美敦力 (MDT) 2011 Q1 法說會逐字稿

Good morning.

My name is Laurie and I will be your conference operator.

At this time I would like to welcome everyone to the Medtronic Inc.

first-quarter earnings release conference call.

All lines have been placed on mute to prevent any background noise.

After the speakers' remarks there will be a question-and-answer session.

(Operator Instructions)

I will now turn the call over to Jeff Warren, Vice President of Investor Relations.

Please go ahead, sir.

Thank you, Laurie.

Good morning and welcome to Medtronic's first-quarter conference call and webcast.

During the next hour Bill Hawkins, Medtronic Chairman and Chief Executive Officer, and Gary Ellis, Chief Financial Officer, will provide comments on the results of our fiscal year 2011 first quarter which ended July 30, 2010.

After our prepared remarks we will be happy to take your questions.

A few logistical comments.

Earlier this morning we issued a press release containing our financial statements and a revenue by business summary.

You should also note that some of the statements made during this call may be considered forward-looking statements and that actual results might differ materially from those projected in the forward-looking statement.

Additional information concerning factors that could cause actual results to differ is contained in our periodic reports filed with the SEC and we do not undertake to update any forward-looking statement.

In addition, the reconciliations of any non-GAAP financial measures are available on the investor's portion of the Medtronic website.

Finally, the extra week of sales in the first quarter of fiscal year 2010 make it difficult to compare this quarter's results.

While we cannot precisely calculate the effect of last year's extra week across each of our businesses, we believe that adjusting this quarter's revenue growth rates by reducing last year's revenue by approximately $200 million better reflects the adjusted operational growth.

Thus, unless we say otherwise, all references to quarterly results increasing or decreasing are in comparison to the first quarter of fiscal year 2010 and revenue growth rates have been adjusted for the affect of the extra week last year and foreign currency.

These adjustment details can be found in the reconciliation tables included with our earnings press release.

With that I am now pleased to turn the call over to Medtronic Chairman and Chief Executive Officer, Bill Hawkins.

Good morning and thank you, Jeff.

This morning we reported first-quarter revenue of $3.8 billion, which represents a decline of 4% as reported or a 2% increase after adjusting for the affect of foreign currency and the extra week last year.

Q1 non-GAAP earnings of $868 million and diluted earnings per share of $0.80 increased 5% and 8%, respectively.

Q1 was a difficult quarter and a challenging environment.

It was complex for a variety of reasons including the fact that we had an extra selling week last year and difficult sequential comparisons in the US ICD market.

Let me first address the challenges and the factors we were surprised by in the quarter.

The biggest surprise was the magnitude of the market slowdown in our two largest businesses, CRDM and Spinal, and how the slowdown escalated in late June through July.

Although Gary will walk you through the details in a moment, I would like to begin with a few broad observations.

We believe there were three primary factors contributing to our top-line results.

First, we saw a deceleration in volumes and procedures driven both by decreased utilization and increased payor pushback.

We believe this lead to hospitals decreasing their level of bulk purchases in July across many of our businesses and geographies.

In the US the macroeconomic environment of high unemployment and increasing patient deductibles also affected some of our markets, most notably in Spine.

In Europe, although we did not see a dramatic change from recent austerity measures, we did see some impact in certain markets.

The second factor affecting our quarterly results was an increase in pricing pressure.

As you know, ASP pressure is not a new issue and we have appropriately planned for ASP declines.

However, this quarter we saw pricing pressure manifest itself in a few new ways.

In our Spinal business we saw revenues per procedure decline driven by changes in product mix.

We also saw reduced reimbursement in places like Japan where R-Zone and foreign reference pricing changes resulted in significant ASP declines on some of our products in CRDM, Cardiovascular, and Spinal.

In other product lines, such as drug-eluting stents, we have seen competitors being very aggressive with price around the globe.

In addition, the influence of the economic buyer is increasing in large hospital systems.

Next, let me comment on our own performance.

Although many of our product lines performed well in line with our expectations, I was disappointed by the fact that we were not able to maintain some of our recent share gains in ICDs and that we lost share in drug-eluting stents.

However, I was pleased by the strong performance in Diabetes and Surgical Technologies.

We also continued to see solid double-digit growth in our emerging markets and in our emerging therapies.

Given the recent trends and uncertainty of our markets, we are adjusting our expectations for the remainder of the year.

At our analyst meeting in June we based our revenue outlook of 5% to 8% on market growth in the range of 4% to 7%.

It has been very difficult to forecast market growth during this turbulent time.

Based on our analysis, we estimate our markets grew in the 3% to 4% range in Q1.

Given this market growth we believe it is prudent to remain conservative, thus we are adjusting our FY11 revenue outlook to 2% to 5% constant currency growth which includes the negative impact of the extra week last year.

And Gary will add more perspective to this in his comments.

This is a challenging time for all healthcare companies, but our One Medtronic strategy that we have been implementing over the past three years has prepared the Company well for times like these.

The actions that we have taken over the past two years, including driving operational efficiencies, reducing product costs, reallocating resources, and focusing on span-of-control and delayering the organization, have positioned us well to withstand periods of slower market growth.

Looking forward I am confident that we have the right strategy for the long term and when the markets turn we will emerge even stronger.

We are continuing to execute on our plans to deliver superior innovation for global growth.

As we discussed at our analyst meeting in June, our emerging markets will be an increasingly important driver of Medtronic growth and this quarter reaffirmed that strategy.

Our strong global organization generated high teens emerging market growth in the quarter with particularly strong growth in India, Latin America, and China.

In fact, I was in China two weeks ago for the opening of the Medtronic Patient Care Center in Beijing, the first of its kind in providing a much-needed place where patients and their families can meet with medical technology experts and physicians to better understand the treatment options available.

This is just one of the many examples where Medtronic is investing to expand patient access and drive long-term growth in emerging markets.

We expect that the emerging market mix of our overall revenue will triple in the next five years.

Along with emerging markets we are also focused on driving growth in our emerging technologies.

Our global AF and transcatheter valve businesses posted strong double-digit growth.

Our DBS business also saw healthy growth, particularly in Europe where Activa PC has been very well received.

We were pleased to see me The New England Journal of Medicine publish in June positive data on the largest, randomized, controlled trial of Medtronic DBS for Parkinson's disease.

In Diabetes our continuous glucose monitoring business had another quarter of strong growth.

In June I was in Orlando for the annual ADA meeting where the positive results of the landmark STAR 3 trial were announced and subsequently published in The New England Journal of Medicine.

