美敦力 (MDT) 2016 Q1 法說會逐字稿

Welcome to Medtronic's first-quarter earnings conference call.

(Operator Instructions)

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

Please go ahead, sir.

Thank you, Maria.

Good morning.

Welcome to Medtronic's first-quarter conference call and webcast.

During the next hour, Omar Ishrak, Medtronic Chairman and Chief Executive Officer; and Gary Ellis, Medtronic Chief Financial Officer, will provide comments on the results of our FY16 first quarter, which ended July 31, 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 a revenue by division summary.

We also updated our combined historical Covidien/Medtronic financial statement presentation.

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.

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.

Unless we say otherwise, references to quarterly results increasing or decreasing are in comparison to the first quarter of FY15.

In addition, unless we say otherwise, all year-over-year revenue growth rates including revenue growth ranges given on today's call are adjusted for the extra selling week in the first quarter and given on a comparable constant currency basis, which adjusts for the negative effect of foreign currency translation and includes Covidien PLC in the prior year comparison, aligning Covidien's prior-year monthly revenue to Medtronic's fiscal quarters.

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

In addition, all foreign currency translation calculations are done on a comparable basis.

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

Good morning.

Thank you, Ryan.

Thank you to everyone for joining us.

This morning, we reported first-quarter revenue of $7.3 billion, which represents growth of 12% at the upper end of our mid single-digit range, after adjusting for the extra selling week in our first quarter.

Q1 non-GAAP diluted earnings per share was $1.02.

Q1 was another strong quarter, where our employees around the world executed and delivered results that were at the high end of our objectives.

The underlying fundamentals of our business remain solid, with robust contributions from all four of our groups.

CVG and Diabetes were in the high single-digits, while RTG and MITG grew in the mid single-digits after adjusting the grow rates for the extra selling week this quarter.

From a geographic perspective, our performance in the US was particularly strong with high single-digit revenue growth again after adjusting for the extra week.

Our teams continue to execute in important product launches.

Our customers around the world are responding to our differentiated healthcare solutions that seek to demonstrate both clinical and economic value.

We remain focused on our three growth strategies: therapy innovation, globalization and economic value.

These strategies aim to create a competitive advantage for Medtronic by capitalizing on three long-term trends we see playing out in healthcare.

Namely: the continued desire to improve clinical outcomes; the growing demand for expanded access to healthcare; and the optimization of costs and efficiency in healthcare systems, including the move to value-based healthcare.

We believe our three growth strategies are the right ones to achieve long-term growth.

The resulting diversification, differentiated approach and competitive advantages will enable us to deliver on our baseline financial expectations.

We have translated each of our strategies into three independent growth vectors, with clearly stated near-term objectives for each one.

We continue to quantify and communicate our performance against these goals on a regular basis.

In therapy innovation, we delivered above goal performance again in Q1 with the new therapies growth vector contributing approximately 1,020 basis points to our total Company growth, including the benefit of the extra week.

But even after adjusting for the extra week, this result was well above our goal of 150 to 350 basis points of growth.

We're seeing strong acceptance for our new therapies across all groups.

In addition, our pipeline remains full with a number of new therapies and services expected to come to market over the next few years.

In our Cardiac and Vascular Group, the recent launches of our CoreValve Evolut R transcatheter valve, IN.

PACT Admiral drug coated balloon and Micra Transcatheter Pacing System combined with the continued growth of Reveal LINQ, as well as the upcoming US launch of Evera MRI ICD are all expected to drive strong growth this fiscal year.

Our Minimally Invasive Therapies Group is driving growth with its differentiated Endo GIA Reinforced Reload and LigaSure Maryland Jaw and also has a full pipeline of minimally invasive innovations that are expected to launch over the coming quarters.

In Restorative Therapies, we are building momentum from new products in neurovascular, such as the Pipeline Flex device for intracranial aneurysms and Solitaire FR stent thrombectomy device.

In RTG's surgical technologies division, a number of new imaging and navigation products are expected to drive growth over the coming quarters.

Our Diabetes group is realizing growth from its MiniMed 530G and 640G Systems and has a number of advancements in the pipeline as they continue to drive towards an artificial pancreas.

Taken together, we feel confident we can deliver sustained growth from new therapies, contributing significantly to our baseline goal of mid single-digit revenue growth.

Turning to globalization.

Our emerging markets growth vector contributed approximately 190 basis points to our Q1 total Company growth, including the benefit of the extra week.

After adjusting for the extra week, this result fell below our baseline goal of 150 to 200 basis points for the emerging market growth vector.

This was largely due to a planned delay in distributor sales in Saudi Arabia, in preparation for a channel optimization move.

We have a controlling interest in the newly formed joint venture with our largest distributor in Saudi Arabia.

Starting in the second quarter, this joint venture is expected to deliver incremental revenue and improved margins over our historical performance in Saudi Arabia.

While the Middle East and Africa region was weaker this quarter owing to the delayed distributor sales, we did see notable improvements in China, India and Russia.

Mainland China grew in the low double-digits, above our estimated growth of the China medical device market.

Our China results benefited from the initial implementation of our channel optimization strategy in the region, which is focused on transitioning our distribution channel to include consolidated platform distributors.

We also saw improvements in India, which grew in the mid-teens and Russia, which grew in the upper teens.

Over the long term, we believe strongly that the penetration of existing therapies into emerging markets represents the single largest opportunity in med tech.

In addition to standard market development activities, our differentiated approach of local channel optimization, government contracts and private partnerships are all aimed at unlocking this opportunity.

Turning to economic value.

Our services and solutions growth vector contributed approximately 50 basis points to our growth in Q1 on a legacy Medtronic basis or 30 basis points on an overall Medtronic basis.

While this overall result was below our goal of 40 to 60 basis points, we intend to grow into our goal as services and solutions are adopted by the legacy Covidien businesses.

In Cath Lab Managed Services, we are generating rapid growth as we are fast becoming the idea partner for hospitals that seek to drive operational efficiency.

We're now expanding our Cath Lab Managed Services business globally, with new accounts in Eastern Europe, Turkey and Saudi Arabia.

Since the program's launch two years ago, we have completed 59 long-term agreements with hospital systems representing $1.3 billion in revenue over an average span of six years.

We have a large number of potential contracts at various stages of negotiation with providers around the world.

In addition, we have now signed the first three operating room managed services deals in Europe, each spanning nine years.

ORMS applies the CLMS business model to an operating room setting, utilizing the breadth of MITG's products and expertise.

In Diabetes, Q1 was the first full quarter of operating Diabeter, a Netherlands-based diabetes clinic and research center that we intend to expand across Europe.

With Diabeter and our continued strong progress with partnerships, such as IBM, we continue to transform our Diabetes group from a market leading pump and sensor Company to a leading provider of holistic diabetes management solutions that we believe will expand access, integrate care and improve outcomes, so that people living with diabetes can enjoy greater freedom and better health.

