美敦力 (MDT) 2014 Q1 法說會逐字稿

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

At this time I would like to welcome everyone to the Medtronic's 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).

Thank you.

It is now my pleasure to hand the program over to Mr. Jeff Warren.

Please go ahead.

Thank you, Christy.

Good morning and welcome to Medtronic's first-quarter conference call 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 2014 first quarter, which ended July 26, 2013.

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 our revenue by business summary.

You should also note that that some 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 2013 and all year-over-year revenue growth rates are given on a constant currency basis.

With that I am 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 to everyone joining us today.

This morning we reported first-quarter revenue of $4.1 billion representing growth of 3% and non-GAAP diluted earnings per share of $0.88.

While our results reflect that we are broadly outperforming the med tech sector, they were at the low end of our annual revenue outlook.

However, we delivered on the bottom line, overcoming a number of challenges through strong operating discipline.

Looking ahead, our assumptions for the full fiscal year remain intact and we are confident in both our outlook for the remainder of the year and our long-term competitive position in the changing healthcare environment.

We continue to strengthen and geographically diversify our business in order to deliver consistent and dependable growth.

Overall our Q1 results varied by business and geography with strong performances in some areas offset by challenges in other parts of our business.

While our international operations performed well, growing 9%, our US business declined 1%.

This was driven by pressures in three distinct areas -- CRDM implants, PAINSTIM and Diabetes.

We expect full recovery in all three of these businesses within the fiscal year, so let me briefly walk you through the key dynamics.

In CRDM we continue to grow our global implantable revenues meaningfully faster than the overall market.

But our US implantable results were affected by lower levels of bulk sales because of the phase-in timing of our new high-power products.

Gary will provide details later, but the net outcome was that the bulk sales were at their lowest level in six years, affecting not only high-power but also our pacing business.

At the same time overall pricing dynamics improved and hospital inventory levels came down, which should improve our growth through the balance of the year.

We fully expect to have our new technology on contract in our major accounts during Q2 at a price that reflects the proven clinical and economic benefits of our latest devices.

This should result in a more typical level of bulk sales in the next quarter.

Turning to neuro, the business had a mixed quarter with strong performances in DBS and gastro-uro, both posting at or near double-digit growth offset by declines in US PAINSTIM.

We received FDA approval for our game changing MRI system much earlier than expected and made the decision to transition manufacturing in Q1 and absorb supply constraints in both previous and new product.

This [summary] of products are now launching in the US and while it is still early in the quarter they are being well received by our customers and the PAINSTIM business has resumed its growth.

In US Diabetes we had another challenging quarter declining 3%, but this was by no means unexpected.

As we mentioned last quarter, the business will remain under pressure until we receive approval of the MiniMed 530G system.

We continue to work diligently with the FDA so that we can make this important technology available this fiscal year.

Upon launch we expect our US Diabetes business to return to solid growth on the strength of our new products and our ability to recognize revenue we have deferred over the past few quarters.

Now let me discuss the rest of our business where there are a number of positive highlights.

In our spine business, core spine outperformed a relatively stable market as our new products and enabling technologies continue to make a difference.

Our US core spine business, excluding balloon kyphoplasty, grew 1% this quarter.

In BMP the decline appeared to be tapering and we saw relative sequential stability again this quarter.

The independent reviews of INFUSE commissioned by Yale University were completed in Q1, providing further evidence that for approved indications INFUSE is a safe and effective treatment option.

Later this fall we are expecting final publication of a retrospective analysis of a large national payor database investigating the cancer incidence in the real world usage of the INFUSE.

The manuscript of that study was recently published online, ahead of print, by the journal Spine.

The authors found no evidence that administration of BMP at the time of lumbar fusion surgery was associated with cancer risk.

Looking ahead, if current trends continue we expect our global [F5-14] BMP revenue to be down in the mid single-digits which would be a significant improvement from the 15% decline last fiscal year and would represent a 40 basis point to 50 basis point improvement to our overall Company growth.

In US coronary revenues in stent sales exceeded our expectations, solidly outperforming the market with 4% growth despite having annualized the launch of Resolute Integrity.

Our international regions continue to deliver solid results.

And as I mentioned earlier, revenue was up 9% driven principally by Japan and emerging markets.

Our international regions have now grown in the upper single-digits for 12 consecutive quarters, which is the type of consistent and balanced performance that they are looking for.

Japan had another outstanding quarter, up 29% driven by the continued success of our new products including the Advisa MRI pacemaker, Resolute Integrity DES and Endurant II AAA stent graft.

In Western Europe, while our growth was aided by advanced purchases of CoreValve in Germany, we did see another quarter of relative stabilization across the region.

Our European team is navigating through the various market dynamics to unlock potential growth opportunities using innovation as well as our breadth and scale to partner with different stakeholders.

Emerging markets grew 15% with strong performances from Middle East and Africa and Central and Eastern Europe regions, partially offset by pressure in Latin America and India.

Latin America was softer than expected this quarter as we transitioned from some of our dealers to direct sales.

Our India region declined as we faced challenges from government impose pricing reductions for stents as well as temporary disruption from the termination of a coronary distributor.

Looking ahead we remain focused and high teens growth in emerging markets in the near-term while striving for 20% or better over the long term.

We believe these markets will continue to provide an independent growth [vector] for us, becoming an increasingly significant source of consistent and reliable revenue over time.

Let's now turn back to the US region.

As I discussed previously, we expect to fully recover from the specific challenges we faced this quarter.

But we also have an additional number of exciting growth drivers which should significantly improve our performance in the US over the next seven quarters.

And it's worth spending a few moments to briefly highlight them.

First, in addition to the recently launched Viva CRT-D, Evera ICD and Advisa MRI pacemaker products, the CRDM business also plans to launch the Reveal Link late this fiscal year.

This is our next generation implantable loop recorder which will expand our offerings across the patient continuum of care.

In endovascular we are expecting approval of a dissection indication for the Valiant Captiva thoracic platform along with obtaining an SFA indication for the complete SE vascular stent in peripheral.

In spine, similar to our Solera platform in (inaudible) lumbar, we are planning a complete refresh of our anterior cervical plate family of products.

Starting with the expected approval of our Prestige LP Cervical Disc, we will launch a series of additional new products over the coming quarters.

Cervical makes up nearly a quarter of our US core spine business and these launches should enhance our competitive position.

In Surgical Technologies we are developing the next iteration of our highly successful O-arm imaging system, which will expand the number of supported clinical applications and therefore increase further its economic value proposition for hospitals.

