美敦力 (MDT) 2012 Q1 法說會逐字稿

Good morning, my name is Andrea and I will be your conference operator today.

At this time I would like to welcome everyone to the Medtronic Q1 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 would like to now turn the call over to Mr.

Jeff Warren.

You may begin, sir.

Thanks, Andrea.

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

During the next hour Omar Ishrak, Medtronic Chairman and Chief Executive Officer, and Gary Ellis, Medtronic Chief Financial Officer, will provide comments on the results of our fiscal year 2012 first quarter which ended July 29, 2011.

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

First, 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 any forward-looking statement.

Additional information concerning factors that could cause actual results to differ is contained in our periodic reports filed with the SEC; therefore 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 portion of our website at Medtronic.com.

Finally, unless we say otherwise, references to quarterly results increasing or decreasing are in comparison to the first quarter of fiscal year 2011 and all revenue growth rates are given on a constant currency basis.

And with that I'm now pleased to turn the call over to Medtronic Chairman and Chief Executive Officer, Omar Ishrak.

Good morning and thank you, Jeff.

And thank you, everyone, for joining me on my first earnings call as Chairman and CEO of Medtronic.

In the eight weeks since joining the Company I've been meeting with our employees and customers around the globe and it's clear to me that Medtronic has many strengths that differentiate us as the world's leading medical technology company.

In fact, Medtronic's singular focus on healthcare is what attracted me to this Company.

Medtronic's stated mission, sense of purpose and strong customer focus are well aligned with my personal values.

I'm passionate about healthcare and excited to be part of a company that has a long track record of delivering technology solutions to improve healthcare.

The opportunities in this industry are enormous; across the world we are in a continuous quest to improve healthcare.

People everywhere want better outcomes, fewer errors, quicker recoveries, fewer side effects.

But at the same time there is continued pressure on global healthcare costs.

Present trends are clearly unsustainable, especially given the demographics in the developed world.

It is therefore paramount that we develop solutions that not only improve healthcare, but do so while delivering better economic value.

And finally, the biggest long-term opportunity will be our ability to meet the needs of the billions of people that have no access to healthcare at all.

In visiting with employees around the globe I've been impressed by a number of key strengths within Medtronic.

First, I've been impressed by the breadth and depth of our technical expertise.

In addition, our clinical and economic evidence generating capabilities are some of the best that I've seen.

Second, I've been pleasantly surprised by the number of synergies across our businesses.

Whether it is in our operations, technology, customer base or disease progression, value is created across our combination of businesses and looking ahead I believe there is great potential to further leverage Medtronic's breadth and capabilities.

And finally, Medtronic offers a strong financial platform on which to build.

The Company's solid cash flows and balance sheet give us the flexibility not only to make disciplined investments of future growth, but also maintain our commitment to returning significant amounts of capital to our shareholders.

Although Medtronic possesses a number of strengths, it is clear that our industry is facing a very challenging environment.

The macroeconomic conditions in many developed countries have led to constrained healthcare budgets and increased pressure on utilization.

This directly affects the financial health of our customers.

A key part of our industry's long-term success therefore will be the ability to provide medical technology that clearly demonstrates customer economic value at both the provider and payor levels.

While Medtronic has world-class capabilities in clinical research and healthcare economics, we have not consistently translated them into meaningful and succinct economic value propositions directly for our customers.

Successfully demonstrating the clinical and economic value of our technology to our customers on a broad and consistent basis will result in our customers delivering better, more cost effective patient care while improving their profitability at the same time.

We're well positioned to lead this effort by leveraging our core competencies as well as our overall breadth.

It's also an opportunity for us to differentiate ourselves from our competition.

Demonstrating that medical technology can be part of the solution for removing waste from the healthcare system and improving our customers' financial health will support med tech's increased share of healthcare spending.

Our ultimate goal however is to improve growth at Medtronic.

While the systematic usage of customer economics is a critical tool in this endeavor, I believe that there are three key imperatives to deliver sustained growth -- improving our execution; optimizing innovation; and accelerating globalization.

Let me address these one at a time.

First, I'm focused on delivering crisp and consistent execution across the Company starting with me and the leadership team.

I'm taking initial steps to ensure our business units, geographies and functions have completely aligned goals with a clear understanding of their roles and responsibilities.

I will drive more operating rigor throughout the organization.

I will expect more accountability and follow through on commitments, goals and deadlines at all levels.

Improvements in these areas are critical to driving operating efficiencies and delivering better, more predictable and sustained business performance.

Let's now discuss our process for innovation, my second area of focus.

Optimizing our innovation process will lead to improved R&D productivity.

We've made significant investments in R&D over the years, both internal and external, with frankly unsatisfactory returns.

This is not acceptable and clearly cannot continue and will require some major changes.

Perhaps the most important area that needs improvement is our method of selecting and prioritizing our investments.

Central to the new process will be the broadened cooperation of the customer economics concept that I mentioned earlier.

We need to clearly demonstrate to our customers with evidence that the use of our technologies will improve their overall profitability.

In addition to focusing on customer economics we will look for ways to get additional growth from our existing therapies.

Historically Medtronic has focused on adding new high-end therapies and incremental innovation to drive growth.

While this has often worked in the past, in today's environment with longer regulatory cycles and more cost sensitive buyers we must look for new and creative ways to generate growth.

I want our businesses to significantly increase their focus on truly understanding how to expand penetration of our existing therapies.

We need to understand in granular detail the barriers that prevent our products from becoming the standard of care.

We must do this for every product in every major country and prioritize these opportunities by their economic value and also by the degree of difficulty in developing the evidence necessary to prove that economic value.

In addition, I'm challenging our businesses to think more broadly across the patient care continuum to look both upstream at how targeted diagnostics can better select patients that need our therapies and downstream by developing new business models around connected care and chronic disease management for patients who have our devices.

Now let me explain my third area of focus, which is to accelerate globalization.

There is no doubt that the global healthcare opportunity, especially in emerging markets, is immense and will continue to grow.

We must capitalize on this tremendous market opportunity by accelerating our international investment to drive growth.

While Medtronic has a solid international presence I believe we can further leverage this platform and accelerate our growth trajectory.

We're taking initial steps to create a more optimal global structure to ensure we have deep engagement by our business teams.

I'm challenging our entire organization to generate fresh new ideas using our latest and most innovative technologies to create new and potentially disruptive business models specifically directed towards each of the major emerging markets.

Through this process we will significantly increase our investment in local R&D, manufacturing and strategic partnerships in these regions.

