Good morning. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the Medtronic conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If you would like to withdraw your question, please press the pound key. I would now like to turn the call over to Mr. Ryan Weispfenning. Please go ahead.
Great. Thank you, Michelle. Good morning. Thanks for joining us, everyone, on short notice. During the next half hour, Omar Ishrak, Medtronic chairman and chief executive officer, Karen Parkhill, Medtronic chief financial officer, and Mike Weinstein, senior vice president of strategy at Medtronic, will provide comments on our press release this morning announcing that Mike has joined Medtronic. After our prepared remarks, we'll be happy to take your questions. Two things to note about this morning's call. First, many of the statements made may be considered forward-looking statements. Actual results might 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. We do not undertake to update any forward statement.
Second, we ended our fiscal fourth quarter on April 27th and are in our quiet period. Because of this, we will not discuss or answer any questions about our fourth quarter results, including the current state of our businesses and markets. We intend to issue our fourth quarter results in two and a half weeks, on May 24th. With that, I will turn the call over to Omar. Omar?
Good morning. Thank you, Ryan. Thank you to everyone for joining us. We're very excited to welcome Mike Weinstein to Medtronic. I couldn't be more pleased that he decided to join our company. He's accepted the role of senior vice president of strategy and will work with our senior management in the areas of strategy, business development, capital deployment, and most importantly, the overall creation of shareholder value. Mike has more than 20 years of experience covering the medtech industry. He will bring a new perspective that we know will help us advance our growth strategies. I have greatly appreciated Mike's insights over many years. He knows our company, our management team, our strategies and businesses. I'm personally excited to have him now on our team. With that, let me ask Karen to say a few words. Karen?
Thank you, Omar. Like Omar, I am also very excited to have Mike join us, and I'm very pleased that out of all the options he had after retiring from JPMorgan, he chose to join us. I have known Mike for many years. We started at the same time at JPMorgan, and I have particularly gotten to know him better since joining Medtronic. Mike brings unique and deep insights to our industry, which he developed during his distinguished career in equity research. He will work closely with not just Omar and me, but also our senior leaders throughout the company, and we are thrilled to welcome him. My focus since joining Medtronic nearly two years ago has been to increase the intrinsic value of this company, which advances our mission and creates value for our shareholders.
As we make strategic decisions going forward, such as setting our annual and long-range plans, focusing our efforts on improving free cash flow generation, and deciding where to invest our capital to maximize returns, it will be extremely helpful to have Mike at the table, working together with me and other members of management to reach optimal outcomes. Medtronic has always been a great company, and we are even better today with Mike as a member of our team. I know you all want to hear from Mike, I'll turn it over to him.
Thank you, Karen. First off, I'm not on a beach. I was thinking I'd be on a beach or at least taking a few months off when I told JPMorgan of my intention to retire earlier this year, when we announced it publicly in March. Omar and I had dinner in Minneapolis, and we started what became an extended conversation on the business, the strategy, and the outlook. That led to more dinners and more discussions with Omar and Karen, giving me a lot more confidence in, A, the business, and B, the potential to create significant shareholder value. As you know, the company is in the midst of its quiet period. As such, there are limits to what I can say today.
You should know, number one, that Omar, Karen, and I are 100% on the same page, and it's all about fulfilling Medtronic's mission and creating shareholder value. Two, after all the time I've spent with Omar and the team, my confidence in Medtronic's outlook is only enhanced. Otherwise, I would be on a beach, and we wouldn't be having this call. Third, I am, as of today, a significant Medtronic shareholder. Given the opportunity I see in the months and quarters ahead to create shareholder value, I've asked that the vast majority of my compensation come in the form of Medtronic stock.
Fourth, finally, on timing, it's Omar and Karen that really drove this, wanting to, A, address the stock's recent performance, and B, get me on board ahead of guidance in the June 5th Analyst Meeting, which I look forward to seeing everyone at in just four weeks from tomorrow in New York.
Thanks, Mike. Let's open the phone lines now for Q&A. We want to try to get to as many people as possible, so please help us by limiting yourself to only one question and, if necessary, a related follow-up. If you have any additional questions, please contact Ryan and our investor relations team after the call. With that, operator, first question, please.
Yes. Your first question comes from Bob Hopkins from Bank of America. Your line is open.