I would also like to note that Cardiocom, the new service and solution acquisition that we announced last week, will also immediately start contributing to our growth.

I will discuss Cardiocom in more detail in a moment.

And finally, we are making excellent progress on three fundamentally new therapy areas that meaningful impact our outlook for FY '15 and beyond -- our CoreValve transcatheter aortic valve; our Simplicity renal denervation system for treatment resistant hypertension and our Admiral drug eluting balloon.

These products are market leaders in Europe and we are planning to launch all three of them in the US with CoreValve and Simplicity in FY '15 and Admiral in FY '16.

Regarding CoreValve, we have filed with the FDA all the extreme risk modules for our US pivotal trial and they are preparing for launch in the first half of FY '15.

Extreme risk data will be included in latebreaking clinical trials at TCT later this fall and the high risk data is expected to be presented at the ACC next spring.

With respect to Symplicity, we have completed patient randomization in our US Symplicity HTN-3 pivotal trial and we expect the results to be presented sometime in the first half of calendar year 2014, while targeting US approval in FY '15.

In addition, we expect the FDA and CMS parallel review program to reduce the time between FDA approval and full reimbursement.

For the Admiral DEB program, we completed enrollment in our initial SFA pivotal trial and have submitted our first PMA module.

Turning now to the rest of the P&L, our organization delivered on the bottom-line despite multiple pressures.

Revenue came in a little lighter than expected, we had higher than expected share count, there were significant FX headwinds and our gross margins were negatively impacted by specific quality issues.

Gary will cover all of these items in more detail later, but on a final point, I want to emphasize that while diverting resources to enhance our quality systems can be costly, ensuring the highest level of quality and regulatory compliance has and always will be a personal priority for me and a central focus of everything that we do Medtronic.

At the same time we continue to make progress on a number of key operating initiatives, including product cost reduction and working capital improvements.

We are in the middle of a $1.2 billion product cost reduction initiative which helps us successfully offset pricing pressure and stabilize gross margins.

In our working capital improvement program we have set a goal of increasing our inventory turns by 50% in FY 2017.

Not only does this instill good fiscal discipline, but it strengthens our already robust levels of free cash flow generation.

Over the next five years we expect to generate over $25 billion of free cash flow.

We remain committed to returning 50% of this to our shareholders through dividends and share repurchases, a commitment level we believe is appropriate given our current mix of US and international free cash flow.

We are constrained by US tax policy, which creates a negative incentive for us to repatriate cash to the US.

The remaining 50% gives us the flexibility to make the necessary investments for sustainable growth.

We continue to be very disciplined in how we deploy our capital with a strong focus on returns.

As we have said in the past, we expect any M&A transaction to surpass our low-key risk-adjusted hurdle rate and we do not expect to these investments to be dilutive to shareholder EPS growth expectations.

We've spoken in some detail regarding our ongoing strategic commitment to new therapies, but I want to conclude by noting that we continue to take meaningful actions to realize our transformational opportunities of globalization and economic value.

We believe successful execution in both of these areas would position us to win in the changing healthcare marketplace and will be instrumental in establishing durability in our long-term performance while creating potential upside to our baseline expectations.

Consistent with our focused strategy to generate economic value for multiple stakeholders, we are specifically exploring two areas where we can offer important solutions for healthcare systems around the world -- disease management and hospital efficiency.

First, in disease management we announced the acquisition of Cardiocom, a leading developer and provider of integrated solutions for chronic disease management.

Cardiocom is an example of how we can pair our existing market leading therapies with a set of complementary services and technology solutions that treat broader patient populations across the care continuum.

Our combined offerings have the potential to concurrently improve outcomes and lower costs by reducing hospitalizations, improving remote clinical management and increasing patient engagement.

These benefits are particularly compelling to a wide set of stakeholders including governments, payors and hospital systems because they provide enhanced clinical and economic value over the long term.

Our initial focus with Cardiocom will be heart failure and hypertension, but we're building long-term plans to offer complete solutions in our key chronic disease verticals of cardiovascular and diabetes, striving to not only improve individual patient lives but also ensuring that the overall healthcare ecosystem remains viable.

The second area where we expect to generate significant economic value for our customers is hospital efficiency.

As we continue to work closely with hospital administrators around the world we understand that they are deeply concerned with driving efficiency and optimizing the overall cost of operations.

We are working together to develop innovative solutions for these problems including implementing process improvements, adopting new financing models, deploying new purchasing and inventory management strategies and outsourcing certain functions.

In the coming weeks you will hear more about our hospital efficiency efforts and I look forward to discussing them in more detail as they are announced.

In closing I would like to add that the challenges facing healthcare are not easily solved, but we believe we are uniquely positioned to increase our competitive advantage in the changing healthcare landscape by offering solutions that improve the financial viability of global healthcare systems.

Our market-leading products, in hospital footprint, healthcare economics expertise, lean Sigma resources and strong financial position give us unprecedented breadth, global reach and scale and allow us to offer broad valuable solutions.

We are determined to transform Medtronic from being a primarily device provider today into the premier global medical technology solutions partner of tomorrow.

Let me now ask Gary to take you through a more detailed look at our results before we take any questions.

Thanks, Omar.

First quarter revenue of $4.083billion increased 2% as reported and 3% on a constant currency basis after adjusting for a $55 million unfavorable impact of foreign currency.

Q1 revenue results by region were as follows -- growth in Middle East and Africa was 24%; Central and Eastern Europe grew 21%; growth in Asia-Pacific was 20% driven by 29% growth in Japan; growth in greater China was 15%; Latin America grew 12%; and Western Europe and Canada grew 2%; while the US declined 1% and India declined 7%.

Emerging markets grew a combined 15% in Q1 and represented 12% of our total sales mix.

Q1 diluted earnings per share on a non-GAAP basis were $0.88, an increase of 4%.

Q1 GAAP diluted earnings per share were $0.93, an increase of 12%.

This quarter's non-GAAP pretax adjustments included -- an $18 million restructuring charge, the final charge related to the initiative we announced last quarter; a $40 million cash charitable donation to the Medtronic Foundation; and a $96 million gain primarily related to the change in fair value of our Ardian contingent consideration payments, which are based on annual revenue growth through FY '15.

Given the current slower commercial ramp in Europe and the extended US regulatory process, we now expect our contingent consideration payments to be reduced as additional value of the Ardian business has now shifted beyond the final revenue milestone date.