We will also be active in helping to build on the healthcare infrastructure where needed.

I'm confident that through these efforts the underserved population around the world will rapidly gain access to Medtronic's technologies thus unlocking enormous business opportunities.

Focusing on execution, innovation and globalization is the key to Medtronic's long-term success.

Obviously I have still a lot to learn, but I'm singularly focused on leveraging the tremendous resources at our disposal to drive growth and long-term performance.

I look forward to updating you on the progress Medtronic is making over the coming quarters.

Now before Gary walks you through the details I wanted to make some high-level comments about the quarter.

We grew revenue 7.3% as reported or 2.4% on a constant currency basis this quarter.

Looking at these results I think it's worth noting that over 60% of our business is growing at a combined 8% as new products are in many cases taking share, improving pricing or growing new markets.

I was pleased by the double-digit growth in several businesses including transcatheter valves, AF solutions, endovascular, Uro-Gastro and CGM.

Also Coronary and Surgical Technologies both delivered solid growth in the mid- to high-single-digits.

Now at the same time ICDs and Spinal, which account for the remaining 40% of our business, continued to struggle and together declined 6%.

In ICDs our performance was directly tied to the market.

As the US market continues to feel the impact from a number of factors including the DOJ's investigations, the January JAMA article and the continued trend of increased hospital ownership of physician practices.

While we gain share in the US sequentially I'm emphasizing to the team that we must develop and execute growth strategies even in this market.

These strategies will include increasing our penetration in international markets, continuing to broaden our product offering to EP's and developing a compelling economic value proposition to the hospital buyer.

It Spinal our Q1 growth challenges were confined to the US market where we faced acute pressure related to the INFUSE articles as well as the general ongoing issues with fewer procedures, pricing pressure and the increasing prevalence of physician owned distributors.

I was disappointed with our basic operating performance as we continue to lose share.

This has been a difficult journey but we're still the clear market leader and committed to winning in this market.

We're continuing to launch a series of key new products that we believe will have a big impact on our performance.

I've also asked the team to take a fresh look at our strategies, to leverage our unique capabilities in total procedure solutions to create economic value for our customers.

And finally, I want to make it clear that as we pursue our spinal strategies we will always lead the market with integrity, quality and patient outcomes as our primary drivers.

In summary, while we expect our ICD and spinal businesses will continue to be under pressure this year, we do expect the rest of our portfolio to continue to generate growth.

I also want to point out that Medtronic's acquisitions over the past three years are adding to our growth today and these platforms are expected to be even larger contributors going forward.

This quarter we continued to make progress in the CoreValve US pivotal study and received IDE approval to start our Ardian US business pivotal study.

In addition, products that came from our acquisitions of CryoCath, ATS Medical, Invatec and Osteotech all made solid contributions to our growth this quarter.

In July we announced our intent to acquire Salient Surgical and PEAK Surgical.

We believe Salient and PEAK will allow us to target a leadership role in advanced energy Surgical Technologies and broaden our portfolio of innovative surgical products.

These two companies represent the types of acquisitions we plan to make.

We are focused on acquiring strategic tuck-ins that create real value where we can attach them to business teams that are executing.

Geographically I was also pleased with the solid performance across our international businesses with 46% of our overall revenue now coming from markets outside the US.

Emerging markets grew 25% this quarter led by strong performances in Latin America and Greater China.

Emerging markets now represent 10% of our revenue as they have grown nearly 20% annually for the past four years.

Given the immense opportunity in these markets I believe this growth is sustainable.

I am focused on accelerating globalization and expect to improve our international growth substantially over the long-term.

Looking down the income statement, our operating performance was unsatisfactory with our EPS basically flat.

Moving forward we expect to realize the full benefit of the restructuring that occurred in Q4, continue to deliver SG&A leverage, and attempt to offset our dilution from recent acquisitions.

Before I conclude I'd like to comment on INFUSE.

We're committed to integrity, quality and patient safety which govern our customer relationships, our policies and our priorities.

While recent articles raise questions about the peer review process and physician industry relationships, it is important to note that they did not raise questions about the integrity of the data Medtronic submitted to the FDA for approval or any other subsequent reporting.

We strongly believe that these data support the safe use of INFUSE for indications already approved by the FDA.

However, because questions are being raised about the peer-reviewed literature, we recently announced that we are taking the extraordinary measure of having Yale University conduct two independent systematic reviews of all INFUSE-related clinical data.

We also make all of the INFUSE clinical trial data and results available to medical researchers.

This initiative is a direct reflection of our commitment to our mission which calls on us to be the unsurpassed standard of comparison and to be recognized as a company of dedication, honesty, integrity and service.

We look forward to the results of these reviews.

Gary will now take you through a more detailed look at our quarterly results and at the end of the call I'll make some brief closing comments.

Gary?

Thanks, Omar.

First-quarter revenue of $4.049 billion increased 7.3% as reported or 2.4% on a constant currency basis after adjusting for $186 million of favorable effect of foreign currency.

Breaking this out geographically, revenue in the US of $2.206 billion declined 1% while international sales of $1.843 billion increased 19% as reported or 7% on a constant currency basis.

Q1 international revenue results by region were as follows -- Latin America grew 30%; growth in Greater China was 28%; Middle East and Africa grew 17%; growth in other Asia was 8%; Canada grew 4%; growth in Japan was 2%.

Europe and Central Asia growth slowed to 3%, which includes revenue deferral of $7 million in Greece due to the current economic environment and payment uncertainty.

Q1 GAAP earnings and diluted earnings per share were $821 million and $0.77, a decrease of 1% and an increase of 1% respectively.

After adjusting for acquisition-related items, as well as the non-cash charge for convertible debt interest expense, first-quarter earnings and diluted earnings per share on a non-GAAP basis were $845 million and $0.79, a decrease of 3% and 1% respectively.

It is worth noting that after adjusting for the one-time tax benefit we received in Q1 last year, as well as the Ardian dilution, our non-GAAP diluted earnings per share increased 3%.

In our cardiac and vascular group revenue of $2.206 billion grew 3%.

Results were driven by double-digit growth in Structural Heart, Endovascular, AF Solutions and Physio-Control, as well as growth in Coronary and Pacing, offset by declines in ICDs.

CRDM revenue of $1.253 billion declined 3%.

Worldwide ICD revenue of $697 million declined 8% and we estimate that the worldwide ICD market declined in the mid-single-digits.

Our US ICD business declined 12% and we estimate that the market declined in the high-single-digits.