Thanks for letting me take the question, congrats to Medtronic and to Mike. Just two quick questions. First, for Omar, I was wondering, should we consider this hire more of an opportunistic hire, or does this signal more of a willingness to consider aggressive portfolio asset management, either in terms of M&A or divestitures?
Well, first, don't read anything imminent into this announcement. Look, we're always looking to create shareholder value. It's very important for us. We think Mike can help us tremendously in that regard, all the way from our overall strategy, his views and his perspectives on our product lines and our product selections, all the way to capital deployment. Mike's got enormous experience with the real expertise in creating shareholder value. That's the only thing to read from this. There's nothing specific or imminent or any concrete change in direction from what we've talked about before with respect to the way in which we allocate our capital.
Just one quick follow-up. There's been a lot of discussion over the last, say, call it six months on some of the various businesses. When it comes to your diabetes franchise, I assume the answer to this is yes, but I'm just curious, from your perspective right here, I assume we should be considering that sort of a core asset to Medtronic. Is that a fair statement?
Yes. I mean, diabetes is a big growth driver for us. We're excited about what we can do. We've got a revolutionary product, which is getting tremendous feedback. It's more than that, it represents one of the key disease areas in healthcare where we have therapy that's part of our mission, and I can go on and on, but it's a very important business for us.
Great. Thanks for taking the questions, and congrats again.
Okay.
Your next question comes from David Lewis from Morgan Stanley. Your line is open.
Good morning. Congrats again to Mike. I think it's an exciting opportunity. Maybe just to the broader team. Does this announcement suggest to investors your confidence in the existing strategy or a need for that strategy to change? I have a quick follow-up.
Again, our existing strategy is pretty comprehensive and grounded in underlying trends in healthcare. That, in its sense, will remain the same. At the same time, we're always looking to fine-tune more, especially with a line of sight to creating shareholder value. Mike's insight in that area, not only his experience, but the way in which he thinks about issues, I think will be of tremendous value. That's about it, I think.
Okay. Just something in Mike's prepared remarks got me somewhat excited. It was the topic of executive compensation, Omar. I wonder, maybe this is for Karen as well. In what way can executive compensation be a catalyst for change? I wonder, executive compensation focused on driving incremental free cash flow, or compensation policies focused, Omar, on driving minimum returns, and perhaps that's something we could hear about at the Analyst Day coming up.
Yeah. I think we've already stated it, that we have changed our executive compensation fairly deep in the organization to reflect the sense of urgency that we have around creating free cash flow. That's now paid at the equal weight to earnings per share and revenue growth. That we've already changed as coming up from next fiscal year based on our needs. The same is true from a total shareholder return perspective in that our compensation will now be weighted with that. These are both changes that we made following the sort of thinking that you outlined, David, that executive compensation does drive behavior and does drive priorities, and clarifies those priorities. Mike choosing to be paid largely on Medtronic stock, I think, is a big signal as to what we can do and the confidence that we have with respect to shareholder value.
Great. Thanks so much.
Your next question comes from Robbie Marcus from JP Morgan. Your line is open.
Great. Thank you.
Robbie, your line is open. Yeah.
First off, congratulations, Mike, on the new role.
Thank you.
I know probably better than most the great work you do and the depth that you go into. Maybe you could spend a minute on what gave you the incremental ability or due diligence to get incrementally confident on the outlook at Medtronic and their ability to create shareholder value, particularly given you're taking most of your compensation in stock.
Good question, Robbie. Obviously, there's limitations in terms of what we can say today, what I can say today, given the quiet period. Number one, recognize that. To the underlying question of essentially did I do additional due diligence that got me incrementally comfortable in the opportunity at Medtronic? The answer is yes.
Okay. Maybe just a quick follow-up. Given the timing of the Analyst Day in June, what part in the fiscal 2019 planning and guidance will you take part in?
Good question. Naturally, that drove some of the timing. Obviously, there was on Omar and Karen and the team's part, a desire to get me on board as soon as possible. Part of that is, in a couple of weeks, Medtronic will be hosting its fourth Q call and issuing FY 2019 guidance. Then a week and a half after that will be the June analyst meeting, in which the company will provide an updated outlook. I will be participating in helping the company set that guidance and that outlook.