STAR 3 is the largest randomized controlled trial of sensor-augmented pumping and it showed that Medtronic's sensor-augmented pumps help patients achieve better glucose control than multiple daily injection.

In addition to raising the bar on clinical evidence, we are continuing to advance innovation in medical technologies.

We have one of the most robust pipelines in the history of the Company.

We can already see our new products making a difference in Europe where our Protecta, SmartShock family of ICDs, AF Solution catheters, CoreValve transcatheter valve, Integrity bare-metal stent, Restore sensors spinal cord stimulator, and the Veo insulin pump all positively contributed to our quarterly results.

We are also making solid progress on bringing these innovative technologies to the US market.

In CRDM we are working diligently with the FDA to resolve our Mounds View warning letter.

The FDA began their reinspection on July 21.

While we are hopeful that we can resolve this before the end of the calendar year, our revenue outlook reflects a more conservative assumption.

In Spinal we remain focused on refreshing our entire product portfolio.

Solera, which is in its limited release phase, together with the recently launched TSRH 3Dx are receiving very positive for surgeon feedback.

In Biologics we were encouraged by the positive FDA Advisory Panel recommendation for AMPLIFY and anticipate approval later this fiscal year.

We continue to supplement our organic innovation and growth with tuck-in acquisitions that leverage our broad global footprint.

Last week we announced our agreement to acquire Osteotech, which will enhance our strong portfolio of biologic products by adding best-in-class DBMs consistent with our strategy of expanding our portfolio in the very attractive biologics market.

We also closed on the acquisition of ATS Medical earlier this month strengthening our structural heart product portfolio, especially in emerging markets.

Finally, I would like to comment on the solid bottom-line performance and the financial strength of the Company.

Despite having a difficult quarter from a revenue perspective, we were able to deliver significantly faster growth on the bottom line.

The initiatives we have implemented over the past three years to take out over $600 million in product costs was very apparent this quarter where we protected our gross margins in the face of increased pricing pressure.

We remain focused on returning value to our shareholders.

In June the Board of Directors increased our dividend by 10% which was our 33rd consecutive year of increasing our dividend.

We also repurchased over $0.5 billion of our stock in the quarter.

In these uncertain times the strength of our diversified portfolio, both in terms of business and geography, is more important than ever.

Although we have experienced a slowdown in the markets of our largest businesses, the investments we are making in emerging markets and emerging therapies will allow us to achieve market-leading performance over the long term.

Looking ahead we expect to continue to see demand for products that deliver not just clinical efficacy but overall value to the healthcare system.

We are leveraging our world-class capabilities to generate the appropriate clinical and economic evidence for our therapies.

In this new era of healthcare reform where the economic buyer has a growing influence, our size, scale, and broad portfolio position us well to succeed.

While I am not happy about our top-line results this quarter, I am confident that the growth strategies that we are pursuing will succeed over the long run.

I will now turn the call over to Gary who will take you through a more detailed look at our quarterly results.

Thanks, Bill.

First-quarter revenue of $3.773 billion increased 2% after adjusting for a $21 million unfavorable effect of foreign currency and their extra week last year.

Breaking this out geographically, revenue in the US was $2.229 billion, down 2%, while sales outside the US were $1.544 billion, increasing 6%.

Q1 international revenue growth included Greater China growth of 24%, growth in Latin America of 17%, Europe and Central Asia grew 7%, and Japan declined 5%.

After adjusting for IP R&D and certain acquisition-related costs and non-cash charge to interest expense due to the accounting rule changes governing convertible debt, first-quarter earnings and diluted earning per share on a non-GAAP basis were $868 million and $0.80, respectively.

GAAP earnings and diluted earnings per share where $830 million and $0.76, respectively.

I will now move on to a more detailed analysis of our results starting with our cardiac and vascular group.

Cardiac and vascular group revenue of $2.027 billion grew 1%.

Growth was driven by strong international results from our AF Solutions, structural heart, and endovascular businesses, as well as our recent Invatec acquisition.

This was offset by weaker results in CRDM implantables and physio control.

CRDM revenue of $1.226 billion declined 3%.

We estimate the worldwide CRDM market growth rate slowed by approximately 300 basis points sequentially in Q1.

Based on these current market conditions we believe it is more reasonable to model flat FY11 revenue growth for our CRDM business, assuming CRDM market growth for the remainder of our fiscal year of 0% to 3% and includes the negative impact of our extra week last year.

While we are hopeful that we can resolve our Mounds View warning letter before the end of the calendar year, this revenue outlook reflects a more conservative assumption.

Worldwide ICD revenue of $722 million declined 1%.

Our US ICD business declined 3% and the US ICD market declined in the low single digits.

Pricing pressure increased to the low to mid single-digit range due to the ongoing mix shift to replacements, as well as a lack of new products as we await Protecta.

From a share perspective, although we lost shares sequentially, our share is consistent with where it was prior to the market disruption.

This quarter hospitals were less willing to place bulk orders than in past quarters affecting market sales.

Our international ICD business grew 4% and the international ICD market grew in the upper single digits.

Our performance can be attributed to our ongoing challenges in Japan where we have lost share due to a combination of legacy field quality issues and the lack of a smaller defibrillation lead in smaller DF-4 connector.

We anticipate we will be able to gain back share when we launch Protecta and additional left heart leads in the second half of the fiscal year.

In Europe we saw the market improve sequentially with growth back in the mid to high single digits.

In addition, we held our share and saw stabilized pricing sequentially driven by the launch of Protecta with its price uplift.

Physicians showed great enthusiasm for Protecta's proprietary SmartShock technology which dramatically reduces the incidence of the inappropriate shocks.

Pacing revenue of $473 million declined 7% while the market declined in the mid-single digits.

Our OUS pacing business declined 8% and the market declined in the mid single digits.

ASP trends remained consistent with low to mid single-digit declines and our share has remained stable for the past four quarters.

We are focused on bringing the Revel MRI SureScan pacemaker to the US market, which we believe will improve pricing and allow us to recapture share.

Our international pacing business declined 6% and for the first time in recent history the market declined in the mid single digits.

The international market decline was driven by Japan where procedures were down in the negative mid-single digits, in part due to replacements pulled ahead in the prior year due to the Kappa/Sigma field issue.

ASPs experienced low teen declines driven by the R-Zone and foreign reference pricing adjustments.

Our Japan pacing shares stabilized sequentially as we launched the Advisa DR.

In Europe, the pacing market saw some acceleration into the low single digits; however, we lost share in Europe as our pricing declines were in the mid single digits.