As Omar noted, the US ICD market continues to feel the impact of a number of factors that are affecting procedure volumes and pricing.

Despite the market slowdown we are pleased with the impact our recently approved Protecta high-power devices are having on share and pricing.

We estimate our US high-power share was up over 100 basis points sequentially.

Protecta's SmartShock Technology is commanding mid-single-digit price increases which is helping to improve the mid-single-digit pricing declines we have seen in US ICDs.

With Protecta's launch still ramping our US high-power pricing was relatively stable sequentially.

Our international ICD business declined 1% while the market was flat.

In Europe we continue to gain share on the strength of Protecta as well as our value segment products, CARDIA and Egida.

In Japan we lost some share in Q1, but are confident that our DF-4 connector devices, which are expected to launch in Q2, should help to reverse this trend.

Pacing revenue of $508 million grew 1% as the market continued to decline in the low-single-digits.

US pacing grew 1% and we gained 250 basis points of share sequentially driven by the Revo MRI SureScan pacemaker.

In addition, Revo's solid double-digit percentage price uplift has offset the pricing pressure we experienced in pacing over the past several years.

Our international pacing business grew 1% while we estimate the international pacing market was flat.

Our AF solutions business grew in excess of 40% driven by the ongoing successful launch in the US and the continued adoption in Europe of our Arctic Front cryoballoon.

We are taking share in this important market and continue to expect this business to grow 30% to 40%.

Our cardiovascular businesses posted another strong quarter with revenue of $850 million growing 11%, with 10% growth in the US and 11% growth in international markets.

Coronary revenue of $389 million grew 6%, including $6 million of revenue from Ardian.

It is worth noting that our peripheral business is now a part of Endovascular.

Worldwide drug-eluting stent revenue in the quarter was $193 million including $43 million in the US.

This quarter we received approval for Resolute Integrity DES in Australia and we continue to expect a late FY '12 approval of Resolute in the US, which we believe will be a meaningful driver of revenue growth.

To put some perspective on this US opportunity, in Europe where we have more competitors than the US, our DES share is nearly double our share in the US.

In fact, in markets where we have regulatory approval for our Resolute Integrity drug-eluting stents and Integrity bare metal stent Medtronic holds the market leading coronary stent share position.

Turning to Ardian, this multibillion-dollar opportunity in hypertension is progressing well.

On the commercial front customer excitement around Ardian is building as we expand into new centers in Europe and Latin America.

In July we received US IDE approval for our Simplicity HTN-3 pivotal study.

We are in the final stages of selecting our 60 sites and we expect the first procedure to occur shortly.

We believe Ardian represents one of the most product advances in med tech and we intend to maximize its potential.

Structural Heart revenue of $275 million increased 15%, which included $20 million of revenue from HDS.

Our CoreValve transcatheter valve business continues to drive growth with the TCV market now annualizing at over $625 million and growing over 50%.

We continue to split the market with our competitor and are seeing strong early adoption of our 31 millimeter CoreValve which received CE Mark approval in July.

We continue to expect CE Mark approval for our 23 millimeter CoreValve on a 16 French delivery system in the second half of FY '12.

In the US we are pleased with the progress of our CoreValve pivotal trial.

Enrollment is well underway and all 40 sites are active.

In surgical valves we grew 20% on the strength of ATS.

ATS revenue grew 6% sequentially including double-digit growth in mechanical valves.

Turning to our Endovascular and peripheral, revenue of $186 million grew 16%.

In the US revenue growth of 27% was driven by the continued success of the Endurant abdominal stent graft.

In peripheral we continue to see strong market acceptance for our drug-eluting balloon in international markets which had outstanding double-digit growth.

Physio-Control revenue of $103 million increased 17%.

This business had strong growth in the pre-hospital segment as the LIFEPAK 15 and LUCAS chest compression system continue to take share.

That business also gained share in the AED market on the strength of our LIFEPAK CR Plus and LIFEPAK Express.

We continue with our efforts to divest Physio-Control.

Now turning to our Restorative Therapies group, revenue of $1.843 billion grew 2%.

Growth was driven by another quarter of solid performance in diabetes and Surgical Technologies as well as growth in Neuromodulation offset by challenges in Spinal.

Spinal revenue of $825 million declined 3%.

This quarter global spine market growth of approximately 1% and US market declines of 1% were both modestly slower than last quarter.

Although the market continue to be challenged our spinal business grew 7% in international markets on the strength of new products.

In Core Spinal, which includes Core Metal Constructs, IPDs and BKP products, revenue of $610 million declined 5% as this business continues to feel the impact of its exposure to VCF and IPD markets.

Core Metal Construct products declined 3%.

Although new product lines, including Solera, VERTEX SELECT and ATLANTIS VISION Elite cervical plates, are generating growth with their ongoing launches, they are still ramping up and account for only a small percentage of our US Core Spinal revenue mix today.

In Kyphon revenue declined 13%.

We launched the Xpander II balloon late in the quarter and looking ahead believe that new products, the Japan expansion and increasing awareness of our growing body of positive clinical evidence will stabilize Kyphon.

Biologics revenue of $215 million grew 2% driven by Osteotech which added $23 million in revenue.

Sales of INFUSE declined 8% for the quarter, but declined in the upper teens in the period following the publication of the Spine Journal articles in late June.

Turning to Neuromodulation, revenue of $397 million increased 4%.

Results were driven by double-digit growth in InterStim as the sales force additions and market development investments made in the second half of the last fiscal year are starting to pay off.

In pain the RestorSensor spinal cord stimulator with our proprietary AdaptiveStim technology continues to perform well in Europe and we expect to launch this breakthrough technology in the US later this fiscal year.

At DBS we had solid growth in the US and continue to see very little impact from competition in international markets.

In Uro-Gastro we are focusing on training US colorectal surgeons on the US of InterStim therapy for bowel control as we ramp this launch.

Diabetes revenue of $355 million grew 9% driven by strong double-digit growth in CGM.

Our CGM business continues to hold the vast majority of market share driven by sales of our Soft-Sensor in the US and our recently launched Enlite sensor in international markets.

Enlite is one of the most important advances in CGM technology in many years as it is more comfortable, accurate and easier to use than previous sensors.

We continue to invest heavily in a broad range of diabetes technologies including those leading to a closed loop system.

For example, we are working toward IDE approval of our US study for our Veo Insulin Pump with its low glucose suspend technology.

Surgical Technologies revenue of $266 million grew 9% with strong performance in international markets and balanced growth across our core platforms in the EMT, Spine and Cranial markets.