Well, congratulations again.
Thanks.
Your next question will come from Vijay Kumar from Evercore. Your line is open.
Hey, guys. Thanks for taking my question, congrats to both Medtronic and Mike. The press release had, I think, the word value creation was used a number of times in the press release and in the prepared comments as well. I'm just curious, maybe Omar or maybe even Mike can add in here. What do you think Medtronic can do, should do going forward to unlock this value? Mike, I got to warn you, if you're commenting, I'm going to read up some of your old notes and check up on this.
Well, I'm sure you'll do that. Look, that's something we'll work together on. We've stated the way in which we're approaching it. There is a sense of urgency in my mind of creating shareholder value, and I think Mike's perspective will help us with some new insight, and I'll let Mike comment on it. We've stated publicly what our strategies are. Going in, that's what they are. Mike's insights will help us modify it. Shareholder value creation, the urgency of that, I want that to be very clear. That's pretty important in our mind. Mike, appreciate any thoughts you have as well.
Sure. Thanks, Omar. Vijay, there's a lot more we'll be able to talk about at the analyst meeting, just recognize our timing here, this is effectively day one for me with the whole organization. I need to spend some time, not just with Omar and Karen and some of the others, but with the broader team to go through some particular topics and issues, as you can imagine. Give us a little bit of time, and there'll be more we'll be in a position to say. Just to be clear for everybody, don't expect some big announcement at the analyst meeting in June. That's not what we're doing here. We're not setting you up for some big June 5th announcement from Medtronic. There's a lot of ways in which Medtronic can create shareholder value. You know where the shares are trading today.
You know the potential this company has. I'm here to help the company unlock that potential. That's what I see. I'll be able to talk more about it on June 5th. I hope everybody can join us.
That's helpful. Maybe, Mike, one quick follow-up. I think you mentioned dinner and meeting, that followed by further conversations. From a timeline perspective, can you give a sense of how this all came about and when the process started? Thank you.
It's been relatively quick, Vijay. It was really after I announced publicly that I was planning to retire. I heard from, not just a number of different companies, but a number of different opportunities across the sector and the financial landscape. Omar and I had dinner, Omar, Karen, and I had dinner. Omar and I had another dinner, things moved relatively quickly in the last few weeks.
Thank you, guys.
Your next question comes from Larry Biegelsen from Wells Fargo. Your line is open.
Good morning. Thanks for taking the questions, and congratulations, Mike. Two from me for you, Mike. First, how do you affect change at Medtronic when you're in a non-operational role? Will you be based in Dallas or Minneapolis? If Dallas, how do you ensure that geography isn't a challenge? I have one follow-up for you.
That's a good question, Larry. Yeah, I will be based in Dallas, but naturally, I'll be spending a lot of time in Minneapolis. I'm in Minneapolis today, as you can imagine. Will be spending a lot of time here, particularly as I get to know people in the organization that I didn't know, and we address some of the questions that we want to address. I'll be spending a lot of time here, and will be interacting with senior leadership throughout the company. I'm not concerned about that. I'm pretty excited and pretty optimistic about it.
I would just add to that, we're a global company, and so we connect in many different ways. Whether it's face-to-face or virtual, Mike will be part of every important discussion and meeting that we have.
Mike, what are your goals? How would you define success? Thanks for taking the questions.
That's a great question, Larry. I think that there's a number of different things I could comment on that. Part of it, what you're hearing today from Omar and Karen, and really the full management team, is the goal of creating shareholder value. To me, that is priority number one. I think that hopefully that message is coming through to everybody today. Shareholder value creation is number one, and give us a little bit of time because, again, this is the first day which I'm inside the company. We've already started having discussions, but this is the first full day, and we'll be able to say more, starting at the analyst meeting, but going forward from there.
Sounds good. Thanks for taking the questions, guys.
Your next question comes from Brooks Nettle from SunTrust. Your line is open.
Good morning. Mike, congratulations. I think it's a great opportunity for you and the company. Both of us probably realize the intrinsic strong capabilities of Medtronic. Both of us have realized that the company's delivered on the top line since Omar basically took over and started reconfiguring things. Nonetheless, the stock's been disappointing post-Covidien. I know you can't comment about the future, but maybe you could kind of recapitulate what you've said in the past as to why the shareholder value hasn't been unlocked, given the capabilities of the organization as well as the top-line performance, which has been good.