We continue to focus on providing solutions to providers that go beyond purely medical devices, including taking a leadership position in aligning our solutions to new value-based payment models that are emerging in healthcare.

We were pleased to see the US Center for Medicare and Medicaid Services propose bundle-payment initiative for hip and knee replacements.

While Medtronic does not participate in hips and knees, CMS may well broaden these bundle-payment initiatives to other care pathways where we do have leadership positions.

Proposals like this from CMS demonstrate that a move to value-based healthcare is under way.

The proposal mandates that participating hospitals be at risk for the cost and quality of the joint replacement surgery and 90 days of post acute care.

As bundled payments take hold, we expect to offer unique comprehensive solutions to healthcare providers encompassing our devices, associated diagnostics, and home-based patient monitoring programs, all wrapped in risk sharing business models.

Next, turning to our integration efforts.

The integration of Covidien into Medtronic continues to go extremely well.

As I've mentioned before, we have organized our activities in four clearly defined areas: preserve, optimize, accelerate and transform.

We've been successfully achieving our first and highest priority, preserve, as evidenced by the continued revenue growth across all of our groups and geographies.

We continue to monitor talent retention and overall employee satisfaction, both of which remain strong.

Our second priority, optimize, is focused on achieving the expected minimum of $850 million in cost synergies by the end of FY18.

As planned, we have already completed over half of our value capture initiatives for the fiscal year.

These savings are expected to build as we go through the year, with an FY16 goal of achieving $300 million to $350 million in savings.

We're executing on our indirect sourcing plans, where we are using best case contracts and improved purchasing power to achieve meaningful savings.

We're also realizing significant real estate savings, having already closed over 60 facilities, most of which were redundant field offices or distribution centers.

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

In accordance with our plans, we have aligned the sales forces and integrated the back offices expeditiously in both of these areas, including moving the North American commercial operations of both businesses onto Medtronic's enterprise system, SAP.

Our fourth and final priority is transform.

We are positioning the Company to play an increasingly larger role in delivering higher value in healthcare, aligning our solutions to the emerging value-based payment models and partnering with new stakeholders to lead and succeed in the transforming healthcare marketplace.

An early example is our Operating Room Managed Services initiative in MITG, where we take over the management and operations of hospital rooms -- hospital operating rooms.

While we had a number of successes in Q1, we also faced some challenges including under performance in our US Core Spine business.

Some of our recent product rollouts are taking longer to reach scale but we are seeking to actively address our performance through a series of near, medium and longer term actions.

In the near term, we intend to sign more large system deals to provide procedural volume share by using our new integrated RTG commercial organization.

Over the medium term, we will translate our surgical synergy initiative into a more specific commercial offering and focus the efforts of our new integrated commercial organization in promoting it.

Over the longer term, we expect to see the impact of the changes we're making to our product development processes, which include incorporating several methods that have been successful in other parts of the Company.

Turning to the P&L.

Q1 non-GAAP diluted earnings per share was $1.02.

Foreign currency translation continues to be a significant headwind affecting our Q1 EPS by $0.13 to $0.14.

On a constant currency basis, our non-GAAP diluted EPS growth represented over 400 basis points of leverage, above our baseline expectation of 200 to 400 basis points.

We delivered $1.1 billion of free cash flow in Q1, after adjusting for certain litigation payments and nonrecurring tax payments.

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

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

In June, we announced a 25% increase in our dividend, our 38th consecutive year of increasing our dividend.

We expect to not only grow our dividend over time with earnings growth but increase our dividend payout ratio to 40% on a non-GAAP basis within the next few years.

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.

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

Gary?

Thanks, Omar.

First-quarter revenue of $7.274 billion increased 70% as reported, 12% on a comparable constant currency basis, after adjusting for a $529 million unfavorable impact of foreign currency and including the favorable impact from the extra week or at the upper end of the mid single-digit range after adjusting for the extra week.

Our first quarter results included an extra week due to our 52 and 53 week fiscal year.

While the exact benefit of the extra week is difficult to estimate, based on our analysis, we calculate that it added approximately 6 percentage points of growth on the quarter or approximately 1.5 percentage points of growth for the full fiscal year.

Legacy acquisitions and divestitures from both Medtronic and Covidien contributed 30 basis points net to Q1 growth.

Q1 diluted earnings per share on a non-GAAP basis were $1.02, an increase of 3%.

Q1 GAAP diluted earnings per share were $0.57, a decrease of 34%.

In addition to the $372 million after tax adjustment for amortization expense, this quarter had several GAAP to non-GAAP after tax adjustments, primarily related to the Covidien transaction: a $165 million charge related to amortization of the remaining inventory purchase price step-up; a $53 million charge for acquisition related items; and a $52 million net restructuring charge.

Our Cardiac and Vascular Group, which accounted for 35% of our total Company revenue, grew in the high single-digits.

This was a result of strong low double-digit growth in Cardiac Rhythm & Heart Failure and mid single-digit growth in both Coronary & Structural Heart and Aortic & Peripheral Vascular divisions.

Cardiac Rhythm & Heart Failure, or CRHF, had strong above market low double-digit growth again in Q1.

We estimate the overall CRHF market continues to grow in the low to mid single-digits.

The market is showing strong preference for our leading differentiated technologies, including our Viva XT CRT-D with its AdaptivCRT algorithm and Attain Performa Quadripolar Lead; the Arctic Front Advanced CryoAblation System; the Evera MRI ICD in Japan; and Reveal LINQ insertable cardiac monitor in the US and Europe.

Strong demand for our Reveal LINQ resulted in diagnostics growth in the high 20%s and is also resulting in meaningful pacemaker pull-through.

In Europe, the launch of our premium Micra Transcatheter Pacing System is off to a great start.

Micra is one-tenth the size of a traditional pacemaker and is placed directly inside the heart.

Looking ahead, the robust productivity of our CRHF pipeline will continue as we expect to launch the Evera MRI ICD in the US imminently.

In addition: the MRI-safe version of Viva CRT-D in the US and Europe; the full-market release of the Arctic Front Advanced CryoAblation System in Japan; and the full-market release of the third generation Arctic Front ST cryoballoon in Europe are all expected by the end of this fiscal year.

Coronary & Structural Heart, or CSH, grew in the mid single-digits driven by growth in transcatheter heart valves, drug eluting stents and balloons.

Transcatheter heart valves grew in the low 30%s globally and in the high 30%s in the US.

In Q1, we received US FDA approval for Evolut R, the first and only recapturable heart valve in the US and the first commercial implant started late in the quarter.

Our team is focused on training US centers on this next generation valve with its differentiated 14-French equivalent delivery catheter.

