Good morning, and welcome to Medtronic's Fiscal Year 2021 4th Quarter Earnings Video Webcast. I'm Ryan Weispfenning, Vice President and Head of Medtronic Investor Relations. Before we start the prepared remarks, I'm going to share with you a few details to keep in mind about today's webcast. Joining me today are Jeff Martha, Medtronic Chairman and Chief Executive Officer and Karen Parkhill, Medtronic Chief Financial Officer. Jeff and Karen will provide comments on the results of our Q4 fiscal year 2021, which ended on April 30, 2021.
After our prepared remarks, we'll take questions from the sell side analysts that cover the company, And today's event should last about an hour. Earlier this morning, we issued a press release containing our financial statements and divisional and geographic revenue summaries. We also posted an earnings presentation that provides additional details on our performance. The presentation can be accessed from the link in our earnings press release or on our website at investorrelations. Medtronic.com.
As we mentioned last quarter, the Q4 marks the first time that we're using the new nomenclature and reporting structure of our new operating model. For more information on these changes, please see the relevant slides in our earnings presentation. During today's webcast, many of the Statements we make may be considered forward looking statements, and actual results may differ materially from those projected in any forward looking statement. Additional information concerning factors that could cause actual results to differ is contained in our periodic reports and other filings that we make with the SEC, and we do not undertake to update any forward looking statement. Unless we say otherwise, all comparisons are on a year over year basis And revenue comparisons are made on an organic basis.
4th quarter organic revenue comparisons adjust only for foreign currency as there were no acquisitions or divestitures made in the last four quarters that had a significant impact on total company or individual segment quarterly revenue growth. Full fiscal year organic revenue comparisons exclude the impact of foreign currency, the benefit in the 1st 12 months of our Titan Spine acquisition and the benefit of the extra week in our Q1. References to sequential improvement compared to the Q3 of fiscal 2021 and are made on an as reported basis. All references to share gains or losses are on a revenue and calendar quarter basis, unless otherwise stated. Reconciliations of all non GAAP financial measures can be found in the attachment to our earnings press release or on our website at investorrelations.
Medtronic.com. And 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. And with that, let's get started.
Hello, everyone, and thank you for joining us today. We reported a strong quarter this morning. The expectations that we set for Q4 on the last earnings call We're seen by many in the financial community as aggressive, yet we executed and we delivered, beating Street estimates on revenue, margins and EPS. Most of our end markets are returning to near normal pre COVID growth. While some geographies are lagging due to COVID's persistence, Momentum built throughout the quarter, and we feel confident about the year ahead.
Karen will give you more color on our guidance later in this call. But the key takeaway is that we're guiding above Street estimates on the top line while simultaneously accelerating our investments At the front end of major product launches in surgical robotics and renal denervation. Now in robotics and renal denervation, We're investing in our marketing, customer service and support capabilities to maximize these product launches. We're also investing in R and D broadly With meaningful programs across the company. As we talked about on our Investor Day last year, we have a packed pipeline across our businesses with a number of meaningful opportunities.
And our top priority is to invest in our business and pipeline to take advantage of those opportunities. As a result, we plan on increasing our R and D spend by more than 10% in FY 'twenty two, the biggest dollar increase in R and D spend in our company's history, all while delivering strong EPS growth. We're ultra focused on accelerating our top line growth, And we're making incremental investments to put us in a place to drive a sustainable higher level of growth than you've historically come to expect from Medtronic. Before I get into some details on the Q4, I'd like to reflect on the past year, my first as CEO. It's certainly been a difficult environment with the pandemic, but our organization has risen to the challenge and achieved so much in such a short period of time And under unique circumstances, now it's become cliche for companies to say that they're expecting to emerge from the pandemic stronger, As I've heard this phrase echoed from many of our competitors, but you've been hearing this from us from day 1.
And I think you'll find it hard to name another company in our space that has done more to emerge from this pandemic stronger than Medtronic. Whether it was investing in our employees, helping our customers and patients, sustaining our R and D programs Or changing our operating model and putting in place a new Medtronic mindset culture. This past year was transformational for us. In fiscal 2021, customers eliminated the vast majority of their quarter end bulk purchases, resulting in a more balanced order flow across the quarter. This has improved our predictability and our pricing, made our business easier to manage And reduced stress on our operations.
This past fiscal year, we also accelerated our tuck in acquisitions, Adding key technologies like AI driven spine planning tools from Medicrea and market leading Smartpen technology from Companion Medical, among others. We also advanced our organic pipeline with more than 230 regulatory approvals in the U. S, Europe, Japan and China in FY 2021. FY 2021 was also the year that we stepped up And helped our customers and communities during the pandemic. As a leading manufacturer of high acuity ventilators, we significantly increased our production And open sourced our IP to allow others to produce our ventilators around the world.
We continue to support communities in need, Most recently, as a key member of the Global Task Force on pandemic response, which was organized by the U. S. Chamber of Commerce and supported by the Business Roundtable. With the help of other task force members, we're working to supply 1,000 ventilators to India. Medtronic and the Medtronic Foundation also just announced An additional $3,000,000 for COVID relief efforts in underserved areas of India, Brazil and the U.
S. And other regions, which brings our combined support of COVID-nineteen efforts to $56,000,000 And in FY 'twenty one, We announced our goal of becoming carbon neutral in our operations by the end of the decade. We've set aggressive targets to reduce our environmental footprint. As we focus on creating a sustainable future for our business, our communities and our planet. We've always had a strong mission to guide this company, which includes integrating a strong corporate purpose into our strategy and maintaining good citizenship.
