been, you know, continual perennial, pricing headwinds to being more neutralized. And that's, you know, a big difference, and we expect it to, you know, continue that trajectory. And then we're gonna be focused on driving, leverage in our SG&A.
You know, we've had really strong disciplined headcount management across the company, took headcount, indirect headcount down at the beginning of last year. We've been focused on making that stick, and we've been focused on every time we have attrition, you know, not backfilling that attrition. You know, really strong headcount management to help drive that leverage.
Okay. And then so that kinda covers the, you know, covers all the puts and takes down to the operating line and the tax line. A little bit less, not inactive on the M&A front, but a little more focused on commercial businesses of late, businesses that are closer to revenues. You know, maybe talk a little bit about the recent increase in your daily purchase authorization and the balance between M&A and use of cash.
Yeah. Our board just approved our dividend for the quarter. And along with that, we refreshed our share repurchase authorization, which is something we do every few years. You know, as it relates to returning to shareholders, our policy has been very, where we focus on balancing our return to shareholders with, you know, continuing to invest in the company. And we've had a strong and growing dividend for many, many years, over 40 years. We're proud to be dividend aristocrats. You know, that, that's something that we cherish. And, you know, we supplement that strong and growing dividend, you know, with share repurchases when we, you know, don't have the right discipline tucking M&A to do. And, you know, you've seen that be something that we turn on and off over time.
You know, we'll continue to do that because we don't intend to hoard cash on the balance sheet.
Okay. So we're just under a minute. I wanted to turn it back to you if you had any closing remarks to wrap up the session.
Yeah, thank you, Matt. I'm hoping that you're taking away our really strong confidence in our future, you know, our strong confidence in driving that durable mid-single-digit top line and ultimately that, you know, leveraged P&L and double-digit total shareholder return. You know, Medtronic has been on a strong turnaround trajectory, and this is just the beginning. So super excited about our bright future.
Thanks so much.
Yep. Well, thank you.
Well, thanks.
Thanks, everyone, for joining us.