We expect it to be in all of our current US accounts by the end of the calendar year.

In Europe, Evolut R is driving strong growth, helping us gain share in Western Europe.

We estimate, we now hold the number one TAVR position in 11 European countries.

In Japan, we received PMDA approval for CoreValve and are anticipating reimbursement approval and launch in our third quarter.

Last week, we announced that we have entered into an agreement to acquire Twelve, a development stage Company that is executing first in human clinical evaluations of a unique transcatheter mitral valve replacement design that we believe represents leadership technology in this space and accelerates our time to market in this important new growth area.

In drug eluting stents, we grew in the low single-digits and are holding global share on the strength of Resolute Onyx in CE Mark countries and Resolute Integrity in the US.

It is worth noting that we continue to grow our US DES share as an increasing percentage of US DES sales are included in multi-line CVG customer agreements that leverage our broad cardiology product lines, innovative therapies and wrap-around programs and services.

In Q1, we also commenced enrollment in two important clinical trials: our first human trial for our drug filled stent; and our SPYRAL HTN-off and on med study in renal denervation.

In Aortic & Peripheral Vascular Division, or APVD, revenue grew in the mid single-digits, with low double-digit growth in Peripheral Vascular, partially offset by low single-digit declines in Aortic.

In Peripheral, we continued to execute a strong US launch of our IN.

PACT Admiral drug coated balloon and maintained our leading market position on the strength of our exceptional clinical data.

Q1 was the first full quarter of launch utilizing our combined Medtronic and legacy Covidien Peripheral sales force.

We expect to file for expanded indications for IN.

PACT Admiral with a PMA-S US filing in the second half of this fiscal year for in-stent restenosis indication, as well as a CE Mark filing by the end of this fiscal year for an AV fistula indication.

In Atherectomy, we continue to see strong growth in new accounts from our HawkOne 7 French Directional Atherectomy System, which has helped us stabilize share and see share gains above the knee.

Last month, we started the US launch of the Entrust Delivery System, which is used to place our EverFlex self-expanding peripheral stent.

In our Aortic business, while we faced increased competitive pressure outside the US and felt the impact of market reimbursement cuts in Japan, the business grew in the US driven by the continued market adoption of our Endurant IIs AAA stent graft, which resulted in sequential share gains.

During the quarter, our Aortic business announced a number of important developments in both its organic and inorganic product pipeline including: first implants of our next generation Endurant Evo AAA stent graft platform; initiation of a US feasibility clinical study for the Valiant LSA branch thoracic stent graft platform; acquisition of the Aptus EndoAnchor product line; and the initiation of a joint development and staged acquisition agreement with Arsenal Medical to commercialize the Company's novel aneurysmal sac-filling foam technology in AAA stent grafting applications.

Now, turning to our Minimally Invasive Therapies Group.

Revenue grew in the mid single-digits and accounted for 34% of the total Company revenue.

MITG's revenue performance was driven by a high single-digit growth in Surgical Solutions and low single-digit growth in Patient Monitoring & Recovery.

The Group benefited from strength in Surgical volumes in the US, which has been occurring now for the past three quarters.

Surgical Solutions grew in the high single-digits, with high single-digit growth in advanced surgical, low single-digit growth in general surgical, as well as low double-digit growth in Early Technologies.

Advanced Surgical's strong quarter was driven by balanced low double-digit growth in both Advanced Stapling and Advanced Energy, as the business benefited from new products, the continued trend of surgical procedures moving from open to minimally invasive and the underlying strength of surgical volumes in the US.

Early Technologies was driven by strong growth in GI Solutions and Interventional Lung Solutions.

Patient Monitoring & Recovery grew in the low single-digits.

Respiratory & Patient Monitoring, Nursing Care, and Patient Care & Safety all grew in the low single-digits.

Respiratory & Patient Monitoring growth was driven by strong US patient monitoring sales.

Nursing Care had strong sales in enteral feeding.

Now moving to our Restorative Therapies Group.

Revenue grew in the mid single-digits and accounted for 25% of total Company revenue.

Results were driven by mid 20%s growth in Neurovascular and high single-digit growth in Surgical Technologies with low single-digit growth in Spine and Neuromodulation.

Spine grew in the low single-digits, in line with the global market.

However, in the US, our Core Spine business under performed the market.

We recently realigned our RTG commercial sales management.

We expect these changes to result in better alignment of incentives and an improved focus on cross selling in our Surgical Synergy program, which integrates our spine implants and Surgical Technologies imaging and navigation equipment.

We also expect the Core Spine business to improve as its numerous recent and upcoming product launches reach scale, including our Elevate Expandable Cage and Solera Voyager System in thoracolumbar, as well as our Divergence standalone Interbody Cage, the ZEVO anterior cervical plate system, the Prestige LP Cervical Disc and Anatomic PEEK PTC Interbody Spacer in cervical.

In Neuromodulation, revenue increased in the low single-digits, driven by mid single-digit growth in Gastro and Uro and DBS and low single-digit growth in Pain Stim.

Our US Pain Stim business grew in the mid single-digits, in line with the market.

In pumps for pain and spasticity, we have implemented the required changes to the distribution processes and are executing against our commitments under the consent decree we received in late April.

Following an initial decline in Synchromed II implants, we saw a stabilization in the back half of the quarter.

In Surgical Technologies, revenue grew in the high single-digits, driven by mid-teens growth in Advanced Energy, high single-digit growth in Neurosurgery and mid single-digit growth in ENT.

Surgical Technologies continues to benefit from diversified growth coming from disposables, service revenue and the strong adoption of new products including the StraightShot M5 Microdebrider and NuVent sinus balloon.

Our Neurovascular division posted strong revenue growth in the mid-20%s.

New products such as our Pipeline Flex device for the treatment of inner cranial aneurysms and Solitaire FR 4x40 revascularization device for stent thrombectomy are driving solid double-digit growth in Flow Diversion and Stents.

We are also seeing increased pull-through of our Neurovascular Access products given the strength of Pipeline and Solitaire.

Earlier this week, we acquired Medina Medical and its aneurysm and embolization mesh technology for hemorrhagic stroke, which we believe can disrupt the coil market.

Now moving to our Diabetes Group.

Revenue grew in the high single-digits and accounted for 6% of total Company sales.

Low double-digit growth in Intensive Insulin Management division was driven by continued strong adoption in US of the MiniMed 530G Insulin pump system with the Enlite CGM sensor.

Growth was also driven by the continued international launch of the next generation MiniMed 640G Insulin pump system with Enhanced Enlite CGM sensor.

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

In our non-intensive diabetes therapy division, revenue growth in the high 60%s was driven by sales of professional CGM and infusion ports for Type 2 diabetes.

In our Diabetes Services and Solutions division, high single-digit growth was driven by strong consumable sales in the US.