And this year, we've enhanced our corporate culture to emphasize our commitment to being bold, more competitive and moving with greater speed and decisiveness, which we believe will help drive the execution of our mission. We're also focused on becoming a more diverse and inclusive organization. And I was very proud that Medtronic was recognized earlier this month as number 11 on DiversityInc's top 50 U. S. Companies for Diversity, One of the biggest jumps by any company.
We know we have room to improve, and we're striving to be a company that attracts, develops and retains top talent from all gender and ethnic backgrounds. To sum up F 'twenty one, it was a year marked by progress And accomplishments that will propel us into FY 'twenty two with a stronger foundation for growth and a greater ability to execute, Deliver and exceed our own expectations. We have momentum, energy and a pipeline that gives our team optimism about what we can accomplish this year. Now let's turn to the Q4 results and start with a look at market share As we've been doing the last few earnings calls, we continue to gain share in an increasing number of our businesses driven by our differentiated product offerings. And we've put in place operating mechanisms to ensure that we continue to drive this competitive culture across the organization.
Market share is one of the key metrics that we will hold our teams accountable to deliver in evaluating performance. And in FY 'twenty two, It will be included as a metric in our annual incentive compensation. While the impact of COVID on procedures, along with the timing of our quarter, Does mask some of the underlying market dynamics? We are seeing a growing trend of share gains for Medtronic. Leading the list for share gains this quarter is one of our largest businesses, Cardiac Rhythm Management, which has gained share over the past several quarters.
We estimate that our CRM business has gained 2 to 3 points year over year, and CRM is now at the highest share level in more than a decade with strong gains from around the globe. Now these gains have been driven by Micra, our Lelus pacemaker, which grew 74% in Q4 and is now annualizing at nearly $400,000,000 Micra is a great example of the innovation and disruption that we're driving at Medtronic. But it's not just Micra generating our share gains. Our cobalt and chrome high power devices are also contributing, driving our CRTD product line to 74% growth in Q4. In TAVR, our share was up over a point year over year and was stable sequentially.
We reached an all time record of U. S. TAVR implants in the quarter. Late last month, we announced interim results of our OPTIMIZE PRO study, which showed that our new implant technique is resulting in single digit pacemaker rates. In addition, last week at EuroPCR, we announced very strong low risk data, which showed that the advantages of our Evolut TAVR system are maintained over surgical valves at 2 years post procedure.
Importantly, Our data showed no convergence of the TAVR and SAVR curves for death or disabling stroke as well as continued low valve thrombosis rates Out to year 2. This stands in contrast to our competition's PARTNER 3 data, and we'll leverage this data with implanting physicians as we continue to go on the offensive and win share in this important growth market. In our gastrointestinal business, We estimate that we gained share both year over year and sequentially. Our GI diagnostic product lines Grew in the low 50s, driven by high 60s growth of our PillCam. Last month, we received FDA clearance For our GI Genius module, which uses artificial intelligence to assist physicians in detecting both precancerous And cancerous growths during colonoscopies.
GI Genius can highlight lesions real time and identify polyps that might otherwise go undetected by the human eye, improving the quality of colonoscopies. In our cranial and spinal technologies business, We estimate that we gain share in both spine and neurosurgery, both year over year and sequentially. Our strategy of bringing a digital System of enabling technology to spine procedures is working. We had record sales of our StealthStation, navigation systems, ORM Imaging Systems, Midas Rex Capital and Advanced Energy Products. And we estimate that our Mazor Robotics System continues to outpace our closest competitor.
In ENT, we estimate that our share is up over a point year over year. The ongoing launches of our NIM Vital Neuromonitoring System and StealthStation Flex ENT navigation system, Coupled with share gains in disposable sinus blades are driving our above market performance. In Pelvic Health, Share gain continued with the momentum created by the launch of InterStim Micro and the SureScan leads. Our sales growth Outpaced Axonics in the calendar Q1, and we did this despite having a far larger sales base. While the European sacral neuromodulation market remains sluggish due to COVID resurgence, the U.
S. Market continues to accelerate. Turning to Neuromodulation. We estimate that we have gained about a point of pain stim share year over year and even more sequentially. Our SCS product line grew 73% in Q4, and we continued to outpace the competition in the calendar Q1.
The market continues to show strong enthusiasm for our DTM SCS therapy, which now carries a superiority label from the FDA. And our strategy of going after competitive account conversions is yielding great results. Our DTM trial adoption remained robust and grew sequentially, a good leading indicator for future growth in our Pain Stim business. In Brain Modulation, While we estimate we lost a couple of points of share year over year, we continue to gain sequential share on the back of the Percept PC launch. Percept has resulted in 10 points of new implant share gains in the U.
S. Since its launch last summer. So there are a number of businesses where we're gaining share, but there are still some businesses where we've got some work to do. In cardiac diagnostics, as we discussed last quarter, we continue to be supply constrained with our new LINQ II system in Q4 As we ramp our unique wafer scale manufacturing, we estimate we lost about a point sequentially and mid single digit share points year over year, primarily to Boston Scientific. We're working through the supply ramp up and expect to have improved supply in the back half of the fiscal year.