We believe that we will see some improvement in our pricing and share following the broader launch in Q2 of our Advisa and Ensura MRI SureScan pacing systems into the remainder of the European market, including Germany and France.

Our Arctic Front and Ablation Frontiers catheters continued to perform well in Europe and our AF Solutions team continues to seek clarity from the FDA on whether they will take Arctic Front to panel.

At this point we believe that US approval of Arctic Front could occur in the second half of this fiscal year and approval for our Ablation Frontiers catheter could occur in calendar year 2011.

Cardiovascular revenue of $717 million grew 10% with double-digit growth across all three businesses.

Coronary and peripheral revenue of $372 million grew 11% and it included $35 million of revenue from our Invatec acquisition.

The Invatec integration activities are on track and we are already realizing sales synergies.

Drug-eluting stent revenue in the quarter was $167 million, including $49 million in the US and $18 million in Japan.

The DES market continued to decline around the world driven by aggressive price competition.

RESOLUTE now represents 70% of our international DES mix, driven in part by the favorable results of the RESOLUTE All-comers trial presented at Euro PCR and published in The New England Journal of Medicine which showed non-inferiority to Xience.

In bare-metal stents we have gained nearly 300 basis points of share on the strength of our Integrity BMS.

By the end of the calendar year we plan to launch the Integrity BMS in the US and the resolute Integrity drug-eluting stent internationally.

Structural heart revenue of $224 million increased 10% driven by the strength of CoreValve.

The PCV market continues to grow faster than our expectations and we continue to command half the market.

More portly, we continue to have a leading share position in the transfemoral segment, the preferred implanting method.

Our discussions with the FDA on CoreValve are going well and we have now received additional clarity from the FDA on preclinical device testing requirements.

Based on the FDA's recent input, we anticipate having an approved IDE with first implants early this fall.

At this point we have completed site selections, started site education, and are ready to drive rapid enrollment as soon as the IDE is approved.

Our acquisition of ATS Medical closed on August 12 and integration activities are underway.

Endovascular revenue of $121 million grew 10% with strong double-digit growth in international markets driven by the continued adoption of Endurant abdominal and Valiant Captivia thoracic stent grafts.

Endovascular experienced a softer quarter in the US as macroeconomic conditions have led to a slowing growth of procedures.

Physio-Control revenue of $84 million declined 7%, which was significantly below our expectations for the quarter.

The majority of the shortfall was the result of a supplier constraint issue that caused a significant backlog of orders for the LIFEPAK 15 and LIFEPAK 20 products.

We have now resolved this issue and expect to ship the backordered product this quarter.

Turning to our restorative therapies group revenue of $1.746 billion grew 2%.

Growth was driven by strong performances in Diabetes and Surgical Technologies offset by weaker results in Spinal.

Spinal revenue of $829 million declined 5%.

We estimate the US spine market growth slowed by approximately 400 basis points sequentially in Q1 and is now growing in the low to mid single digits.

The decline accelerated as we moved through the quarter and was driven equally by market declines in both procedures and price mix.

Current macroeconomic conditions are clearly having an effect with patients postponing elective procedures due to high co-pays and expired benefits.

Payors are also implementing new fusion procedure guidelines which are lengthening the time required to get preapprovals.

We continue to work on turning our spine business around.

Netting out the effect of the market slowdown in Q1 we performed about where we expected relative to the market as we continued to progress towards returning the business to market growth by the end of FY11.

However, based on the current market conditions we believe that it is more reasonable to model the flat FY11 revenue growth for our Spinal business which includes the negative impact of the extra week last year and assumes spine market growth for the remainder of our fiscal year of 3% to 4%.

Core Spinal revenue of $622 million declined 6%, with core Spinal -- core metal constructs declining 1%.

Despite market softness we continue to see pockets of improving growth in core Spinal.

Solera, our next-generation posterior fixation system, remains in its preliminary limited release period and feedback from multiple geographies continues to be positive.

We currently have approximately 100 sets in the field and expect to more than triple this by the end of Q3 when we begin the broader global launch.

Our recently launched TSRH 3Dx system is also performing well, growing 18% sequentially.

Clydesdale, our inter-body implant for our DLIF procedure, continues to have strong unit growth of over 40% as we continue to penetrate into the direct lateral segment.

BKP revenue declined 16% as we faced the last quarter of tough comparisons following last year's New England Journal of Medicine article on vertebroplasty.

We continue to make progress in differentiating balloon kyphoplasty as BKP procedures were flat sequentially while vertebroplasty procedures were down in the high single digits.

This quarter we introduced our new ActivOs 10 cement and are anticipating several other product launches this fiscal year, including the expanded balloon, [expressed current] and (inaudible) cement as we further strengthen our BKP system expanding our leadership in the face of competition.

Biologics revenue of $207 million declined 1%.

INFUSE had stable unit volume but sales continued to be affected by a mix shift to smaller kits.

Dental sales of INFUSE were up approximately 20%.

We also continue to see success in our other biologics segment.

We have gained share in DBMs with Progenix and saw our (inaudible) price increases in ceramics with increasing use of our MASTERGRAFT strips.

We look forward to the addition of Osteotech's products to further bolster our other biologics offering.

Neuromodulation revenue of $370 million increased 5% or 6% after adjusting for the divestiture of our Bravo pH monitoring business.

Results were driven by double-digit growth in DBS and Uro/Gastro.

We were also pleased to see our Pain Stim shares stabilize, as we had better sales execution this quarter.

The US pain stim market rebounded somewhat in the quarter with mid-single-digit growth, driven by mid to high single-digit procedural growth and ASP declines consistent with prior quarters.

The market remains below its historical levels, due in part to increasing payor challenges.

In Europe, our recently launched Restore Center Neurostimulator is exceeding our expectations.

The physician and patient response has been very positive.

We continue to work on bringing Restore sensor to the US, and development continues on Activa [PC] for DBS and the [ascended cath] catheter for our implantable drug pumps.

We remain cautiously optimistic that our interstim therapy for bowel control will be approved later this fiscal year, pending resolution of our neuro-related FDA warning letter.

Diabetes revenue of $312 million grew 12%, driven by a solid quarter in international which posted strong midteens growth.

Our recently launched Veo insulin pump had a great quarter in Europe and Asia where pumps grew nearly 30%.

Our market-leading CGM business continued its solid track record with strong global growth above 20%, including high teens growth in the US.

We also launched the iPro2 Professional CGM in the quarter in nearly 50 countries and intend to launch it in the US later this year.

