美敦力 (MDT) 2018 Q1 法說會逐字稿

Good morning.

My name is Darla, and I will be your conference operator today.

At this time, I would like to welcome everyone to Medtronic's First Quarter Earnings Conference Call.

(Operator Instructions)

I would now like to turn the conference over to Ryan Weispfenning.

Please go ahead.

Great.

Thank you, Darla.

Good morning, and welcome to Medtronic's First Quarter Conference Call and Webcast.

During the next hour, Omar Ishrak, Medtronic Chairman and Chief Executive Officer, and Karen Parkhill, Medtronic Chief Financial Officer, will provide comments on the results of our first quarter, which ended on July 28, 2017.

After our prepared remarks, we will 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 issued an earnings presentation that provides additional details on our performance and outlook as well as details related to our Patient Care, Nutritional Insufficiency and DVT divestiture to Cardinal Health.

During this earnings call, many of the statements made may be considered forward-looking statements, and 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 and other filings that we make with the SEC, and we do not undertake to update any forward-looking statement.

In addition, the reconciliations of any non-GAAP financial measures are available on our website, investorrelations.medtronic.com.

Unless we say otherwise, references to quarterly results increasing or decreasing are in comparison to the first quarter of fiscal year 2017, and rates and ranges are given on a constant-currency basis.

Finally, other than as noted, our EPS growth and guidance does not include any changes or -- charges or gains that would be recorded as non-GAAP adjustments to earnings during the fiscal year.

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

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

Omar?

Good morning.

And thank you, Ryan, and thank you to everyone for joining us.

This morning, we reported first quarter revenue of $7.4 billion, representing growth of 4%.

Non-GAAP diluted earnings per share were $1.12, growing at 11%.

Our results this quarter reflect the strength of our underlying businesses and the stable growth of our markets as well as the diversification benefit of our groups and regions.

While a temporary sensor supply constraint and an IT disruption affected first quarter revenue growth, we continued to drive operating margin expansion.

This margin improvement, combined with the previously communicated tax benefit this quarter, translated into strong earnings leverage.

And looking ahead, we have now entered a period of clear acceleration in our innovation cycle, and we expect to see increasing revenue momentum from several important new product launches over the balance of the fiscal year.

Before discussing the details of the meaningful progress we're making in each of the -- in each of our growth strategies, let me briefly cover 2 specific issues that affected our first quarter performance.

In our Diabetes Group, we're experiencing strong demand around the world for our new diabetes technology.

This demand is a direct result of our differentiated strategy to move toward fully closed-loop systems, which utilize our algorithms and CGM sensors to automate insulin dosing.

We launched the MiniMed 640G in international markets in 2015; and the world's first hybrid closed-loop system, the MiniMed 670G with Guardian Connect sensor -- Guardian Sensor 3, in the U.S. in June.

These advancements have increased our installed base and market share, resulting in a large increase in CGM demand, above our already high expectations.

To put it in perspective, in just the past 10 quarters since launching the 640G, our overall sensor unit demand has more than doubled.

The increased demand is largely for the new, highly accurate generation of sensors, the enhanced Enlite in international markets and the Guardian Sensor 3 in the U.S., and has temporarily outstripped our production capacity.

We accelerated plans to increase sensor production capacity last year, but these lines are not expected to be ready for commercial production until our fourth quarter, at which time we expect to have the capacity needed to meet the rapidly growing sensor demand.

Until then, we have to prioritize sensor fulfillment toward our installed base of customers.

In the short term, this leaves less available for higher revenue generating new patient system sales.

It is also important to note that our Priority Access program, necessitated by the early approval of the 670G, which allows customers to purchase a 630G and then swap it for a 670G, once available, for a small fee, has been very successful, with close to 32,000 enrollees, exceeding our original expectations.

However, because we only recognize a small portion of the -- of deferred revenue when exchanging the pumps, the program currently affects both revenue and margins.

We expect to completely -- to complete fulfillment to our Priority Access customers later this fall.

Toward the end of the fiscal year, we expect our Diabetes Group to be in a position to capitalize on its differentiated innovation in the marketplace, with stronger revenue and profit growth not only from increasing sales of our leading insulin pump technology but also ongoing sensor annuity revenue.

Next, let me update you on the IT system disruption that occurred in June.

As we communicated over the course of the quarter publicly, including in 8-K and 10-K filings, we experienced a global disruption to an IT system on June 19 that affected our ability to process, ship and manufacture orders globally.

