All right, good morning, everyone. I'm Jamie Perse, a healthcare provider analyst at Goldman Sachs, and I've formerly been on the med tech team as well. Our next panel is with Medtronic. We've got the Chairman and CEO, Geoff Martha, thank you for joining.
Yeah, thanks, Jamie. Thanks for having us.
I wanna start just high level with the utilization environment. It was a strong quarter for you guys, in fiscal 4Q. It was a pretty good environment for everyone, probably easy comps as part of that. What are you seeing just in terms of the utilization environment and the recovery? Let's start with the U.S.
Well, it's definitely improved. I attribute it to. The biggest factor, I think, would be the labor markets have gotten a little better. A lot of the procedures that you know, some of the procedures that were holding, that were kinda lagging, were really dependent on labor, like TAVR, things like that. You need to get an imaging workup just to get to the TAVR procedure, and there were some backlogs there, and I think that's gotten a lot better. The U.S. is doing a lot better. Like we said on our call, you know, our fiscal year ended in April, but even into May, we saw continued acceleration. Quite frankly, the U.S., for whatever reason, was a little bit behind Europe. Europe was stronger earlier.
Now we're seeing that translate to U.S. Kind of keep going around the globe to our bigger markets, Japan has had a real strong bounce in the last couple of months. Overall, I think things are in a good spot from a procedure standpoint.
The comments on acceleration in April and continuation into May, I mean, that got some focus. Has that continued, just the momentum and, you know, you spoke about labor being a key piece of that. It feels like that has continued to get better. Has that, you know, helped-
Yeah, labor markets. I was actually in D.C. last week, and you get to hear the Treasury Secretary speak a few times, and, you know, they're definitely saying labor markets are, you know, loosening up a bit. We're seeing it both for procedure utilization, so healthcare workers, but, you know, for us, we're also seeing it in suppliers. A lot of the supply chain issues, you know, everybody, you hear about, you know, the commodities, like certain chips and, you know, resins and things like that, but a lot of the issues that were short, which is better now, but a lot of the issues were labor, too. It's better on both ends.
Okay. Internationally, you spoke about Europe being a little bit ahead. Is that a market thing or just Medtronic product cycle piece that's made that recovery?
I think it's a little bit of both. I mean, for whatever reason, you know, even in cardiology, where I don't think there was a product cycle thing, we had a nice pickup there first, and then we saw it in the US. In certain businesses, like our diabetes business, for example, we had definitely more of a Medtronic thing, where our diabetes business in Europe is doing great, growing mid-teens, and in the US, it was actually shrinking until now, when we're launching our new technology.
What are you seeing in China? I mean, it's always in the headlines.
Right.
It's been all over the place over the last year or so, fits and starts. What are you seeing in terms of the recovery in China?
Well, I'd say there's a couple of things going on in China. I could talk this whole time on China, but I'll keep it simple. One is the procedure recovery is back. I was just there a month ago, and, you know, their economy, although it's still a little lighter than what they want, it's humming, and procedures are back. The second thing we're seeing is the volume-based procurement that's kind of happening over a 2.5, 3-year period. You know, we're saying that by the end of our fiscal year, everything is gonna, in our portfolio, that'll have a VBP impact will be done. So volume-based procurement is something that goes into our FY 2024. It's all in our guidance.
After that, you know, we've been taking significant costs out because the market's now more of a contracted business, much fewer vendors, higher volume, more contracted, so we've been able to take sales and marketing out, costs out to offset the pricing declines, but, you know, to mitigate, I wouldn't say offset. It's, it's a lower profitable margin. It used to be pretty high. It's, it's a little lower profit margin for us, but still good. The third thing that we're watching in China is the geopolitics. You know, every day you pick up the paper, you read more about that. It's- we're investing in China. It's a big market, and it's growing, and we anticipate- this last year, it was down for us because of VBP.
This year, more flattish, and then after that, it gets back to that, you know, high single digit, double-digit growth.
Well, I'll go to guidance. I'll segue there.