Looking ahead we plan on launching our [NEX] sensor in the US later in FY11 and the [Enlight] sensor early in FY12.

Surgical Technologies revenue, up $235 million, grew 9% or 11% after adjusting for the fiscal year 2010 divestiture of our ophthalmic business.

The strong growth in the quarter was driven by growth in the navigation, monitoring, and image-guided surgery lines as the business started to see a thawing of US hospital capital budgets and customers upgraded to our new technology.

Turning to the rest of the income statement, the gross profit margin was 76.3%.

Gross margin in the first quarter of last year was 75.6%.

FX positively affected gross margins by 20 basis points.

We continue to see the benefits of the broad portfolio initiatives we have underway to reduce our cost of goods sold by over $1 billion by fiscal year 2012.

We continue to expect gross margins in the range of 75.5% to 76% for fiscal 2011.

First-quarter R&D spending of $370 million was 9.8% of revenue.

We remain committed to investing in new technologies to drive future growth and expect the R&D spending of approximately 9.5% for fiscal 2011.

First-quarter SG&A expenditures of $1.334 billion represented 35.4% of sales compared to 34.8% of sales in the first quarter last year.

Foreign exchange had a negligible effect but our Invatec acquisition had a 15 basis point negative effect on SG&A as a percent of sales.

SG&A as a percent of sales clearly came in higher than we expected due to the revenue shortfall that occurred later in the quarter.

Going forward we plan to adjust spending and continue to expect FY11 SG&A to be in the range of 34% plus or minus 25 basis points.

This reflects our continued focus on initiatives to drive leverage, partially offset by the affect of acquisitions and the deliberate investments we are making in FY11 to support new product launches and drive growth.

Net other expense for the quarter was $47 million compared to $96 million in the prior year.

The year-over-year decrease is primarily a result of higher gains from our hedging programs, which were $54 million during the quarter, compared to $34 million in gains in the comparable period last year.

As you know, we hedge our operating results to reduce volatility in our earnings.

Included in the Q1 results was an increase in licensing payments we received in our coronary and peripheral business.

Looking ahead, based on current FX rates we anticipate net other expense will be in the range of $80 million to $100 million in Q2.

For fiscal 2011 we expect net other expense of $300 million to $340 million which includes hedging gains in the range of $175 million to $200 million based on current exchange rates.

Net interest expense for the quarter was $74 million.

Excluding the $43 million non-cash charge to interest expense due to the accounting rules governing convertible debt, net interest expense on a non-GAAP basis was $31 million.

As of July 30, 2010, we had approximately $9 billion in cash and cash investments.

We also have $2.6 billion of debt repayment occurring later this fiscal year.

Looking ahead we expect our cash to continue to increase.

However, low interest rates will negatively affect our return on this cash.

For fiscal 2011 we anticipate net interest expense in the range of $110 million to $120 million which includes the carrying cost of prefunding existing debt in FY10.

In Q1 we generated approximately $700 million in free cash flow, defined as operating cash flow minus capital expenditures.

Historically, free cash flow is lower in Q1 due to bonus and incentive payments.

Going forward we would expect free cash flow in excess of $1 billion per quarter.

Let's now turn to our tax rate.

Our effective tax rate as reported was 20.2% and our non-GAAP nominal tax rate was 20.3%.

Included in our tax rate for the quarter is a $10 million net benefit associated with foreign dividend distributions, finalization of certain tax returns, and changes to uncertain tax position reserves.

We expect our fiscal year 2011 tax rate, including the potential US R&D tax credit, to be in the range of 20.5% to 21.25%.

First-quarter weighted average shares outstanding on a diluted basis were 1.090 billion shares.

During the first quarter we repurchased $640 million of our common stock.

As of July 30, 2010, we had remaining capacity to repurchase approximately 35 million shares under our board-authorized stock repurchase plan.

For fiscal 2011 we anticipate diluted weighted average shares outstanding of 1.087 billion shares.

As before, we have attached an income statement, balance sheet, and cash flow statements to this quarter's press release and I direct your attention to these statements for additional financial details.

Let me conclude by providing an update to our 2011 fiscal year revenue outlook and earnings per share guidance.

As Bill mentioned earlier, we are adjusting our revenue outlook given the recent slowdown and uncertainty of our markets.

Since our analyst meeting in June we believe our overall markets have slowed by 200 to 300 basis points.

Therefore, we believe it is prudent to adjust full fiscal year 2011 constant currency revenue growth to 2% to 5%.

This outlook takes into account our Q1 results, which includes the negative impact of the extra week last year and is based on our estimate that our markets continue to grow in the 3% to 4% range.

While we can't predict the effect of currency movements, to give you a sense of the potential FX impact if exchange rates were to remain similar to yesterday for the remainder of the year then our FY11 revenue would be negatively affected by approximately $200 million to $300 million including a negative $70 million to $90 million effect in Q2.

It is also worth pointing out that we would expect the largest negative FX impact to occur in Q3.

Turning to guidance on the bottom line, based on the adjustment we are making to our top-line revenue outlook we are adjusting earnings per share guidance for fiscal 2011 to a range of $3.40 to $3.48 per share, which includes approximately $0.05 of dilution from the acquisitions of Invatec and ATS Medical.

And excluding the impact of the acquisition dilution as well as the estimated $0.05 benefit of the extra week in FY10, FY 11 earnings per share growth is expected to be in the range of 9% to 11%.

While we are hopeful that we will resolve our Mounds View warning letter and are focused on our Spinal segment turnaround strategies, until we begin to see the positive impact of these actions reflected in our financial results we would feel more comfortable modeling earnings per share at the lower end of our guidance range.

As in the past my comments and guidance do not include any unusual charges or gains that might occur during the fiscal year nor do they include the effect of the non-cash charge to interest expense due to the accounting rules governing convertible debt.

Bill and I would now like to open things up for Q&A.

In the interest of getting to as many questions as possible, we respectfully request that each caller limit themselves to one question with one follow-up.

Operator, first question, please.

(Operator Instructions) Matthew Dodds, Citigroup.

Good morning.

Bill, I don't want to get too specific on July but if you talk about bulking I have always assumed bulking was predominantly a pacer and ICD issue.

What other businesses can be impacted by the quarter end?

And broadly, do you have any idea how much of an impact that was?

Principally it is the CRDM.

It's a bit in the neuro business and a little bit even in the vascular business, but it's primarily in the CRDM.

And there are a couple of factors here.

One, it was the slowdown in the market, the run rate slow down, so that had an impact on hospitals taking more inventory when they were burning off inventory.