In our cardiac and vascular group revenue of $2.160 billion grew 4%.

Results were driven by solid growth in Structural Heart, pacing, endovascular, AF Solutions and coronary, partially offset by a modest decline in US ICD's.

CRDM revenue of $1.193 billion grew 2%.

Worldwide ICD revenue of $655 million declined 2%, roughly in line with the market.

In the US our ICD revenue declined 4% below the market which we estimate declined 2%.

As Omar mentioned, due to the phase and timing of our new products there were many instances where we were not able to get a new products and their associated pricing premiums on new hospital contracts before the end of the quarter.

And we were generally unwilling to offer bulk discounts for our latest technology off the previously contracted prices.

Concurrently, some hospitals chose not to make stocking purchases ahead of our new products being available on their new contracts, which led to meaningful lower levels of bulk sales in the quarter.

At the same time our US ICD implant dynamics changed markedly during the quarter following the mid-quarter release of Viva and Evera, with a daily implant growth rate shifting from negative to positive in the back half of the quarter.

Our lead to part ratios remain at elevated levels and our US ICD pricing continued to show signs of relative stability declining 2% year over year as both our Aviva CRT-D's and Evera ICD's received price uplift in the market.

As Omar mentioned, bulk sales were significantly lower in Q1 and we are responsible for our entire revenue decline as daily implant revenue actually grew 1%.

We believe our top technology tears in high-power are now significantly differentiated in the marketplace, which allows us to minimize pricing pressure and stay very disciplined on new product pricing.

We are seeing good market adoption of Aviva and Evera, Aviva has our proprietary adaptive CRT algorithm which significantly reduces RV pacing and has been clinically proven to improve response rates of CRT therapy, resulting in improved device longevity and a reduction in heart failure hospitalizations.

In addition, our Attain Performa Quadripolar lead along with our VectorExpress implant optimization algorithm is driving differentiated CRT-D market share capture in Europe.

And will be available in all major markets outside of US by the end of the fiscal year.

Finally, both Aviva CRT-D and Evera ICD contain enhanced shock reduction algorithms, battery and circuit design improvements to extend device longevity and the unique PhysioCurve design which meaningfully reduces device size and enhances patient comfort.

Pacing revenue of $474 million grew 6%, outperforming the global market by 450 basis points.

Our international pacing business grew 14% driven by the strong customer demand for our Advisa MRI pacemaker in Japan.

AF grew in the midteens, driven by over 20% growth of our Arctic Front Advance Cryoballoon System as customers continue to adopt the second-generation system due to its more efficient, safe and effective treatment for paroxysmal AF.

Coronary revenue of $435 million grew 3%.

Worldwide DES revenue in the quarter was $273 million including $105 million in the US and $25 million in Japan.

Resolute Integrity's deliverability, positive data regarding early dual antiplatelet therapy interruption, unique FDA labeling for diabetes and long-term clinical performance is receiving strong customer acceptance globally, despite competitive product launches of next-generation products.

Resolute Integrity is also the one product line that is featured in virtually every one of the CVG multi-line product contracts we execute.

In renal denervation, while Q1 revenue continued to be modest, we are investing in developing referral networks, reimbursement, technology development and clinical and economic evidence to further strengthen our leadership position for this large long-term opportunity in hypertension.

We are now anticipating CE Mark for our next-generation Simplicity Spiral Multi-Electro Catheter before the end of the fiscal year.

On the clinical front we received IDE approval from the FDA earlier this month for Symplicity HTN-4, which is focused on expanding the indication to include uncontrolled hypertension patients with systolic pressure between 140 and 160 millimeters of mercury.

In Structural Heart, revenue of $313 million increased 13% driven by strong growth in our transcatheter valve franchise, including a meaningful acceleration of advanced customer purchases of CoreValve in Germany.

Excluding this impact we estimate the international transcatheter valve market grew in the upper single-digits.

In Germany the Spenser patent injunction ruling has been a significant disappointment to customers who are concerned about having access to our market-leading trans terminal technology and the increased difficulty they will experience in accessing our unique valve size, catheter size and indications for use options.

We respectfully disagree with and have appealed the court's decision.

We ultimately believe that the Spenser patent should be found to be invalid.

And we along with many others are challenging its validity at the European patent office.

In Q1 we became the first company with CE Mark approval for valve and valve procedures using CoreValve and CoreValve Evolut.

We also continued the launch of our Engager valve in Europe, our entry into the transapical segment which represents approximately 20% of the European [tabbing] market.

In addition, the first implant of Engager direct aortic occurred in July and we expect CE market approval for this product in FY '15.

In endovascular, revenue of $219 million grew 7% with solid growth in both our aortic and peripheral businesses.

In aortic strong growth continued in Japan with the launch of our Endurant to AAA stent graft system.

Our thoracic products grew over 20% on the strength of the Valiant Captivia in the US and international markets.

In peripheral our market leading drug eluting balloons posted strong double-digit growth.

Now turning to our Restorative Therapies Group -- revenue of $1.554 billion grew 3%.

Results were driven by growth in Surgical Technologies, Neuromodulation and core spine, partially offset by declines in BMP.

It is worth noting that starting this quarter Diabetes will be reported as a separate group and is no longer part of the Restorative Therapies Group.

Spine revenue of $765 million declined 1%.

Core spine revenue of $641 million grew 1%.

Excluding BKP our core spine business grew 3% globally and 1% in the US, outperforming the market.

The US core spine market continues to show signs of stability with a low single-digit price mix decline and flat procedure volumes.

Our new procedures and technologies, including our Solera posterior fixation system, Bryan artificial cervical disc, premium DBMs and AMT [interbody] devices are driving growth in our core spine business.

We are also differentiating our spine business from the competition through enabling technologies that we leverage from our Surgical Technologies business, including O-arm Imaging, StealthStation navigation and POWEREASE power surgical instruments.

Hospitals are investing in our capital equipment for spine surgery as they see clear value from improved surgical precision and more efficient procedures.

We are still early in realizing this large differentiated opportunity in spine which is resulting in increased revenue and share for spinal implants, as well as solid growth of our capital equipment in our Surgical Technologies business.

Our Kanghui orthopedics business in China continues to perform well with its revenue growing in excess of 20% and offsetting the lost revenue from our former Weigao joint venture.

Turning to Surgical Technologies, revenue of $361 million grew 13% with double-digit growth in all three businesses, EMT, neurosurgery and advanced energy.