Our Diabetes Group announced several new partnerships in the quarter, including Samsung, Becton Dickinson and Glooko.

We also received the FDA approval in Q1 for the MiniMed Connect which allows users to view their insulin pump and CGM data on a smartphone and provides remote monitoring and text message notifications for their caregivers.

This product is expected to launch in the second quarter.

Turning to the rest of the income statement.

After adjusting for certain non-GAAP items mentioned earlier, the Q1 operating margin was 27.2%, which included a 110 basis point negative impact from foreign currency.

On a comparable constant currency basis, this represents a 40 basis point improvement in operating margins versus the prior year, reflecting a relatively stable gross margin, a 110 basis point improvement in SG&A expense as a percent of sales and a negative 60 basis point change in net other expense due to one-time items all on a comparable constant currency basis.

Included in the Q1 operating margin were non-GAAP gross margin SG&A as a percent of sales and R&D as a percent of sales of 69.3%, 33.7% and 7.7% respectively.

It is worth noting that the non-GAAP gross margin SG&A and R&D were negatively affected by 130 basis points, 30 basis points and 40 basis points from foreign currency respectively.

Also included in the operating margin was net other expense of $61 million including net gains from our hedging program of $64 million.

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

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

Assuming current exchange rates for the remainder of the fiscal year, which includes $1.12 euro and JPY122, we expect the FY16 net other expense to be in the range of $185 million to $235 million, which includes an expected impact from the US Medical Device Tax of approximately $210 million.

For Q2 FY16, we expect net other expense to be in the range of $55 million to $65 million, based on the previously mentioned exchange rates.

Overall, we continue to expect the full-year FY16 operating margin to be in the range of 28% to 29% on an as reported basis, which includes over 100 basis points of margin improvement on a comparable constant currency basis, offset by a similar amount of negative FX impact.

This results in approximately 400 basis points of operating leverage on a comparable constant currency basis related to the cost synergies, which are the majority of -- which are now expected in SG&A as a result of the Covidien acquisition as well as the continued execution on the legacy leverage initiatives of both Covidien and Medtronic.

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

Below the operating profit line, Q1 net interest expense was $191 million, a significant increase from the prior-year comparable quarter, but consistent with Q4 FY15 as we are including the incremental interest expense from our December 2014, $17 billion bond offering.

At the end of Q1, we had approximately $18 billion in cash and investments and $35.6 billion in debt.

Based on current rates, we would expect Q2 net interest expense to be in the range of $175 million to $185 million.

Our non-GAAP nominal tax rate on a cash basis in Q1 was 18.1%.

On a full-year basis, we continue to expect our FY16 non-GAAP nominal tax rate on a cash basis to be in the range of 16% to 18%.

We expect to be at the higher end of this range until the presently expired US R&D tax credit is reinstated.

In Q1, free cash flow was $592 million, which includes $92 million of certain litigation payments as well as $407 million of nonrecurring tax payments that primarily relate to an IRS settlement.

We remain committed to returning 50% of our free cash flow, excluding one-time items, to shareholders and also continue to target an A credit profile.

In Q1, we repurchased $750 million of our ordinary shares and paid $538 million in dividends.

As of the end of Q1, we had remaining authorization to repurchase approximately 100 million shares.

First-quarter average daily shares outstanding on a diluted basis were 1.436 billion shares.

For FY16, we continue to expect diluted weighted average shares outstanding to be in the range of 1.433 billion to 1.437 billion shares including approximately 1.433 billion shares in Q2.

Let me conclude by providing our FY16 revenue outlook and earnings per share guidance.

We continue to believe that full-year revenue growth in the range of 4% to 6% on a comparable constant currency basis plus the incremental approximate 150 basis point benefit from our Q1 extra selling week remains reasonable.

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 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 benefit of the extra week.

While we cannot predict the impact of currency movements, to give you a sense of the FX impact if exchange rates were to remain similar to the beginning of this week 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 $425 million to $475 million impact in Q2.

Turning to guidance on the bottom line.

We continue to expect 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 with the Covidien acquisition.

As you think about your FY16 models and quarterly gating, it is worth noting again that a higher percentage of the negative FX impact is in the first half of the year, while more of the value capture synergies to occur later in the fiscal year.

While we don't give quarterly earnings per share guidance, I would note that Q1 and Q2 are often similar.

But this year, Q1 profitability was favorably affected from the extra week.

Thus, we would expect Street models to adjust Q2 down a few pennies from Q1.

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.

Before opening the lines for Q&A, I'd like to briefly conclude by reiterating that Q1 was a strong quarter.

We feel good about the remainder of the fiscal year.

We remain focused on reliably delivering on our baseline financial model: mid single-digit constant currency revenue growth, EPS growth of 200 to 400 basis points faster than revenue on a constant currency basis and returning 50% of our free cash flow to shareholders.

As the world continues to move towards value-based healthcare, Medtronic is well-positioned to provide medical technology solutions that improve outcomes while lowering cost.

In fact, using biomedical engineering to improve outcomes is the essence of the Medtronic mission that our founder, Earl Bakken, crafted 55 years ago: to alleviate pain, restore health and extend life.

This is something I'm extremely passionate about and dedicated to, as our more than 85,000 employees.

We're confident that our three growth strategies: therapy innovation, globalization and economic value, are the appropriate strategies to achieve our mission.

The focus on these three strategies is expected to result in both revenue diversification and sustained revenue growth.

We expect to further leverage this revenue growth with our productivity initiatives, which have been significantly improved by our transformational acquisition of Covidien.

We expect to deliver consistent and reliable results which, when combined with our solid underlying fundamentals, strong secular growth drivers and 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, Geoff Martha, who recently replaced Chris O'Connell as the President of our -- the Restorative Therapies Group is here.

Geoff is a proven leader, who has had responsibility for developing Medtronic's growth strategies, executing the Covidien transaction and overseeing the integration.

I'm confident in his ability to leverage the opportunities within RTG.

Also joining us today to answer your questions is: Mike Coyle, President of our Cardiac and Vascular Group; Bryan Hanson, President of our Minimally Invasive Therapies Group; Hooman Hakami, President of our Diabetes Group.

Also given the growing importance of our Cath Lab Managed Service business, Rob ten Hoedt, President of our Europe, Middle East and Africa region is also present.

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

If you have additional questions, please contact our Investor Relations team after the call.

Operator, first question, please.

David Lewis, Morgan Stanley.

Just a quick question for Omar, then one for Gary.

Omar, just your business momentum has been very, very strong and that continued obviously in this quarter.

You've always talked about 4% to 6%.

I guess on a go-forward basis, what's now providing you, as you look about the product portfolio, what gives you that confidence in that 4% to 6% range?

What has to go right to continue to deliver on the upper end of that range over the next several quarters, given some of your larger products are beginning to anniversary or the comps are getting more challenging?