Okay.
with China. What's in guidance for China? Are you seeing the environment, you know, progress in the way that you thought? I know you just guided.
We just guided. There's a lot of questions on the guidance, so I can talk about that. Your question on China, yeah, I feel like a year ago, a year and a half ago, it was really hard to get your arms around VBP because the central government told you one thing, and then the provinces were doing more aggressive things and moving faster. Now we've got our arms around it. It's in our guidance. Like I said, by the end of FY 2024, everything that we thought would have VBP impact will be behind us, and all that's in our guidance, and we're seeing maybe even a little stronger China growth than we'd anticipated, honestly. Yeah, so that was, yes, China and guidance.
Okay. Let's go straight to guidance. You just guided 4%-4.5%.
Mm-hmm.
You signaled for modeling purposes, the lower end of the range, Karen said.
Mm-hmm
to set you up for success this year. How should we interpret that guidance and being at the low end of the range? Is it, you know, conservatism? Why that approach?
Okay, I think we wanted to set ourselves up for success. I mean, we feel, a lot of things, you know, are inflecting in a positive way for us right now. Along with that, you've got a couple things going on. You've got, we just talked about, the markets are in a good place. Medtronic, specifically, we've gone through, a really difficult time over the last 2, 3 years, and now we have a lot of things inflecting in a positive direction at once, and we don't have, any businesses, or any areas, you know, other than VBP, which we've, you know, that are taking a step back. We feel like, you know, we feel good about that.
All that being said, you know, we wanted to make sure we set ourselves up for success, and that's reflected in our guidance. Don't misplace our guidance for lack of confidence in either the markets, and where the company is right now. You can ask me all about it, but we feel good.
Where are you baking in additional conservatism this year? You've got diabetes. We'll see how the ramp progresses there in the U.S. as you get products back on the market and the macro environment, supply chain, labor, all of these things. I mean, where are you putting additional kind of concerns?
There's a little bit of uncertainty around China, you know, it seems to be playing out in a positive way, like I said earlier. You know, diabetes, you know, when we had just gotten the news, we're going to be talking at ADA. I'll be there at ADA in, I think it's June 25th, with Que and Ali Dianaty, who's the head of technology for that business. We'll be talking about our pipeline, and we'll give you an update on the 780G launch in the U.S. You know, we're very excited about it. There's some, you know, unknowns that I'd say that were reflected in there, nothing new. Nothing specifically that. Nothing bad, nothing new.
Okay. Okay. two macro topics I want to touch on. First, staffing. It's just been an impediment, you know, all last year, continues to be in some markets. You mentioned TAVR. What are you hearing from hospitals now in terms of their ability to do procedures, and is that still a bottleneck at this point?
Not like it used to be. I mean, when I would go, you know, I pride myself in spending, you know, quite a bit of time with our customers, and especially in the U.S., but now I'm flying around more globally. In the U.S., specifically, you know, a couple months ago, six months ago, there were a lot of frustration and emotion when you talk to heads of different departments like, you know, TAVR, and they were so frustrated with the, you know, "Came in today, had to cancel two cases because so and so didn't show up, or the imaging didn't come in," or this or that. You're not hearing that. It's still a bit fragile, but it's, it's in a lot better space.
Is there still room to progress and that unlocks additional volume, or is it just no longer really?
Yeah, it's hard. There's a lot of other things going on. It's hard for me to predict that. I don't know the answer to that, if there's more room to run, but it feels good right now.
Okay. On supply chain, this has been a challenge for a lot of med tech companies over the last year. What's the state of the global supply chain?
Again, like I said earlier, a lot of it, people were a lot of analysts and investors are focused on the commodity shortages, like I said, like resins or, and plastics and certain large chips, larger format, semiconductors. They're still a bit fragile, but they're in a lot better spot. We're supplying demand. We're now chipping down at our, we're now eating away at our back orders. It feels a lot better. Another driver of that was just labor market and our suppliers. Suppliers just couldn't staff their lines. On top of that, you bring in new labor, and they have to be trained, so it hurts their productivity. That's in a better spot as well. Us, specifically, we had...