In addition, we implemented a product ship hold on the Link 2 last week as we analyze an issue. In the meantime, Customers are continuing to use our Reveal LINQ. Once we resolve the issue, we're confident that the proven market leadership of Reveal LINQ And the competitive differentiation of LINK2 will allow us to continue to win in the space. In our aortic business, We announced the voluntary recall of our Valiant Navion thoracic stent graft system in February. We also announced that we would be working to ramp production of our previous generation product, the Valiant Captiva, but that we would not be at full production until September.
The loss of Navion had a $35,000,000 impact to revenue in Q4 and resulted in us losing high teen share in the thoracic stent graft market. That said, our customers have expressed strong interest in using the Valiant Captiva product when inventory is available. And looking ahead, We're estimating that the quarterly revenue impact will decrease as we go through FY 'twenty two from $30,000,000 in Q1 to $15,000,000 in Q4. In neurovascular, we estimate we lost a couple of points of share year over year, driven primarily by new competitive flow diverters from Stryker and Terumo. That said, we saw our share stabilize sequentially as we launched our solitaire X3 millimeter stent retriever in the U.
S. And started the limited launch of our Pipeline Vantage Flow Diverter in certain CE Mark countries. We expect our new products to drive sequential share gains going forward. In diabetes, we continue to execute on our turnaround strategy, growing 9% this quarter. This is still below market, And we estimate we lost about 5 points of share year over year.
However, our share was stable sequentially. Our new MiniMed 7 70 gs and 7 80 gs insulin pumps are giving us momentum, resulting in very strong double digit global insulin pump growth. Next, let's turn to our pipeline. We're launching a number of products across the company and even more coming. We expect our robust pipeline to be the key driver of accelerating our top line growth as we're at the front of some large opportunities to win share, Create new markets and disrupt existing markets.
And as I noted earlier, we're continuing to fuel our R and D investments Such that our pipeline can be a continuous source of sustained revenue growth over the coming years. Starting with cardiovascular, One of our largest future drivers is renal denervation as we develop our solution to go after the multibillion dollar addressable market in hypertension. We're expecting to present our OnMed pivotal trial results later this year, likely at the TCT conference in November. And these results are likely to be one of the most Highly anticipated events in medtech this year. In cardiac rhythm management, we're planning to file for CE Mark For our disruptive extravascular ICD technology this quarter, let me repeat that.
I said this quarter. And in our cardiac ablation solutions business, We're expecting a first line therapy indication for our Arctic front cryo balloon in the U. S. This coming quarter. We also continue to make good progress on bringing our disruptive Pulse field ablation system in the market with strong enrollment in our pulsed AF pivotal trial.
In Structural Heart, we received FDA approval in Q4 for our Harmony transcatheter pulmonary valve, the first of and a breakthrough treatment for patients with congenital heart disease. In TAVR, we received low risk shonen approval in Japan and are expecting reimbursement approval later this fiscal year. We also expect the U. S. Rollout of our next generation TAVR valve, The Evolut FX later this calendar year, which will feature enhanced deliverability and ease of use.
Turning to our medical surgical portfolio, another very important program is our HUGO robotic assisted surgery platform. At the end of March, we reported that we'd submitted Hugo for CE Mark and U. S. IDE approval. Well, today, I'm happy to report That the FDA has granted the ID approval and we're preparing to commence our EXPAND EURO trial in the U.
S. To study HUGO in urologic procedures. We also had our first revenue from HUGO placements at hospitals outside the U. S. In Q4.
These systems We'll collect clinical data to support regulatory approvals in the U. S. And around the world. As you think about modeling The revenue from our Surgical Robotics business, we're expecting $50,000,000 to $100,000,000 in FY 'twenty two, and that's likely to roughly double or triple FY 'twenty three, we expect soft tissue robotics to be a meaningful growth driver going forward, not just for MedSurg, but for overall Medtronic. In our neuroscience portfolio, we have some exciting near term milestones coming in our neuromodulation business.
We're expecting to launch our Vanta recharge free spinal cord stimulator in the first half of this fiscal year. This is a big opportunity for us to gain additional share in pain stim given our low share in the recharge free portion of the market. We're also on track to submit our eCAPS device to the FDA later this calendar year, which has the potential to be a disruptive technology in the spinal cord stim And in Brain Mod, we're expecting FDA approval for our Sensite directional lead later this calendar year. This will close a key competitive gap and further differentiate our Percept PC system, which I mentioned earlier was already taking a lot of share in DBS. And in pelvic health, we received IDE approval last month to start our TITAN-one feasibility study.
This trial will evaluate our implantable tibial system, a device that we think could substantially increase our ability to serve overactive bladder patients, many of whom do not seek therapy or remain on current therapy. In neurovascular, In addition to the Saltair X3 millimeter stent retriever and Pipeline Vantage flow diverter that I mentioned earlier, We're rolling out 5 additional products this calendar year. This includes meaningful innovation for the stroke market like our pipeline shield flow diverter in the U. S. And wrist radial access system.
In diabetes, We recently received CE Mark approval for our ZEUS CGM sensor, which we'll be marketing as the Guardian 4 sensor. The no calibration data that was used to support the CE Mark approval will be presented next week at the virtual ATTD conference And the abstract is available on the ATTD website. We're pleased with the accuracy of Guardium-four And that it has now been labeled for dosing without finger sticks. Starting this fall, Europeans We'll not only have access to the 780 gs with the highest reported time in range of any insulin pump, but also our Guardian 4 sensor with no finger sticks required And our extended infusion set with an industry leading 7 day wear, we think this is a highly differentiated product offering and one that we can't wait to bring to other markets. In the U.