During the days following, we mobilized resources as quickly as possible to not only identify the underlying issue but also put in corrective measures to restore the system.

As a result, our system was subsequently and fully operational later that week.

After the system had been fully restored, we engaged Ernst & Young to conduct an independent root cause analysis in partnership with our own technology experts and our vendor partners.

The independent analysis concluded that the root cause was due to inadvertent human error, which caused a misconfiguration within certain data storage systems and resulted in our IT system becoming inoperable.

Both our internal analysis and the independent analysis found no evidence of external actor involvement, data exposure or compromise in this event.

Based on our internal findings and that of EY, we are taking appropriate actions to prevent this type of event from happening again, including, but not limited to, improvements aimed at IT network design, hardware and software systems enhancements, operating processes and execution and governance.

While the IT disruption did have some impact on our overall performance for the quarter, it was not material to our quarterly revenue or earnings per share.

We continued to deliver mid-single-digit revenue growth and double-digit EPS growth in line with our long-term expectations.

This event could have had a more significant impact in the quarter if not for the outstanding work and commitment of our employees around the world and the understanding and the partnership of our customers.

Our team rose to the occasion to ensure product was available to customers and patients during the disruption and then worked tirelessly to fulfill backlogs that built up during the event.

This resilience and around-the-clock commitment of our Medtronic team made all the difference and ultimately allowed us to return to normal operations expeditiously and effectively.

There is no longer any outstanding backlog associated with this event, and our IT system is operating normally.

We are pleased to put this event behind us.

Now let's discuss each of our growth strategies: therapy innovation, globalization and economic value.

In therapy innovation, we are seeing strong adoption of our innovative new products across all of our business groups.

In our Cardiac and Vascular group, which grew 6%, we are leveraging the breadth of our products and services as well as our strong positions in important, rapidly expanding markets to drive sustainable growth.

In the first quarter, transcatheter valves, AF ablation, LVADs, transcatheter pacing systems, insertable diagnostics, atherectomy and drug-coated balloons all contributed to CVG's strong performance.

In TAVR, we delivered growth in the high 30s in both the U.S. and international markets.

And looking ahead, we expect our recent U.S. FDA approval for intermediate risk and global rollout of our Evolut PRO valve to drive continued TAVR growth.

In Coronary, we gained drug-eluting stent share with our recently approved Resolute Onyx in both the U.S. and Japan, and we expect this product to increasingly drive meaningful Coronary growth as we go through the fiscal year.

Next, our Minimally Invasive Therapies Group grew 3%, or 5% after adjusting for the divested businesses that will no longer be part of our reported results starting in the second quarter.

We had mid-single-digit growth in our Surgical Solutions division, driven by new products in Advanced Energy and Advanced Stapling.

In Advanced Energy, we continue to roll out the new LigaSure instruments and our Valleylab FT10 energy platform.

In Advanced Stapling, our endo stapling specialty reloads with Tri-Staple technology are driving growth.

We are also continuing to roll out Signia, our new single-handed powered surgical stapling system that provide surgeons with real-time feedback during surgery.

These innovations are providing momentum to the transition from open surgical procedures to minimally invasive procedures or MIS, resulting in better patient outcomes and lower health care costs.

At the end of this fiscal year, we intend to further our goal of moving procedures from open to MIS with the first in-human use of our surgical robot platform.

We look forward to bringing a more comprehensive value proposition to our customers across all key surgical areas, open surgery, traditional MIS, robotic surgery and services.

Our Restorative Therapies Group grew 2% this quarter, and within RTG, our Spine division grew 1%.

We estimate that both the U.S. and global spine markets have slowed modestly.

However, we continue to gain market share, which we attribute to the success of our Speed-to-Scale new product launch initiative.

We also continue to gain market traction with our Surgical Synergy strategy, growing the number of customer contracts that combine our spine implants with capital equipment for imaging, navigation and powered surgical instrumentation sold by our Neurosurgery business.

Our Brain Therapies division grew 7%, driven by high teens growth in Neurovascular and high single-digit growth in Neurosurgery.

Brain Therapies continues to see traction from our recently launched StealthStation S8 surgical navigation system and strong low 30s growth of our Solitaire family of revascularization devices for acute ischemic stroke.

Turning to Diabetes.