Yeah, I'll chime in here, but I think it'd be worthwhile to hear from Omar Ishrak as well. Look, I think that the last 12 months, the company obviously, in particular, hit some speed bumps between the computer outage, the hurricanes, and the challenges early on in the diabetes business with supply. Part of it, from my standpoint, is just the last 12 months, just there was a handful of things that happened, some of them external, which were tough to control, that hopefully, I think the company can put behind it. I'm very optimistic about the outlook. We'll, again, have a lot more to say about that in a couple of weeks on the 4Q call and then more so at the analyst meeting.
I'll be able to talk about it in some detail, a little bit about the past, but really more in terms of what I see going forward and what I think the keys are to driving value creation at this company.
Yeah, let me also add to that. First, we've got a tremendous platform. Just in the few years that I've been at Medtronic, that platform's base has almost doubled and still growing at a, like you pointed out, a healthy rate. That's a tremendous opportunity. Coupled with that are the skill sets that we have around the world. We're global. We're diversified globally. We've got product lines that are leading edge with high market share positions in almost everything we're in. We've got a huge amount of talent around the world focused on continuing to improve performance and tapping into the underlying growth opportunities in healthcare. I think there's a lot of moving parts here, and some things have gone against us. Some things we could have done better. Make no mistake, the platform that we have today is the eminent platform in healthcare, certainly medtech.
It's one that we are focused on taking advantage of and creating shareholder value, and Mike will be a huge asset for us. Again, not only his experience in terms of what he's seen, but the ideas and the thoughts that he will bring that we don't think of. We're truly excited to have him here, and I'm confident that this company will reach new heights with him as being part of it.
Thanks so much, guys. Congratulations, Mike.
Thanks, Brooks. Michelle, we'll take one more question.
Okay. Your final question then will come from Raj Denhoy from Jefferies. Your line is open.
Hi, good morning. I'll add my congratulations as well to Mike. Just a question actually on the opportunity here. I think everybody recognizes the undervalued nature of the stock. When one thinks about what's behind that, either it's something within the company that's not being communicated or perhaps we're not appreciating something within the company currently. On the flip side, perhaps there's something that needs to change in order for that value to get unlocked. I guess, Mike, when you look at what's happening there, do you think it's a communication problem and maybe something's not being appreciated? Or does something actually have to change in the company for that value to get unlocked?
Good question, Raj. To me, I think that, step back big picture, so 10,000 feet, the strategy's right. I think the team is right. There's been times in which the execution on the margin side hasn't been as good as they would've liked. I think that if the company can deliver on its aspirations, part of that is delivering solid revenue growth, underlying margin expansion, and ultimately driving free cash flow, and then unlocking some of that value that's there for shareholders. I think there's a lot of different ways to create value, particularly given where the shares are today, the discount, the shares relative to just the S&P, but obviously some of the peers. There are a lot of avenues to create value here is part of what I'm excited about.
There's a lot that I already see and been able to see that gets me incrementally excited versus when I was on the other side of this call.
Maybe just if I could ask a follow-up to that. When you think about, you sort of noted that part of this is the performance against the expectations that the company's created. Do you think, and I know you probably won't answer this given how close we are to the analyst meeting and guidance, but do you think the targets presented for operating margin expansion perhaps might be a little bit aggressive where they currently sit for the company in the sense that may be part of the issue, just that the expectations are a little ahead of what the company can do?
You know what, Raj? Thank you for the question. During our quiet period, that's not something that we're going to talk about. We look forward to talking about that much more on our earnings call and at Investor Day.
No, appreciate it. Thank you.
Yeah. Thank you.
Okay. I think that's about it. Right, Ryan?
Sure. Yeah. Omar, if you want to-
Let me just close out here. Thank you to all of you for your questions and your interest. On behalf of our entire management team, also thank you for your continued support and interest in Medtronic. Like we mentioned, we look forward to updating you on our progress and the results of our full year on our Q4 call in a couple of weeks on Thursday, May the 24th. Thanks again. Appreciate all your interest. Congratulations to Mike one more time.
Thank you, everyone. This will conclude today's conference call. You may now disconnect.