And I think it's also just their preservation of capital.

Matt, this is Gary.

Just overall it's tough obviously to estimate exactly where that is at, but our estimate is that somewhere in that $20 million to $30 million range is what we missed based on historical levels.

And that is all we can tell is based on historical levels we think there is about $20 million to $30 million that was missed there at the end of the quarter.

And then one more quick question.

On Mounds View, Bill, it sounds like FDA is back.

The calendar end, how conservative is that just on what you knew before or is the FDA reinspection suggesting to you it might take a little longer?

It's just so hard to predict what is going to happen with the FDA.

The inspection has been under way.

There are no additional concerns that have come forth to date, so we have worked really hard to really address a number of issues and really be in a good position to move forward.

We are just hesitant to try to make any predictions based on the experience that we have had with the FDA.

Matt, they are still in.

The FDA is still in so they haven't even completed their investigation at this point in time.

And so on until they do we are just trying to be conservative.

Right, great.

Thanks, Bill.

Thanks, Gary.

Mike Weinstein, JPMorgan.

Bill, let me just start with the spine market.

We have seen this dramatic deceleration in spine market growth over the last several quarters.

How do you see a pathway to spine market growth, let alone Medtronic growth, be accelerated from here?

How does the market recover if we have -- now in this new era of pricing pressure and lower utilization nation?

First, Mike, I think that just on the demand side when you look at prevalence of low back pain it's the second most common reason people go to see a physician.

And as you know, the number of people who are actually getting instrumented fusions or are getting -- having a surgical operation is still a very small percent.

I think as the technology continues to evolve, as we advance more minimally invasive approaches, whether it's the direct lateral approach or whether it's using some of the navigation technologies that we have, I believe we are going to be able to continue to grow the overall market.

For Medtronic we have been very transparent about some rebuilding that we have had underway and the investments that we have been making in a number of new products beginning with Solera and the TSRH 3Dx and VERTEX SELECT.

There is just a whole series of products which we believe are targeted right at where the market is going.

So we are optimistic over the long run, but we are in a very -- a period now that it's a bit uncertain.

Let me just ask, on the CRM side even if you adjust for maybe some bulk purchasing that hit you guys harder than the companies that reported in June, it does look like you have given back a lot of the share that you have gained as a result of Boston's shut down.

Why do you think that is?

Why is it looking like you have given back most of that market share?

Well, it's always hard looking at quarter to quarter to make really any conclusive comments.

But there is -- one of the things about this business, as we know there is kind of good news/bad news.

There is a lot of traction and stickiness in the overall marketplaces.

We will see at the end of the year kind of overall what happens.

We know there are many accounts where we have gained share, so we are ourselves really trying to unravel really what happened in this quarter.

So that is really about as much as I know and I can say at this point.

I think the other key would be on that, Mike, because obviously the introduction of the new products.

As you know in this marketplace, as Bill said, share is very sticky so we expected that we would clearly get back when Boston was back in the market they would gain back a lot of the share.

They gained it back faster than we expected.

But the reality is it's all tied to having new products and that is why it's important for us to get the Protecta and some of our left heart leads launched here in the US which we are receiving obviously positive results in those products internationally.

We expect to have the same thing in the US.

Okay.

Gary, just to clarify on the guidance, the top line 2% to 5% that includes the contribution from Osteotech, ATS, and Invatec.

And then the tax guidance I think you said you are now assuming the R&D tax credit is extended and previously you were not, correct?

Yes, with respect to revenue it does not include Osteotech.

The guidance that we are giving includes obviously the ATS and Invatec.

Osteotech we have not put in our numbers yet because obviously we don't know when it's going to close for sure and so we have held that out of the guidance at this point.

But it does include Invatec and ATS Medical, as you mentioned.

And as we have highlighted before, for the full year that pretty much kind of offsets the extra week benefits.

The reality is that 2% to 5% for the full year is kind of what we are expecting and the benefit from the acquisitions are kind of offsetting the negative impact that we had from the extra week in the prior year.

But it does include ATS and Invatec.

As far as the tax rate goes, yes, it includes the R&D tax credit.

We are assuming that that will -- based on discussions we are hearing from Congress, we think that will get reinstated later this calendar year.

So we have put that into our numbers and that is reflected in the tax rate I provided.

Okay, great.

Thank you, guys.

David Lewis, Morgan Stanley.

Bill or Gary, you made a commentary about 200 to 300 basis points of end market weakness.

I am wondering if you could talk about in your mind what percent of that is volume and what percent of that is price.

I would say it's about half and half.

Our best estimates would suggest that the procedure volumes and even mix in some cases in our spine business it's the revenue per procedure as hospitals or physicians are doing rather than two level fusions, maybe one level fusion and they are looking at the kinds of materials they are using, going from maybe peak materials to titanium materials.

So there is a factor there.

But it's really difficult to be very precise, but our estimate is it's half volume and half price.

Okay, Bill, I was going to talk about mix here and I think you covered spine and what is going on there.

So just as it relates to ICD mix, would you say in this environment until you get new products on the market you are more willing to use price to hold share in accounts as other providers have a more significant mix tailwind currently?

No.

We have never been a company to lead with price.

Even today with -- our product portfolio, we believe, stands very strong against anybody's technologies out there.

We are clearly excited about Protecta, even going to the next level with the unique features around SmartShock technology, but today we have a very competitive product line.

Just last one, Gary, and I will jump back in queue.

Just on margin strength, I can appreciate in SG&A there is some changes you can make in spending allocation throughout the back half of the year to manage the earnings line but specifically the gross margin in the quarter was very strong.

What are the factors underlying that?

Were they manufacturing and currency driven?

And what gives you the confidence, if you have some of these negative mix pressures throughout the back half of the year, that you can maintain those GMs?

Well, basically with respect to the cost of goods sold we were pleased by what we saw there.

There is a slight FX benefit, as I mentioned in my comments, of about 20 basis points but that is a relatively minor benefit on the currency side.

So overall we do believe we can maintain it 75.5% to 76% range as we said for the full year which is a little bit down from Q1 but basically kind of right in line with that.

The reality is the cost initiatives -- if we were just trying now to react to the marketplace, you are absolutely right we would not be able to maintain our margins and we would see our margins falling.

With the pricing pressures we are seeing more in some of the marketplaces we are in.

But obviously, as you know, our initiatives we started almost three years ago to take product cost out so that is occurring, that is happening.

It's already in place and the product cost is coming out and is already baked into our numbers.