While revenue growth declined 1%, given the reasons mentioned earlier, we gained global durable pump and consumables share driven by significant clinician and customer demand for our first 6 -- for our 6 series pumps.

CGM revenue grew in the low 20s, including growth of nearly 50% in international markets, driven by demand for our sensor-augmented pumps and improved sensors.

The Guardian Sensor 3s coming off our production line consistently demonstrate a MARD, which is a measure of sensor accuracy, of 10.4% in a real-world setting, in line with the performance we saw in the pivotal studies but with a much larger sample size.

Next, let's turn to our globalization growth strategy.

Emerging markets grew 12%, in line with our long-term double-digit growth expectations as we continue to expand access to our products and services around the world.

Our consistent emerging markets performance continues to benefit from geographic diversification, with strong results across the globe.

Latin America grew 16%, with double-digit growth in Brazil and Mexico, Chile and Argentina.

We had continued strong results in China, growing above the market with 12% growth as we continue to consistently perform in a complex environment that we believe will become one of our largest markets.

Southeast Asia delivered 12% growth, with Vietnam, Indonesia and Thailand all delivering robust results.

In the Middle East, we grew 12% as we begin to see recovery in the region.

In particular, Saudi Arabia grew in the mid-30s, our first quarter of growth in 6 quarters as customer inventory levels appear to have normalized and hospitals have begun to purchase again.

Let's turn now to our third growth strategy, economic value.

We continue to see success in our Hospital Solutions business, which grew double digits as we are now managing cath labs and operating rooms for nearly 140 customers around the world, including our first in Mexico.

We are also seeing strong growth in our TYRX value-based program for infection control in implantable devices, more than doubling the accounts under contract in the quarter to 325.

Now approximately 10% of our U.S. CRHF implantables revenues is covered under a TYRX-related value-based health care risk-sharing arrangement.

In Diabetes, we were pleased to announce a new outcomes-based agreement with Aetna, where a component of our pump reimbursement will now be based on successfully meeting clinical improvement thresholds.

We are aggressively developing other unique value-based health care solutions across each of our groups.

While we are still early in this journey, we remain focused on leading the shift to health care payment systems that reward value and improve patient outcomes over volume.

As always, we expect to do this in a way that benefits patients and health care systems as well as our shareholders.

Before turning the call over to Karen, I'd like to highlight that we closed our transaction with Cardinal Health at the beginning of the second fiscal quarter, divesting a portion of our Patient Monitoring & Recovery Division.

We expect this transaction to have a positive impact on our revenue growth rates and margins, with modest near-term earnings dilution.

We remain committed to the disciplined portfolio management and capital deployment that balances return to shareholders with reinvestment in internal and external opportunities that are aligned with our growth strategies and are expected to drive strong financial returns.

With that, let me ask Karen to take you through a discussion of our first quarter financials and outlook for the remainder of the fiscal year.

Karen?

Thank you, Omar.

As Omar mentioned, our first quarter revenue of $7,390,000,000 represented an approximate 3% increase as reported and approximately 4% on a constant-currency basis.

Foreign currency had a negative $33 million impact on first quarter revenue, and tuck-in acquisitions completed almost a year ago contributed approximately 140 basis points to revenue growth, driven in part by the benefits gained from Medtronic ownership.

Our revenue fell just shy of 4% growth by approximately $30 million on a total of $7.4 billion.

When we updated our guidance in July, we expected our revenue would be slightly higher, but the IT disruption caused a unique dynamic, affecting our visibility through quarter end as we worked to clear the order backlogs, including higher than expected sensor demand in diabetes.

And as you know, given the buying patterns of our customers, we tend to have a larger amount of sales in the last few weeks of every quarter in some of our businesses.

Importantly, as Omar mentioned, the IT system disruption is behind us, and we are seeing strong demand for our new technologies, giving us confidence in our revenue expectations for the remainder of the year.

In the quarter, we delivered continued operating margin expansion and strong EPS leverage.

GAAP diluted earnings per share were $0.74.

Non-GAAP was $1.12.

After adjusting for the $0.02 negative impact from foreign currency, non-GAAP diluted EPS grew 11%.

Our operating margin for the quarter was 26.9% on a constant-currency basis, representing a year-over-year improvement of 50 basis points.

With the impact of currency included, our first quarter non-GAAP operating margin also improved, increasing 10 basis points year-over-year.

