美敦力 (MDT) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Medtronic's fourth-quarter earnings call.

(Operator Instructions)

It is now my pleasure to turn the call over to Jeff Warren, Vice President of Investor Relations.

Sir?

Thank you, Maria.

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

During the next hour Omar Ishrak, Medtronic's Chairman and Chief Executive Officer, and Gary Ellis, Medtronic's Chief Financial Officer, will provide comments on the results of our fourth-quarter and FY15, which ended April 24, 2015.

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, which finalizes the preliminary revenue we issued on May 19, 2015.

We also updated our combined historical Covidien-Medtronic financial statement presentation to include FY15 comparable revenue, as well as combined P&L for the past eight quarters.

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 investors portion of our website at Medtronic.com.

Finally, unless we say otherwise, references to quarterly or annual results increasing or decreasing are in comparisons to the fourth-quarter and full-year 2014 respectively, and all year-over-year revenue growth rates are given on a comparable constant currency basis which includes Covidien PLC, and the prior-year comparison, and aligns Covidien's prior-year monthly revenue to Medtronic's fiscal quarters.

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 to everyone for joining us today.

This morning we reported fourth-quarter revenue of $7.3 billion, which represents growth of 7%, and Q4 non-GAAP diluted earnings per share of $1.16.

Before providing more detail on our Q4 performance, I'd like to recap the fiscal year.

FY15 was a transformational year for our Company, with the announcement of the Covidien acquisition in Q1, and the subsequent closing of this transaction in Q4.

We believe the combination of our two companies meaningfully accelerates our strategies, diversifies our growth profile, and increases our long-term financial flexibility.

I will cover the Covidien integration in more detail in a moment.

Our FY15 revenue grew 6%, which was at the upper end of our mid-single-digit baseline goal, and represented a 230 basis point improvement from FY14.

FY15 was a strong year for therapy innovation at Medtronic, with our new therapies growth vector contributing 410 basis points to our full-year growth, well above our stated goal of 150 to 350 basis points.

All four of our groups launched meaningful innovations in FY15, including those that make advances into new disease areas, innovate on our existing market-leading technologies, or enhance our diagnostic therapy and monitoring products with key wraparound programs.

Gary will discuss the technologies that drove our results, as well as our future pipeline in more detail shortly, when he recaps our business results.

Revenue in emerging markets, our second growth vector, grew double digits again in FY15, and contributed 150 basis points to our full-year growth.

A third growth vector, services and solutions, nearly doubled in revenue in FY15, and added 30 basis points to our full-year growth.

While legacy Covidien businesses will no doubt contribute to this vector in the future, we feel for FY15 is more appropriate to look at this vector using the legacy Medtronic revenue as the base, given all of the revenue in Q4 came from legacy Medtronic resources.

Under this methodology, the service and solutions growth vector contributed 50 basis points, within our FY15 goal of 40 to 60 basis points.

We continued to add additional services and solutions offerings.

In addition to our existing Cardiocom and Cath Lab managed services platforms, we were excited to add DiaBeater in Q4, a unique diabetes integrated care solution.

We also initiated our first pilot of our operating room managed services, which combines the capabilities we have developed in the Cath Lab, together with Covidien's breadth of operating room technology and expertise, to provide a full service OR offering to hospitals.

All of these efforts are focused in addressing the evolving needs of our customers, regarding delivery system efficiency, and more integrated connected care models for patients around the world.

We feel we're well-positioned to demonstrate the role medical technology and related services can play in improving system efficiency and care integration in key disease states, and to serve as a key partner and collaborator with healthcare systems, payors, governments, and governments who are working to deliver better patient outcomes at lower costs.

Looking at the FY15 P&L, non-GAAP diluted EPS was $4.28.

While it is difficult to compare EPS to the prior year, given the acquisition of Covidien, we are looking at some key operating P&L line items on an approximate combined constant currency basis, in order to better assess our operating performance.

We also feel that these will be the appropriate P&L metrics to evaluate our operating performance as we move through FY16.

In FY15, our operating margin percentage improved by 60 basis points, including an 80 basis points improvement in SG&A, offset by 50 basis point decline in gross margins, all on a combined constant currency basis, which corresponds to 200 points of operating leverage, and was in line with our baseline expectations.

While Gary will cover our earnings guidance in a moment, it is clear that FX is a major headwind in FY16.

Despite that headwind, I want to emphasize that the management team is focused on driving significant operating leverage this year.

Looking now at free cash flow, we had a very strong year in FY15, and met our commitment to return 50% of our free cash flow in the form of dividends and share buybacks.

Our FY15 results ultimately reflected the dedication and passion of over 85,000 employees collaborating with our partners in health care to deliver therapies and services to millions of patients around the globe, to fulfill our mission of alleviating pain, restoring health, and extending life.

Now, moving to our Q4 performance, Q4 was another strong quarter, the first as a combined Company with Covidien.

Our 7% revenue growth was a result of solid performances across of all of our groups and geographies.

Geographically, we had double-digit growth in emerging markets, strong upper single digit growth in the US, and mid-single digit growth in developed markets outside the US.

CVG had another quarter of impressive double-digit growth.

Diabetes delivered strong upper single digit growth, and both MITG and RTG had solid mid-single digit growth.

In RTG, we recently reorganized the structure of our sales teams, aligning sales management to disease states.

We expect this to further optimize our focus on our neuroscience, integrated pain solutions, and surgical synergy strategies.

In particular, we believe this should help our performance in spine, as we believe it will allow us to take better advantage of our overall breadth.

Q4 was the first quarter of integration with Covidien.

While it has only been one quarter, I am proud of that combined organization is staying focused and delivering on our commitments, avoiding any distractions during this transition period.

As I have stated several times before, our first objective with the Covidien integration is to preserve the stated growth objectives of both companies.

As we look ahead, we believe that our baseline goal of delivering mid-single-digit constant currency revenue growth on a consistent basis is still appropriate and reasonable over the long-term.

Although similar to this quarter, there could well be times when we exceed our baseline expectations.

We continue to focus on executing on our three growth strategies: Therapy innovation, globalization and economic value.

These strategies are designed to create a competitive advantage for Medtronic by capitalizing on the three long-term trends we see playing out in healthcare: Namely, the desire to improve clinical outcomes using technology the growing demand for expanded access to healthcare in developing countries and the optimization of cost efficiency in healthcare systems, including the move to value-based healthcare.

In therapy innovation, we continue to deliver above goal performance in Q4.

As the new therapies growth vector contributed 560 basis points to our total Company growth.

This is a result of strong execution of product launches, as well as decisions we have made over the past few years to select the right products that solve not only our customers' clinical needs but meet their economic needs as well.

And as we look ahead, our pipeline remains full, with a number of new therapies and services expected to come to market over the next few years.

In globalization, emerging markets delivered 140 basis points to our Q4 total Company growth, just below our stated expectations.

We continue to implement changes aimed at improving our emerging market growth profile, including making progress on our public and private partnerships.