It's not an initiative; we have to start to try to figure out how to reduce costs.

And so I feel pretty confident, even with the mix -- I mean if you think about it, with the mix that we have talked about here in this quarter with two of our larger businesses and maybe a couple of even higher margin businesses, CRDM and Spinal, having a difficult quarter, the reality is we still were able to maintain that margin.

So I am pretty confident we get these new products launched, get some of the price uplifts we would expect from that that yes we will be able to maintain the margins kind of in that 76% range.

Thank you.

Bob Hopkins, Bank of America Merrill Lynch.

Thank you.

Great, so just to start I was wondering if you could drill down a little bit more on ICDs and pacemakers.

You have made some comments and I am sorry if I missed some of the specifics, but what would you say that today given all the moving parts and the extra week and sort of on a normalized basis you think today the ICD market is growing globally on a constant currency basis and the pacemaker market is growing today on a constant currency basis?

The ICD market -- in the US we actually see kind of the initial implants being flat to negative and outside the US it's in the mid-single digits.

So the overall market is in that sort of 0% to 3% range.

And then on the --

Hawkins: That is obviously with volume being higher than that and with some price declines both in -- a few low single digits kind of in ICDs and mid-single digits we have talked about in pacing.

So volume is a little bit higher than that.

On worldwide the pacing, the market was a bit softer.

It's done to the low, mid single digits in that roughly 5% kind of a constant currency range.

Okay.

And then back to David's question on gross margins.

Obviously you guys have done a very good job of taking costs out and maintaining margins in a tough environment, but if we think about a little bit longer term there are things that you could point to directly that would say that the -- give you confidence that the environment from a pricing or utilization perspective might change?

And if they don't, shouldn't we expect some gross margin pressure just given the realities of the world today?

Let me try to take that first, Bob, and then Bill can add on to it.

Overall, as we have talked about many times and we have even seen in our results this quarter, innovation is the key to making sure that we can maintain our pricing levels.

And so as we have even seen with some of the new products launched, obviously outside the US where there is Protecta, Solera as we launch that product, etc., even in the US, we are seeing the price uplift.

That is the key for us is providing value in the products.

If we can provide value, new value in the products, we think we will be able to maintain our pricing relatively consistent.

Doesn't mean that it's not going to be coming down.

We will continue to see prices decline, but we don't think they are necessarily going to accelerate.

In fact, we would assume that if we can get these new products launched that we would be able to maybe even mitigate a little bit what we have seen here recently in the marketplace.

That being said, we have planned and we will continue to plan on the fact that there will continue to be pricing pressure in our markets and we are going to continue to take product costs down.

We have talked about the initiative to reduce the billion dollars in product costs by FY12.

We are well on our way on that so we still have two more years under that program to get that down.

, [and] we will continue those efforts.

We still think there is opportunities to continue to reduce our product costs, to make sure that we can to the extent possible maintain our overall gross margins in kind of that 75% to 76% range.

So the key is innovation and value providing the products and then making sure that we take the product costs out to the extent that we can to maintain those

And then one just quick last one on the upcoming next three quarters of the year.

You started out the year with minus 4% growth.

Obviously you are going to have a little bit more; you are going to have some acquisitions that help you over the next three quarters.

But it looks like you are assuming an uptick either in market share or market growth rates in the back half of the year given that you guided 2% to 5% and you started out minus 4%.

So could you just talk about how much of that acceleration that you are expecting in growth over the next three quarters is kind of an assumption that the market will get better or that you will have share gains?

Overall, we are assuming the market continues to be in that 3% to 4% range.

If you do the math kind of on the numbers that we would say for the next three quarters it would basically kind of have you in that 3.5% to 6.5% -- it would be about 6% growth for overall.

So that would assume -- at the lower end of that we are basically just growing where the market is.

At the higher end of the range, obviously, you would assume some share uplifts.

The biggest thing you have to remember is that in Q1 we had the toughest comparisons, for example, on Kyphon.

That negative drag will go away.

But, no, we do expect that we are going to see some uplift from some of the new products being launched.

But the majority of what we are saying is assume the -- we are not assuming our markets improve, we are assuming the markets are in that 3% to 4% range.

We will be kind of at that level with a potential slight uplift depending on when some of these new products get launched.

Great.

Thank you very much.

David Roman, Goldman Sachs.

Good morning, everybody.

Thank you for taking the question.

Just a quick follow-up here on the end-user market.

Gary, it hasn't been long since the analyst meeting in June and it's a pretty dramatic cut to the estimates on end-user market growth.

It sounds like some of the factors you are citing are assumed to be transient.

Can you maybe walk us through how we think about end-user market growth beyond 2011?

Is 2% to 5% the new norm we should think of compared to 4% to 7% you had provided in June?

Or is there something that you are seeing that gives you confidence to get back towards the 4% to 7% level over time?

David, this is Bill.

It's really hard to forecast in this kind of a turbulent time what the long-term, sustainable market growth rate is.

But our view is just with -- particularly in the segments we are in with the prevalence of chronic disease and the aging of the population, just the demographic itself would suggest that the growth is higher than what we are seeing in the near term.

There is just a lot of factors here at play and, as Gary said, for us it's really all innovation.

It's our ability to bring forth technologies that clearly demonstrate both clinical and economic value.

Then you multiply that times just the demographics we think that there is upside to what we have put out there as near-term market growth.

But until we see things change a bit our -- it's prudent for us to be conservative.

And then on mix, in response to one of the other questions you reference a move from peak to titanium.

If you look across your businesses, how hard is it to get mix right now?

Clearly you are highlighting new products as an important driver, but it looks as though you go across all the companies who have reported earnings so far, the demand from hospitals to pay premiums for new products is getting harder.

Just talk about how you are confronting that, what type of data you are generating, and what the cost of that would be on a go-forward basis.

Well, one thing that we didn't mention but there is a trend, kind of a megatrend, with hospitals purchasing more and more physician practices and working to get the physicians to recognize the cost of the procedures.

And I think that is playing a bit into what we are seeing, say even in the spine business, as they are looking at the kind of cost per procedure and looking at how they can reduce the overall cost per procedure without compromising patient care.

And so there is, I believe, efforts along those lines to try to look at the total cost.

And so that is in play.

Again, that just puts the onus back on us to be able to clearly demonstrate that when we bring out peak materials that there is very clear evidence to support the clinical benefit of using a different material versus, say, a titanium.

There is no question -- this is Gary -- there is no question, as Bill said, that it's going to be an increased focus on economic evidence and clinical evidence to support these new technologies.