We were pleased to announce our intent to acquire Salient Surgical and PEAK Surgical in July.

These strategic acquisitions are expected to leverage our existing strength in Surgical Technologies, as well as access substantial adjacent therapy opportunities.

Integration planning is underway and on schedule and we expect to close these acquisitions in Q2.

Now turning to the rest of the income statement.

The gross margin was 75.2%.

The gross margin was negatively affected this quarter by 30 basis points from three nonrecurring items including a scrap charge related to a manufacturing issue at our facility producing Resolute Integrity.

It is worth noting that while we have resolved the Resolute Integrity production issue, we are still ramping up inventory to supply the resulting back order in the European market.

We continue to believe our gross margin for the remainder of the fiscal year should be in the range of 75% to 75.5% on an operational basis as we continue to offset pricing pressure through our $1 billion cost of goods sold reduction program.

First-quarter R&D spending of $371 million was 9.2% of revenue.

We remain committed to investing in new technologies to drive future growth and continue to expect R&D spending in the range of 9% to 9.5%.

First-quarter SG&A expenditures of $1.408 billion represented 34.8% of sales, A 60 basis point improvement from the first quarter last year.

We continue to focus on several initiatives to leverage our expenses while at the same time investing in new product launches and adding to our sales force and faster growing businesses and geographies.

In FY '12 we expect SG&A spending to be in the range of 33.5% to 34%.

In an effort to improve disclosure to investors we are breaking out the non-cash amortization expense as a separate line item from net other expense on our income statement this quarter and going forward.

Amortization expense for the quarter was $88 million compared to $82 million in the first quarter of last year.

For FY '12 we would expect amortization expense in the range of $80 million to $85 million per quarter.

Net other expense for the quarter was $109 million compared to $35 million in income in the prior year.

The year-over-year increase in expenses is primarily a result of the losses from our hedging programs which were $64 million during the quarter compared to $54 million in gains in the comparable period last year.

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

However, the FX impact was more negative than we had expected since the currencies we do not hedge were very volatile, especially in the strengthening Swiss franc.

We estimate that this reduced our results by about a penny from what we had originally expected.

Net other expense this quarter also includes $29 million in expense from the Puerto Rico excise tax, which is almost entirely offset by a corresponding tax benefit I will discuss in a moment.

Looking ahead, based on current FX rates, we anticipate Q2 net other expense will be in the range of $125 million to $145 million including hedging losses in the range of $70 million to $80 million.

For FY '12 we expect net other expense will be in the range of $460 million to $520 million which includes hedging losses in the range of $250 million to $300 million based on current exchange rates.

Net interest expense for the quarter was $32 million compared to $74 million in the prior year period.

Excluding the $21 million non-cash charge for convertible debt interest expense, non-GAAP net interest expense was $11 million.

At the end of Q1 we had approximately $9.2 billion in cash and cash investments and $10 billion of debt.

Let's now turn to our tax rate.

Our effective tax in the first quarter was 19.7%.

Excluding the impact of one-time charges our adjusted non-GAAP nominal tax rate in Q1 was point (inaudible) %.

Included in this rate is a $24 million tax benefit associated with the US foreign tax credit from the Puerto Rico excise tax which mostly offsets the charge reported in other expense.

For FY '12 we expect an adjusted non-GAAP nominal tax rate in the range of 19% to 19.5% which includes the tax credit associated with the Puerto Rico excise tax and assumes the R&D tax credit will be extended beyond December 31.

In Q1 we generated $1 billion of free cash flow defined as operating free cash flow minus capital expenditures.

We expect to generate $4 billion of free cash flow in FY '12 and remain committed to returning 40% to 50% of our free cash flow to shareholders.

During Q1 we repurchased $400 million of our common stock.

In June our Board of Directors increased our share repurchase plan authorization by an additional 75 million shares.

As of the end of Q1 we had a remaining authorization to repurchase approximately 86 million shares.

First-quarter weighted average shares outstanding on a diluted basis were 1.070 billion shares.

In June our Board of Directors also increased our cash dividend for FY '12 by 8% which now equates to an annual dividend of $0.97 per share.

As of yesterday's close our dividend yield was over 3%.

Our dividend has more than doubled over the past five years and this is our 34th consecutive year of increased dividend payments.

Let me conclude by commenting on our fiscal year 2012 revenue outlook and earnings per share guidance.

We believe that constant currency revenue growth of 1% to 3% continues to be reasonable for FY '12.

While we cannot predict the impact of currency movements, to give you a sense of FX impact if exchange rates were to remain similar to yesterday for the remainder of the fiscal year, then our FY '12 revenue would be positively affected by approximately $500 million to $540 million including the positive $140 million to $160 million impact in Q2.

Our FY '12 revenue outlook now assumes our CRDM and Spinal businesses continue to decline in the low-single-digits on a constant currency basis.

Our outlook continues to assume that the rest of our businesses continue to grow in the mid- to high-single-digits on a constant currency basis.

Turning to guidance on the bottom line, based on the expected constant currency revenue growth of 1% to 3% we believe it is reasonable to continue to expect earnings per share in the range of $3.43 to $3.50, which includes approximately $0.04 to $0.06 of dilution from the Ardian acquisition.

After adjusting for the Ardian dilution and the $0.10 of one-time tax benefits we received in FY '11, our guidance implies FY '12 earnings per share growth of 6% to 9%.

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 impact of the non-cash charge for convertible debt interest expense.

With that Omar and I would now like to open the phone lines for Q&A.

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

Operator, first question please.

Matthew Dodds, Citigroup.

One moment, sir.

Matthew, your line is open.

Hey, good morning, did this work?

So, Omar, I know you're going to get a lot of questions on the key themes, so I hope you're ready for this.

I'm going to hit one again and I know there's going to be a lot of them.

If you look at globalization, when we've looked in the past at kind of the percent of med tech that's in emerging markets it's between eight and 10, so Medtronic is at 10.

And I think the plan was over five years getting that number closer to 20.

Given your experience in emerging markets, is that -- is that possibly a low number?

I mean, can you accelerate the investment to make that even a bigger piece?

Where do you kind of think about that five-year plan?

You know, right now we're planning around that region, but it's my every expectation that I want to accelerate that, absolutely.

I think it's possible by doing all the things that I said.

Because at this stage we don't have any significant R&D presence, our customer touch at a broad level is limited and there's lots of things that we can do that in fact has been done in other industries and other areas of healthcare that we can do in Medtronic in a more accelerated fashion.

And we intend to do that.