On our most recent visit to China, I met with several private hospital CEOs, and discussed potential opportunities to work together.

In addition to partnerships, all of our emerging markets are focused on our channel optimization strategy.

Strengthening our customer relationships to better meet our customers' needs, while also recognizing the unique challenges of the local healthcare systems.

In countries like India and China, where we have a vast number of distributors, we're consolidating logistics to platform distributors in order to meet more stringent supply chain policies.

In the Middle East, we're building strong joint venture partnerships with the local distributors, to accelerate therapy adoption in the local markets.

In economic value, our services and solutions growth vector contributed 50 basis points to our growth in Q4 on a legacy Medtronic basis, within the goal of 40 to 60 basis points.

In Cardiocom, we signed an additional 14 commercial contracts in Q4, and continued to increase patient enrollment in our existing hospital and home care provider accounts.

In our CRHF diagnostics business, we've begun penetrating the mobile cardiac outpatient telemetry and event report markets, using our unique seek-based diagnostics service.

We have now started adding the heart failure diagnostic data provided by CRHF implantable multiple devices into Cardiocom, creating a comprehensive heart failure management service.

We also started offering Cardiocom as part of a broader bundle offering to our CVG customers.

In Cath Lab managed services, we are generating rapid growth, as we are fast becoming the ideal partner for hospitals that seek to drive operational efficiency.

While this business started in Europe, we're now expanding our Cath Lab managed services business globally.

At the end of Q4, we had 50 long-term agreements with hospital systems representing $1.1 billion in revenue over the life of these contracts, which have an average age -- average span of about five to six years.

And we also have a full pipeline of potential contractors at various stages of negotiation, with providers around the world.

Turning to the P&L, Q4 non-GAAP diluted EPS was $1.16.

Despite the incremental moving parts due to the Covidien transaction, and increased headwinds from foreign exchange, our operating results were in line with our expectations, with our organization controlling spending effectively as we ended the fiscal year.

Our gross margin continues to reflect ongoing elevated levels of spending, to improve our quality systems in neuromodulation.

This quarter, we entered into a consent decree with the FDA, which provides the path to resolution of our issues in this division.

We take the responsibility that has been entrusted to us to provide quality products very seriously, and end ensuring the highest level of quality and regulatory has and always will be a personal priority for me, and a central focus of everything that we do at Medtronic.

We delivered $1.7 billion of free cash flow in Q4.

We remain disciplined in allocating our capital, with a focus on creating long-term shareholder value.

As a result of the Covidien acquisition, we have increased ability to deploy our cash to the US, solidifying our commitment to return 50% of our free cash flow to shareholders.

With this increased financial flexibility, we are in the process of reevaluating the mix of share buybacks and dividends.

As an S&P dividend aristocrat, we remain focused on delivering dependable long-term dividend growth.

In addition, we remain disciplined when evaluating potential M&A opportunities.

Any investment we make must be aligned with and ultimately strengthen one or more of our three growth strategies, while at the same time offer high return metrics and minimize near-term shareholder dilution.

As we look ahead to FY16, we remain focused on delivering on our baseline financial expectations, as we continue to integrate Covidien into Medtronic.

We have four clear priorities guiding this process: Preserve, optimize, accelerate, and transform.

I mentioned preserve earlier, our first and highest priority, and we expect to continue to meet the financial commitments of both companies.

Our second priority, optimize, is focused on achieving the detailed cost savings plans that are expected to result in a minimum of $850 million in cost synergies by the end of FY18.

Our third priority, accelerate, is related to assessing and prioritizing the numerous revenue synergy opportunities which today include leveraging Covidien's peripheral vascular sales force to drive sales of drug-coated balloons, as well as leveraging Covidien's neurovascular division to enhance our neuroscience strategy in RTG.

We are creating the industry's first true comprehensive stroke management business, leveraging our transformative therapy innovations with Solitaire mechanical thrombectomy product in neurovascular, and CVG's LINQ insertable cardiac monitor, with its clinically proven role in the management of cryptogenic stroke patients.

Our fourth and final priority is transform.

As we observe and interact with healthcare systems around the world, we continue to see a push for experimentation with new models of delivery system operations, new payment schemes, and integrated patient care as a critical mechanism to balance their cost and access challenges.

Each of these efforts seek to drive higher levels of patient and system value.

The move to these value-based healthcare models around the world presents a unique opportunity for Medtronic, because we believe medical technology can play an increasingly larger role in delivering higher levels of value in healthcare.

The proper application of medical technology with and the adept use of data and information associated with these technologies can be paired to help bend the cost curve in healthcare, and produce better clinical outcomes at the same time.

This is pushing our organization to develop technology offerings, services, and business models that bring new forms of value across a given patient care continuum, and within the delivery system itself.

This continues to drive our organization to move beyond medical devices, to create integrated health solutions that complement and enhance our devices' value, traditional wraparound services, and solutions.

By addressing these trends now, we believe we will also uniquely position Medtronic to participate in the emerging bundled payment and risk sharing models, focused on very specific disease states.

We're actively partnering and collaborating with hospital systems, payors and governments, who are working in these models, and we intend to continue to do so as a leader intent on leveraging our industry-leading products, deep clinical and economic expertise, global footprint, and financial strength.

Ultimately, we believe this is what will differentiate Medtronic, and uniquely positions us to succeed in the ever-changing global healthcare marketplace.

Gary will now take you through a more detailed look at our fourth-quarter results.

Gary?

Thanks, Omar.

Fourth-quarter revenue of $7.304 billion increased 60% as reported, or 7% on a comparable constant currency basis, after adjusting for a $483 million unfavorable impact of foreign currency.

Legacy acquisitions and the divestitures from both Medtronic and Covidien contributed 80 basis points to growth.

Q4 revenue results on a geographic basis were as follows: Growth in the US was 8%, and represented 55% of our overall sales.

The non-US developed markets grew 5%, and represented 32% of our overall sales, and growth in the emerging markets was 11%, and represented 13% of our overall sales.

Q4 diluted earnings per share on a non-GAAP basis were $1.16, a decrease of 2%.

We were breakeven on a Q4 GAAP earnings basis after several significant charges, primarily related to the Covidien acquisition.

In addition to the $362 million adjustment for amortization expense, the Covidien-related non-GAAP adjustments on an after-tax basis included a $455 million charge related to the inventory purchase price step-up, a $[268] million charge for acquisition related items (company corrected after the call), and a $157 million net restructuring charge.

We also had a $349 million charge related to certain tax adjustments, the majority of which related to the proposed agreement reached with the IRS resolving all proposed adjustments associated with the Kyphon acquisition.

A $61 million CVG product technology upgrade commitment to charge, and a $27 million net litigation charge, primarily related to provision for additional infused clients.

In our cardiac and vascular group, revenue of $2.596 billion grew 10%.

This was the result of strong performance in all three divisions.

Cardiac rhythm and heart failure, coronary and structural heart, and aortic and peripheral vascular.