We have seen that over the last year or two and I think that is going to continue to be of increasing importance as far as getting new technologies really accepted in the marketplace and adopted in the marketplace.

And that is where we are investing.

We are investing a lot in clinical evidence.

The number of clinical studies we have across the enterprise I think it's unparalleled in the industry.

And, Bill, lastly, in your estimation that reference of beginning of a megatrend on hospitals purchasing more practices are we sort of early stages, middle stages, late stages of that progression?

I think we are in the early to mid phases.

I was with a very large hospital chain recently for my annual visit and the comment was made that this year versus last year they have purchased three times as many as they had before in terms of clinical practices.

So I think it's a trend that is happening.

Okay, thank you.

Rick Wise, Leerink Swann.

Good morning, guys.

It's [Danielle] in for Rick.

Just to follow up quickly on Bob's question as for the quarterly flow for the rest of the year and how it plays out, specifically for this second quarter, how do we think about second-quarter top- and bottom-line growth specifically given the accelerated slowdown that you saw in the last half of the first quarter?

It seems like there is even more market procedure slowdown and incremental pricing pressures.

And following up on that, it fiscal '10 now likely to be more backend loaded then you had expected previously?

Then I have one follow-up after that.

This is Gary.

I would say for Q2 that we would want you to be a little lower towards the bottom -- lower end of that range.

Again, the 2% to 5% that we talked about, we would want to be towards the lower end of that range until some of the new products launch because obviously as we have talked about -- until we see exactly where the markets are at.

So if anything, I would say Q2 a little bit slower, and then Q3 and Q4 would be a little bit more than that.

But there is not a dramatic change, but I would be a little softer in Q2.

Okay, great.

That is really helpful.

And then my one follow-up, you talked about investing in emerging therapies and emerging markets to position the Company for longer-term growth.

How quickly can these investments, some of which you have already made, occur and start to have a positive impact on sales growth?

And in general, specifically as it relates to emerging market, should we think of that as carrying lower gross margins?

And then how does that play into the longer-term gross margin outlook?

Thanks so much.

In both cases, both emerging therapies and emerging markets, we have been making investments for some time and we are beginning to see the fruits of those investments come to bear.

When you look at CoreValve and you look at what is happening with the endo business, the interstim business, the peripheral business, even the continuous glucose monitoring, it is meaningful revenues for us at double-digit kind of growth rates.

Same thing in terms of the emerging markets.

We talked about many years ago, four or five years ago, we invested in China as an example.

Set it up as a separate business.

I was over there two weeks ago and I couldn't be more enthusiastic about the long-term prospects for where China is.

It's close to $0.5 billion run rate right now and it's growing at 20-plus-percent a quarter.

So we are doing the -- we are making those investments and we have been in the other markets like India, Brazil.

So we are confident that these are going to be strong markets over the long run.

As it relates to the impact on the gross margin, if you look today at our sales outside the US, basically the margins are very similar to what we see here in the US.

So we are not really building in too much dilution, if you will, for the mix shift more to emerging markets or markets outside the US.

Okay.

Thanks so much.

Kristen Stewart, Deutsche Bank.

Thanks for taking the question.

I was just wondering in light of I guess what we are seeing in the market and the uncertainty just how some of this might be playing into more of your big picture strategy with respect to acquisitions, your sales model.

And is there any ability to maybe do a little bit more aggressive actions on the restructuring front?

Well, I think it reinforces very much what we have been doing in terms of both on the strategic side reallocating resources to really invest in very differentiated technologies that not only help us to gain share but also help us to grow new markets.

And, secondly, what we are doing from a strategic tuck-in.

The series of acquisitions that we have done the last couple of years from the CoreValves to the atrial fibrillation to now the ATS, which kind of leverages our global footprint, and even the Osteotech, which again as well takes advantage of our extensive footprint in the overall spine and biologics space.

So I feel reassured that the strategies in this particular turbulent market are the right ones.

Similarly, the things that we have been doing with our One Medtronic and really taking advantage of our size and scale and doing more to be able to take costs out, which we have been able to show that they are working as we just did this quarter with the kind of results that we have on the bottom line given the softness on the top line.

Those are -- this is an ongoing process of looking across the whole enterprise.

So the results that we have had the last two years I think reassure me that we are doing the right things and we are going to continue working hard at it.

To the extent you can't get mix or pricing continues to be very challenging are you willing to reconsider your sales model?

I mean to the extent you can't get the same level of margin contribution, what are some of the offsets beyond just kind of the cost initiative strategies from more of a product standpoint?

Well, we actually have some fairly innovative business model, if you will, but change is going on in different markets around the world and we will see how these pan out.

We have been, I think, very innovative in looking at certain markets and exploring and, if you will, experimenting with different ways of distributing our products.

So absolutely.

We are looking at everything recognizing that we are in a very dynamic era right now.

Just to add to what Bill said, as he said we are trying different pilots and doing different things in different markets to see what value the customer has -- not only in our products but our services that we have always provided.

Because as you know, our business has been very, not only product intensive but very service intensive in the past.

The question is not only on the product side how much value do they place in the product but how much value do they place in the service component itself.

And so we are trying to -- different ideas in different geographies to try different business models to increase that value that we provide in the service area.

At least change it such to what is it the customer and the physician community and the hospitals really want.

And so provide not only value in the product itself, but in the service that we are providing to them and how we interact and partner with them.

So we are trying that and, as Bill said, we have been very innovative in that in the past.

If it calls for it in a broader execution we will do that.

Thank you.

Ben Andrew, William Co.

Great, thank you.

Just similar question to that in terms of the opportunity on the SG&A level.

When do you think you might need to be pulling that lever?

Is it even this year given the slowdown in the markets that you described through June and into July?

I don't know whether it's going to require us to do us that here in the US yet.

Obviously we will continue to take a look at this.

The service component is still very important here in the US market as far as for several of our businesses but we will continue to evaluate that.

As we have given examples in the past, Germany is a perfect example that I highlight to many investors as one where we did change the business model there and change the SG&A component dramatically because of what basically that country really expected from the service levels.

We dropped that.

And as a result we have maintained -- our profit margins in Germany are pretty consistent with the rest of our European and in fact our worldwide results.

So we will continue to look at that.

I don't know whether we will necessarily being seeing a dramatic shift here in the current year, although if the markets continue to be soft and things like that we will have to really evaluate that.

Okay.

And just as a follow-up I guess.

Bill, in your conversations with hospitals how are they addressing this more extensive payor preoperative review?