The strong performance in EMT is attributable to solid growth in image guided surgery and monitoring, as well as the successful launches of Trivantage EMG tube and the Indigo high-speed otologic drill.

Neurosurgery which grew 12% was driven by capital upgrades of the StealthStation S7 surgical navigation system.

Advanced energy had another outstanding quarter, as its strategies to focus on its four core markets of orthopedics, spine, breast and CRDM replacements resulted in growth of over 20%.

Turning to Neuromodulation, revenue of $428 million increased 3% on solid global growth in DBS and Gastro/Uro.

DBS delivered another strong quarter driven by double-digit new implant growth in the US.

In addition, data from our early Stim trial which was published earlier this year in the New England Journal of Medicine is generating significant interest in international markets.

In gastro-uro we had strong mid-teens growth of InterStim therapy in Western Europe.

In PAINSTIM results came in below our expectations this quarter as customers awaited the launch of the RestoreSensor SureScan MRI spinal cord stimulation system in the US.

This product launched earlier this month and we expect this innovative technology to drive growth in share gains in the coming quarters.

Now turning to our Diabetes group, revenue of $369 million grew 1%.

In international markets growth was 8% as we continue to see strong adoption of the Veo pump with low glucose suspend and Enlite CGM sensor.

In the US revenue declined 3% as customers continue to anticipate FDA approval of the MiniMed 530G, the US version of this pump and sensor.

We have now deferred $33 million of revenue, including $11 million in Q1, as some customers plan to upgrade to the new technology when it is available.

We have diverted significant people and resources to do everything possible to address the FDA's quality system findings quickly and effectively.

This diversion is negatively affecting the timing of our upcoming product launches and we now expect our next-generation pump platform, the MiniMed 640G to launch in international markets in the second half of this fiscal year.

Turning to the rest of the income statement, the Q1 gross margin was 75%.

After adjusting for a 30 basis point negative impact from foreign-exchange the Q1 gross margin on a non-GAAP operational basis was 75.3%.

It is also worth noting that the gross margin includes significant spending related to resources diverted to address quality issues in Neuromodulation and Diabetes, which negatively affected the gross margin by 40 basis points.

Looking ahead we would expect the gross margin for fiscal year 2014 to be in the range of 75% to 75.5% on an operational basis.

Third-quarter R&D spending of $360 million was 8.8% of revenue.

We continue to invest in new technologies and evidence creation to drive future growth.

We would expect R&D expense in fiscal year 2014 to be around 9% due to the trade-offs we are making to partially offset the device tax as well as shifting R&D resources to resolve pending quality issues which gets recognized in cost of goods sold.

First quarter SG&A expenditures of $1.416 billion represented 34.7% of sales.

After adjusting for the 20 basis point negative impact from foreign-exchange, Q1 SG&A was 34.5%.

We continue to focus on several initiatives to leverage our expenses.

In FY 2014 would expect to drive 30 to 50 basis points of improvement, which would result in SG&A in the range of 33.8% to 34% on an operational basis.

And it is worth mentioning that we typically see most of our leverage in the fourth quarter.

Amortization expense for the quarter was $86 million.

For FY '14 we would expect amortization expense to be approximately $85 million to $90 million per quarter.

Net other expense for the quarter was $44 million.

Net gains from our hedging program were $18 million.

As you know, we hedge the majority of our operating results in developed market currencies to reduce volatility in our earnings from foreign-exchange.

However, recent movements in unhedged currency exposures is creating increased headwinds for the remainder of the fiscal year.

Based on the current exchange rates we expect FY '14 net other expense to be in the range of [$180 million] (corrected by company after the call) to $220 million which includes an expected $120 million impact from the US medical device tax.

For Q2 FY '14 we expect net other expense to be in the range of $45 million to $55 million based on current exchange rates.

Net interest expense for the quarter is $40 million.

At the end of Q1 we had approximately $11.3 billion in cash and cash investment and $11.2 billion in debt.

Based on current rates we would expect FY '14 net interest expense to be in the range of $150 million to $160 million.

In Q1 we generated $891 million in free cash flow.

As Omar emphasized, we are committed to returning 50% of our free cash flow to shareholders.

In Q1 we paid over $280 million in dividends and in June our Board approved an 8% increase in our quarterly dividend which puts our payout ratio at approximately 30% and is the 36th consecutive year we have increased the dividend.

We also repurchased over $1.3 billion of our common stock.

As of the end of Q1 we had remaining authorization to repurchase approximately 81 million shares.

First-quarter average shares outstanding on a diluted basis 1.021 billion shares.

Our fully diluted share count is higher than expected primarily due to the recent movement in Medtronic's share price.

Consequently, we've seen an increase in stock options being exercised, which has resulted in more shares being issued.

However, it's important to note that the cash we receive from these stock-option redemptions, which was [$570 million] (corrected by company after the call) in Q1, was used to repurchase shares in the open market to offset some of the dilutive impact.

These share repurchases are incremental to our commitment to return 15% of our free cash flow to our shareholders.

Let's now turn to our tax rate.

Our effective tax rate in the first quarter was 17.3%.

Excluding the impact of unusual items, our non-GAAP nominal tax rate in the first quarter was 19.5%.

Included in our tax rate for the quarter was $3 million net benefit associated with the finalization of certain tax returns and changes to uncertain tax position reserves for the quarter.

For fiscal year 2014 we continue to expect a non-GAAP nominal tax rate in the range of 19% to 20%.

Let me conclude by providing our fiscal year 2014 revenue outlook and earnings per share guidance.

Based on the stabilization trends in our businesses, as well as our first-quarter performance, we continue to believe that full-year constant currency revenue growth of 3% to 4% remains reasonable for fiscal year 2014.

While we do not predict the impact of currency movements, to give you a sense of the FX impact, if exchange rates were to remain similar to yesterday for the remainder of the fiscal year, then our FY '14 revenue would be negatively affected by approximately $190 million to $230 million, including a negative $40 million to $60 million impact in Q2.

Turning to guidance on the bottom line, we continue to expect FY '14 non-GAAP diluted earnings per share in the range of $3.80 to $3.85, which implies annual earnings per share growth of 6% to 8% on an operational basis after adjusting for certain tax benefits that we received in FY '13 as well as the headwinds from the medical device tax and incremental interest expense in FY 2014.

It is also worth noting that while we do not provide quarterly guidance, when looking at the quarterly earnings per share consensus and the continued uncertainty on the timing of Diabetes MiniMed 530G approval, as well as the FX headwinds, we would not be surprised to see some models shift $0.02 to $0.03 from Q2 to Q4.