In cardiac rhythm and heart failure, or CRHF, revenue of $1.398 billion grew 11%.

This performance was driven by low teens growth in low power, mid-single digit growth in high power, strong growth of over 30% in AF solutions, as well as nearly doubling our revenue in services and solutions, which includes Cardiocom and Cath Lab managed service revenue.

We estimate that the global CRHF market is growing in the low to mid-single digits, and the strength of our new product introductions is resulting in share gains and generally improved pricing dynamics.

Low-power growth continues to be driven by the global adoption of Reveal LINQ, which resulted in diagnostic revenue growth of over 20% sequentially, as well as solid pacemaker implant growth in the US.

LINQ is resulting in not only increased diagnostics sales, but also pacemaker pull through, as LINQ is resulting in more bradycardia diagnosis and syncope patients.

Looking forward, looking ahead, we look forward to the launch of the micro transcatheter pacing system in international markets this summer, followed by a US launch in FY17.

In high power, we continue to see strong market adoption of our Attain Performa CRT-D system with its differentiated next generation quadripolar technology, adaptive CRT algorithm and time-saving vector express programming.

High power also had a strong quarter in Japan, where we have now gained over 20 points of ICD share since the launch of our Evera MRI SureScan ICD in Q3.

We expect to launch the Evera MRI ICD in the US in this fiscal year.

Our AF solutions business continues to take share in the AF market, on the continued strong growth of our Arctic Front advanced CryoAblation system, which is growing at more than double the overall market growth rate.

Turning to coronary and structural heart, or CSH, revenue of $792 million grew 9%.

Our coronary business grew in the low single digits, driven by solid mid-single digit growth in drug-eluting stents.

In Europe, our launch of the Resolute Onyx resulted in 400 basis points of DES share gain sequentially, and a sequential slowing of pricing declines.

Resolute Onyx features enhanced visibility and thinner struts, to improve deliverability.

We began the US pivotal trial for Resolute Onyx in March, and are currently forecasting an FY18 FDA approval.

In our broader coronary product offering, we are also seeing increased strength, particularly in balloons, where we gained 400 basis points of share on the successful rollout of our differentiated Euphora PTCA balloon family.

In renal denervation, we announced in April the initiation of the SPYRAL HTN global clinical trial program, which includes two global prospective randomized sham-controlled trials studying uncontrolled hypertension in patients both on and off medication.

Based on the outcome of these two initial studies, we will then evaluate next steps for our pivotal study.

Our structural heart business grew in the upper teens, driven by another strong quarter in transcatheter valves, which grew nearly 50%.

In the US, our continued rollout of CoreValve is driving growth, and resulting in both sequential and year-over-year share gains.

We added approximately 40 additional new centers in the quarter, and now have more than 275 US centers trained since launch.

In late March, we received FDA approval for the use of CoreValve in a failed bioprosthesis, also known as valve in valve implantation and this further contributed to our US growth.

As CoreValve is the only TAVR product approved for this indication, it makes CoreValve an indispensable offering for every practicing TAVR center.

In international markets, our business took share sequentially, due to the strong adoption of our CoreValve Evolut R. We are seeing strong customer enthusiasm for this next-generation self-expanding platform, with its options to recapture and reposition the valve during the procedure.

Its differentiated 14 French equivalent delivery catheter, allowing access to smaller anatomies, and its redesigned inflow and skirt, to help promote annular sealing.

Evolut R is receiving tremendous feedback on its clinical outcomes, overall ease-of-use, and procedural efficiencies.

The FDA submission of Evolut R is complete, and we are targeting a first-half FY16 approval and US launch.

The FDA also recently allowed us to begin implanting Evolut R in our SURTAVI trial, and to reduce the enrollment requirements for the trial to 1,400 patients, which we believe brings in the timeline for the US intermediate risk approval by at least a year.

We have already enrolled approximately 1,250 patients in SURTAVI, and we expect to complete enrollment over the next several months.

In Japan, we received PMDA approval for CoreValve in March, and plans are underway for a full launch this fall, following anticipated reimbursement approval in October.

In our aortic and peripheral vascular division, or APV, revenue of $406 million grew 9%.

The aortic business grew in the low single digits, and the peripheral vascular business grew in the mid-teens, driven by the successful US launch of our IN.

PACT Admiral drug-coated balloon.

We estimate that the IN.

PACT Admiral is the leading DCB in the US market, in just its first quarter of launch.

This leadership position was obtained without the benefit of having a full quarter of a combined Medtronic and legacy Covidien peripheral sales force.

We expect this DCB to drive growth in our APV division over the coming quarters, through both its individual revenue contribution, as well as its ability to drive share across our broader peripheral vascular product line, through the use of multi-line contracting.

Looking at our DCB pipeline, we expect to obtain FDA approval for our 150 millimeter IN.

PACT Admiral balloon in Q4 FY16, or early Q1 FY17.

In addition, we expect to file for expanded indications for Admiral with a PMAS US filing in the second half of FY16 for in-stent restenosis indication, as well as a CE mark filing by the end of FY16 for AV fistula indications.

We are also finalizing bench testing now on our redesigned DCB for use below the knee, which we expect to expect to submit for CE mark in FY16.

Now turning to our minimally invasive therapies group, which consists of the majority of legacy Covidien businesses.

Revenue of $2.387 billion grew 6%, which included a net 140 basis point contribution from acquisitions and divestitures.

MITG's revenue performance was driven by double-digit growth in surgical solutions, and low single digit growth in patient monitoring and recovery.

Surgical solutions revenue of $1.293 billion grew 10%, with high single-digit growth in advanced surgical, low single digit growth in general surgical, and growth of over 40% in early technologies.

Advanced surgical had a strong quarter, with balanced low double-digit growth in both stapling and energy.

Stapling results benefited from the continued rollout of new products, including the Endo GIA Reinforced Reload.

In energy, we are seeing strong procedural growth, particularly in vessel sealing.

Our early technologies business also had solid growth across all three product lines: GI solutions, advanced ablation, and interventional solutions.

Geographically in surgical solutions, both the US and China had strong quarters, delivering double-digit growth.

Surgical solutions continues to focus on driving minimally invasive surgery adoption globally.

Patient monitoring recovery revenue of $1.094 billion grew 2%.

The division was led by strength in the patient monitoring business, which grew in the mid-single digits, as well as both nursing care and airway and ventilation, which grew in the low single digits.

This offset low single-digit declines in patient care.

Growth in the patient monitoring business resulted from a strong US flu season, which drove pulse oximetry sales.

Now moving to our restorative therapies group, revenue of $1.854 billion grew 5%.

Results were driven by growth in surgical technologies, neuromodulation and neurovascular, partially offset by modest declines in spine.

Spine revenue of $743 million declined 2%.

Low single-digit growth in BMP was offset by low single-digit declines in core spine and interventional.

Both the global and US core spine markets grew in the low single digits consistent with last quarter.