You know, for our surgery business, we had a couple of specific supply issues that kind of came together that really brought that business, to its knees for a while, where it couldn't supply, and it was impacted in our growth, and it's such a big business for us, it impacted Medtronic's growth. Now that is, you know, that business. We've been saying all along that business is more contracted, physician preference business, and it would kind of come back with when our supply chain comes back. Well, the supply chain's coming back, and that business is snapping back for us, and that's behind us.
How are you thinking about designing the supply chain for more resiliency going forward?
Great question.
I guess, how do you do that without adding a lot of cost? I mean,
Well, there's a huge opportunity for us because the way we are managing it for cost productivity, and get resilience at the same time. Let me explain. We managed this in a fragmented way. Each one of our businesses had their own, you know, supply chain, and when you added it all up, I mean, some businesses shared, but we had, like, 13, 14 supply chain organizations. We're now down to one. What that does, just in, let's just take supply, you know, sourcing, for example. Instead of having where you could use a commodity like metals, and maybe we need 12, 15 suppliers. We'd have hundreds. What happens is we're fragmented. We're small.
Even though we're a large company, we're small to that supplier. When the markets got turbulent, we weren't above the line for them. On top of that, we weren't getting the best pricing. Now that we've centralized this and we've put like, you know, I think, an all-star team of sourcing and supply chain professionals in from all different industries, we kind of went out and, like, drafted them. Medtech's a fun place to come and apply your craft, and they're bringing in a whole new expertise to Medtronic, but even to Medtech.
What we're doing is Like, we just recently did a metals request, you know, for a proposal, and we're bringing hundreds of suppliers down to a dozen, and we're gonna have higher volumes and better price. We're not going down to one, yeah, we're gonna still have a dozen, so we have the resiliency, and their strategic suppliers with contracts and service level agreements with us that we didn't have before, and we're getting better pricing at the same time. The reason we're able to get better resiliency and better pricing at the same time, which might seem counterintuitive, is because where we work, and it's a big improvement.
Are you starting already to see the benefits on the cost side, you know, from?
The cost side is early, 'cause first, the focus was resiliency, right? We just... I mean, literally, it was, we had an internal project name for this, but effectively, it was taking a lot of our resources and embedding them in the suppliers because they needed help. Not just labor help, but they needed, like, technology assistance because they just didn't have the labor. That piece of this is kind of waning off as the conditions are getting better, and we're moving into more of a focus on cost of goods sold productivity here. And there's a lot of room to go here, whether it's examples of bringing our supply base down to a smaller number, more strategic suppliers, better pricing, or consolidating facilities. We have too many facilities still. There's a lot of opportunity here that's gonna be a.
I think our cost of goods sold productivity will be two to three times what we got prior to the pandemic, and this is gonna go on for as long as I can see.
Yeah, it's a good segue to gross margins, which I want to go to next. They're down, you know, 400 basis points.
Mm-hmm.
- versus pre-COVID. How much of that is transient that you can get back versus, you know, permanent?
Look, the bulk of it is, you know, as you call, transient. It's tied to inflation. I did listen to the Treasury Secretary. I met with her twice last week, but I am not Treasury Secretary or the Fed. I do think, you know, inflation, a lot of that was inflation. We do think that's coming down, and the tight market in the supply chain, that's improved, tied with inflation and the strong dollar. These things have to work their way through, but they do, from my perspective, you know, feel a little bit more. They're not. I wouldn't say they're permanent, for sure.
You've spoken about this 2 to 3-quarter lag of...
Yep.
manufacturing going into inventory and then cost of goods. Where are we in that? I'm just trying to understand if, you know, things stay as they are now, you know-
Mm-hmm.
stable, does that imply gross margins should begin to recover from here, or is there still kind of a bolus of, you know, manufacturing variance and things like that?