As in the past, my comments on guidance do not include any unusual charges or gains that might occur during the fiscal year.

I will now turn it back over to Omar who will conclude our prepared remarks.

Omar?

Thanks, Gary.

Before opening the lines for Q&A let me briefly conclude by reiterating that in the end Q1 was a solid quarter despite a number of challenges.

While 3% top-line growth is consistent with the outlook we provided at the beginning of the year, it was softer than we expected and fell just below our mid single-digit baseline goals.

However, I also want to emphasize that our team executed well to deliver on the bottom-line and looking ahead we remain confident in our outlook for the remainder of the year.

We continue to focus on strengthening and geographically diversifying our business so that we can deliver consistent and dependable growth.

Although there will always be pressures in the dynamic environment, we intend to execute in areas that we can control, including growing our markets and building our business so that it is resilient enough to offset the variables that are beyond our control.

And over time we are striving to reliably deliver on our baseline expectations which are -- consistent mid single-digit revenue growth, consistent EPS growth 200 to 400 basis points faster than revenue and returning 50% of our free cash flow to shareholders.

At the same time we are positioning Medtronic to play a leading role in global healthcare by executing on our transformational opportunities of new therapy development, economic value and globalization.

We believe that crisp execution of both our baseline and long-term growth strategies, combined with strong and disciplined capital allocation, will enable us to create long-term dependable value in healthcare.

With that we would now like to open the phone lines for Q&A.

In addition to Gary I've asked Mike Coyle, President of our Cardiac Investor Group, and Chris O'Connell, President of our Restorative Therapies Group, to join us again for the Q&A session.

We are rarely able to get to everyone's questions, so we respectfully request that you limit yourself to only one question and, if necessary, one follow-up so that we can get to as many people as possible.

If you have additional questions please contact our investor relations team after the call.

Operator, first question, please.

Matthew Dodds, Citigroup.

I wanted to focus first on pricing.

Omar and Gary, you both highlighted CRM sounded a little better in the US, down 2%.

Can you comment on what pacing was in the US?

Maybe what stents were?

And then broadly how Europe is behaving?

I'm trying to see if some other comments from your competitors about pricing looking a little better, if you agree with that view broadly?

I will let Gary --.

Yes, I mean, Matt, overall, as you indicated, we saw a little bit of -- obviously in ICDs we saw a tempering of the kind of decline was down a couple percent.

Pacing was also kind of down in that low single-digits and so we saw improvement there.

Stents I think have been -- it varies kind of around where all those -- they have been probably closer and more in the high single-digits as far some of the declines there depending on what your geography you are in.

So we continue to see pricing declines in -- on the drug eluting stent side that are pretty consistent with what we've seen over the last several quarters.

But clearly with the new product launches we had both in pacing and on high-power, we are seeing a little bit of tempering on the pricing pressure.

And then just one quick ICD question, when you look at the bulking, Q4 didn't factor into Q1.

Is the comments from the call you got a hit in Q1 but you expect to improve in Q2 or do you think Q4 there was some additional bulking on that quarter that impacted Q1?

I think largely you are correct, I think it was mostly Q1, isolated to Q1 itself.

And the dynamics between Q1 and Q2 as opposed to Q4.

Yes, Matt, as we look through, I mean we clearly saw the end of the quarter we know inventory levels dropped based on what we saw as far as implant usage everything else.

And so we don't believe that there was a big impact in Q4, obviously are Q4 was a very strong quarter as you all know but we don't think that that had impact on the quarter, we do believe we know from, as we indicated in our comments, that a lot of these new products were not on contract yet and we weren't willing to put discounts on the previously contracted pricing.

And so, as a result of that we just didn't see the level of bulk purchases during the quarter that we would normally see and we know inventory levels are down as a result of that.

So that bodes well for the future, we think it bodes well not only for pricing but obviously also we would expect the bulk purchases to come back to more normal levels as we go through the rest of the year.

Great.

Thanks, Gary.

Thanks, Omar.

David Lewis, Morgan Stanley.

Maybe just two quick questions.

Gary, just in terms of the German injunction impact for CoreValve it look to us like about a $25 million impact.

Can you kind of give us a sense of what the impact was in your mind in the quarter?

And how we do think about that number heading into next quarter?

Should we assume a significant drop off for still inventory levels are maintaining a relatively high?

And then I had a quick follow-up.

Well, again I will (inaudible) we don't know obviously, David, exactly how much benefit we received in the quarter from the advanced purchases.

We know the customers were buying in advance of anticipated injunction.

And so as a result of that that clearly had a benefit in the quarter.

Do note we know our results were higher than was going on in the market during that period of time.

The numbers are anywhere from (inaudible) is a little high, but overall we are probably somewhere in that ballpark.

The reality is we did have extra revenue during the quarter.

As we look into Q2 and Q3 it will obviously depend on (inaudible) even in the quarter we continue to be selling until the injunction is in effect and we will continue, so there will be some impact obviously in the quarter.

Whenever the injection -- when that occurs, if that occurs, then obviously it will have an impact going forward and it will be spread out over that period of time until that -- we get that resolved.

But at this point in time obviously there was an advantage in Q1 we are aware of, so inventory levels obviously are higher on that product currently, inventory levels on CRDM obviously are lower in the US but clearly on CoreValve they are higher as physicians bought in anticipation of a potential injunction.

Okay.

And then maybe, Omar, just more of kind of a strategic question.

All throughout the quarter we heard the Chinese government taking greater action to look at price scrutiny in obviously the domestic market.

Most of that was directed at pharmaceutical providers but there has been some around medical device manufacturers.

Historically when we've seen this action by the government we have seen an impact on growth rates in China for drugs specifically but also somewhat for devices.

Any sense of what impact some of the government's actions are having on your business or is there any concern that you would see an impact on your business later on in the year?

Thank you.

Well, look, we are watching China closely for obvious reasons.

Now the first thing that I would like to say is that in no way does any of this activity shake our belief that this is a market we have got to win in and we've got to me committed to and we've got to understand locally how it operates.

Now you are right that the Chinese government is looking at pricing very carefully and probably as they should.

But in our view most of that is directed around the go-to-market models using distributors which we are looking at very carefully.

It is a market where we eventually have to have more direct presence with the customers themselves.

Now the way we have traditionally gone to market, we have used distributors for a variety of reasons, a lot of those are extremely necessary.

And so we don't want to make any dramatic changes, but we are, as we are doing in the most every other country in the world, examining our distribution models very carefully.