In our core spine business, both PL and cervical declined, but both of these businesses are expected to improve as we continue to launch innovative technologies into the market, and these new products become a larger part of our sales mix.

In PL, we're expecting FY16 rollouts of new technologies for our OLIF25 and the 51 procedures.

Our new Elevate expandable cage and SOLERA Voyager, our new minimally invasive lumbar pedicle screw system.

In cervical, we continue to see adoption of our PRESTIGE LP cervical disc, and innovative anatomic PTC interbody spacer.

We are also now beginning the launch of our divergent standalone interbody cage, and the ZEVO Anterior Cervical Plate System.

Our spine division also continues to develop and deploy our differentiated surgical synergy program, which integrated our enabling technologies, surgical tools, spinal implants and expertise to improve surgical outcomes and efficiencies.

This includes utilizing OR imaging and StealthStation navigation in spine procedures, and the strong growth from these two enabling technologies is recognized in our surgical technologies division.

In neuromodulation, revenue of $518 million increased 6%, driven by double-digit growth in DBS and midteens growth in gastro-uro.

In DBS, our global focus on the neurologist referral programs, and the strength of the early stim data in international markets continues to drive solid growth.

In gastro-uro, we continue to see strong growth and sales of the InterStim system.

Our pain stim business was flat this quarter, reflecting a continued decline in US market, resulting from a negative reimbursement change that affected trialing activity and new implant growth.

However, we grew our global pain stim share sequentially on the strength of our RestoreSensor SureScan MRI spinal cord stimulation system, with its proprietary adaptive stim, automatic stimulation adjustment feature, and access to MRI scans anywhere in the body.

Turning to our surgical technologies division, revenue of $461 million grew 9%, driven by solid balanced growth across all three businesses.

Neurosurgery grew in the mid single digits, reflecting record worldwide OR and surgical imaging unit sales, continued strength in stealth patient navigation service revenue, and the contribution of Visualase MRI-guided laser ablation.

EMT low double-digit growth was a result of continued strong customer adoption of our StraightShot M5 microdebrider, and NuVent sinus balloon, partially offset by the MicroFrance divestiture, which occurred in Q3.

In advanced energy, strong adoption of our proprietary Aquamantys tissue sealing and PEAK PlasmaBlade technologies drove upper teens growth.

In neurovascular, revenue of $132 million grew 23%.

The division, formerly part of legacy Covidien, had a strong double-digit growth across coils, stents, flow diversion, and access.

In stents, we saw strong adoptions of our Solitaire FR revascularization device, following the presentation of four meaningful clinical trials at the International Stroke Conference in February, and subsequent publication of three of these studies in the New England Journal of Medicine.

These studies provided evidence that the standard of care for the treatment of stroke should be changed to include stent thrombectomy as a primary treatment, in addition to IV TPA.

In our flow diversion portfolio, we also saw strong growth as a result of continued US launch of the Pipeline Flex embolization device.

In our diabetes group, revenue of $467 million grew 8%, with solid upper single-digit growth from the continued adoption of our CGM sensor-augmented insulin pump systems in both the US and non-US developed markets.

In the US, we continue to see strong adoption of our MiniMed 530G with the Enlite CGM sensor.

In non-US developed markets, growth was driven by the launch of our next-generation MiniMed 640G system, with the enhanced Enlite CGM sensor in Australia and Europe.

In addition to incorporating a brand-new insulin pump design and user interface, the MiniMed 640G system features SmartGuard technology, which can automatically suspend insulin delivery when sensor glucose levels are predicted to approach a low limit, and then resume insulin delivery once levels recover.

We continue to make progress in bringing this technology to the US, and plan to submit the PMA for this system later this calendar year.

In Q4, we continued to advance the development of our artificial pancreas technology through a minority investment in DreaMed Diabetes.

Which included licensing their MD-Logic artificial pancreas algorithm.

We also continued to make progress in our diabetes services and solutions division, with three business development announcements in Q4.

First, we made a minority investment in Gluco, a developer of a unified platform for diabetes management.

Second, we announced a partnership with IBM Watson Health to develop a new generation of personalized diabetes management solutions.

And third, we acquired DiaBeater, the Netherlands-based diabetes clinic and research center, which has developed a truly unique innovative care model for people with diabetes that we intend to expand globally over time.

Taken together, these announcements signify that we are focused on transforming our diabetes group from a market-leading pump and sensor Company into a holistic diabetes management Company, focused on making a real difference in outcomes and costs.

Turning to the rest of the income statement, after adjusting for certain non-GAAP items mentioned earlier, as well as the 10 basis point negative impact from foreign exchange, our Q4 operating margin was 29.6%,which included non-GAAP operational gross margin, SG&A, and R&D of 70.8%, 32.6%, and 6.9%, respectively, demonstrating the leverage we normally see in the fourth-quarter in SG&A and R&D.

Also included in the operating margin was net other income of $20 million, including net gains from our hedging program of $139 million.

We hedged the majority of our operating results in developed market currencies to reduce volatility in our earnings from foreign exchange.

In addition, a growing portion of our profits are unhedged, especially in emerging market currencies, which can create some modest volatility in our earnings.

Based on current exchange rates we expect FY16 net other expense to be in the range of $215 million to $275 million, which includes an expected impact from the US medical device tax of approximately $205 million.

For Q1 FY16, we expect net other expense to be in the range of $65 million to $75 million based on current exchange rates.

It is worth noting that in Q4, we hedged the majority of the expected FY16 legacy Covidien operating results in developed market currencies, consistent with Medtronic's practice at recent market rates.

Overall, we expect FY16 operating margins to be in the range of 28% to 29% on an as-reported basis, which includes over 100 basis points of improvement, or approximately 400 basis points of operating leverage related to cost synergies, offset by an expected FX impact of approximately 70 basis points.

The majority of the operating margin improvement will come in SG&A, as a result of the realization of cost synergies from our Covidien acquisition, as well as continued execution on legacy leverage initiatives of both Covidien and Medtronic.

We would expect operating margins in the first half of the year to be below this range, improving in the back half of the year, as the foreign exchange headwinds lessen, and cost synergies accelerate.

Below the operating profit line, Q4 net interest expense was $186 million, a significant increase from prior quarters, as we are now including incremental interest expense from our December 2014 $17 billion bond offering, used to fund the Covidien acquisition.

At the end of Q4, we had approximately $19.5 billion in cash and investments, and $36.2 billion in debt.

In Q1, we expect to retire $1 billion of maturing debt, using existing cash.

Based on current rates, we would expect FY16 net interest expense to be approximately $750 million, including approximately $210 million in Q1.

Our non-GAAP nominal tax rate on a cash basis in Q4 was 15.4%, this was lower than expected, due primarily to the finalization of profit mix by jurisdiction, which resulted in a favorable catch-up as we reduced our annual tax rate.

We would expect our FY16 non-GAAP nominal tax rate on a cash basis to be in the range of 16% to 18%, as we expect to be at the higher end of the range until the personally expired US R&D tax credit is reinstated.