Because at one level you would think that those patients don't go the way, they get deferred if they get rejected or go to another procedure that ultimately would end up in, say, a fusion.

But it sounds like you are seeing it across the board, not just in spine but in also other indications.

And so how would the executives -- how are they planning for their volumes through this year and into next year in terms of their investment levels?

What are they assuming the trajectory is on that overall dynamic?

Thanks.

Again, physicians are still really the primary decision makers in terms of what is the appropriate therapy for a patient.

If they believe that a patient should get a single level fusion or a multiple level fusion and they have the evidence to support that, they will push hard for it in any circumstance even if they get payor pushback.

So again I think it comes back down to the basic demand.

As I said, I really believe that the demand over time will be there as the population ages and we see the changing of the demographics.

But right now there is again a number of dynamics given the economy with the unemployment levels, with the raising of the deductibles, with the COBRA benefits expiring, I think that we are just in this kind of a transition phase as we are trying to figure out what is going to happen long term with the economy.

I am confident that we will get through this and that people will return going to see the doctors and the doctors will then basically prescribe what is the right therapy.

Okay, thank you.

Bruce Nudell, UBS.

Good morning.

Thanks for taking the question.

Bill, one of the fears that a lot of people have about US ICD market is first-time implants last them till well below the peak, replacement cycle is slow, you have building price pressures.

What is the chance that we are going to see a period of year-over-year declines in the mid single digit range for a while?

Well, it's a hard question to answer.

We have been seeing, actually for a period here, the CRDM market or the ICD market I should say in that flat to modestly down range and buoyed a bit by the replacement cycle.

But we are -- there are a number of catalysts that we think are going to ultimately reinforce the importance of this therapy.

One, the [made it] CRT I don't think has really kicked in yet.

The work that we have talked about on this joint commission, getting into the guidelines, the whole notion that you have to basically have a patient go through a consult, and then it comes back to innovation.

It's our inability to bring forth the kind of products like Protecta that really address the concerns that some physicians have around inappropriate shocks.

So there are a number of catalysts which I believe will offset some of the things that we are seeing today and that this market will be like the pacemaker market.

It will be a market that grows commensurate with the overall demographic growth.

And just to add to Bill's comment, the initials and the replacements we are talking about is more of a phenomenon here really in the US.

The OUS market still has the potential clearly to have growth going on outside that.

So there is clearly an area that we are impacting here in the US and Bill's comments are kind of what I think is going to take to kind of get that turned around.

But the reality is I think we still also see relatively strong growth.

And as we have talked about, in Europe we actually saw an increase in their overall growth this quarter.

That is again with that new technology Protecta.

To tell the patients that you can reduce the number of inappropriate shocks; that is the biggest fear that they have is the inappropriate shock.

And to be able to eliminate that takes away one of the barriers that clearly has been out there in the past.

We are cautious right now as to obviously what is on in the marketplace, but as Bill said long term we still think there is growth in this market also.

And just one follow-up on spine.

When we try to calculate mid-2000s case growth it came out to about 5.5%.

When we talk to purchasing people we do hear what you say, that insurance companies are moving, commercial insurance are moving to more like DRG case reimbursement.

Physicians are more realigned with hospitals.

Should we be thinking about a 5% unit market with a deflationary CAGR and ASPs layered on so spine essentially becomes low to mid single digit market sustainably for the next several years at least?

Bruce, it's hard to argue with that, although I think the demand side could be greater than the 5%.

As I indicated, when you think about just the very small percentage of people who are ultimately getting some intervention today versus the number of people who suffer from chronic back pain.

As we bring out more minimally invasive technologies that will overcome some of the concerns that many physicians have.

I think we could see that unit case volume increase, but I think that in the mid single digits is a fair assumption right now.

That is kind of what we have assumed obviously for the rest of this fiscal year, Bruce.

And back to your point, we would agree with everything you just said as far as that is what our assumptions are based on.

What happens after FY11 we are still trying to determine and, as Bill said, we still think there is growth opportunities there greater than what is going on in spine right now.

But clearly for the next few quarters we are going to be cautious and assume that the markets kind of reflect what we saw here in Q1.

Thanks so much.

I think we are running a bit late but we have time for one more question.

Joanne Wuensch, BMO Capital Market.

Thank you very much for taking my question.

This question is going to sound similar to what I think a lot of people have been trying to get at on this call, which is two-fold.

If things have accelerated so much from June to July and now into the guidance given in August, what is your comfort level that it doesn't go September, October, and so forth?

And then with that is the second question of how do we change this trajectory?

Well, I tried to be very clear as I can and candid as I can about just the challenge that we have as everyone else is in trying to really predict what is going to happen in the next nine months, notwithstanding the next couple of years.

But again, I think our view is that there is still -- the demand for the things that we are doing is still there.

If people -- on the diabetes side, on the whole cardiac side, the whole neuromodulation side so there is underlying, fundamentally strong demand.

Right now I think the people there is just a -- we are in this kind of inflection with just the turbulence in the economy and it's just making it very difficult for all of us to try to forecast going forward.

But the solution is -- for us is just to continue to be focused on bringing forth technologies that can clearly be supported by strong evidence, both from a clinical point of view as well as from an economic point of view.

And maybe just one kind of closing comment to that point.

As I said earlier, I really believe that the things that we are doing are the right things in terms of tuning our business model and the investments that we have been making to diversify our portfolio away from just being a spine business and a CRDM business.

We were encouraged to see good growth in diabetes.

We still believe there is strong growth opportunities in the neuromodulation, the surgical technologies, and even in many of the new technologies, the transcatheter valves, the endovascular.

So we are in that kind of transition phase of investing a lot in the emerging therapies, the emerging markets to really enable us to be able to continue to deliver market-leading performance.

Thank you.

So before just closing the call I just would like to reiterate that Q1 was -- it was a difficult quarter and a challenging environment.

We were surprised by how the market slowed down as we discussed and how it escalated in -- the slowdown escalated in late June and July.

And at the same time I was disappointed by our performance in a couple of businesses.

But despite the turbulent markets we remain focused on our core strategies of growth and innovation.

We are going to leverage our financial strength, including our strong free cash flow generation to fuel disciplined investment and return to our shareholders.

Our diversified portfolio, our rich pipeline, and our strong global footprint and world-class capabilities and talent position us well to deliver market-leading performance over the long run.

So on behalf of the management team here we thank you for your interest in Medtronic and your continued support.

Thank you.

Thank you for participating in today's Medtronic Inc.

first-quarter earnings release conference call.

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