That is the action that we are taking and at the same time we are working very closely with the government to help put in investments about healthcare in China can be dramatically improved.

So again, we are watching the situation closely, particularly around the distribution channels, but we don't expect at this stage any dramatic moves anytime soon.

And again, as I said, we are just watching it.

Great, thank you very much.

Mike Weinstein, JPMorgan.

First question is just a follow-up on the CoreValve discussion.

When do you expect there to be a validity decision in Europe that would impact Germany?

Mike, do you want to take that?

Yes.

Our expectation is next spring we would have a decision in that hearing.

Okay.

Omar, on our call in June you talked a fair amount about building a comprehensive presence across all of the different platforms at Medtronic -- Cardiovascular, Restorative and Diabetes.

Can you maybe just spend a few minutes talking about that and how in particular in Diabetes and Restorative that you think about how you want that business to look over the next let's say three to five years and how you want those to evolve?

Yes.

I think that is a fair question, Mike.

Just to give a little background, what I had said is that our long-term strategy as we build the business out both organically and in organically is to do -- progress around two definitive directions.

The first is to build out comprehensively the three big clinical areas that we've identified as our focus areas -- Cardiovascular, Diabetes and Restorative Therapies.

The second was to expand around the continuum of care in each of these areas.

And so, you will see us moving in those concurrent directions as we go forward.

Now in response to the specific question, in Diabetes, for example, today we are a niche player, so to speak, in type I diabetes and patients who require insulin.

We see that we've got a platform which enables us to step into a broader range of Diabetes patients who largely have type II first through our call center presence which is very significant, which we can broaden to apply to a broader patient group and the acquisition of Cardiocom actually helps in that endeavor.

Second, through our continuous glucose monitoring technology, which we feel is -- as we improve its technology we can expand to more and more patient types.

And then thirdly, we continue to look at value products and our expansion into emerging markets which will enable us to come out with lower and lower cost pumps over time which should, again, address a broader set of population.

I think in these areas we expect to grow organically as well as in organically and expand our footprint into a broader range of diabetic patients.

In terms of Restorative Therapies, clearly our strength is our approach into that segment through neuroscience and neurology, which has been our core expertise driven by DBS and other Neuromodulation products.

From there we take advantage of the fact that in the US at least most of the neurosurgeons are spinal surgeons as well and from that we have gone into spinal implants, as you know, and have built a big franchise there.

We are looking around that space both in orthopedics potentially, but also in other areas of neuroscience, in ENT which have overlapped that broad category.

Again, both organically and inorganically we are looking at these areas to try to fill these gaps, and we see considerable opportunity in both of those areas.

And at the same time we are also looking for patient continuum of care movements in all three of these areas where we can look at patient management post-treatment and also diagnostics as it is specifically related to the therapy that we are talking about.

One follow-up if you don't mind on CoreValve as well.

The filing of the Extreme rick module, do you know if the FDA has accepted that at this point as an independent filing?

Mike, do you want to take that?

They certainly accepted the submission.

How they are going to treat the approvals they have not decided yet.

But as we have said all along, as the data becomes available we would submit it and its modules and we have now completed the extreme risk submissions.

Thanks, Mike.

Bob Hopkins, Bank of America.

So two quick questions, one on ICDs and one on emerging markets.

First just on ICDs, is it -- am I in the ballpark in estimating that the issue around bulk purchasing this quarter maybe impacted you by $15 million to $20 million, is that roughly right?

Bob, this is Gary again.

It's hard to get real specific, but the reality is if you look at the normal levels, that is probably even a little bit light, it's probably a little bit more than that in fact that it impacted it.

It's obviously hard to say because it will range -- there is a range that we have.

But if we look at kind of a normal level that is even probably light.

Okay, thank you.

And then on emerging markets, I just want to make sure I understand exactly what you are saying, because obviously emerging markets are now driving well over half the total Company's growth.

So could you just go into a little bit more detail on, for example, what happened in India this quarter?

And then also just -- what exactly are you expecting for emerging markets growth in 2014?

And to the previous question, is 2014 a year, given what is going on in China, where you think there is a little bit of extra risk to that growth rate this year and then more confidence long-term?

I just would love you to put emerging markets in better perspective.

Well, look, our outlook for emerging markets overall has not changed.

We are confident that we can deliver between 15% and 20% quite reliably and are striving to make that thing 20% or more.

And in certain regions we actually have shown consistency at over 20% for an extended period of time.

In China we haven't been able to do that although our growth rate has consistently been 15% or better and touched 20% every so often.

And China is the biggest market so we are very focused on driving that up as quickly as possible.

Our plans actually are looking at increasing China's performance on a steady basis through the coming quarters and into next year.

So if anything we are expecting it to get closer to 20% rather than the other way around.

There may well be issues to do with government policy and all of that but in general healthcare is a tremendous need in China and access to healthcare is a big focus of the government.

And we are making investments within China, as you know, in our Kanghui acquisition, we have done the Life Tech partnership as well, as well as put in direct sales people in certain regions to access lower tier or second-tier cities.

So we are going full bore in China and we expect the growth rate in fact to gradually steadily improve over the next several quarters.

So we are pretty confident about our China outlook as well as overall emerging markets outlook.

Now to do with India and a little bit to do with Latin America I think there are two distinct issues there.

Latin America was clearly one in which we are transitioning from indirect to direct sales in certain countries and that happened in the middle of the quarter and as that resolves itself, which it will, I guess this quarter or next, we should be on track and not really be seriously impacted.

In India the bigger issue, other than the distributor transition, which we also went through for other reasons, is that the government has imposed a very low ceiling on pricing for some of the stents.

Now we are working with the government and we are working with customers there to come up with a tiered strategy through which we can address that market.

But in the first -- and in the last couple of quarters I would say it was a dramatic change to the system and essentially froze sales for not only us but all multinationals.

We think we are turning that around and going forward we expect that situation to ease a little bit.

On India as well it is important to point out that although coronary being the biggest business suffered a pretty big headwind because of this, the rest of the business is all of them from CRDM to spinal to Surgical Technologies, all of them actually have been growing strong double-digit and are continuing to take a bigger and bigger share of our India business.

And over time that will start to mitigate any volatility that we'd see in this tense market.

So again, our overall emerging-market strategy is not changing.

We are expecting to grow fairly steadily in the high teen -- mid to high teens and eventually to 20% and beyond.

And we expect to report regular progress as we go forward.