Taking into account currency and the acquisitions that we have done in the past year, our operating margin improvement on an organic basis was approximately 70 basis points in the quarter.

The operating margin improvement was driven by efficiencies as we continue to deliver on our Covidien synergies.

This was partially offset by purposeful investments we are making in sales and marketing in the first half of the fiscal year to support new product launches.

Net other expense, which is included in our operating margin, was $66 million compared to $39 million in the prior year and negatively affected our operating margin improvement by 30 basis points.

The increase in net other expense was due in part to foreign exchange remeasurement and our hedging program, which, combined, were a $5 million loss in the quarter versus a $4 million gain in the prior year.

Looking ahead, we expect net other expense to be approximately $110 million per quarter and slightly higher than that in the second quarter.

This includes approximately $30 million to $40 million per quarter of hedging expense based on recent exchange rates.

Below the operating profit line, net interest expense was $194 million, slightly less than our original expectations as income earned on our cash investments helped to offset debt expense.

Looking ahead, we expect net interest expense to be approximately $180 million to $200 million a quarter.

Our non-GAAP nominal tax rate was 13% and benefited from $47 million in operational tax adjustments that became evident and were communicated late in the quarter.

Excluding these adjustments, our non-GAAP nominal tax rate would have been 15.7%, in line with our expectation between 15.5% and 16.5% for the remainder of the year.

First quarter average daily shares outstanding on a diluted basis were 1,376,000,000 shares.

We repurchased a net $1.1 billion of our ordinary shares in the first quarter, executing the annual return commitment to shareholders, concluding our incremental $5 billion commitment announced in January 2016 and pulling forward some of our incremental $1 billion repurchase commitment from our divestiture to Cardinal Health, given our lower stock price.

We expect shares to continue to come down in Q2 and then stay roughly flat for the remainder of the year, given our tendency to purchase shares earlier in the fiscal year.

In June, we increased our cash dividend by 7%, making this our 40th consecutive year delivering a dividend increase.

Combining our share repurchase activity with the $625 million we paid in dividends in the first quarter, our total payout ratio was 111% on non-GAAP net income and 169% on GAAP net income.

Keep in mind our payout ratio is elevated as we tend to execute the majority of our annually planned share repurchases early in the fiscal year.

Before turning the call back to Omar, I would like to reiterate our annual guidance and update it with the completion of our divestiture to Cardinal Health, which occurred at the start of our second quarter.

For fiscal year 2018, we expect comparable constant-currency revenue growth to be in the range of 4% to 5%, which removes the divested revenue from the second, third and fourth quarters of fiscal year 2017 as well as the impact of currency.

On a comparable basis, the divestiture is expected to result in more than a 30 basis point improvement given the partial year impact to our fiscal '18 revenue growth.

This translates into a full year annualized recurring growth rate benefit of approximately 50 basis points, as highlighted previously.

While we recognize the divestiture as a positive impact to our guidance range, the current supply constraint in diabetes will continue to impact growth in that business until later this fiscal year.

Looking at revenue growth by our business groups.

For CVG, quarterly growth rates have typically been between 4% and 7% in recent years.

Given the strength of its near-term pipeline and easing prior year comparisons, we now expect CVG to grow in the upper half of its historical range for the full fiscal year.

We expect CVG's growth to be strong in the second and third quarters before facing a difficult comparison in the fourth quarter.

MITG has typically reported growth rates between 3% and 4%, excluding the impact of acquisitions, and the divestiture is expected to increase growth by about 1 point.

In fiscal '18, given the partial year impact of the divestiture and lower growth in the first quarter, we now expect MITG to grow in the range of 3.5% to 4.5%.

For RTG, quarterly growth has typically been in the 3% to 5% range in recent years.

Balancing strong growth in Brain Therapies against competitive challenges in Pain Therapies and a strengthening share position in a relatively flat spine market, we now expect full year -- full fiscal year growth for RTG to be at the low end of its historical range.

Finally, in our Diabetes Group, historical growth before the recent market disruptions was typically in the high single digits to low double digits.

With the impact of the temporary supply constraint, we now expect diabetes to grow in the range of 1% to 4% this fiscal year, with improvement in the second half as we fulfill the new 670G to non-Priority Access customers in the third quarter and increase our sensor supply in the fourth quarter.

While the growth acceleration has been delayed by a few quarters, we expect to enter fiscal year '19 with ultimate strong double-digit growth in Diabetes.