In Q4, we generated $1.7 billion in free cash flow.

We remain committed to returning 50% of our free cash flow, excluding one-time items to shareholders.

In Q4, we repurchased $300 million of our common stock, and paid $435 million in dividends.

While a portion of our dividend paid in April was treated for US tax purposes as a return of capital, our expectation is that we will increasingly accumulate profits at the Medtronic PLC level, and move over time toward a dividend that is treated completely as a return of earnings.

As of the end of Q4, we had a remaining authorization to repurchase approximately 30 million shares.

Fourth-quarter average daily shares outstanding on a diluted basis were 1.441 billion shares.

It is important to note that the cash we receive from stock option redemptions, which was $172 million in Q4, will also continue to be used to repurchase shares on the open market to partially offset the dilutive impact.

These share repurchases are incremental to our commitment to return 50% of our free cash flow to shareholders.

For FY16, we would expect diluted weighted average shares outstanding to be in the range of approximately $1.443 billion to $1.437 billion shares, including approximately 1.439 billion shares in Q1.

Let me conclude by commenting on our initial FY16 revenue outlook and earnings per share guidance.

We believe that underlying operational revenue growth in the range of 4% to 6%, plus the incremental expected revenue from our Q1 extra selling week of 100 to 150 basis points, all on a comparable constant currency basis, is reasonable for FY16.

This operational revenue growth expectation is consistent with our stated baseline financial goal of consistently delivering mid-single digit revenue growth.

Our revenue outlook assumes that CVG, MITG and RTG grow in the mid-single digits, and diabetes grows in the upper single to low double-digit range, all on a comparable constant currency basis, and including the expected benefit of the extra week.

While we cannot predict the impact of currency movements, to give you a sense, if the FX impact of exchange rates were to remain similar to yesterday for the remainder of the fiscal year, then our FY16 revenue would be negatively affected by approximately $1.3 billion to $1.5 billion, including a negative $540 million to $600 million impact in Q1.

Turning to guidance on the bottom line, we believe it is reasonable to model cash earnings per share in the range of $4.30 to $4.40, which includes an expected $0.40 to $0.50 negative foreign currency impact based on current exchange rates, and approximately $300 million to $350 million of targeted value capture synergies from the Covidien acquisition.

As you think about your FY16 models and quarterly gating, it is worth noting that this FX impact to earnings per share is $0.10 more negative than the estimate given on our Q3 earnings call, as well as the fact that a higher percentage of the negative FX impact is in the first half of the year, while more of the value capture synergies occur later in the fiscal year.

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.

Thanks, Gary.

And before opening the lines for Q&A, let me briefly conclude by stating that Q4 was another strong quarter, a good finish to a successful and transformative year.

As we look ahead, while we are facing increased headwinds from foreign exchange, we must remain focused on the operations of the Company, striving to reliably deliver on our baseline financial model, mid-single-digit constant currency revenue growth, EPS growth 200 to 400 basis points faster than revenue on an operational basis, and returning 50% of our free cash flow to shareholders.

To achieve these goals, we continue to execute on our three primary strategies: therapy innovation, globalization, and economic value.

We expect our efforts to deliver consistent and reliable performance, combined with disciplined capital allocation, will enable us to create long-term dependable value in healthcare.

With that, we will now open the phone lines for Q&A.

In addition to Gary, I've asked Mike Coyle, President of our Cardiac and Vascular Group; Bryan Hanson, President of our Minimally Invasive Therapies Group; Chris O'Connell, President of Restorative Therapies Group; and Hooman Hakami, President of our Diabetes Group, to join us.

We are rarely able to get to everyone's questions, so please limit yourself to only one question, and only one follow-up.

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

Operator, first question, please?

Mike Weinstein, JPMorgan.

Omar, as a starting point, if I looked at your US business, this is certainly one of your better quarters in quite some time at the Company, and I was hoping you could touch on your view of the health of US medical device end markets.

You obviously have, at Medtronic, a number of products that are driving specific Medtronic growth from LINQ to CoreValve, across the portfolio.

How do you feel about the health of the overall US medical device market?

Do you think that it's picked up over the last few quarters?

Yes.

Of course it has, because if you just look overall at the number of procedures, look at what hospital systems are reporting in terms of their procedures, and our own experience, certainly the market has picked up.

But I would add like three factors, some of which you mentioned already.

Which has contributed to our performance.

First is that there's an overall pick up and stabilization, in fact, of the market, and now I think correlating directly with the increased expectation from demographics.

So that's certainly there.

I think in addition, like you pointed out, convergence of our new products, coming all together at roughly the same time, has given us a boost.

There's no question about it.

And then finally, we haven't fully quantified it yet, but there is a pull through effect of some of our implantable devices from very strong diagnostic monitoring sales, or LINQ device sales.

We don't know how much that is, but I think the three of these put together are probably the main factors driving this increased growth in the US.

Gary, let me get to the FY16 guidance.

So the incremental impact on EPS from FX, that $0.10, is that in part because you hedged intra-quarter the Covidien exposure, at what at some point were less favorable rates?

And then I assume from your commentary just about the timing of the impact of FX, the timing of the benefit of the synergies, as well as your tax rate, and one more item, that as we think about the earnings cadence over the course of 2016, that we probably should expect it to be more back half loaded?

Thanks.

Mike, back to the issue on the foreign exchange, the majority of the $0.10 change from what we had previously estimated on the FX is primarily related to the fact that as we hedge Covidien in the fourth-quarter, the rates were even lower than where we provided guidance originally, on the $0.30 to $0.40.

So yes, the fact is we did get Covidien in our hedging program, but unfortunately by the time we got them in our hedging program, we were at probably the rates are similar to where we're at currently, and that generated an additional loss from the standpoint of foreign exchange overall.

So that's the majority of the $0.10.

The rest of it is, there's some slight impact just from the standpoint that we don't hedge up to 100% of our, even the Medtronic earnings.

It's more like 80%, so there was still some impact on the foreign exchange getting a little bit worse, since their earnings call previously even on the Medtronic hedge component.

But the majority of it was locking in Covidien under contracts, that basically increased the potential negative hit going forward.

Now, the good news is they're locked in, so we need further change as we go forward obviously, which should be minimized as a result of that.

As you indicated, as we look forward, I think right now, from what I've seen out there for some of the models, I think some people have probably a little bit too much front-end loaded.

There is going to be more, based on the results as we go forward here, foreign exchange is clearly much heavier hit in the first half of the year, and assuming the rates stay the same, would be less in the back half.

As you said, the tax rate's going to be a bit higher in the first, until we get the R&D credit approved.

And the value capture is going to occur as we go through the year, so it's clearly going to be escalating, and will have more benefit on value capture in the back half of the year.

So I think some of the models need to be shifting probably a little bit more from the first half to the second half on the earnings per share guidance.

Okay.

Perfect.

I'll let some others jump in.

Thanks.

David Roman, Goldman Sachs.

I wanted to start with some of your comments towards the end of the call, regarding capital deployment.