Great, thanks for the color.

Kristen Stewart, Deutsche Bank.

Just wanted to focus in on the Diabetes business.

I guess first I was just curious as to why you are not breaking out from Restorative Therapies, if it is foreshadowing any potential consideration that you guys might be looking to potentially I guess spin it off or something else?

And then secondly I guess just with the 530G you had mentioned in the prepared remarks, Omar, that you are expecting approval in the fiscal year and I had thought previously expectations were for the end of the calendar year.

So I just wanted to double check on that and just kind of get your updated thoughts on timing there.

Yes, first the separation out of Diabetes, I mean that is driven purely and completely by the consideration of how our customers are situated.

And like I said, we are focused around three customer groups -- Cardiovascular, Restorative Therapies which broadly encompasses neurology and orthopedics, and associated technologies, and Diabetes, which is a different customer.

That is the reason why we broke it out into three so that it will give us more focus in three of these distinct areas so that we can drive both inorganic and organic growth in each of the areas in the way that I described.

So anything in diabetes is going to fill out the platform and [approach] more and more patients because we consider that to be a key area of growth for us.

So I want to make that very clear.

That the purpose of this was just looking at our customer base in a logical and rational way and grouping them around certain types of customers who will look at common components of our technology and therefore through that we can take advantage of our size and scale in addition to being really focused around those customers.

Okay.

In terms of the approval, we have been saying the fiscal year I think since last quarter I think prior to that -- we were expecting it earlier, we might have said so -- but ever since last, the end of Q4 we have been saying this fiscal year.

That has not changed; we think that we in fact can get this on the market before the end of the year.

Again, this is not completely in our hands so I cannot say definitively because there are a lot of variables here.

But we are working closely with the FDA and we are making progress and we are pretty confident that we can get this released within the fiscal year.

And when we do we expect immediate traction both from an acceptance of the new product, which has had considerable success outside the US where it is available.

And also from the recognition of our deferred revenue that we have had for the past over two quarters now.

So that is the overall outlook, Kristen.

Okay, and then at what point I guess with the 530G, if that does kind of slip further, where might you make a decision just to perhaps move forward with I think it is the 640G?

No, I think we are not considering that yet.

We feel that at this stage the 530G is well on its way to approval and we think it is an unlikely scenario that we would have to skip it completely.

I think the patient benefits of that have been proven to be quite dramatic both in promotional use in Europe and as well as some recent papers that have been published in the New England Journal I think it was last quarter.

And so, we are pretty committed and the FDA is working together with us to get this to market.

So I think skipping it is a very unlikely scenario at this point.

Yes, Kristin, just to add to Omar's comment, I mean the FDA's issues are not around the 530G itself, I think they are also very supportive that it is a good product.

Obviously it is more around our quality systems which is what we are having to do the work on.

So I agree with Omar, I mean we have no plans on not launching the 530 G, it's the only question is when and that is what we are working with the FDA on.

Okay, thanks very much.

David Roman, Goldman Sachs.

Omar, in your prepared remarks you talked a little bit about stabilization in Europe but you also highlighted some of the Medtronic specific efforts to leverage your scale across different regions and different product lines.

Could you maybe just go into a little bit more detail there on what you are referencing?

I think when we met, (inaudible) Rob at PCR in May, you talked about a few examples of customer contracting.

But maybe you could provide just a little bit more detail on how that might impact your business quantifiably over time?

Yes, just to give you a perspective on what that is, that is essentially working with major customers, primarily hospital systems in Europe, and contractually managing cath labs for them.

And I think that gives us as ability to work with the customer very directly to improve their overall efficiency.

We'll be making some announcements along these lines fairly soon here, so we will wait to give you more details on that then when we are ready.

But again, in a nutshell what this does is it allows us to work with customers on a much broader basis than before and in fact (inaudible) in improving their overall efficiency of delivery.

And to some degree it certainly helps us get some independent revenue streams as well as build closer relationships with clinical customers -- the [physicians] in those accounts as well.

As I said in the prepared remarks, this includes everything from the efficiency of the Cath Lab to how parts are sourced to managing the way in which products are ordered and stocked and we are building up our technology base to be able to support these various capabilities.

There will be some added benefit of our own products but the primary perspective here is to provide an overall solution to those customers.

And then I guess a follow-up just along similar lines.

You also talked about in on some of the new product launches, particularly in CRM, that you were awaiting new contracts and looking to obtain price premiums on a number of those products you were launching.

Could you maybe just talk a little bit about the dynamic in getting price premiums right now?

What is the environment like for that?

What type of price premiums do you think you can obtain versus historical averages and how are you balancing that with sort of the cross-selling model?

Well, that is two different things.

First of all on pricing, the initiatives that we started on a couple years ago was to be very granular about the economic value -- clinical and economic value for our products.

And these products, although the development started long before we started looking at it that way clearly have got both clinical and economic value for which we have evidence.

And so we expect to get pricing that is objectively determined in relation to the economic and clinical benefit these products have.

And I think that is an important consideration that we do not want to walk away from just because the quarter end or stuff like that.

I mean I think we work to hard both in product development and in the generation of evidence to not make sure that that counts.

And so, that has been part of the issue here that we are in the process of making that case and we feel confident that we will be successful in that will drive up pricing.

That is separate from our overall consolidated approach to customers which is continuing with success, our growth in accounts with core CVG contracts continues and this enhancement in the product can only help in that endeavor.

I think both Gary and Mike can perhaps -- this is an important question, I would like one of them to maybe chime in a little bit (inaudible).

Maybe Mike, are you going to go first?

Yes?

So just on the question of price increases, some of the features that we have added, for example adapted CRT into the Viva product line for our high-powered CRT devices, it actually can eliminate less ventricular pacing in the patient and has been clinically demonstrated to improve CRT response and reduce heart failure hospitalization.

And I think you are probably aware that that 30 day hospital admission window is a very key area of focus for hospitals in the US and even longer-term the ability to keep patients from coming back into the hospital for heart failure re-hospitalizations is a big issue.

The fact that we have been able to demonstrate this means that we would like it to accrue the benefits of that in a price increase.

Now most hospital systems have put in place technology review committees to rigorously look at these questions because they are obviously not as interested in paying price premiums unless it is for proven benefit.

And so that take some time and that is exactly what we have seen happening.

So for hospitals that have chosen in the past to do bulk purchases of product, they basically are waiting to go through their cycle, don't want to bulk old product because they know they would rather replace it with the new product, but have to get through their pricing committees in order to get approval.