Looking at the second quarter, we would expect to be in the lower half of our annual revenue growth range on a comparable constant-currency basis, with accelerating growth in CVG offset by a decline in Diabetes in the high single digits.

Diabetes revenue is expected to temporarily decline sequentially before improving in the back half of the year, for 2 reasons.

First, we expect less deferred revenue recognition in the second quarter from our Priority Access Program as more pump shipments associated with this program occurred in the first quarter.

Second, while we will be able to fulfill new 670G customers after we fulfill the Priority Access customers, we anticipate that new sales will be muted until we can ultimately fulfill sensors with pumps.

Only a limited amount of patients are likely to be willing to purchase a pump and wait for the sensors.

With regard to operating margin, we expect solid improvement in the fiscal year, with greater strength in the back half.

We expect our gross margin on a comparable constant-currency basis to be flat for the year, with modest pricing pressure offset by operating improvement.

SG&A as a percent of revenue is expected to improve, particularly in the back half of the year, as we continue to execute on margin expansion opportunities and enabling functions, transition to centers of excellence and optimize our distribution channels.

With respect to earnings, we continue to expect fiscal '18 non-GAAP diluted earnings per share to grow in the range of 9% to 10% on a comparable constant-currency basis.

For the second quarter, we would expect temporary year-over-year declines in our gross and operating margin, leading to EPS growth flat to slightly up, all on a comparable constant-currency basis, given the continued investments we are making to support product launches, the impact of temporary revenue declines in Diabetes and the operational tax benefits we received in the prior year that are not expected to repeat.

However, we continue to expect EPS growth and operating margin expansion to accelerate in the back half of the fiscal year.

While the impact from currency is fluid and, therefore, not something we forecast, if recent exchange rates, which include $1.18 euro and JPY 109, remain stable for the fiscal year, our full year revenue would be positively affected by approximately $380 million to $480 million, including an approximate $25 million to $75 million tailwind in the second quarter.

Full year EPS would be affected by approximately negative $0.03 to a positive $0.01, including a positive impact of approximately 0 to $0.02 in the second quarter.

Finally, regarding free cash flow, we continue to expect it to grow in the high single digits, compounded annually, from fiscal '16 to '18, albeit now on a comparable basis given the divestiture.

To compare, you should adjust for items that are considered part of the divestiture net proceeds, like tax and transaction costs, that affect free cash flow.

These are expected to be approximately $400 million this fiscal year and $200 million next year.

In addition, you should adjust for the loss of free cash flow generated by the divested businesses, which was approximately $100 million per quarter.

Without these adjustments, free cash flow is expected to grow in the low single digits, compounded annually, from fiscal year '16 to '18.

Now I will turn the call back to Omar.

Thanks, Karen.

In looking ahead to the remainder of our fiscal year, we have confidence in our guidance and visibility into the acceleration in our innovation cycle as we see momentum coming from several new product launches this fiscal year.

And let me remind you of a few of them.

In CVG, we now have intermediate risk approval in TAVR and are launching our new Evolut PRO valve.

We are also in the early stages of market launch for our new Resolute Onyx drug-eluting stent, our Micra Transcatheter Pacing System and our MR-conditional quadripolar CRT pacemakers in our largest global markets.

As we enter the back half of the fiscal year, we expect to launch HVAD Destination Therapy and our next-generation AZURE wireless pacemaker family in the U.S., as well as the IN.

PACT Admiral drug-coated balloon in Japan.

In MITG, as I mentioned earlier, we are launching our Signia-powered surgical stapling system and gearing up to release our surgical robot platform later this year.

In RTG, our product refresh in Spine continues, and we are preparing to launch our Solera Voyager 5.5/6.0 Fixation System.

We are also seeing great traction with our StealthStation S8 navigation system and our continued partnership with Mazor and the Mazor X system.

And in our Diabetes Group, in addition to ramping up the 670G hybrid closed-loop launch, we are also preparing to launch our stand-alone CGM system, Guardian Connect, in the U.S. later this year, which will be combined with our Sugar.

IQ app that utilizes IBM Watson cognitive computing.

Let's now open the phone lines for Q&A.

In addition to Karen, I've asked Mike Coyle, President of CVG; Bryan Hanson, President of MITG; Geoff Martha, President of RTG; and Hooman Hakami, President of our Diabetes Group, to join us.