So this is a matter of making some bold investments early, you know some strategic partnerships perhaps.

But we have a very clear view about this and we're not going to hesitate.

And I know, Omar, on SG&A you didn't change the guidance, but should we assume maybe there was a little more of a mix shift towards emerging markets for fiscal '12?

Almost certainly, almost certainly.

And remember, in emerging markets the costs are lower so we expect some leverage out of that.

And in fact, I think one of the main things we'll see is that the R&D spending back to the productivity -- this is outside of what I talked about, but the -- which I found in my past experience, that as you invest in emerging markets R&D and that expertise over time it gets up to speed.

The productivity in fact is also enhanced because the costs are lower.

And then one quick one for Gary.

Gary, on Europe, even if you back out the lost Greece sales it was down sequentially.

Is that the southern regions just showing sluggish growth versus the last quarter?

You know, Matt, overall it wasn't so much the -- even I would say the major markets, it was more the Eastern European.

We had the Greece issue of the deferred revenue where we made a decision because of what's going on in Greece to defer revenue until we have some certainty around the collectability.

But even like in Czech Republic and some of the other Eastern European countries we saw a little bit of a slowdown this quarter.

And so, it was kind of across the board, but I would say mostly in Eastern European -- if we adjust for where we saw some of this in the Eastern European, our growth rate was more around the 5% which is kind of what we've been running up until this quarter.

So we think it was just a little bit more of an unusual thing in some of those marketplaces; we don't see any basic big trend downward even in the Southern European countries.

Okay.

Thanks, Gary.

Thanks, Omar.

Thanks.

Mike Weinstein, JPMorgan.

Is it working now?

Yes, we hear you now.

Perfect, okay.

Omar, let's start at the top level.

You talked really about three themes which were globalization, innovation and execution.

I think everybody would be interested in your view given the differences in the maturity of your various businesses and the growth outlook for your various businesses, how you view the current portfolio at Medtronic?

And what needs to be done to the portfolio to position Medtronic for improved returns going forward?

You know, first I think I like what we have.

I think we've got good diversification, a good mix of businesses in a different state of evolution.

And so I think we can work with what we have right now.

Now going -- and then I think we need to optimize this further using all of the methods that I talked about, improving globalization.

Also taking each of our product lines within the portfolio and really challenging the penetration equation, looking at that in a very segmented fashion, a very granular fashion by country and making sure we really optimize that.

And it's not just -- people say that to go to emerging markets penetration in all of this price, in fact that isn't the case.

There are many other barriers and we've got to understand those carefully and then address them one at a time.

So that's one piece of it.

In terms of expansion, look, we'll always look at our mix of portfolios.

But as I mentioned, we're going to look both upstream and downstream at our mix of product lines.

And from existing therapy looking towards diagnostics and seeing what we have to do to improve patient selection we'll either do partnerships or we'll come up with some kind of business model that helps us create -- give us some competitive advantage in that area.

And looking downstream as well, looking at patient monitoring which we call Connected Care and making sure that we leverage the asset, which is essentially the implant that we have in a patient through the life of the patient as opposed to simply during the therapy -- during the implant procedure it is something we've also got to look at.

So those are areas of extension we might look at.

The other thing I'll add is that teams are executing.

Like I mentioned, we intend to enhance those and there's lots of opportunities there and PEAK and Salient are good examples.

There's a team in Surgical Technologies which is executing, there's an adjacency where we've got [low] share whereby acquiring these companies we get our technology platform and by using our scale in that local area, in that local market we think we can expand rapidly.

And Mike, just to add to what Omar said, I mean, as you know, we as a company continually are looking at the portfolio.

And as Omar said, we're comfortable where the portfolio is now, although we have made the decision, as we continue to announce, that Physio-Control we are looking to divest.

So that will continue to be a part of our process to continue to look at the portfolio in general.

But right now I think from our perspective we -- other than Physio we feel we have the right mix of business, as Omar said, and we're going to continue to focus on driving growth in those businesses.

And if I can follow up.

Gary, just one quick one on what you said which is are you any closer to knowing whether Physio is going to be a spin or a sale?

And then Omar, you talk a lot about what most of us would view as being kind of broad business discussion on things we'd like to be better at.

But when you translate that to financial goals for the Company, is it all about growth, is that your primary objective?

Or do you have other objectives relative to return on invested capital or other metrics that we should be focused on as well?

Thanks.

I think the primary driver right now is growth.

Because if I look at all my financial metrics that's the one that sticks out.

You know, a company -- if this company was growing even in the mid-single-digits it would be a totally different equation.

So everywhere else -- obviously there's room for improvement everywhere and optimization and we won't ignore that.

And given where we are with growth, we obviously will take a good look at our expense line all the time and we're very careful with that.

But we've got -- we think that there's an opportunity for growth and we're going to hit that.

And if we hit that that transforms this Company.

And so that in the end is my single biggest priority.

And, Mike, just to address the Physio-Control, we're going forward still with the process of going down the dual track of looking at whether it's both a sale or a spin.

There's been a lot of interest in Physio from the standpoint of a sale, so we're in the middle of that process right now.

And we'll have to wait and see kind of what the results are and what we end up doing ultimately with the business.

But right now we're still kind of in the middle of the process.

Thank you, Gary.

Kristen Stewart, Deutsche Bank.

Thanks for taking the question.

I was just wondering, Omar, if you could just address some of your commentary a little more deeply around R&D.

You talked about clearly not having the level of productivity that you would like to see within that business or within the portfolio.

So, what are some of the things that we should look at to best be able to tell what progress you're making on R&D productivity?

Should we see any sort of major restructuring initiatives announced?

And just more broadly on the cost structure, is there anything else that we could see beyond the restructuring efforts announced earlier this year?

No, if you want to look at a measure of R&D productivity look at our growth rates.

It's really as simple as that.

That's the way I'm going to measure it.

I think the amount we're spending is a reasonable amount right now.

Given the sorts of technologies we have got to invest in, given the opportunity that lies in front of us it's a reasonable amount of money we're spending.

But we're not getting the returns that this kind of spending deserves.

And so that's why -- we came down to the point that what we're working on in many ways aren't optimized to deliver growth and we've got to work that.

And so my single measurement -- my single most important measurement in R&D productivity is the growth that we'll get for the money that we're spending.

It's really very straightforward.

And we've got to accomplish that by selecting the right programs and delivering them with good execution.

So very simple, Kristen, it's just not going to be too complicated.

We're going to make sure that people are working the right projects, those projects deliver, the growth of the will and the will is to have the right economic value to our customers.