S, the 780 gs and Guardian Force Sensor are under active review with the FDA. Finally, we're making progress on our synergy sensor, which is disposable, easier to apply and half the size of our current sensor. We intend to submit the sensor to the FDA in the first half of the fiscal year once we complete our manufacturing module. I'll now turn it over to Karen to discuss our financial performance and guidance. Karen?
Thank you, Jeff. Our 4th quarter organic revenue increased 32% and adjusted EPS increased 159%, Significant growth as we anniversary the downturn we experienced at the start of the pandemic last year. Our end markets continue to recover from the impact of COVID, and we continue to execute on our strategy and launch new products, Resulting in a sequential revenue increase of 5% and sequential adjusted EPS growth of 16%. Our adjusted EPS was $0.08 better than consensus, with $0.02 on higher operating profit and $0.06 from a lower than estimated tax rate. Our recovery from the COVID resurgence in December January improved throughout the quarter, as expected.
March was stronger than February and April was stronger than March. We were particularly pleased with the strength of the last several weeks of the quarter, which we believe sets us up nicely for the start of our new fiscal year. From a geographic standpoint, we had strong 47% growth in the United States. Outside of the U. S, our developed markets grew 11%, with continued pockets of COVID resurgence in parts of Western Europe, Japan and Canada.
Our Emerging Markets grew 41%, driven by China growth in the low 90s. Our adjusted margins continued to improve sequentially, with 120 basis points on our gross margin and 190 basis points on our operating margin. Our adjusted nominal tax rate was 9.6%, Better than initially estimated, given a favorable jurisdictional mix of profits along with certain one time benefits. We've said throughout this past year that the actions we're taking during the pandemic to not only support our employees and our customers, but also continue investing would impact our free cash flow. That said, we're Pleased that we generated $4,900,000,000 of free cash flow, converting 81% of our non GAAP earnings into cash, Just above our long term conversion target of 80%.
During the quarter, we repaid in full A JPY 300,000,000,000 term loan that was issued earlier in the fiscal year. And our year end cash Position remains above $10,500,000,000 You can be assured that despite the pandemic, Medtronic continues to be in a strong financial position to drive our long term strategies. Reflecting the confidence that we and our Board have in the future growth of this company, This morning, we announced that we are increasing our dividend by 9%. We are an S and P Dividend Aristocrat, Having increased our dividend now for 44 years and the dividend is an important part of the total return we generate for our shareholders. We also restarted our share repurchase program in the 4th quarter with a focus on covering dilution from our stock based compensation.
Now turning to our guidance. We're confident in the continuing procedure recovery around the globe And the resilience of our end markets. And as a result, today reinstate giving formal guidance. We expect strong organic revenue growth acceleration in fiscal 2022 to 9%, Plus or minus, a point above current Street consensus. And while the impact of currency is fluid, If recent exchange rates hold, foreign currency would have a positive impact on full year revenue of $400,000,000 to $500,000,000 By segment, we expect Cardiovascular and Neuroscience to grow 10% to 11% Medical Surgical to grow 6% to 7% and Diabetes to grow 3% to 4%, all on an organic basis.
You'll remember that last year we had an extra week in our fiscal calendar, and these growth rates have not been adjusted for that extra week, given the offset that we had from customer bulk purchases. As a result, we do not intend to adjust our organic In the Q1, we're comfortable with Street consensus on revenue, which implies organic growth of 17% to 18% and a currency tailwind between $200,000,000 $250,000,000 at recent rates. By segment, we expect cardiovascular to grow 14% to 15% Medical Surgical to grow 18% to 19% Neuroscience to grow 25% to 26% and Diabetes to be flat. With so many big opportunities in front of us, we're prioritizing R and D and commercial investments, with growth above and beyond what you would See in a normal year. And we're allocating this capital across our businesses to our best opportunities.
As you know, 2 of our largest opportunities are Surgical Robotics and Renal Denervation. We're purposely making significant investments in them to ensure we fully capitalize on the multibillion dollar opportunities ahead. Just to give you a sense, when you combine the facts that it's early in the revenue cycle of these two programs with our heavy investment, We are planning for an operating loss of approximately $400,000,000 next fiscal year from these combined programs. Yet it is important to note that even with these kind of investments, we're still expecting operating margin expansion.
This is
the power of Medtronic's business model, that we can simultaneously make large scale investments In some of the most important future technology areas in MedTech, cover the dilution and Deliver strong profitability and returns for our shareholders. On the bottom line, we expect non GAAP diluted EPS in the range of $5.60 to $5.75 in fiscal 2022, which includes a benefit of $0.10 to $0.15 from currency at recent rates. For the Q1, we expect EPS of $1.31 to $1.34 above current Street consensus of $1.29 to $1.31 And 1st quarter EPS would include a currency tailwind of about $0.03 at recent rates. Before I hand it back over to Jeff, I'd like to take a moment to recognize all of the employees across Medtronic Who scaled mountains this year, leaning in to deliver a great year under difficult circumstances. I'm proud to be part of such a terrific team, and I couldn't be more excited about the opportunities ahead of us.
Back to you, Jeff.
Okay. Thank you, Karen. Now I'd like to close by emphasizing that there's a lot of energy here at Medtronic, and our momentum is building. You're seeing us perform better than our competition. We've executed in the short term, and we're investing for the long term.