We still have a little bit of time to. Like I said, we feel good about the top-line growth. We had a good back half of the year. We're gonna grow from there. The margins, we have the plans in place to bring them down. I mean, bring the cost down, bring the margins up. We've got to have the inflation work up, but that we still have some time to work through, I don't know if I want to call it a bolus, but there's still some cost sitting on our balance sheet that needs to work through. They need to stabilize first.
Okay. you started to mention, and Karen said on the call, you have the plans and work in place to start to stabilize gross margin.
Right.
Recover.
Exactly.
Can you give us, you know, more color on the plans and the work involved? Where are you in executing against the gross margin recovery?
Yeah, she didn't give you exact timing, but it is. You know, we still, like I said, we have a period of time we need to stabilize, and we'll grow from there. The plans, we've been working on these for a while. I mean, we're well into them. It is things like, for us, the biggest one is on the cost of goods sold. Well, first of all, let's talk about gross margins. First of all, the pricing environment is, you know, especially once VBP is over, is better. Now, the last two years, we've been able to do. Our pricing dynamics are better overall of the company. We think that's sustainable. That's maybe 200 basis points, which we weren't getting pre-pandemic. That's on the pricing side.
You go down to the cost of goods sold side, and again, some of it's less in our control, like inflation and FX, that is definitely getting better. The cost of goods sold, 60 %+, over 60% of our cost of goods sold is tied up in materials. That's why it's so important, that supplier strategy I talked about, that's well underway. You'll be seeing that impact, you know, for years.
Why do you feel the pricing dynamic is sustainable? I mean, hospitals are-
I know.
going through their own challenges, pushing back.
Yep.
on price.
They are.
Is this a Medtronic-specific thing or industry thing? I mean, why do you think pricing-
All I know is on the industry, is what I see in the public comments, and I have picked up on, and I'm sure you have, too, other companies are focused on it. We focused on it out of need during the pandemic, and quite frankly, the question is: Why weren't we as focused on it before? Somehow we got lulled into, hey, every year in certain markets, we should expect a certain price. When we said, "Are those assumptions, if we did certain things differently, can we change those assumptions?" We've had the ability to do that the last two years.
I think it's just us focusing, making this a priority, and in the face of inflation and, you know, the, you know, and FX and everything like that, and I do think that's sustainable.
Okay. How much of this 400 basis points do you think you can get back over time?
You know, we haven't said, I mean, because, you know, how much will go all the way to the bottom line? You know, another question I get is, like, should you be putting more in R&D? I can tell you this, we feel good about the ability to drive gross margin accretion. Now, how much will go all the way down, that's something we gotta work through.
Okay. SG&A has been an offset-
Mm-hmm.
to the gross margin pressure. I guess, just how much more efficiency can you extract there? you know?
Well, I think we had a, we had a, you know, a meaningful bolus of that over the course of the last couple months. You know, I think as you go forward, we are doing things a little differently, where things like, you know, our merit increases that we call that, you know, 3% a year, whatever, we're now 3%, 4%. You know, we're now telling the businesses, "You need to, you know, business process improvement to, you know, to drive that kind of productivity in your SG&A every year, and have that kind of mindset." We're focusing on those gross margins, much more so than we had in the past. I'd like to think that our company's got a different execution mindset with the people that we're bringing in.
New changes, different focus on pricing, different focus on capital allocation, different focus on more focus on the global operations and supply chain, to grab the some cost efficiencies every year that we can put back in. Some goes down to the shareholders, some goes into R&D.
R&D, you've been pretty clear, you're gonna protect this.
Mm-hmm.
It's not gonna be a driver of margins. You know, when you look across the portfolio, are there areas where you think you need to incrementally invest, or is it more about reallocation of R&D dollars?