And if that occurs we'll get growth.

And once you have growth then the productivity will seem fine.

Okay, and then just more broadly on the cost structure, any changes that we can expect to just the distribution model particularly in the United States?

You know, again, we're always looking at it and I realize coming -- looking at this with some fresh eyes it does seem that the distribution model is expensive but necessary.

The people that we have out there actually perform functions which physicians depend on and the whole healthcare delivery infrastructure depends on it.

So we can't just break that arbitrarily.

Now within that we're going to look at efficiencies, always.

Especially in a challenging market environment we cannot afford to be sloppy about this or in some way inefficient.

So we're going to look at efficiencies, we're going to look at management [layers] and such things.

But we're not going to disturb -- I mean I respect very much that the delivery model that we have today depends on certain individuals and skills.

And we in fact have a competitive advantage because we have the mind share of a lot of the physicians because of the loyalty that we've built up with them.

I'm not going to break that.

So that's pretty, pretty critical for us.

So it's going to be more around the overall efficiency to which we deliver rather than the front-line people themselves because I think they perform a critical task in the whole healthcare delivery process.

Just to add to that comment, one of the things that Omar mentioned in his comments was back to the continuum of care on the monitoring -- the patient monitoring and on -- downstream from our products.

One of the other benefits that we get out of that obviously focusing on that monitoring capability is that hopefully will actually help to reduce our service burden and, back to Omar's point, make it more efficient.

We know we need to do that as far as the follow-up and that's necessary for our physicians.

But is there a way we can do it more effectively and efficiently and we think the whole concept of connecting care and patient monitoring clearly will enable us to provide that service at obviously a much less expensive cost than what we do currently.

Okay, thank you.

David Lewis, Morgan Stanley.

Good morning.

Good morning, David.

Omar, just thinking about some of your comments here, it sounds like you are comfortable with $1.5 billion or so on R&D, but you'd like to see that efficiency improve.

But you know it's (inaudible) supportive of tuck-in transactions.

And if you look at the last several years at Medtronic, tuck-in transactions just in the last few years have been in excess of $3 billion.

So I guess if you're comfortable with the $1.5 billion and you want to see more efficiency, are you also comfortable with how Medtronic has deployed capital externally?

And do you think there's enough rigor associated with how the Company is deploying that capital with these quote unquote tuck-in transactions?

No, I think there in fact we have to improve the rigor.

I think in broad terms I think -- I can understand the reason for that.

But I'm going to be a lot more strict, if you like, or selective about the teams, our internal teams that get these tuck-in acquisitions.

Because I want teams that are executing and can -- and I see an immediate value, financial value proposition which is clear and direct that we can deliver on.

So you'll see more in the way of leveraging teams that are executing in close adjacencies.

We're providing them with some technology or a little extra expertise in some way, it enables them to get rapid growth.

So I think that's the way in which I'm going to look at tuck-ins rather than if someone is behind somewhere and they kind of try to fix their problems with buying somebody and then there's a long technology around it.

We'll selectively do some of that too.

But I think the major priority will be -- I mean the two rules that I have this around this is, one, I've got to see a very clear value proposition.

That means I want to see -- I want to know when the return will occur and what needs to happen to get that return.

So good synergy plan.

And second, a team should have a track record of delivering so I can trust them to produce the results that we just talked about.

So, a lot more rigor around that.

And David, just to kind of add to what Omar said, I think one of the things I can tell you, he's challenged the organization even as we went through like the Salient and PEAK acquisitions was a lot more rigor around the focus on it.

But I would say it's more of almost a balanced view of what we're trying to do.

As you know, a lot of our tuck-ins over the last few years have been more early-stage development companies that are a little bit farther out as far as their big -- potential big opportunities but much farther out.

And so dilutive for a few more years.

I think Omar has clearly challenged us appropriately to say that we need to have a balanced view of this.

What are things that can deliver for us now and or in the near term?

And obviously that's some of the advantages like with Salient and PEAK; these are two companies that the revenue is there, the products are there and they're continuing to execute right now.

And so I think that's what you're going to see a little bit more is maybe a little bit more of a balanced view.

But -- and I can honestly tell you going through the Salient and PEAK acquisitions with Omar, and more rigor.

Just a quick follow-up.

And Gary, thank you for that color.

Just in terms of other expense, obviously reduced that number fairly materially this particular quarter.

I'm sure there are some offsets [in the] income statement.

Do you have any sense of the net impact in your mind of the reduction on operating expense given some of the offsets?

I guess -- I'm not -- quite understand what's your -- I'm missing the question, David.

Other income -- other expense guidance, Gary, change (multiple speakers)?

Oh, yes, well, as we indicated in -- I think maybe the piece you're probably missing is we did bring out the amortization of intangibles, the non-cash charge, in the P&L for the first time this quarter, as we indicated in the commentary.

So those two line items, the amortization and the non-op would be what we normally would have together.

And so that -- if you would go back and look at our guidance previously you would have to collapse those -- the guidance on both those two line items.

Okay, so you're basically just pulling out the amortization for the remainder of the year?

Right.

Yes.

What we've heard from several investors is that that non-cash charge, would be interested to know exactly what that amount was.

And so we broke that out in the P&L so people can see what that amortization of the intangibles is.

Before that would have been combined in the non-operating expense line.

Great, just wanted to be clear.

Thank you very much.

Bob Hopkins, Bank of America.

Good morning, can you guys hear me okay?

Yes we can.

Sure.

Great.

So welcome to your first call, Omar, and thanks for taking the question.

Thanks.

It's interesting to hear you clearly emphasize growth as a top priority.

And I'm wondering what that means for capital allocation as a priority?

Does that mean that going forward say a higher dividend is a lot less likely given your focus on growth?

Did that mean that going forward that the capital allocation thought process that Medtronic as laid out -- as spelled out previously might change going forward?

No, I think the capital allocation strategy that we have right now seems completely appropriate and I'm committed to the dividend strategy that we've been following.

I think that's also completely reasonable.

All I'm saying is that the capital that we're already investing into driving organic growth and to some degree inorganic growth that we're already allocated is not resulting in the types of growth that one would expect, that anyone would expect.

And I think we've got to fix that.

And I think that's enough.

And I think if we can get -- if we can get our fair share of growth out of the money that we're already investing we can certainly protect the current capital allocation towards dividends and so on.

There's no question about that.

Okay.

Am I clear about that?

Yes -- no, that's very clear.

I also wanted to ask you a question about Spine because you focus on growth, Spine obviously isn't growing.