(Operator Instructions) If you have additional questions, please contact Ryan and our Investor Relations team after the call.

Your first question comes from the line of Mike Weinstein with JPMorgan.

I wanted to start with 2 questions.

So first, there appear to be somewhat conflicting statements, and I understand part of it is legality, on the impact of the computer outage.

So could you try and quantify it?

Because, obviously, there's a comment in your prepared remarks as well as the press release that says that it was not material.

So can you try and quantify what the impact was this quarter?

And then second, obviously, there's going to be a lot of focus on the Diabetes business and the step down to the outlook for the year.

So can you just spend a little bit more time on what's going on with the sensors and why now we're looking at, effectively, a backlog all the way out to the fiscal fourth quarter versus previously fall?

Yes.

Let me quickly address the Diabetes one, and then I'll let Karen address the IT system question.

From Diabetes, look, what's happened is the -- our success rate with our products, which all have now sensor management, has actually been very high, not only with the 670G here in the U.S. but also with the 640G, which we launched in Europe roughly 2 years ago.

And that, plus the Guardian Connect in Europe, has really gained traction.

And what's happened is the demand for the sensor really grows by multiple factors compared to just pump revenue, because for every pump, you need to supply sensors for the whole year and on an ongoing basis.

And so when you do that demand equation, that number comes to be a very large number.

And although we're accelerating plans to add a new line, it just takes a little longer than one would want.

I think that's all I can say, that the attachment rates are much higher than previously envisaged, that even a short while ago we were planning.

The number of customers who want the Priority Access for 670G is also significantly higher than we were expecting.

All of this leads to a multiplication of the number of sensors that are required.

And when you do the math, it just comes to a very large number, which we just couldn't fulfill immediately.

But having said that, these are all things that are in our control, and we have planned, we are pretty confident that by the end of the year, we'll be -- Diabetes will have -- will be able to take advantage of these new products, which, actually, we've been driving to and are pretty revolutionary in their own right.

So, Karen, do you want to say something on the IT?

Yes.

On the IT outage, very difficult to separate and quantify the impact related to the outage.

We did say that it is not material to the first quarter revenue or earnings per share.

So it's very difficult to quantify beyond that.

Okay.

And then -- all right.

So just 2 follow-ups.

So one, on the sensor side, it appears part of the problem is that, as you're moving to a lower MARD, it's harder to manufacture the sensors.

We all are aware of that.

But just it sounds like the yields aren't as good and that the reliability in terms of the life of the sensors isn't as good, so you're having to include an extra sensor in the packets that you're shipping out.

So can you comment on that?

And then just the other follow-up is the change in the MITG guidance.

The increase was less than we were expecting post the divestiture, and that in part looks like to a weaker performance in General Surgery this quarter.

So could you just comment on the MITG business?

And effectively, I'm saying why didn't guidance move up more there, given the divestiture?

And why was General Surgery weak?

And I'll let others jump in.

Okay.

First of all, with the Diabetes, it is not an issue of yield at all.

The yield is perfectly good and in line with our expectations.

And the number of sensors that are required are the standard number of sensors that we expect for patients to cycle through.

So that is really not the issue at all.

We're extremely confident in our manufacturing, the process, the yields, resulting in much more accurate sensor performance.

And this is purely an issue of acquiring capital equipment that needs to be approved by the FDA and put in place.

And when that happens, we will release sensor capacity.

This has got nothing to do with any yield differential of any sort or a need to cycle these sensors any quicker than is normally expected.

Yes.

Mike, the only thing I would just add to that, if you really take a look at what Omar mentioned with respect to the dynamics, this is purely a function of increased demand, not manufacturing output or manufacturing performance.

And maybe 2 statistics to keep in mind.

You heard in the commentary our installed base demand for sensors in Europe was 50%, 5-0 percent.

We were expecting growth in Europe, but 50% was more sensor utilization than what we were expecting.

The second that you heard from the commentary is that there were 32,000 Priority Access patients that signed up.

That was a 30% increase versus what we expected.

So this is purely a function of increased demand, not, as Omar pointed out, of anything to do with yields or lower MARD.

Our MARDs are great.

Our yields are totally in line with expectation.

It's just our ability to meet demand, and this is a temporary thing.

Keep in mind that our diabetes patients on the 640G do not need to use the sensor attached, but they are choosing to use it more and more often because of the accuracy with that sensor.

And that is one of the reasons that the demand was higher than we originally anticipated.