Well, we think that we've got a pipeline of new products coming out that will replace the products that are lapping in growth.

Besides, some of them have continued momentum even after their anniversary period like the transcatheter valve, where the market continues to grow.

But as I pointed out, in almost every group -- in every group, we have a very strong pipeline of products coming out, all the way from our diabetes team to RTG, minimally invasive, CVG, all of them have several new products in the pipeline.

So we see this new therapies momentum continuing.

In addition, I'm looking to supplement that with significant growth from both emerging markets as well as services and solutions, which kind of diversify our sources of revenue and can contain any surprises that may come up.

So we think that range is a pretty reliable range.

After the acquisition of Covidien, it has given us even more diversification.

Okay.

So the upper end of the range, Omar, is not necessarily out of contention here even over the next several quarters?

Well, I say the whole range, but you're right.

I mean, the momentum right now suggests that the upper end of the range is the place to go.

But the range is there for a reason.

So we're going to stick to the mid single-digit range.

We'll do everything we can to get to the upper end of the range.

Given our momentum, especially with new therapies and given the fact that in both services and solutions and emerging markets, we expect our momentum to actually pick up in the back half of the year.

There's a good possibility we could drive the higher end but the range is, like I said, is there for a reason.

Okay.

Omar, very clear.

Thank you.

Then, Gary, just one comment on the quarter.

Obviously revenue momentum very strong.

You had the extra selling week.

I think there's some who are saying in this particular quarter with the extra selling week there could have been more leverage to the bottom line.

Gross margins were fine.

There was some -- it looks like some discretionary spending, obviously some currency.

Could you give us a sense of why we wouldn't have seen more upside in the first quarter?

How we're tracking versus some of the Covidien synergies?

We talked about the $850 million number.

I think there's an expectation that number could have upside.

So this quarter relative to the extra selling week, why was there not more leverage?

How you're feeling about potential upside to the Covidien synergy number as we progress through the balance of the year?

Thank you.

Yes, David, I think you addressed kind of why we -- you didn't see quite as much of it hitting the bottom line here in Q1.

Overall, obviously we saw very strong growth both in the top line.

We feel good about where we ended up on the bottom line, but there is obviously a lot of headwinds.

The majority -- the biggest one being obviously the foreign exchange.

As we have highlighted, foreign exchange especially in Q1.

But in Q1 and Q2 is probably at the peak here in these next couple quarters.

We clearly saw that in Q1.

We think that will probably become a little bit less as we go through the year.

In addition, the synergies are occurring basically exactly as we expected.

When you think back to your point, we're probably a little ahead of schedule on achieving the overall synergies that we've laid out.

But we always knew that a majority of those were going to be back-end loaded in the quarter -- or excuse me, in the year because it just takes time for the physicians to be consolidated.

We're having to pull together two different companies.

There's a lot of investments being made as we do that.

So we knew that the synergies -- we have no expectation that we won't meet or exceed the $850 million that we laid out as an organization.

We're well on our way towards that schedule.

But we knew from a timing perspective, that's a little bit more in the back end of the year as you would expect.

So we weren't going to get as much benefit here obviously in Q1 to offset some of the foreign exchange issues.

So in our view, yes, you might have expected a little bit more to the bottom line, especially on the strength of the revenue growth, but there's a lot of moving parts that we're still dealing with here as we pull these two companies together.

Everything's on schedule.

Everything's going as we would expect.

But the timing's also as we expected.

We expected it will be a little less in Q1 and improving as we go through the fiscal year.

Okay.

Thank you very much.

Mike Weinstein, JPMorgan.

Congratulations again on the quarter.

Let me focus if I can on a couple businesses.

One I wanted to touch on was neurovascular, which you said grew mid-20%s and obviously has accelerated on the back of the stroke trials that came out over the past year.

Can you just talk about how see that market for stroke developing?

The implications for sustainability of the recent performance?

Then second, if you can give us any more insight into the upside performance within CRM?

How much of that came from Reveal, which has obviously been a very big driver, Reveal LINQ, which has obviously been a big driver in the last few quarters versus the underlying base CRM business, the ICD market, the pacemaker market?

I'm going to give you a little overview.

Then I'll ask Geoff and Mike to help out with more details here.

I think Mike, from my overall perspective, the stroke market is one of our biggest opportunities.

We're very excited about it.

We think we're in the early phases of penetration with our new therapies.

So we expect the momentum just from the therapy itself to continue.

But looking into the future we're looking at the entire stroke care pathway more carefully.

We've got other products that are also impacting the stroke disease area, which we expect will have some level of pull-through from our presence in the stroke market.

But beyond that, I think both Geoff and Mike can add more color to that.

Certainly Mike can add color to the CRM question.

So Geoff, do you want to start?

Yes.

Sure.

We're seeing a lot of the growth in the last quarter come from the Ischemic Stroke market here and thrombectomy.

We see that market continuing to grow worldwide in the 25% to 30% range and in the US, even a little higher than that.

Obviously, the growth that's coming now in the stroke intervention piece here is from the clinical evidence that's come out recently.

We see a number of barriers, though, that -- that's driving a lot of growth.

There are a number of barriers that we're working on that I'd like to comment on.

One is the diagnostic space.

I'm going to let Mike comment on that and -- there's a play there for our diagnostics in his area.

But then there's others like the ER physician education, EMS routing, some focus on neurologists.

These are areas that in addition to the intervention, we're focused on all of those areas with our team out of Irvine.

So we'll feeling very good about it.

You saw we -- in the hemorrhagic space, that's all ischemic.

You saw we did this Medina acquisition, which is around mesh coils which should help us in the hemorrhagic space where we're not leading right now.

We think this will help us in a big way there as well.

So we feel very bullish about it, just based on the clinical data.

But there's a lot of other levers that we're working on, like I mentioned.

Maybe Mike, if you want to comment on the diagnostics piece.

Yes.

Broadly, Mike, give a visual in stroke and then go into the CRM question.

Sure.

I think you asked about the CRM growth.

One of the drivers is certainly LINQ in stroke, in cryptogenic stroke.

In fact, the size of the revenue contribution of LINQ just in the cryptogenic stroke indication is very similar to the size of the Solitaire contribution in the stent thrombectomy area.

We're the only Company that has a complete now profile of both diagnostic and therapeutic devices to treat ischemic stroke.

So we view this as one of the largest opportunities within the Company.

Broadly speaking on cardiac rhythm in general, we have modestly better market conditions.

We're taking share in virtually all of the segments that we participate in.

So first obviously, LINQ has now fully anniversaried its introduction, which occurred in the fourth quarter of last year.

So it's encouraging to see that continued growth momentum in syncope as well as Atrial fibrillation monitoring.

So it continues to be a strong driver.