I know in the February call you had started to talk about a potential shift, as related to the mix of dividends and buybacks, with the anticipation of a dividend update in June.

A, is that still the case, and B, any additional color you could provide around the magnitude of that shift at this point in time?

Well, first, yes.

We clearly have more flexibility, as we've talked about several times, with increased access to overseas cash.

And I think also, our increased operating productivity that we'll get from synergies is a factor that we have to consider.

And so, based on that, we're examining our overall capital allocation strategy, and we're going to update you shortly on this, in a pretty short timeframe.

That's I think all I can say at this point.

Okay.

And then maybe just a follow-up on spine, this is a business that has ebbed and flowed over the past several quarters, but it does look like the overall end market has shown some signs of improvement, at least over the past, call it, 12 months.

That's not something in which Medtronic has necessarily participated.

Could you go into a little bit more detail on exactly what the turnaround plan is for spine, and at what point you start to think about more significant changes in that business?

Either the senior management or sales level?

Well, there are number of points.

First of all, from an overall perspective, you're right.

The business itself, spine taken in isolation, hasn't quite kept up with the way the markets have trended, at least in the last 12 months, I'd say.

But there's a short-term strategy to this, which is clearly related to the timing of some of the new products, which we'll see play through in the coming quarters here in the short term.

There's a longer-term aspect of this, in that we've always said that our strategy in that space is really an integrated strategy that uses our overall capabilities in capital equipment and in surgical tools, together with spine, to give us the competitive advantage.

And to that effect, we've reorganized our commercial teams at the regional management level.

That's already in place.

We've done that both in the US and in Europe.

And we'll have to see how that plays out.

I think that's really our strategy, and we're going to monitor how we deliver on these two aspects in the coming quarters very closely.

Okay.

Thank you.

Kristen Stewart, Deutsche Bank.

Gary, I was wondering if you could go into a little bit more on the tax rate?

You had mentioned that during the quarter you had settled some related to Kyphon.

I'm not sure if that's all of the IRS settlement that you were referring to at the investor day last year.

And then also, just on the guidance for the full year of 16% to 18%, maybe just walk us through how you get there, just given the fact that at least I was expecting the tax rate to be a little bit lower, given some of the commentary that you had with Covidien, post-close, with the rate dropping by about 200 basis points.

Not sure if it's related to the settlement there with the IRS.

Okay.

With respect to, first of all the Kyphon aspect and the charge we took in the quarter related to Kyphon, this relates to an issue we've had that was raised by the IRS related to our acquisition of Kyphon, several years ago, in which we used a combination of basically OUS cash and US cash to accomplish and there was a dispute on how much of that was taxable, et cetera.

So as you recall, we used about $3.3 billion of OUS cash to do that transaction.

What we ended up agreeing with, in a preliminary decision, the Board still has to approve this, but we agreed to basically on a settlement with the IRS where we ended up paying about $275 million to settle that.

And then interest on top of that gets you to the charge we took for the quarter overall.

This is not the transfer pricing issue that we've talked about in some of the other previous meetings, where -- which will have a significant impact on the cash flow going forward.

This is more of a one-off item related to the acquisition, but it was a major outstanding issue we had with the IRS, and we were happy to get this one settled and move beyond it.

As far as the tax rate going forward on the 16% to 18%, that is basically in line with what we've expected.

If you went back and looked at Medtronic previously, and remember, this is all now on cash earnings, and so it's actually a lower rate if you put in the amortization impact.

So you've got to make sure you're looking at apples to apples when you look at this, Kristen.

But overall, Medtronic previously, we had been in that 18% to 20% range.

Covidien had been in that 16% to 17% range, and then as we basically pulled this all together, you leverage those, and as we indicated, we're going to get about a 200 basis point drop as we come forward related to that.

So as a result we end up on that 16% to 18% range.

Is it 15.5% to 17.5%?

That's how we get to the overall numbers.

So it's in line with what we've expected, and been guiding towards overall.

Obviously, there's still a lot moving parts with respect to the tax planning and strategies, as we go forward.

But we think that range is right in line with what we saw here in Q4, as we went forward.

It all depends on R&D tax credit getting renewed, all those types of things.

So as we go forward, we feel confident that we're in that range, and we'll have to see where it ultimately ends up, but that's our current expectation.

And it's in line with what we've been saying previously.

And what's the impact on the R&D tax renewal for that number?

And what is the updated timeline on resolution on the transfer pricing issue?

Well, the R&D tax credit probably has an impact of 50 basis points or so to the overall rate, as far as where that is, so it's not huge but it does have an impact on it.

And it all depends obviously when that comes in, how it plays out, as far as how much catch-up you have when it occurs.

On the transfer pricing issue with Puerto Rico, the court heard the case.

We're waiting for the judge's decision on that, and that will be, whenever the judge decides, it's probably going to be towards the end of our fiscal year before we hear anything on that, but it's all based on their time.

The judge has said that they want at least a year to review it.

So it's all based on their timing.

Okay.

Thanks very much.

David Lewis, Morgan Stanley.

Just two quick questions.

First for Bryan, surgical solutions business continues to remain above market growth, even though you're getting a much more concerted effort from your chief competitor, so you keep on getting these questions of sustainability in that business, despite very consistent performance.

So I guess if you could focus on what's driving that success, and what gives you the confidence in above market growth going forward?

And I have a quick follow-up.

I appreciate the question.

I feel pretty confident, you've got to first reconcile though, the fourth-quarter.

It was very strong for surgical solutions, but we did have some portfolio moves in that.

If you pull that out, we're more in the 7% growth range organically, which is still very strong versus market.

And we have noticed a little extra effort by our chief competitor, but we have a lot of confidence in our plan as well, so I feel that we can continue with that above market growth.

We got strong momentum, as you have already referenced.

We have what I believe to be very differentiated technologies, both in advanced stapling as well as advanced energy, and we continue to launch products in both those areas.

As matter of fact, if I look across the surgical business, somewhere in the neighborhood of 30 products that we're going to launch in FY16, and that will drive somewhere in the neighborhood of $60 million to $70 million of revenue, just in those products launched in FY16.

So the momentum is there.

We're not getting lackadaisical in our approach though, just because we've been winning.

We are very intense in launching products that matter, and executing policy when we do.

Okay.

And then Omar, I guess for you, you've been very focused on this three-pronged strategy, and I guess as I think about certain business lines within patient monitoring and recovery, they seem a little less strategic, or perhaps not fitting with every piece of your strategy.

Do you see these businesses as important to the Medtronic strategy, and can you comment on the likelihood of targeted divestitures, now that you've got the deal at least closed?

The way we look at these businesses is first, are they in line with our mission or not?

And second, if they are, and in this situation, the way we define that is that these businesses collectively impact patient outcomes through alleviating pain, restoring health, or extending life.

Second thing we look at is, is there room to improve that further?

Is there technology capability there that can help us drive the outcomes, better outcomes in a more meaningful way?