We've accomplished a lot in FY 'twenty one, and this is a good start. But our expectations are higher. What will truly differentiate us Is accelerating and delivering sustained revenue growth at or above our markets, not just over a year or 2, but over the next decade. We have incredible programs in our development pipeline with robust expected financial returns. We're developing the next generation of medical devices that incorporate technologies like artificial intelligence, big data and miniaturized electronics.
These programs have the potential to truly change the future of medicine. When we look at the opportunities ahead of us and how we expect to translate these into strong returns for our shareholders, the future is bright. And finally, to our 90,000 employees around the world, thank you for everything that you've accomplished this past year. I'm sure they would agree with me when I say if there's one thing you should take away from today's call, it's that, Medtronic, We're just getting started. With that, let's now move to Q and A.
We'll try to get to as many analysts as possible, So we ask that you limit yourself to one question. If you have additional questions, you can reach out to Ryan and the Investor Relations team after the call. By the way, it's worth noting that the IR Magazine recently recognized our Investor Relations as the best of all companies in the United States, An award we're very proud to receive as it was the result of voting from hundreds of investors and analysts. And we look
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 you are next in the queue, we will notify you directly via the Zoom platform chat function. You will then receive a request Lastly, please be advised that this Q and A session is being recorded.
For today's session, Jeff, Martha, and Karen Parkhill are joined by Sean Salmon, EVP and President of the And Brett Wall, EVP and President of the Neuroscience Portfolio. We will pause for a minute to assemble the queue.
We'll take the first question from Bob Hopkins At the GV Securities. Bob, please go ahead.
Great. Thanks and good morning. And just to make sure the technology is working okay, can you hear me this morning?
Yes, we can hear you, Bob.
Great. Thanks, Jeff. I appreciate the opportunity to ask a question and Congrats on the momentum. I guess for my one question, given that it's such an important topic, Jeff, and you're such a major player around the globe, and I'm sure investors would love to hear a little more detail on just what you're seeing currently with the recovery in surgical procedures, and what you saw over the course of the quarter. Specifically, are things continuing to improve here early in fiscal Q1?
And are you now seeing year over year growth Above pre COVID revenue levels currently.
Yes. Thanks for the question, Bob. I mean, the way we look at this Is by geography and then by product line or therapy. But I'll start with the answer. Overall, we're nearing A full recovery.
And we're seeing with each month of the quarter, every month was better than the prior month and that continued to improve and accelerate Into May, largely driven by the U. S. Market. I mean, once we hit that vaccination I know a couple of months ago, people are worried that it wasn't moving fast enough. Then we hit an inflection point and things really opened up.
And so in the U. S, where depending what therapy you want to look at, anywhere from 85% to over 100% of pre COVID levels. And like I said, every month got better. And then you got to look around the world. China is pretty much back to normal, totally.
And Europe being our 2nd biggest Western Europe, if you look at that as one market, that is lagging behind the U. S. But look, we're confident that When you have a healthcare system like they have with that kind of infrastructure, once they get the vaccinations going, it'll hit that same inflection point in the United States And open up, but as you know, there are a couple of months behind. The harder one to peg down is the emerging markets. I mean, places like India, where The virus is still raging.
Southeast, other parts of Southeast Asia, Latin America, they don't have the same infrastructure Even when they get the vaccine and there's a lot of people, so there's a lot of vaccines that you need to get there. So that's a harder one to pin down. But overall as a company, like I said, we're nearing a full recovery despite the emerging market piece, really driven by the acceleration of the United States. And like I said, we expect Europe to come not too far behind.
Any thoughts on Japan?
Japan, it was doing pretty well, and then it slowed down a bit And it's starting to come back. But like many of the developed market, it slowed down In that December, January time frame, but it is starting to come back for
us as well. Thank you very much.
Thanks, Bob. Let's go to the next question please, Franchesca.
We'll take the next question from Robbie Marcus from JPMorgan. Robbie, please go ahead.
Oh, great. I'll add my congrats on the quarter. So Karen, maybe for you, there's a lot to unpack here in the guide and it's great to see
revenues come in
above the You come in above the street, offset a little on EPS. I was hoping you could give a bit more color to what's assumed in there in terms of Any bolus of recovery patients over the balance of the year, anything you could give us on top and bottom line cadence throughout the recovery through the year? And just how we think about operating margin versus some of the below the line items would be great. Thanks.
Thanks, Robbie. So in terms of revenue, clearly, we're seeing a strong end to our fiscal year and that's continuing into the Q1 and We expect that momentum to continue. So from a revenue perspective, we expect increasing revenue growth on a 2 year stack basis throughout the year. In terms of bolus of revenues, we just expect it to be steady, Steady increase. In terms of operating margin, we expect an operating margin expansion this year, Even with our significant increase in investment, particularly against the robot and Ardian, and that's what's driving A guide in line with Street expectations.
Hopefully, that's helpful.
Yeah. Maybe just a quick follow-up there on operating margin because there's a lot of Room in improvement. Is something like in the 28% to 28.5% range the right place to be?
Yes. I would say you can expect a few points, roughly a little bit over 3 points of improvement in the year. And so we're driving that expansion at the same time that we're driving important investment.
Great. Thanks a lot.
Yes. Thanks, Robbie. Let's go to the next question please, Franchesca.
We'll take the next Question from Vijay Kumar from Evercore ISI. Vijay, go ahead please.