In addition, especially in syncope, which is more than half of the uses of the product, we get pacemaker pull-through from that.

Roughly 8% to 9% of those patients will wind up having a pacing indication in the first year that results in a pacemaker.

Over the three year life of the device, we typically would expect to see about 20% of those patients becoming indicated for pacemakers, which is driving new obviously market growth for us and we're capturing virtually all of that share of new pacemakers.

In the ICD market, we've seen modestly improved conditions, mid single-digit growth in initial implants which is very encouraging, which obviously we're benefiting from.

But also from share, obviously from the Attain Performa product line, in CRTD segment as well as the MRI-safe Evera product line in Japan where we're seeing some very nice growth.

Then, of course, in the AF segment, we continue to grow well above the market with our CryoAblation technologies really becoming the preferred intervention for paroxysmal atrial fibrillation ablation.

All of those are driving growth for us including things like TYRX in the anti-infective pouch.

Those items are all contributing to improvements in the market conditions and improvement in our share position.

Can I ask one quick follow-up for Omar and Gary.

If I think about the time period since the Covidien acquisition, you've made a number of small, call it, technology pipeline acquisitions.

I think I can count 8 to 10 just off the top of my head.

Can you just talk about the cumulative dilution from all these really small acquisitions.

Twelve is not that small, but Medina and RF Surgical and all these other ones.

What's the incremental dilution from that, that you're absorbing in your FY16 guidance?

Thanks.

Well, first of all, the way we look at this is the business units themselves make product tradeoffs.

In several of them, we kind of cancel existing program to cover for that.

So the first responsibility to cover the dilution actually goes right down to the businesses and from there, there's a real savings.

Then as we go up, we cover in the group.

Then we cover it at a corporate level.

Through that we kind of cover the whole dilution.

The actual amount, I don't know, Gary, do you have a sense for how much that is?

No.

Mike, as far as the -- I haven't even added up myself to say what is it we're covering.

Because back to Omar's point, most of this is being either covered by the business unit or the group as they go forward with this.

There are several -- the small technology acquisitions that you mentioned where there's actually existing revenue et cetera.

That there's almost no dilution.

It would be neutral to even slightly positive.

Some of them that are more technology based that are going to have more of an impact from the standpoint of more clinical trials like Twelve, for example, on the transcatheter mitral.

That will have more of a dilution impact, but yet that will be basically -- Mike and his team will view that as an R&D program.

They'll cover that in their R&D basically budget as they move forward.

So I haven't even added it up myself as far as that (inaudible) us, being focused on this discipline and saying, if we do these types of acquisitions, we've got to cover that if it is dilutive to the Company, which some of them will be.

Then we've got to make tradeoffs within the rest of the organization.

So I couldn't even tell you what the exact number is.

Understood.

Thank you, guys.

Thanks.

David Roman, Goldman Sachs.

I wanted maybe to start with Spine given the management change that occurred over the course of the quarter.

Maybe Omar and team, if you go into just a little more detail in helping us understand the progression to turning that business around?

What specific factors will influence an acceleration of that business?

When you think we can get back to a market growth type rate in the core franchise?

I'll let Geoff add depth to the answer here.

Look, my expectation is that getting back to the core growth can't be soon enough.

So we want to get there as quickly as possible.

I think we're taking aggressive action, especially in the near term, to do with the way in which we're leveraging our integrated sales force with our products and the way we're kind of grouping these products together much more aggressively than before to make a difference in these accounts.

In the mid-term, we'll drive more technological synergy through surgical synergy.

We've got a sales force positioned for that.

Longer term, we're addressing some of the speed to market issues in our product development area which we feel are addressing right now.

But it did take a little time to come through the product itself.

Geoff, please add to that.

Sure, David.

First two macro comments.

One, losing -- being a shared donor in Core Spine in the US is not acceptable to us.

We have a real sense of urgency around turning that around.

So that's number one.

The team's committed to that.

Number two, we're making some tangible changes in the Restorative Therapies Group.

The biggest one I'd say is managing it as an integrated group versus a holding Company with a series of business units underneath.

When you do that, this allows us to leverage our breadth to differentiate and drive growth in very targeted areas, which I'll get to in a second.

But the biggest beneficiary of this change, I believe, will be our Spine business globally and the US especially.

So some of the specific impacts were, one, we've moved to an integrated sales force in the US and in Europe.

That's is enabling us to do some much more efficient health system wide selling.

In our case, we can combine some capital equipment from our Surgical Technologies business, navigation and imaging, in with our Spine products.

So that's helping a lot.

Then more specifically enables us to drive this surgical synergy concept.

This is where navigated procedures in Spine, using NAV, using our imaging and driving that to more of a standard of care.

So there's several components of that.

Again, Spine will benefit from this, a tighter technology integration between our NAV and imaging technology with our spine implants and instruments and an R&D road map based off this surgical synergy offering versus just an R&D road map that's independent spine and independent surgical technologies.

We can get to one rep in the cases versus having an ST rep in there and a spine rep.

We're developing and putting together more robust clinical and economic data and just really trying to drive the surgical synergy strategy as a standard of care.

Today, we estimate only 14% of Core Spine procedures are navigated.

So we see a lot of upside here.

A lot of it is driven by working much closer together with our spine and our surgical technologies business.

Then finally, we've got just a laser focus on just improving our innovation cycles in Spine, the speed and the impact.

I don't want to pull any punches, we're not as fast as we need to be.

That's another contributor to some of these other players gaining share on us.

This is something that we're focused on at the spine level, at the RTG level and also pulling in some broader Medtronic resources to improve the speed and effectiveness of our innovation cycles in spine.

So we feel like we've got a lot of levers to pull here.

We're focused on it.

I just laid out some short, medium and longer term.

I think the innovation cycles, you won't feel that for a couple of quarters.

But the other stuff -- the other initiatives, the integrated selling and surgical synergy you should feel in the more near, medium term.

That's good perspective, Geoff.

Thank you.

Then maybe just following up on that, Omar or Gary, anybody could talk about some of the parallels that may exist between this selling model and what you've been able to realize on the cardiology side of the business.

Because I think in your prepared remarks, you talked about an increased number of stents, for example, being on broader product line contract sales.

If you look at your performance in those businesses, clearly you're benefiting from the breadth of product lines that you have to offer.

Are there any parallels that you could draw between that experience and the spine/imaging navigation side of the business that may give us more confidence in the success of the strategy on the spine side of the business?

Yes.

Look, I think you described it very well.

That's exactly it.

I think our near term strategy is exactly what you've described.

That we've learned from our CVG experience that putting an integrated sales force together with a complete suite of products with specialists in the field can drive, and some aggressive contracting based on that, can drive pretty quick growth in sales and capture good accounts.

We really haven't done that in spine because the sales forces have never really been put together.

They've been in formal contact but it's not the same as organizationally being integrated.