Then we look at, is the market space attractive?

Can we grow it?

And is our team capable of delivering?

And then finally, we look at that in combination with everything else that we have from a broad value-based healthcare perspective.

So we're going to have to let this thing play out.

This is, we're just beginning to put this new structure together with that kind of thinking in the business groups.

And then over time, we'll evaluate what fits or not.

We're constantly looking at our overall portfolio, and we do divestitures of certain items that we feel does not fit into that overall strategy.

So we'll look at these businesses, just like any other business, in that context.

But certainly, the main question, are they in line with our mission or not?

Can they make a difference for technology?

We think yes.

Thank you very much.

Bob Hopkins, Bank of America.

So first question for Gary, just on the 2016 guidance as it relates to free cash flow, can you give us a sense as to what you expect for 2016 global free cash flow?

And then, maybe also an update on the percentage of that free cash flow that you think you'll have access to?

I think from some of your slides, recently suggested between $7 billion and $7.5 billion in free cash flow in 2016, but just wanted to confirm that.

No.

I mean for cash flow if you just take, use our fourth-quarter free cash flow here, $1.7 billion, and use that, annualize that, you're more in that $6.8 billion to $7 billion range.

That's kind of what we've been talking about, overall.

Now, the reality is however, foreign exchange has a big impact on that free cash flow, also.

And so, if you just look at our annual rate overall, that's where we'd be at, and then you'd have back, to Omar's point earlier, you have some synergies come into play, the cost and value capture synergies benefited.

But FX is going to be a headwind on cash flow also.

So my guess is right now, our numbers are probably, clearly based on FX rates, are clearly below $7 billion, and probably closer to between $6.5 billion and $7 billion with all the moving parts that are going on, just because of foreign exchange.

And as we indicated, we do think right now that based on those rates, we're probably going to be closer to, somewhere around 60% of that cash is accessible in the FY16 timeframe, would be our current assumption, based on the numbers that we see rolling in.

So that's why our 50% commitment to return cash to shareholders, obviously we have much more flexibility around with that 60% mix that we are expecting at this point.

The other thing that's going on, Bob, that's all based on what I would call an operating basis, including the FX piece.

The other, there obviously are still some one-time items that do affect cash flow.

That free cash flow I just talked about is really coming from our operating results, and that's what we based all of our assumptions on.

But I do have to think about the fact that there are going to be, there'll some additional restructuring, things like that, and capital investments we're going to have to make as we go forward with Covidien acquisition.

So that's all taken into account as we think through our overall free cash flow here for the current year.

But in general, I would use right now, I think it's less than $7 billion that we've previously been talking about.

You're probably down more in the $6.5 billion to $7 billion, just based on what's going on with foreign exchange.

Great.

That's very helpful.

Thank you.

And then one also for Omar, now that you've had Covidien for obviously just a few months, but would love to hear your updated thoughts on ways that you think you can leverage that acquisition beyond just the cost synergies, and I'm thinking specifically about M&A, and leveraging your access to your global cash flow, and leveraging your low tax rate.

Just wanted to get an update on ways that you think you can really leverage this Covidien transaction, and the degree to which that helps you with an M&A strategy going forward?

Well, the first thing is that beyond the cost synergies I just want to remind you that there are two very specific areas that we've called out.

In drug coated balloon and in neurovascular, where we're getting immediate benefit, and we expect some growth acceleration as a result of that.

Beyond that, we've begun to explore, at a pretty much grassroots levels with engineers, other opportunities where we can leverage each other's technologies.

Now, from an M&A perspective, which is using the extra access we have to that cash, we've stated that we're going to look at early technologies in the US primarily, where there may be opportunities which we haven't been able to participate in to the degree that we would like to, to create a long-term technology pipeline of early stage technologies that we think can make a difference, we've begun to look at it.

We've actually, already in the ENT area for example, we're already executed on some of these.

And we've got a good pipeline of other activities that we're looking at closely.

But beyond that, the Covidien or the MITG business, has had a history of doing acquisitions to supplement their business with regularity, and we'll certainly continue to encourage that process.

And in fact, focus it even more according to the way in which we've organized overall business.

So the M&A activity from us, certainly from a technology perspective, is very close to what we're focusing on.

Bigger deals, obviously opportunistically, we look at it, but that's a matter of our overall financial bandwidth and our management bandwidth, so that's the way in which we're approaching this.

Great.

Thank you.

Matt Taylor, Barclays.

I wanted to ask one about your emerging market strategy.

You talked a little bit about some partnerships there that you're pursuing and some things you're doing to try to get the growth rate higher.

I guess I was curious to see whether you had changed your views on what that growth could be sustainably, and whether or not Covidien integrated into the Medtronic structure could help you to grow faster in EM?

Well, a number of points.

First of all, our confidence and our belief and really, surety if you like, in the long-term opportunity in emerging markets is completely unchanged, and we are not at all wavering on that.

That's just a matter of fact.

The way in which we approach that market, to tap into that opportunity, particularly in the short term, actually has been more complex and more difficult than we first envisaged.

And so the growth rate has been slower than what certainly we had originally thought.

I think having said that, there's certain fairly respectable double-digit growth that we can expect reliably, but we want that to be higher.

And we're looking at methods to which we can -- we are continually actually looking at methods to which we can do that sooner rather than later.

And as we're learning, channel optimization is a key factor, partnerships with governments is a key factor, and finally, referral chain development is something that we need to approach with far greater scale than we've had before.

These are all important factors.

As far as Covidien goes, there are a number of things that make us optimistic that this combination will help us.

One, there is a complementary strength in certain markets.

In the Middle East and Latin America, where between Covidien and Medtronic, we have complementary strengths.

As a result, we now have our emerging market profile diversified between China, Middle East and Africa and Latin America as the big three centers within emerging markets, while previously on the standalone Medtronic basis it was primarily China.

So that gives us a little bit of diversity in these markets that we didn't have.

And finally as we've talked about before, simply the scale that we now have will allow us to penetrate more geographies much more efficiently than we could before, and just adding more sales teams around the world, either in underpenetrated regions within countries, or in brand-new countries, will have to contribute.

So we haven't pieced all that stuff together yet, and we are in the process of prioritizing some of those investments.

And again, we're trying to accelerate the growth profile in emerging markets with actually a pretty great sense of urgency.

Thanks for that.

And then, under synergies, you've talked about at least $850 million.

I think in the past, you've referenced some opportunities to further that number through some network consolidation in your plans.

When do you think you'll be in a position to give us a quantifiable update on what you think the synergies could be between the two companies in combination?

I think a number of things.

First of all, as we go forward, this is going to reflect in our overall productivity.

I think that's the best way to do it.

Although we will keep track of our value capture efforts, we're very detailed and granular programs, I think at some point, new efforts that are a result of the combination, versus efforts that were already in place that get accelerated, gets very mixed up.

And instead of trying to divide those things up, we're going to commit to certain levels of productivity that we get out of different line items in our P&L.

And that's the way to do it.