It's a little of both. I mean, we've been working on the allocation, so we've had this capital allocation framework. We've identified our top, you know, growth areas, as we sit here today, we've identified these 5 top areas. We've got our big 3 businesses, like surgery and cardiac rhythm and spine, that you need to... You can't- You've got to, you know, meaningfully iterate to kind of keep them, and they're all in really good spots right now, to keep them there. And make sure on that, the other 30% of your revenue, so if 20%'s in that top bucket, 30%'s in that... I'm sorry, 50% is in the big 3 businesses, the other 30%, you gotta invest enough so that none of them take a step back.
I feel we're in a pretty good spot there, but I do think that over time, and it's not gonna be, like, a big jump at once, I'd like to get our R&D as a percentage of sales a little bit more than it is, so growing faster than sales.
Okay. let's go to EPS. I mean, you just guided $5- $5.10
Yep
for this year. You've been signaling for a couple quarters now, it was gonna be a tough EPS-
Yep
-year. How should we think about getting back to the 8% target? Is 2025 too soon for that? I mean, how to think about getting back to that target?
We haven't given that kind of guidance yet. I think in terms of the exact timing, I would say this: that, you know, key to this is getting that top line durably at that... You know, if you're not durably growing at that, you know, kind of 5% range, you know, 4.5, it makes it hard on that 8% EPS. I wanna make sure that we're durably growing at, you know, you know, 5.
Mm-hmm.
Looking at our markets, looking at our pipeline, I feel confident in our mix, we should be at that 5%. You know, we did it the last 2 quarters, but I'd like to have investors have confidence that it's kind of locked in. We have to prove that. That helps a lot, that kind of revenue growth and the leverage that comes from that. These gross margin plans I talked about, as well as a more continuous improvement on SG&A, versus these boluses of restructurings. It's not healthy. This continuous improvement on SG&A to cover, you know, inflation and other things, and continue, you know, meaningfully cost to goods sold productivity every year, I think we'll be in good shape on that 8%.
okay, top line's a key variable, clearly.
Top line, the productivity on the cost of goods sold line, which we talked about. Just using modern technology and business process outsourcing on the SG&A line, you know, we don't need big cuts, and then you have a good path at 8%.
Yeah, I mean, the question I want to ask is, if you can get to 5% next year, I mean, there's a lot of businesses in flecting , which we'll get to in a minute, some of the specifics, but if you can get to 5% or around there next year, are there still headwinds to EPS in 2025?
Well, we talked about that. We talked about the... Oh, in 2025?
Yeah, just thinking ahead. We know what your guidance is for this year, but just thinking ahead to next year, are there still things that are gonna, you know, impede EPS growth and that 8% target next year?
Yeah, I don't.
Fair
... modeled that out and provided that color yet.
Okay. let's just go to portfolio strategy real quick.
Sure.
You've divested a couple things. Yeah, I think you've signaled probably not doing a lot more this year in terms of divestitures. There's a lot of execution around that. When you look at the portfolio, I mean, where do you... what criteria are you looking at for things that are, you know, essential to keep that, versus things that are candidates for divestiture?
Well, we're when we're looking at some of these divestitures, you know, we're kind of looking at, well, what's the investment, how does it rack up compared to some other opportunities we have? Some of them, like dialysis, for example, we completed that partnership with DaVita, and we're very excited about it. We're a big, you know, 50% holder, investor, believe in that technology. The PNL investment that that would take and the impact on the rest of PNL just didn't rise above the line versus what else we have. In that case, you know, let's say hypothetically, we are investing $100 million. We, you know, divest that, it's now off of our PNL.
You know, we're still spending that $100 million, it's just in, we've put that into other areas. That's how we're thinking about it, is, we've got these, like, these top five areas, neurovascular, structural heart, uro- you know, soft tissue robotics, diabetes, AFib. These are areas that we could definitely put more money into, and that's what we're really focused on. Picking those, picking those high flyers and allocating, assuming they're executing and those markets continue to perform, we think those are secular growth markets, all five of those, and we're executing. There's more we can put in there, and that's we're prioritizing that. We have to make sure our base is always healthy, which is cardiac rhythm, surgery, which is our largest, and spine.