Thanks guys for taking my question and Jeff congrats on A solid print here. I did have one question on Surgical Robotics. Actually, it's a 2 parter. 1, the $50,000,000 to $100,000,000 expectation and perhaps doubling or tripling, What's I guess, can you talk about the assumptions behind the wide range? Is that a timing related Perhaps when you might get the approvals in major markets?
And related to that, when I think you guys called out $400,000,000 of operating losses, right, with revenue of $50,000,000 to $100,000,000 I think that implies Perhaps $1,000,000,000 have stepped up on the OpEx side. Where is that spend going? And how should we think about profitability on these new initiatives? Thank you.
Vijay, I might Start by saying that the $400,000,000 of operating losses that we shared with you is both the robot and Ardian Combined. It's not just the robot. And in terms of our assumptions behind the $50,000,000 to $100,000,000 you can expect it to Accelerate into the year, particularly in the back half and the fourth quarter. And we're pleased to be launching this robot. And we're really excited about the prospects beyond this fiscal year into FY2023 where we said that It should double or perhaps even triple.
Sorry. And that's been perhaps, can you clarify How much of that is R and D versus separate out of the commercial organization?
Yes, I'm going to let Bob White comment too, but you can expect it's A lot. We're going to continue in R and D spending and we're going to be building out sales force and customer service and support as well.
Yeah, that's right, Karen. That spend is really built as we now Commercialize the robot and as I've talked about in the past, Vijay, we've got a really exciting product pipeline across those four vectors of innovation, instrumentation, data and analytics, Visualization and of course the robotic system as well.
Thanks, guys.
Thanks, Vijay. Next question please, Franchesca.
We'll take the next question from Joanne Wuensch from Citi. Joanne, please go
ahead. Can you hear me okay?
Yes, we can, Joanne.
Wonderful. I'd like to spend just a couple of minutes on diabetes. There's 2 Major medical meetings coming up, ATTD and ADA. And you're launching Guardian Sensor 4 and the smart insulin pen outside the United States. So it's Sort of a multipart question, but first of all, what should we be expecting at these two meetings?
As it relates to the sensor, could you give us some of the parameters? I know it's 0 calibrations, but I'm curious unmarred. And then lastly, how do you look to price these products as you bring them First outside the United States and then into the United States. Thanks.
Okay. Joanna, maybe I'll have Sean answer those questions.
Thanks, John. Yes, so we've got a lot coming out next week at APDD. You pointed to the sensor data, which will be released. There's the abstract available on the website right now, which includes the MARG numbers. We also have information coming out in the 780 gs experience, Which I'd point you to look at the first 4,000 patients of real world experience are being launched there.
We'll have additional SmartPen data Coming out at the ADA meeting. But in terms of your specific question on margin, that's really not a great metric to look at. There's Sort of an overall average of how the difference is looking across the full range of sensor. But what you really want to know is When your blood sugar is high or when it's low, is your sensor accurate? And those data are really accurate and you'll see that in the presentation.
And the other thing that's important is the trending, is the blood sugar reliably being going up or down and that's really what matters. Kind of like A1C is a big average over time for glycemic control and time and range replace that metric. Really the accuracy In the right places in the range is what's important and you'll see that in the day that's being presented. In terms of pricing, there's no plan to change the pricing between
We'll take the next question from Chris Pasquale at Guggenheim Securities. Chris, please go ahead.
Thanks. Can you hear me okay?
Yes. We can hear you just fine, Chris.
Great. Wanted to follow-up on the diabetes business. 3% to 4% growth coming off of the year in which sales were flat doesn't imply a ton of progress on the turnaround in FY 'twenty two. I'm curious whether that Guidance really assumes any contribution from 780 gs and ZEUS in the United States. And maybe tied into that, latest expectations on the timing of potential FDA approvals for those products?
Yes. Chris, I'll take the first part and I'm going to let Sean comment on the second part. But one thing to keep in mind with our diabetes guide Is that we purposely did not adjust for the extra week across the whole company that we had last year because the reduction in bulk purchases offset it. But that reduction in bulk purchases did not affect our diabetes business. So really we need to look at it with the loss of the extra week that is indeed affecting them.
And that loss of the extra week is about 150 basis points on the year. So hopefully that's helpful.
Yes, just to build on what Karen said, we also had a bit of a comparable issue within some international markets where there was some stockpiling of The consumables that get used, that's a little bit of a year on year comparison. But the bigger effect for us is that The installed base in the last 6 months, so those coming out of warranty in the last 6 months was just higher than what we're going to see in the first half of the fiscal year. So just getting a difference of how many patients come out of what timing. Certainly, the new product flows you mentioned, 780 and ZEUS The U. S.
Will be most important for us to continue to move both patients from the installed base as well as those new patients, those coming out of MDI or competitors. I don't have an update on the timing. We have an active review, as Jeff said, on the filing and we the reviewer that's working with us is the same one that reviewed the 770 Device, we think that that familiarity is going to be helpful, but there's no update on timing at this point. Thanks.
Yes. It's good to see, though, the pipeline starting to show up here. I mean, we're looking forward to get to the U. S. But 780 gs, The new sensor, the extended wear infusion set, it's a pretty powerful combination and we're seeing great clinical results and great patient Feedback, and I think you'll see that in the data that comes out.
And it's a good leading indicator of what we're going to see in the United States when it gets here.
We'll take the next question from Larry Biegelsen from Wells Fargo Securities. Larry, please go ahead.