So two quick things on Spine.

One, given what you're seeing right now and what you're hearing from the field how are confident are you that INFUSE won't have a negative impact on your Core Spine metal business going forward?

And then longer term, it's interesting, you guys are obviously the biggest player in Spine, and yet other companies like your competitors at J&J have articulated a strategy where they think they need to be big across every orthopedic vertical because you're going to see more bundling going forward, more vendor consolidation going forward, more hospitals contracting across all areas of orthopedics.

So I'm wondering your initial thoughts on Spine, again, given that it isn't growing, how you feel about INFUSE and the potential for it to impact metal.

And then just your strategy versus say a J&J which are obviously different?

I think that there's a short-term impact clearly and we can't hide behind that, I mean there clearly is one.

And over time we'll do the right things with INFUSE and we hope to in the end make it a growth business because I think it's got lots of value associated with it.

But we're going to do that the right way and make sure that people understand it for fact.

And so we're committed to that in the long-term.

Now in terms of broadening that business, fine, that's not a bad long-term philosophy.

But I need to see the team execute.

I need to make sure that we execute with what we have and understand that market, which is a very complicated market with all kinds of ramifications around conflict of interest, physician collaboration, how we go to market, how we even do innovation.

And we need to make sure that we're grounded in all of those areas in a good rigorous process which follows our basic principles of integrity and patient safety and so on and we just ground that properly before we think of expanding it into other areas.

And then really it's as simple as that, just walk before we run here.

So have what we have and stabilize it first.

No, that makes sense.

And it was more a question really of how you see the world developing longer term in terms of hospitals pushing more to bundle.

But then finally I just -- maybe you could add one other quick comment on that.

And then finally, just from a housekeeping perspective, at what point do you think you'll be able to communicate your thoughts on what the changes you plan on implementing mean for our Medtronic's long-term top- and bottom-line growth rate?

Is that something that we can expect from you by the beginning of calendar '12?

Or is it something that we need to wait a full fiscal year end for?

Or Just initial thoughts on when you might communicate more specifically on how all these changes might translate into growth objectives?

Well, first let me just completely answer on the Spine thing.

You know, in terms of bundling and total solutions and so on, our focus right now around that is actually surround the Spine surgeon with other technologies that we already have.

So it's not that we're isolated in that space.

We want to use our Surgical Technologies business, we want to use our navigation business which is a part of that, and our Spine implant business.

And collectively we think actually we have a better solution for the customer which is in many ways more efficient and provides direct economic value that the hospital buyer in fact will be sensitive to -- or responsive to.

So I think that's the approach we're taking towards total customer solutions and using what we have, deliver true value with that and make that process work well.

When all of that works well, sure, we'll think about expansion, but right now this is our focus.

Now in terms of future updates, look, we're going to give periodic updates and I think early in the year we'll have a more detailed look at our strategies.

We'll see how some of these things that we're now formulating roll out and then I'll get some initial feedback as to what kind of success they're having.

And then we can be more accurate in our projections.

And we'll have an analyst meeting next year as well.

So there will be plenty of opportunity in which we can give more details in our outlook.

Just to add to what Omar said, we're in the middle of kind of our strategic planning process right now and I think it's obviously appropriate for Omar to go through that, get a sense for all the businesses and the strategies and where things are at.

As he indicated, later on this fiscal year he'll have other opportunities to meet with investors and we're looking forward to figure out when we'll schedule another analyst meeting.

But we'll obviously have more updates at that point in time, Bob, but we need to work kind of through the strategic plan process first.

(Multiple speakers), thanks so much.

Yes, thanks, Bob.

We should go to the next question.

Joanne Wuench, BMO Capital Markets.

Thanks very much for taking my question, I have two.

One, Gary, can you quantify what the acquisition revenue was for the quarter?

And then second of all, Omar, you said something really interesting to me which was that your operating performance was unsatisfactory in the quarter.

There have been a number of realignments that Medtronic has put in over the last couple of years, could you address how you would make it satisfactory?

Thanks.

Well, I think overall, I mean the acquisition -- the only two acquisitions that are in the quarter are ATS and Osteotech that are in there.

And they're both, as we said in the commentary, the numbers were right around $20 million for each one of those as far as the impact on the quarter related to acquisitions.

I think, look, in terms of performance, I was simply commenting on the facts.

We had -- for the revenues that we received our expectation was to have some level of EPS growth which we didn't achieve for a number of reasons.

Things like our scrap performance -- surprises like that shouldn't happen.

Our gross margin was below what we expected it to be because of nonrecurring items.

These things are not satisfactory.

And so these are pretty basic in terms of just operating rigor, being proactive about identifying problems and finding offsets for them early in the quarter and making sure we deliver what we say we're going to deliver to ourselves.

And that's really where I was coming from on that.

In terms of alignment, we recently announced a realignment around global lines, but that really is more from a long-term outlook.

But in addition you know I've laid out systematic operating mechanisms through which we'll drive some of this rigor.

And through that over time I expect our business step by step will get better, more predictable and more sustained business performance.

So my comment was simply relating to facts around a flat EPS with 7% top-line growth.

So that's not the kind of business we want to be.

But based on what you've seen you still believe there's leverage in this model?

Yes, there is leverage.

I mean there are things that we can do still.

Right.

And, Joanne, just to add, I mean obviously, as we indicated, a lot of the benefit of the restructuring, for example, that we've even done, we didn't get all that benefit in Q1 because those people were still around.

The more important -- the bigger part of that benefit will start -- actually start hitting us in Q2.

And as we indicated, we're going to continue to focus on trying to drive operating leverage throughout the organization and we don't accept the fact that the earnings per share grew slower than revenue, that's not acceptable.

It's not in line with our full-year expectations for the year either.

So we clearly -- we're not happy with, as Omar said, with where we ended in Q1 and we have every expectation that will improve as we go through the year.

Thank you very much.

We have time for a couple more questions.

David Roman, Goldman Sachs.

Good morning, everyone, and thank you for taking the question.

Omar, I was hoping you could expand a little bit more on your comments regarding R&D spending.

Other companies in med tech have started to talk a little bit about the requirement or certain strategy to realign R&D spending to focus more on economic value which to one company involves a several hundred basis point increase in R&D spending.

Can you maybe talk about some of the costs that might be associated with some of the longer-term initiatives that you introduced this morning?

No, I think the cost actually is -- in that area is not going to be in R&D spending, in fact we'll get more productivity because I think the products that we'll work on will be more compelling and more obvious, the value of those will be more obvious to our customer.