You've got to make sure, you can't just stretch them too far. You've got to make sure they have enough for meaningful iteration. The balance, you know, we're looking, you know, we wanna make sure we're investing in us, so they don't take a step back.
Well, let's go to one that you mentioned, diabetes. You guys put a press release out this morning, you started shipping the 780G in the U.S. You've got ADA coming up. I assume that'll be a big event.
Right.
-for you guys with the relaunch. How should we think about, you know, the cadence of share recapture in the U.S.? You know, it's probably been a frustrating environment for your customers over the last couple of years. How do you win them back?
Our patients, you mean? Yeah, any customers. Well, look, we win them back with the clinical outcomes. I mean, I talked to a long-time endocrinologist, a long, you know, a very tenured endocrinologist who, quite frankly, has not been a big fan of Medtronic over the last couple of years, and she literally was crying on the phone with me, like, could not believe the impact 780G, like, crying in a good way, was having on patients. I mean, look, standalone CGM, no finger sticks, that's a big market and will continue to grow. We're really focused on, though, automated insulin delivery, AID. This is a big deal for insulin-dependent diabetics, and the metric people are focused on is time in range. Our algorithm, we believe, gives the best time in range.
We're seeing in the wild with the 780G, like, you know, beyond our clinical trial, we're seeing better results than anybody anticipated, based on this Meal Detection technology. That's what you'll hear about in ADA, this Meal Detection technology that's looking at insulin levels every five minutes and then making adjustments, is driving these high 80%, 90%, even 100% time in range, which is a huge deal for diabetics. It puts the whole disease state in the background and mitigates the, you know. That's very exciting, and that's why, you know, it's something that's very hard for patients to deal with and for doctors.
Important clarification, crying in a good way.
Yeah.
Good to hear.
We got a little reaction from the crowd here. You know, there's those donuts out there that look pretty good. Maybe people had a few of those donuts and kinda...
Europe's clearly been strong on the diabetes front.
Yeah
-full portfolio, 780G. Is that the right proxy to think about, you know, U.S. and where it can go from here?
Yeah, I would like to think so, we'll see. People point out to me that maybe U.S. is more competitive. I'm not sure. You know, Europe's, we feel like all the competition is there as well. Yeah, we're very confident the business will get back to, you know, that double-digit growth.
Okay. What can you say about your next gen CGM and where the pipeline is going on CGM?
We call it Simplera. With MiniMed 780G, the system that's launching in the U.S., it comes with Guardian 4 sensor. Okay? It's still larger and harder to put on than we'd like. The Simplera, the next gen, we applied for a CE mark months ago, and we believe that'll be on the market sometime in the fall in CE mark countries, and we applied for the FDA approval, you know, a couple of weeks ago as well, months ago. I don't know the timing of that approval, but it is half the size of our current sensor, and it takes 2 seconds to put on. I mean, I wore it. I actually went through our clinical trial.
I'm not diabetic, but I wanted to see, and it's very easy to use. We think, you know, that's coming soon, and it'll have even a bigger impact. Let me give you some statistics, like. From an economic standpoint, we've been talking about clinical outcomes, and we think about clinical outcomes, but from an economic standpoint, you make your money in the automated insulin delivery business on the consumables. Our CGM has double the attach rate where we have 780G, where we don't. And that's with our existing sensor that is not as good as this new one that's coming, and that makes our diabetes business a lot more profitable. When we get that, we have never seen the sensor attach rates like this.
It's because you get that Meal Detection technology only when our system is using our sensor.
Do you think that product can be competitive on a standalone basis, you know, standalone CGM?
We're not counting on that.
Okay.
Yeah, we're not counting on that. I think, I think, I always want to be transparent. We think maybe not this generation, but the next one after that would be more competitive. Let's talk in two years.
Okay. Let's go to the surgical robotic program. What's the latest just on reception in international markets, and what are the specialties, you know, that are gravitating to it? How are they using it?