In regard to MITG, we do expect revenue growth for the year now to be 3.5% to 4.5%, and that does include the positive impact of the divestiture for the partial year of about 30 basis points.

On a full year basis, we would expect that to be about 50 basis points.

So we are increasing our guidance in that business line.

It's from David Lewis with Morgan Stanley.

Just a couple of questions for me.

The first is for Geoff and then maybe one for Omar.

Geoff, I just want to talk about just RTG kind of broadly for a second; there's sort of a tale of 2 cities.

The Core Spine numbers, to us, looked better, actually.

I wonder if you could talk about your share momentum in Core Spine relative to what we've seen, which is industry weakness amongst most of your peers in spine.

And then, of course, offsetting that is SCS and DBS businesses, just based on product cycle innovation, are not doing as well.

And when do you think those businesses can begin to stabilize and why?

And then I had a quick follow-up.

Go ahead, Geoff.

Yes.

In the spine market, look, we have seen a little bit of softness this last quarter.

We had the spine market growing like 1% to 2% historically.

In the last 2 quarters, Q3 and Q4, for us, we -- Medtronic, we were at 3% overall growth.

We had the spine market -- it's hard for us, but we're triangulating it.

We don't get market data for a couple more weeks.

But based on what we can see, we have a market at relatively flat to maybe 0.5% growth.

So that definitely had an impact on us this quarter.

But we are still gaining share, and we think it's on the strength of, one, our product releases and this whole methodology of launching them around Speed-to-Scale.

And then our Surgical Synergies deals, which I think will build momentum as we get -- continue to expand our partnership with Mazor.

But right now, 5% -- over 5.5% in the U.S. of our Core Spine volume is tied in with these capital deals, and that's a growing number.

So the 2 factors that are driving the business: one is just product releases, and we'll see that continue throughout the year.

As mentioned, in the second half, we have a couple of new product releases coming, and they're launching in the Speed-to-Scale manner, and then combining them with the capital equipment.

And that is, obviously, when you look at us vis-à-vis the other multinationals, we're performing quite a bit better.

And on the pure plays, I mean, the gap is very -- has narrowed dramatically.

And as we move forward with introducing robotics into the portfolio with Mazor, I see us -- and plus our continued product launches in Core Spine, I see -- I feel good about where we are, and I see positive momentum.

But you're right, that's been offset by Pain Stim and DBS.

And Pain Stim has been declining in that mid single digits, even a little higher, over the last couple of quarters.

And the catalyst for change there is going to be Intellis, which we plan to launch in the back half of the calendar year.

Intellis will be the smallest implantable rechargeable system on the market, 40% smaller than our current one, with a state-of-the-art programmer.

I mentioned it's rechargeable, and it will be a faster recharge, like 75% faster than our current.

And it's upgradable, and you're also able to download novel stim patterns and algorithms, which we are investing in.

And you combine that with our Evolve workflow that we launched a few quarters ago, which is definitely helping us, I think that will stabilize that business.

And again, we're continuing to invest in novel stim patterns, which this Intellis platform will be able to handle.

And then DBS, that's going to take a little bit longer.

I mean, we are funding that business in terms of our R&D, but it'll be probably several quarters, over a year, before some of this new innovations come to market that we've talked about in terms of our new steerable leads, our new PC+

S system and then a very novel cranial-mounted rechargeable system.

So DBS is a little bit further out, and then we see Pain Stim with the Intellis launch.

And the dynamic that's shifted is as Spine has gone up and Pain Stim has gone down, DBS was still performing.

In this past quarter, it started to shrink a little bit as Boston got on the market in Europe with their MR-compatible system.

Okay.

My 2 follow-ups, one for Bryan.

I don't know if I caught the specific answer on MITG.

It did look on the margin there is a little core softness in MITG across some of the major segments.

I don't know if there's anything you'd be willing to call out there.

And then for Omar, now that you've closed the divestiture, can you just kind of level set us in terms of where we should be thinking about priorities of future free cash and the broader balance sheet, most specifically as it relates to buyback after you complete the $5 billion program.

And then just M&A, how investors should be thinking about your priorities here, mid-tier, larger acquisitions or more smaller, growth, innovative deals?

Yes.

From a margin perspective, in our business, I don't see anything.

It was probably just a little bit of mix in the quarter.

I don't see anything that would continue there.