Good morning. Thanks for taking the question. One just one for Sean on renal denervation. So Sean, for the OnMed data at TCT, Is the pilot data a good proxy? I think with the OfMed, we saw a little degradation in the efficacy.
Would you expect the same here? And can you have reimbursement? How should we think about the ramp given the uncertainty around reimbursement? I think we all understand it's a big opportunity. You guys are really excited about it.
But how do we think about is this something that could be a slow ramp because reimbursement may not be in place Upon approval. Thanks for taking the question.
Yes. Thanks, Larry. I think there is a good proxy for that pilot study. It sort of informed our decision, should we continue on and is this worth studying? So we think that magnitude of benefit could be there.
But you're right to point out that when you get into More centers, more patient and physician variables, things can move around a little bit. So we'll see what that looks like. But we're confident The trial is designed properly to get us the right answer. Reimbursement is certainly the hurdle. We do have CE Mark, we have Approval a lot of countries, but getting that paid for is going to be important.
And in the United States, we're awaiting legally the proposed rule on IMSAIT To allow 4 years of coverage as we develop further evidence upon approval. Now that doesn't We still have work to do there. We still have to go payer by payer because a lot of the patients will fall into the non Medicare bucket of But we've been working that for a number of years, frankly, to make sure that we have the right evidence to satisfy their needs, which really frankly drove the need for an OnMed trial to begin with. But, yeah, we got a lot of work ahead of us, but we're very excited about the opportunity and it's getting closer and closer. Thanks, Sean.
Thanks, Larry. Next question please, Francesca.
We'll take the next question from Rick Weiss From Stifel. Rick, please go ahead.
Good morning, everybody. I guess I have a question that maybe That is for both Jeff and Karen. It's about cash and maybe talk about your Cash generation potential in the year ahead and your thoughts about some of the key drivers there. But maybe, Jeff, you could expand on Your thoughts about the use of cash in the sense that, I mean, you all indicated that You're buying back stock to offset dilution, you've raised the dividend. So that sort of leaves M and A.
Is the year ahead going to be a year of more intense M and A activity? You have so much going on internally. Is this a priority and maybe any color about how you're thinking about your priorities as you look ahead? Thank you.
Sure. Thanks for the question, Rick. In terms of like our priorities, our priorities are investing in growth. And today, we announced The largest increase in R and D in our history. And it's because we're seeing these large market opportunities With clear patient need where Medtronic has a right to win.
And so we're looking at those holistically, investing organically In R and D, but also other growth investments like we talked about ahead of certain product launches like Guardian and the robot. So we're investing Sales and marketing and other related growth investments. But inorganic is a big is still is a priority. We did A number of deals last year, tuck in deals, and I'd say tuck ins are still the focus. And those tuck in deals could be up to several $1,000,000,000 I mean, the ones we did over the last 18 months have been smaller than that.
But I wouldn't mistake Eyes for impact, some of these ones like Medacrea, which is the AI planning tool An outcomes tracking tool for spine is a real nice piece of the puzzle for our spine strategy. And a couple of questions here on the call today about Smartpen, the companion medical. So these are impactful deals and we look to continue those. And so it's still a priority And over and above over buybacks, and we'll see how the year plays out. It's tough to predict, right?
We're going to remain disciplined here. But I think the theme I'd walk away with is that we're committed to investing in growth both On the EPS growth expectations that we set out. And so that's what the team is focused on And you're seeing the benefits of that. Karen, if you want to?
Yes, I would just add, Rick, your first question on cash generation in the years ahead. Clearly, we are focused on driving strong conversion of our non GAAP EPS into cash. And We've said we've targeted greater than 80% conversion rate. That doesn't change. So we remain focused on delivering that.
And we also are growing cash along with our earnings. And we're focused on driving continued Working capital productivity in our days sales outstanding, our days payable, our inventory, so you can Expect us to continue to have this keen focus on cash flow and driving strong results from it.
Thank you very much.
Thanks, Rick. Next question please, Francesca.
We'll take the next question from Matt Miksic from Credit Suisse. Matt, please go ahead.
Matt, you there?
Hi. Can you hear me okay?
Yes. Now we can. How are you doing, Matt?
I'm well, thanks. Thanks so much for taking the questions. So, one on your robotic surgery programs, if I could, The first part, if you could maybe just talk a little bit about how some of the pandemic conditions around the world are affecting Your progress so far, how you're thinking about fiscal 2022 and some of the range that you put out there in that $50,000,000 to $100,000,000 And then secondly, Yes, there has been this, what feels like a bit of an inflection point in terms of robotic surgery Momentum and placement throughout the back end of last year and the 1st part of this year. Just wondering how if you could describe your how you compare The Q4 to the Q3 and how the cadence feels in terms of new placements and pull through in your current program, Mazur?
Okay. Yes, I was going to ask you to clarify because when you said robotics, I wasn't sure. So on the spine side, look, Matt, I know you followed this for years. The strategy of surrounding The spine procedure and preceding the spine procedure and following up the spine procedure with enabling technology from surgical planning To navigation, interoperative imaging, the robot, this is paying off. I mean, we had record sales last quarter Of our capital equipment tied to spine procedures and continue to outpace the competition on the robotic sales.