I think that's one of the things that we have done in the last three to four months.

We're absolutely going to leverage as we go forward.

So the CVG parallel is a good one.

This is Geoff, just to build on that.

Not ashamed to say that we're definitely looking at the play book that Mike Coyle and the CVG team have followed over the last four plus years.

We definitely are getting a lot of confidence and inspiration from that.

Then don't overlook MITG either, because they've done a lot of this over the last couple of years as they compete against a J&J.

So I think we have two parallels to look at that aren't exactly the same but we're drawing lessons from both of those and have already taken steps.

Then finally, one advantage we have that even CVG, no offense, Mike, doesn't have, is we have real technology integration between the navigation and imaging and the power tools and the implants.

So there's real technology integration there to drive procedural innovation that not only gets at economic outcomes, can use procedures more efficiently and faster, but also clinical outcomes.

We need to do a better job of developing that data and getting it out there because once surgeons try this, they really like it.

There's a lot of surgeons, particularly in spine, that are more experienced and sometimes they say, hey, look, I don't need this.

But once they try it, typically they don't want to go back to do an unnavigated.

We feel very good about that.

We just have to really focus on this more over the next couple quarters.

Okay.

Great.

Robert Hopkins, Bank of America.

So wanted to start out first with Omar, I was wondering if you could just elaborate a little bit on your comments on emerging markets, since it's so topical.

I guess my question is, specifically what was the growth in emerging markets for Medtronic?

Was Middle East and Africa the only area where you saw a slowdown?

Then I was just wondering if you could just comment generally on your confidence in the near and intermediate term that emerging market growth can continue?

Well, first, I'm very confident.

In fact, the Middle East and Africa was really the only region which was significantly impacted because of the reasons that I stated, because of the distributor sales.

The underlying operational performance was fine.

We expect that to bounce back this very quarter.

I think Latin America was a little softer than we'd like, but the other regions were much stronger than they've been historically.

In particular, I know that's in everyone's mind here, we were actually quite pleased with what we saw in China.

We had low double-digit growth in China, which actually is better than what we've been seeing in most quarters last year.

We feel that we've outperformed the overall market.

All of the med device market was reasonably strong.

We did outperform it but the underlying market was quite robust.

We feel at this stage with what we know and what we can -- intelligence that we can get from our own people and the market itself, we feel pretty good that we can continue this and in fact accelerate it in the back half because we'll get some tailwind out of the Middle East.

China seems to be okay, at least from what we can see.

Latin America may be a little more pressure but China seems strong.

India is definitely coming back.

Russia is definitely strong.

Southeast Asia is also well into the teens in growth.

So we've got every reason to believe that with our diversified position right now, we have a right to expect double-digit type growth out of emerging markets.

I haven't given up, like I said earlier, on the objective of high double-digits because I think that's what we're entitled to.

Now we've just got to find a way to unlock it.

Great.

That's very helpful.

Then for my second question, I think I heard mention that Bryan was on the line.

So I wanted to ask a question about Covidien's businesses, both this quarter and how they've been trending, just especially on the kind of the core general surgery markets of energy and stapling?

Just some thoughts on how is the legacy Covidien business doing?

Specifically energy and stapling in the quarter and recent trends?

Hey, Bob.

It's good to hear from you.

Yes, so far so good.

We've been able to stay focused on the business.

We've been able to continue to perform as part of Medtronic as we have in the past.

I feel really good about the new products that we've launched.

Omar mentioned a couple but we have a whole family of products in advanced stapling and advanced energy that are doing quite well for us.

Of course, as you know, Bob, we're not going to sit and wait for those to continue.

We've got others coming behind them.

So I see the momentum in surgery, in particular in the US, elevating just because you see more surgical procedures.

But I also see that shift from open procedures to MIS.

That's creating momentum, not just for us, but really for all players in the surgical marketplace.

So a good market that we're in.

We've not lost our focus, which is key.

We continue to deliver technologies that our patients and customers need.

Great.

Good to hear from you.

Thanks, Bryan.

Thanks, Bob.

Kristen Stewart, Deutsche Bank.

I guess, to follow-up on Bob's question.

I was just wondering kind of for Omar and then also for Bryan just kind of under the new kind of Medtronic umbrella has there been any change of thinking for the Covidien Group now on the idea of robotics and the importance of robotics, especially now that J&J has announced that they are teaming up with Google to have a platform?

I don't know whether or not being under the Medtronic umbrella has changed kind of thoughts in that realm?

Then I have a second follow-up.

Okay.

First of all, just a few words, then I'll let Bryan make the brunt of the commentary on this one.

First, from an overall Medtronic perspective, look, the importance of robotics is pretty clear.

It's a trend that we can drive in an application focused way.

I feel confident that our team can address that market.

I think from an overall change perspective, I think a focus on some longer term investments is probably the biggest single change that I hear from Covidien -- ex-Covidien employees.

But I think Bryan is best suited to give more color to that as well as the robotics strategies.

Go ahead, Bryan.

There's been a number of changes, if I think about just broadly how we think about our strategy.

But specifically to robotics, we're continuing down the path that we were on previous to the acquisition.

We're going to continue that path as part of Medtronic.

You spoke a little about some competitors out there that are focusing in the area as well.

I actually like to see that because we are making significant investments in this area.

It gives me confidence that robotics is here to stay.

The embodiment of what's that going to look like and how it's going to get traction, still a question mark in my mind.

But I do feel like it's here to stay.

The way I look at it from a strategic standpoint is, we as an organization are highly focused on optimizing surgical procedures around the world.

I kind of look at it as three legs of a stool from a surgical perspective.

One is open surgical procedures, because there's a whole heck of a lot of procedures that are still done open.

They're done inefficiently.

We have advanced energy and stapling products that help the efficiency of those procedures.

We're going to continue to invest there.

The other leg of the stool is, what I would define as traditional MIS.

This is an area that I think we've done quite well and have shown our ability to lead the market.

We're going to continue to invest from a therapy innovation standpoint on that leg of the stool.

We have been making significant investments in robotics and that will continue.

I'm looking forward to the day that we actually enter the market with robotics.

We're driving revenue and not just investment, but that will come.

But to me, all three legs of the stool need to be in play for someone to be sustainably successful in the marketplace.

In addition to that, you've heard a little bit of talk about it today, we would overlay our capabilities from a service perspective and bring OR managed services to the table so that we can further optimize the efficiency of the operating room.

To me, the combination of those three things I referenced from a therapy standpoint with services really will differentiate us in the space.

Robotics is a piece of the puzzle, I guess is what I'm saying, it's not the whole puzzle.

I've got you.

Then my follow-up question was just more broadly, Omar, for you.

Now that you've had Covidien under your belt for I guess now about eight full months, how are you thinking just about all the businesses?