We feel good about a long-term productivity that we can get out of this.

That value capture, the synergy effort is going to eventually morph into a long-term productivity benefit, extending way beyond the three years that we've projected.

I think that's the correct way to look at it.

That this becomes a productivity engine of significant magnitude that we didn't have before.

And to some extent, we're pretty excited about it.

Thanks, Matt.

Sorry, we've gone past the top of the hour, but we'll take two last questions.

Larry Biegelsen, Wells Fargo.

Congrats on a strong quarter.

Gary, one clarification.

It's still not clear to me, is the R&D tax credit assumed in the guidance or not assumed?

On the tax rate it's assumed in the guidance, Larry, but what we're saying it will probably be toward the higher end of the range until the credit is approved, but assuming it gets approved, then that would be in that range.

Okay.

That's helpful.

It's basically assumed in there.

Okay.

And then for my real questions, first, Gary, the guidance, just bear with me on some numbers here.

The guidance implies constant currency EPS growth of about 5.6% to 10%, and your sales guidance is about 5% to 7.5%, if you include the extra week.

So therefore, the EPS guidance at the low end of the range doesn't imply any leverage.

Another way of looking at it is the EPS guidance is applying the 4% to 6% underlying sales growth, adding the benefit of extra week and then adding the 200 to 400 basis points of EPS leverage, that gets you to 7% to 11.5% constant currency EPS growth.

And as I said, you're guiding to constant currency EPS growth of 5.6% to 10%.

Sorry for the long-winded question, but just curious to know why the EPS guidance appears conservative, and I just have one product question.

Thanks.

Well, I can't go through all the numbers you just laid out, Larry, because I don't have those in my mind.

Let me look at it from the way -- you're right, our revenue growth overall, as we indicated is the mid-single digit growth plus 1% to 1.5% related to the extra week.

So just taking the midpoint of the range of 5%, you're saying somewhere around 6%, 6.5% revenue growth.

What, as we indicated on the comments overall from the operating margin perspective as we looked at it, we know from the standpoint of what we're driving there, as far as the 100 basis points of improvement on the operating margin as we go forward, we're driving about 400 basis points of leverage, and the operating income line on an operational basis before foreign exchange.

And so the point is yes, we are getting that 400 basis points of leverage that we've talked about in the calculation.

To offset, that's negatively impacted by foreign exchange, and so it's all going to get back, and foreign exchange is offsetting the majority of the overall operating leverage that we've talked about, that we're trying to drive towards.

So the rest of the numbers get a little more difficult as think about the number of shares that have been issued and the various tax rates that are going on between the various years, as we go forward.

But no, the guidance is kind of in line with what we were expecting from the overall standpoint of earnings per share growing.

Again, as we've talked about, that 200 to 400 basis points faster than the revenue.

But unfortunately with $0.40 to $0.50 of FX hit, you take the $4.30 to $4.40, and add $0.40 to $0.50 to that, I think you're going to get to the point that it is on a constant currency basis, is significant leverage over and above the revenue growth.

Okay.

That's helpful.

And then on Reveal LINQ, for Mike, it's annualizing now at about $500 million.

It seems like Q4 was very strong, with over 20% sequential growth.

So where are you in the adoption of that product, and how should we think about the growth, maybe in the near term, and perhaps the next three to five years?

And do you see any headwinds from either new competition or reimbursement pressure?

Thanks for taking the questions.

So on LINQ overall, we have to think about it in terms of its three indications for use.

So syncope, cryptogenic stroke and atrial fibrillation.

On the syncope side, we're probably in the low to mid-20s penetrated, 20% and again I'm just talking about the US and Europe, because that really is the only place currently where it's generating the very significant revenues, and we're still building up reimbursement in other places around the world.

In cryptogenic stroke, it's more like 5% penetrated, and then when you look at atrial fibrillation, it's more like 1% to 2% penetrated so there's still plenty of growth opportunity left, obviously in the product.

Now, we don't expect competitors looking, who have basic capabilities in electronics, are going to look at this and ignore it, so we expect at some point were going to see competitors, but frankly, we haven't seen anything yet.

I think we're now at a point as we look at our five-year plan where we think this will be a $1 billion contributor to the overall Company in terms of its overall diagnostic sales.

And as Omar pointed out, when you look at syncope patients you put one of these devices in, roughly 8% to 9% of those patients will wind up with a pacemaker within a year, and by the time you get out to year three, it's more like 20%, so it really is the source of the low-power growth that we have seen in the United States, in terms of growth in units.

So we think it's an important product line, in terms of what it does for us on product sales, but it also provides us now with service revenue opportunity, longer-term to monitor patients.

And so we'll be updating that as our plans develop.

Thank you.

Thanks, Larry.

Time for one last question.

Bruce Nudell, Credit Suisse.

This is Matt in for Bruce.

Thanks for taking the questions.

First, for Mike, just in your press release, height highlighted to have a growth of 50% worldwide, 30% in the US, which implies pretty significant growth ex-US, 60% year-over-year, I think a $30 million step up, according to our math, so are our numbers reasonably correct, and can you give us any color on what drove the gains there?

Was there any stocking or destocking ahead of, or with the launch of the new sizes, or anything else there?

Just to be clear, the 30% number is the heart valve therapies number, so it's a combination of our transcatheter valves and surgical valves.

So actually, the TAVI growth in the United States is faster than the international growth.

Okay.

That makes sense.

Can you give us any color on how those split out?

So our growth in overall was about 50% and in the US, we almost doubled our revenues in TAVI during the quarter on a year-over-year basis.

So the US is considerably faster, in terms of its overall growth.

Okay.

Just one follow-up on the leadless pacer launch you talked about this summer.

Can you talk about when you'll have reimbursement in place, and when you expect that product to be fully launched, and do you see that more of a source of unit share gains, or is the opportunity there for you more in premium pricing?

So important, I just did want to finish up that we don't do any meaningful stocking of transcatheter valves in the US, just finish your first question.

On the transcutaneous pacing product line, obviously we're talking about OUS now, or Europe, with the CE mark that we now have.

And there is no separate reimbursement in the sense of this product line obtaining different reimbursement in Europe.

So it basically is being targeted at a specific set of patients who might be at risk for infection, and single chamber patient population, although we do see an opportunity to see a mix shift toward more single chamber pacing because of the benefits this product line offers in terms of lower expected complication rate.

So we think it's an important breakthrough, but you will see us be very deliberate in the rollout of this product.

It requires very different implant technique than what the standard pacemaker has, and so you will see us doing very significant training and education as we roll this out, and that will gate some of the speed with which it grows.

Okay.

Thank you.

Thanks, everyone.

And thanks to all of you for those great questions.

And with that, on behalf of our entire management team, thank you again for your continued support and interest in Medtronic.

We look forward to updating you on our progress on our Q1 call, which we anticipate holding on September 3. Thank you, and have a great day.

Thank you, ladies and gentlemen.

This does conclude today's conference call.

You may now disconnect.