But more than anything, okay, more important than all of that is the surgeon feedback that we are getting has hit an inflection point. They are now talking about The outcomes that they're getting from this, it's the planning, the precision of the planning to get the right alignment plan in there. And then the accuracy of executing to that plan with NAV and the robot and then the ability to follow it up and Access images in the PAC system through Metacrea to come back and retrain or continue to evolve our algorithms And also show surgeons, are you really getting that alignment that you thought this is coming together. And we I think we're separating ourselves from the pack and really getting closer to what our ultimate goal here Is to transform spine surgery from the art that it is today to a science and then demonstrate it with outcome. So that is something we're very excited.
Like you mentioned, the momentum. The momentum the lagging the momentum from the enabling technology, like I said, record sales and it's because the buzz is out there From surgeons starting to talk about the results they're getting from using this. And people that were sitting on the sidelines are jumping in And the bus is moving. The trains left the station on this one. And the feedback from our field, again, a lagging indicator, is palpable, the energy.
So we're feeling really good about spine and robotics. And then the lessons that we learned From spine, we are spending a lot of time, our spine team and Brett Wall working with Bob White and Megan Rosengarten On the soft tissue, I think a lot of those lessons learned. I mean, the markets aren't the same. They are different, but there are some lessons learned and there are some synergies there That we will incorporate into our HUGO soft tissue robot launch.
Thanks so much.
Thanks, Matt. Next question please, Franchesca.
We'll take the next question from Jayson Bedford from Raymond James. Jason, please go ahead.
Good morning. I just wanted to get back, Karen, to the operating margin Commentary, it looks like you did just under 24% in fiscal 2021. I think you mentioned you're expecting a little over 300 bps In fiscal 2022. So is the anticipation that op margin in 2022 is going to be around 27%?
Yes. So 27%, 27.5%, in that range for the year. But keep in mind that our op margin should improve As we go through the year and so by the end of the year, we expect it to be above that 28%.
Okay. Just any commentary on gross margin?
Yes. Gross margin, we also expect sequential improvement, about half a Point of sequential improvement in the gross margin through the year.
Thank you.
Thanks, Jason. Next question please, Franchesca.
We'll take the next question from Danielle Antalffy from SVB Leerink. Danielle, please go ahead.
Hey, good morning, everyone. Thanks so much for taking the question. Jeff, I just wanted to follow-up on a Comment you made earlier regarding it depends on the business line as to the recovery. Where are the business lines that are lagging and sort of When are you expecting those business lines to get back to full recovery relative to some that have already gotten there? Thanks so much.
Well, in the I'd say in the United States, even the ones that are lagging, I would expect them to get back to a full recovery In our fiscal Q1, and the ones that are lagging are more the more elective Areas like ENT, our GI business, our endovenous business. And it is all those businesses that I mentioned, We talked in the commentary about ENT and GI gaining share. So it's not a competitive thing. It really is a COVID issue. And in the United States, we expect those to get back in our fiscal Q1.
And then we talked about before, Europe's lagging by a few And emerging markets hard to predict, but it comes down to the elective nature. There's a spectrum, maybe stroke and On one end, not very elective, at least from my perspective. And on the other end, you have some of these ones I just mentioned, like ENT, GI, Endo Venus. I don't know if that answers your question, Danielle.
Thanks, Danielle. We'll take one more question please, Franchesca.
Okay. We'll take the last Question from Steve Lichtman from Oppenheimer. Steve, please go ahead.
Thank you. Good morning. Jeff, I was wondering if you could Talk about the benefits you're seeing from the more decentralized operating structure now, now a year in. Is it delivering what you had hoped? Any comments on the changes you're seeing on the ground would be helpful.
And just to clarify, FY 'twenty two will be the 1st year That market share will be included in compensation? Thanks.
Yes. The answer to your last question Yes, FY 2020 will be the 1st year. We needed to work on how to measure this over the course of FY 2021 Precisely enough to put it in comp. So in terms of the operating model, I'd say, look, the dust is still settling a bit, but we are definitely past the, I'd say, the difficult part and I'm excited about where we're headed. We've got increased role clarity and accountability across the org and this new decentralized model.
And people are now looking forward and focused on their key metrics. So like for our operating units, it's this innovation pipeline, It's their market growth. It's their market share, as we just talked about. And this market share one is liberating Because instead of comparing ourselves to ourselves, we're comparing ourselves to the market with a clear expectation to grow at or above the market. That clarifies a lot.
For our regions, things like strategic account growth over and above what we're getting in the traditional med tech model of Selling to the specialist position and focused on those patients. But in addition to that, the strategic account growth. For our Executive Committee, right, for the people on this call, measurements around capital allocation to the high growth segments, Portfolio management, all in a focus to increase our overall company weighted average market growth rate, right. So and then Finally, I'd say there's lots of excitement more than I would have thought maybe even about the culture changes. This thing we're calling the Medtronic mindset that has these It really works alongside our mission.
Medtronic is known for a mission driven company. We always want to be known for that. That's kind of our why, if you will. But adding these things like acting boldly, competing to win, move a speeding decisiveness, delivering results the right way, Adding these in to the mix alongside our mission has generated a lot of energy and it's kind of taken off organically inside the company. And so I'd say overall, really happy with where it's going and we're starting to see the results of this.
Thanks, Steve. Jeff, please go ahead with your closing remarks.
Sure. All right. Well, thanks everybody for the questions. And we really appreciate your support and your continued interest in Medtronic. And We hope you'll join us for our Q1 earnings for our webcast, which we anticipate holding on August 24, where we'll update you on our progress.