So the productivity of R&D will go up.

I think the spending if any in that area will be more around evidence generation.

But I think it is more for realignment.

I think we already have people and resources.

And in fact, one of the things I was really impressed with with Medtronic was the quality of the resources that we have who understand healthcare economics as well as clinical value creation.

I think we need to realign those resources in a much more focused fashion, laser sharp focused fashion on creating economic value directly for our customers in a very systematic way and a very broad way and a consistent way for every program that we do whether it's incremental innovation or big innovation.

So I think it's more for realignment of resources.

I don't see extra costs being generated.

In fact, I see more productivity because I think what we work on will translate to sales much more quickly as a result of this.

Okay, and then maybe I think there have been a couple questions regarding bundling.

But maybe give us your perspective on what opportunities exist for Medtronic to leverage its diversified model in the hospital system.

It's something that your predecessor and others have talked about quite a bit, but we haven't seen any real benefit in top-line growth from the size and scale that Medtronic has to offer.

Can you maybe talk about how that might evolve over the next sort of several months and what initiative you might undertake to start to generate better leverage on the footprint that you do have given the extent to which we know hospitals are looking to consolidate vendors?

Yes.

I've got very specific thinking around that.

In the sense that I look more around our specific customers and this includes physician customers as well as our administrative customer.

The physician customer in the sense that actually we have -- when I mean our diversification I don't mean every business with every business, I mean adjacent businesses.

For example, in our Spine business where we can use Surgical Technologies and implant together to the spinal surgeon.

This is not to the administrator, to the spinal surgeon.

And use our diversification there in the sense that we've got surgical tools as well as the implants in one business which our competitors don't.

To use that as a competitive advantage for us to provide a better value for our customers.

So that's one form of bundling, using adjacent product lines.

You've got equivalent examples in our cardiovascular line where we may use technologies from one of our businesses and migrate it to another business and there perform a better product for that one customer.

So it's really -- the diversification I think has value when we focus on specific customers.

Now to the overall administrative customer, sure, there's value as well.

But in my mind actually in many ways, other than to say to the cardiac line manager, which is sort of a hybrid between a complete administrator and a physician customer, those are more limited.

I'm really looking at customer value in terms of clinical utility which will then translate to true economic value as opposed to, look, I've got this whole bunch of stuff and I'm one company, that's not where I'm coming from.

The overall breadth of Medtronic end to end, the value there in terms of size and scale is really more focused around manufacturing and our distribution footprint in terms of logistics and so on.

But in terms of true customer value, it really -- surrounding a physician with our technologies and looking at local adjacencies between our businesses as opposed to end to end between every business and every other.

Does that make sense?

Is it clear?

Yes, that's a very helpful, thank you.

Larry Biegelsen, Wells Fargo.

Thank you very much for fitting me in, taking my question.

One clarification if I may.

Earlier I think Bob Hopkins asked about the impact of INFUSE on Core Metal Constructs and I think, Omar, you gave a response regarding INFUSE, about it having a short-term impact.

I just wanted to make sure you're responding to the impact of INFUSE on Core Metal Construct business?

Yes, I think that's the short-term.

Yes I mean, Larry, this is Gary, too.

Obviously it's hard to say exactly what the impact is.

We know what INFUSE -- since the articles, as we indicated, was down midteens.

We didn't see clearly obviously -- on the Core Constructs we didn't see necessarily a drop off dramatically from where we had been all quarter.

It tracked relatively well.

But we think there clearly is some carryover impact on the Core Metal Constructs.

Although we think that will come back probably even faster than the INFUSE, because the reality is the Core Metal Constructs -- that we have other products that they can use other than INFUSE.

So we think that will -- we don't think it will have a long-term impact on the business as much as the INFUSE piece.

And again, on our assumptions right now we assume INFUSE will continue to be under pressure until some of this data gets out there from our other clinical trials in the (inaudible) study we talked about.

So we're comfortable that thin Core Metal Constructs that there was probably some impact.

To try to measure it is very, very difficult.

Yes, I think just the distraction factor --

Right.

-- (multiple speakers) an impact.

But (multiple speakers).

Thank you.

(multiple speakers).

Sorry to interrupt.

Omar, basically can you give us a sense of how long it will take for investors to notice the changes that you plan to make in terms of enhancing growth, first?

And second, you talked about having the right products at the right price to be successful in emerging markets.

Does that mean we might see more acquisition activity in some of these local markets or do you plan to develop these products internally?

Thanks.

First, I want to be clear, this is not just a matter of the right products at the right price, I mean that's a factor.

But I think for growth in emerging markets you need more than that.

You need to truly understand the barriers to adoption and also what the true needs in that market are.

And so sometimes the barriers of adoption are a matter of creating the right healthcare infrastructure or the right business model in terms of patient selection and so on.

Or even training your physicians.

So there's a lot of other factors there and we will invest in those areas.

So -- and some level of acquisition activity is probably going to be necessary because to gain critical mass quickly in some of these areas we simply can't hire quickly enough.

However, I do want to emphasize that I think one of our biggest advantages is in fact that we've got core technologies which local players in those countries don't and we intend to leverage that.

And we have to migrate aspects of this core technology dedicated for use in these emerging markets.

And we're going to create local centers through which we do that.

And to accelerate those platforms we might do some acquisitions, in other places we'll do it organically.

So we'll be opportunistic about it.

But I just want to make it clear that a global R&D platform is a very key element in our strategy for emerging markets.

Thank you.

Thank you very much.

(Operator Instructions).

I think we need to -- we were going to stop with questions at that point.

So maybe we'll just -- Omar will close with some comments.

Yes, I just want to just close out here and just reiterate one more time my top priority which is to align the management team around our single group goal of improving growth.

And I think you've all received that message from the tone of questions that I've heard.

And to do this, again, the three key imperatives that I've focused on -- improving execution, optimizing innovation and accelerating globalization.

And there's a lot of work ahead of us; I don't minimize that for one minute.

And I still have a lot to learn.

But I do believe that Medtronic has a number of strengths from which to build.

And we'll give you updates and I expect our performance to increase -- to improve incrementally quarter after quarter.

And we'll give you periodic updates on that.

But I truly am excited to be here and I'm extremely optimistic about what the future holds for this Company.

And with that and on behalf of this entire management team I'd like to thank you all again for your continued support and interest in Medtronic.

And I look forward to updating you on our progress in our Q2 call in November.

So, thank you very much.

Thank you, ladies and gentlemen, this concludes today's conference call.

You may now disconnect.