I guess as you look more holistically too at the Medtronic portfolio, do you think at this stage you have come to any conclusions?

Or do you think you're close to coming to any conclusions that there's some businesses that maybe don't or no longer fit in the portfolio?

That we could see some divestitures?

Or do you think that all the pieces still make sense?

First, from an overall perspective, I think you understand the way in which we've organized into the four groups.

So that's our kind of primary strategic alignment.

The goals and objectives of each of those groups are clear, into which sorts of market spaces they participate in.

Within MIPG, we're still looking through that portfolio.

I know there was some questions around some of those businesses.

I think right now, we're still looking to see a number of things.

First of all, do they add to our overall strategy of MITG?

We're going through that carefully; we're not prepared to conclude on it completely.

But right now, they're all contributing.

Do they fulfill our mission and are in line with our mission?

They are.

So right now, we've got what we've got.

We're driving to see if we can get growth from all of them.

I think it's a little premature to decide, although I know it's been six to eight months.

But we made some changes in the way in which we invest.

To see if that investment change will result in or what they result in, I think we need a little longer to assess.

So I'd say, Kristen, that we're still -- at this stage, we've got everything there.

It all fits from a clinical relevance perspective, from a mission perspective.

Whether we can, in our new paradigm of investment of some of those business, can we change the equation more?

We'll have to see.

So it's a little bit -- works in progress still.

But by and large, we're treating them like they should be and that they're completely part of MITG.

Bryan, do you want to add anything to that?

It was well said.

We're working through our own strategy and some -- again, some mindset shifts associated with our own strategy.

We haven't worked through that yet.

As we do, we'll get a better feel for the fit of these -- of all aspects of what was legacy Covidien and make decisions based on that.

One thing too, not just from the perspective of MITG, but if you look at the broader hospital solutions opportunity and the services that we bring to bear, we also have to look through that paradigm to make sure that the products that we have, if they don't fit the MITG strategy, still might fit the overall hospital solutions strategy.

So lots to still work through but clearly we're looking at it.

Okay.

Great.

Thanks, guys.

Joanne Wuensch, BMO Capital Markets.

One of the things that struck us during this earnings season was the commentary from a number of companies regarding hospital surgical volumes.

If we take a big picture or big step back, big picture, what do you see going on in terms of that in the United States?

How do you see that in the coming months and quarters?

Well, again, I'll let Bryan and maybe Mike also could comment on that a little bit because they've got two of the bigger businesses here.

But clearly, the US is strong.

Procedure growth is strong now.

On both MITG and CVG, we've taken share.

But I think we're all acknowledging that procedure growth is really strong.

We think that the revitalized economy as well as the Affordable Care Act are both contributing to that depending on the nature of the procedure.

We think it's too early to tell, but we think there's some sustainability to this.

But I think maybe, Bryan, your perspective first.

Then I'll let Mike Coyle comment on it also for a little bit.

So, Bryan, go ahead.

Yes.

Again, I don't know that I have a whole lot to add to what you said.

But it's clear to us, we've got folks that are the in the operating room in the US every day.

The best litmus test for me on whether or not surgical procedures are up are when these guys go in the morning and look at the boards and they see the number of procedures either during the week and on the weekends.

We're definitely seeing a heightened number of surgical procedures.

From every company that I've seen present, everyone's seeing that momentum in their organization.

I would expect it to continue though we've had it now for a good three quarters.

The question for me will be when it annualizes, what does it look like at that point?

But it is contributing so far for us in driving our mid single-digit growth.

I would expect it to continue.

Mike, you've also seen some good growth in the cardiac space.

Right.

So go ahead, why don't you make some comments.

Sure.

I would echo that.

Certainly in the pacemaker and ICD arena, we've seen the improvement come in initial implants, which is very encouraging.

From my perspective, we're seeing sort of mid single-digit growth in initial implants in ICDs in particular, which is quite a change from what we've seen in recent years.

Just anecdotally talking to customer accounts about this, they do seem to think that the availability of insurance for people who absolutely need it because they have a sickness and they can't be turned down for coverage is helping drive those volumes.

That's very helpful.

Then as a follow-up, when the Covidien agreement was announced last year, one of the ideas was to cross-sell what we call the buffet table of products as you went in to the hospital administrator.

Given that it's early days, what kind of feedback are you receiving when you go into say, hey, we've got -- I think the quote was, 6 of the top 10 areas really well covered now by products?

Thank you.

First, we might have said that on day one, I'm not sure but certainly as we laid out our strategies that was not one of our core strategies.

It was more around value creation because we had Covidien products which created value within the hospital.

We had our Medtronic products which were like chronic disease products.

We said that in value-based healthcare, we had a broader set of assets that we could use to participate in a value-based healthcare model where a broader continuum of products helps.

So that was our primary notion around the breadth that we had.

The fact that we have more -- that we're a more significant partner to a hospital, I think is important.

But that alone is not one of our key strategies.

I think that gets us in the door but each of our product lines have to perform, perform competitively with the physicians and against our competition.

Then if you do have a seat at the table which others don't then we go and leverage that.

But that's not our primary integration point with Covidien.

There are others like peripheral vascular and neurovascular which are much more directed revenue synergy efforts where we're seeing very good results.

Then in operating room managed services, we're -- this aspect of moving towards value-based healthcare is again where we're seeing real benefit.

I think those are the ways in which we can make a true differentiated impact in healthcare.

I think the fact that we're just broader helps but that's not a critical growth driver for us on its own.

Yes.

This is Gary, just to add to what Omar said.

I think that as he indicated, the idea to say that there's a lot more contracted of the entire portfolio, no, that hasn't happened nor did we necessarily expect that was going to be the case.

But it clearly has helped us get into -- as we deal with governments or CEOs and hospital systems.

It's clearly helped us as we deal with insurance companies, et cetera, that we have the broader portfolio.

So we're talking about a lot of different options.

But could we point to a bunch of contracts where we negotiated across the product portfolio?

The answer is no.

We didn't expect that.

What we did expect, however, was just the strength of the portfolio will clearly get us in conversations with high-level officials across organizations in much better format.

I think that is happening.

You're seeing that on some of the hospital solutions.

You now see that we have our first hospital solutions in the operating room with basically the former Covidien product line.

So we're seeing that all happening.

Back to Omar's point, we're seeing the synergies across the individual product portfolio, but not from the standpoint of we're all contract bundling perspective.

Terrific.

Thank you so much.

Okay.

Thank you.

Okay.

Thanks to all of you for your questions.

With that and on behalf of our entire management team, I'd like to thank you again for your continued support and interest in Medtronic.

We look forward to updating you on our progress in our Q2 call, which we currently anticipate holding on December 3. Thank you all.

Have a great day.

Thank you.

This concludes today's conference call.

You may now disconnect.