Look, we've got, I've, you know, come to learn that, you know, you get urology, gynecology, and general surgery, and the general surgery indication is the more complicated one. We've got all those in some countries, and we'll have them all. We're building those indications, so it's handling the most complicated surgeries on par with the competition and getting great feedback. I mean, I see surveys. The more surveys, you know, I saw a survey last week out of New York, two weeks ago, talked about, "Hey, look, here's the pros of Hugo, here's the pros and cons of the competition," and it's. I like them both the same, you know, as with this New York survey. We're seeing a lot of that. It's a competitive...
We're getting great feedback on it.
Can you give any updates on just how the US IDE is progressing, enrollment?
I can't, I don't want to go too deep into it, other than it's progressing well.
Okay.
It's a dynamic structure here, where you have to do some cases and then present that data to the FDA, and if they're happy, they'll let you move on to the next phase. There's a couple of phases. It's in a dynamic design. They could say, "Okay, that's good enough," or, "You know what? I want you to go try this over here, try that." It's why we're not trying to hide anything or be coy here. It's just a more of a dynamic process with the FDA, but it's gone really well.
You're starting with the urology indication?
Yes.
Obviously, it's, the market's much broader than that.
Yep.
How do you think about getting the other indications? Can it be competitive in the U.S., you know, in institutions that, you know, want to use it more broadly-
Yeah
for those indications?
Well, look, I, we, you know, the surgeons determine how they use it. We're going to only sell it based on the indications, but the surgeons will use it how they see fit, and the feedback's been really strong.
Can you say anything about, you know, timing for future indication?
I don't know that, honestly. I don't know that specific. Right now, we're just trying to get the trial through, and I don't know the other indication timing, honestly.
Can you talk about the pricing strategy a bit? I mean, in the past, you guys have talked about, you know?
Yeah
cost is a big barrier to robotic adoption. How are you guys thinking about the cost side?
Again, I don't want people to think that we're discounting our robot. Our robot's going to be roughly on par based on what the market analysis I've seen with the competition in terms of the price of the unit. Why we're confident that it's more cost effective is because it's compatible with our laparoscopic technology, and it's also, like the surgery tower can be used. It's because it's, you know, more mobile and modular. That's the word I was looking for, mobile and modular. You can, instead of having the four arm attached, you can move them around, you can have two over here, two over there, and the surgery tower, it can be used in our laparoscopic business.
It's a more from a case perspective, it's more of a workhorse because it's backward compatible in the laparoscopic.
Well, what about the instruments, though? I mean, if you convert Medtronic lap to Medtronic-
Well.
you know, robotic.
That's, you know, when that happens, right? When we get our stapling and we get our energy on Hugo, wow! I mean, that's what people want. There's a lot of technology and stapling and energy. That's the physician preference part of our surgical franchise, which is very durable. You get that on the robot, that opens up a lot, because that's what surgeons are trained on, there's a ton of everybody's focusing on the robot, but there's a lot of technology in those endostaplers. You know, we need some time to get them all converted over, but that's what we're working on. That's why we feel like our surgery our business is so well positioned.
Think about it, a lot of the you know, we have, like in the case of Medtronic and J&J, we do a lot of the cases, most of the cases, and Intuitive sold a lot of robots, and the robots aren't doing as many cases yet. Now we are the one company that has the instruments that the hospitals rely on for the bulk of their cases in laparoscopic surgery, and we've got a competitive robot. We're the only one with both of those. We feel. It's contracted business, we feel good about where we're going with this business.
how is the hospital CapEx environment, just broadly?
You know, we've seen it, they're still buying the equipment, you know, acquiring the equipment. I'd say the change we've seen is it's more of a moving to leases than cash or finance leases, but operating leases. That's one change we've seen. In some cases, we do some earn outs, where you can pay for it over time. Whether it's an operating lease or an earn out, you know, the revenue is spread out over time versus getting it all up front at once.
Okay. I think with that, we're up on time.
All right. Hey, thanks, Jamie.
Thank you.
Yeah, appreciate the time to talk.
You're welcome.