So that has been one of the main issues in the quarter and the same thing applies to our Evera product line with its shock reduction technology.

So that really is the dynamic that was playing out in the quarter.

Yes, I really don't have much to add to what Mike just indicated.

I mean, as he indicated, the biggest issue was getting people on contract.

And that is the change that's probably occurred over the industry over the last several years where it used to be maybe just a little price increase (inaudible) and immediately the doctors can make that call and that decision.

Obviously with the buying decisions now in the hospitals these committees are more engaged in that process and ensuring that the products have the technology.

So as you indicated that slows down the process slightly, doesn't mean you don't get the price increases, it just means that you have to go through certain processes.

Okay, that is very helpful.

Thank you.

I would say we have run past the top of the hour, but let's take two quick questions before wrapping up.

Larry Biegelsen, Wells Fargo.

So it looks like, excluding the CoreValve stocking, you grew slightly below 3% this quarter, and so I guess, Omar, my question is what gives you the confidence that you will be able to grow 3% to 4% in fiscal year 2014, especially if you assume that there is an injunction in Germany with the CoreValve litigation and you will lose approximately maybe $40 million to $50 million in sales?

So it would be helpful to hear from you kind of how you see the rest of the year playing out and what gets you to the 3% to 4%?

Thanks.

Well, you know it's, we tried to lay out the three areas where we had pressures and a very distinct fashion.

And certainly in Diabetes it is pretty straightforward, there is a pretty big chunk all of which is probably more than offset in CoreValve issue that we may be facing in the next three quarters just that alone.

And we expect even more out of that.

So agreed, we need the approval.

And if we don't get the approval there will be pressure there.

But we are pretty confident that we will and that is a very distinct thing that we will all look at very clearly.

I think in terms of neuro, we are already seeing traction, again at the same level by itself -- at the same level close to any pressures that they may face in Germany.

So that alone again can -- it is likely to give us tailwind if you like in the remaining three quarters and we are already seeing that.

So this is not something that we are waiting for because we have already shifted to the new product in manufacturing and we are launching it as we speak.

And although again, as we said, it's very early in the quarter but all of the evidence points to the fact that we will get what we are expecting out of that.

And then finally we come to CRDM and we explain what would happen here in the bulk approach is one of the lowest levels and the inventory levels are down and I mean again nothing is for certain here.

But if you just look at this thing in a fairly objective basis over time we expect those levels to recover and we expect the price premiums because we have already experienced that in places where customers have been through the technology review committees and so on.

And as we go through next quarter we expect that to come through.

So we have got three areas which are very clear in their pick up in the remaining half of the year.

Granted there will be some pressure out of CoreValve, but we feel that these three alone are sufficient to more than offset that pressure.

And in addition to that I highlighted a series of other either initiatives that will come to fruition within the year for which we expect revenue.

So again, we laid all of that out and we in our analysis feel that the guidance that we provided is quite achievable.

That is very helpful.

And just lastly for me, Chris, if Chris O'Connell is in the call I just wanted to ask about the competitive bidding for insulin plums, and just wanted to confirm that you feel that your pump are pretty well protected by any competitive bidding that could be implemented in January 2014?

Thanks.

First of all let me take that -- that is correct.

We feel pretty protected that that is not part of the competitive bidding process, it is a much more unique product, it is not commoditized even close in that sense.

And we have got support from the physician community and the healthcare agencies in that respect.

So we don't really see any serious risk of the pump falling under competitive bidding.

Chris, do you have anything you want to add --?

No, I think that is right, it is really about defining the categories of pumps that are going to be subject to competitive bidding that is an ongoing discussion with CMS.

Thanks for taking the question.

One last question.

Matt Taylor, Barclays.

I was just interested to see if you could talk a little bit more about your transition to positioning yourself as really a provider of solutions?

And maybe you could help us understand -- I know you said you had some announcements coming up, but can you talk about over time what portion of revenue you think you are going to be able to derive from those kinds of services?

Is it going to be really small and adjunct or could it to be an actual meaningful revenue piece over time?

Well, over time we think it will be meaningful, but it is going to take some time.

And let me highlight the Cardiocom acquisition, that is a pretty good example of the sorts of things that you can expect from us.

Here is a company which is a leader in terms of disease management, it has complementary services to what we already have, it addresses a broader range of patients than the one we do and you put the two together and there's both synergy as well as incremental revenue from an independent source.

So that is the kind of activity that we would like to do, which leverages what we have but it is not solely dependent on what we have.

But in fact grows it independently.

And in the beginning we expect just one plus one, if you like.

In the long-term we expect one plus one and more through the synergies that we expect to derive.

And we expect to move in that direction in those two areas, in disease management which essentially means looking across the continuum of care and primarily at this stage looking at patient management beyond the therapy of people who have the same kind of disease but without our devices.

And have a structure through which we can manage those patients.

And hospital systems and payors around the world recognize that managing these patients is critical to us being able to manage the overall cost of care both in the US and around the world.

Hospital efficiency is a different area where we are looking primarily at making sure that hospitals are working in as efficient manner as possible.

And our initial focus is in the area of cardiology because that is where we have our biggest strength and we have had some initial success in Europe in not only getting those contracts but starting to execute them.

So we expect that too to become a larger and larger portion of our business.

The independent revenue piece will be small to start with.

Over time it will grow.

I think the impact it will have through synergy on the sales of our regular devices perhaps will be more and more meaningful, but we will have to see what we get out of this as we go forward.

But that is essentially the strategy, we are not baking in big numbers for this at this stage.

There's an area where we are focused in the long-term.

We think in both of these areas there's big opportunities for us to tap into in terms of available patients who need the care and pull from the government and payors for us to be able to provide such solutions.

Finally maybe, a lot is going to depend on how quickly the US in particular moves from a pay per procedure system to a pay per value system.

The quicker that shift occurs the greater will be the meaningful (inaudible) of this revenue.

If that happens quickly you will see much quicker growth in that area from us.

If that happens slowly it will take a little more time.

So there are too many factors for me to kind of say definitively, but those are some of the considerations.

Okay, thanks a lot, thanks for the really thorough answer.

Okay.

All right, let me conclude right now.

Thanks again to all of you for your questions.

And on behalf of our entire management team I would like to thank you for your continued support and interest in Medtronic.

We look forward to updating you on our progress and on our Q2 call which we anticipate holding on November 19.

Thank you all very much.

This does conclude today's conference call.

You may now disconnect.