And just real quick, too, on General Surgery and the question that was asked previously.

It was a little lighter in the quarter, likely due to surgical volumes.

It reacts more to surgical volumes than our Advanced Energy business and our Advanced business overall.

And so that's why we saw a little bit of weakness in General Surgery versus what we've seen in the past.

It is almost directly impacted by these surgical volumes, and that was the reason for the softness.

And with respect to the questions for me, the -- let me start with the acquisition strategy.

Look, we remain focused on tuck-in acquisitions today, and they work for us.

We've converted them into -- the ones that we've done, we've converted them quite smoothly into organic growth drivers for us over time.

We're not really focused today on transformative M&A.

Remember, we're still in the last year of integration of Covidien.

We just did a divestiture.

There's separation agreements that we've got to follow through.

So in our -- we're focused on executing these big sort of bets, in many ways, that we made.

And we continue to have a very disciplined approach to pursuing our tuck-in acquisitions, and we intend to continue that approach.

Over the long term, we'll continue to build value for shareholders, and we'll look at opportunities that are accretive to margins and growth trajectories that support our strategic priorities.

I think Karen can comment a little bit on the capital allocation, perhaps, and the buyback as well.

Yes?

Yes, David.

Sure.

As you've heard us talk about in the past, we're focused on paying back to our shareholders in the form of both dividends and share repurchases, and that won't change.

We're also focused on balancing that payback with continued reinvestment in our own business so that we can continue to grow that long-term value of Medtronic.

It's from the line of Bob Hopkins with Bank of America.

I just wanted to ask 2 questions that really sort of clarify the guidance maybe.

And Karen, to start out, this is pretty simple math.

But just to confirm, the new EPS guidance for fiscal 2018, including Cardinal, by my math, based on your disclosures, sums to about $4.75 to $4.80.

Is that correct?

Yes.

We don't comment directly on exact EPS guidance, but we do expect -- continue to expect 9% to 10% growth on the base of last year.

So hopefully, that's helpful.

Well, obviously, you give all the moving pieces in your disclosures, and I just wanted to make sure that we had that right.

But I guess we'll -- we can follow up offline on that, but by our math, it summed to around $4.75 to $4.80.

And I guess the other EPS clarifying question that I had was that -- I'm just trying to reconcile the old guidance to the new guidance and understand maybe what has changed.

And I know you're now giving your growth targets off of pro forma numbers.

But I mean, your old guidance called for 9% to 10% underlying EPS growth on legacy Medtronic and then a $0.05 to $0.10 hit, and then you said Cardinal would be dilutive by $0.18.

Those are the 3 sort of big pieces to your old guidance.

And I'm just curious, could you help us understand what's changed with this new guidance?

Obviously, we can see that FX has gotten better.

But as I sum through all the math, it seems like something must have gotten a little bit worse, either the Cardinal dilution or maybe the base business due to other income or Diabetes.

So I'm just trying to understand what's changed relative to the old guidance and the way you used to give it.

Sure, sure.

I would say that the biggest thing that's changed is in our Diabetes business and the impact of the lower revenue growth until the end of the fiscal year, given the demand and the supply constraint.

And that guidance does ultimately have an impact through the P&L, and so that does also affect the bottom line.

Beyond that, we do expect that to be offset by some better guidance in CVG than initially given, given the strength of that new pipeline.

And on an EPS perspective, we do expect that the dilutive impact of the transaction is still at $0.18 on a net basis after taking into account the use of proceeds.

On a gross basis, when you're looking at the numbers that we provide to reset your base, on a gross basis, that would translate into about $0.23 dilutive before taking into account the use of proceeds.

And do you have a number that quantifies the impact of the Diabetes change in guidance for this particular quarter, what the impact was on organic growth?

Yes.

I would say that, again, difficult to give you an exact dollar amount of the impact to the quarter of the demand and supply equation.

But clearly, it did impact us to perform under what we had initially guided for the Diabetes business last quarter.

It's from the line of Kristen Stewart with Deutsche Bank.

I guess I have just a couple more strategic questions, and I just want to clarify, just on Diabetes, it sounds like it's -- the demand is just more overwhelmingly positive.

So has this changed your mind from a strategic perspective, I'm sorry for the background, just in terms of wanting to change your thoughts on going more from a consumer level?

Because if you have 30% more demand for like using the 640G with the sensors, why not think about going more just to consumer basis and not going more the professional route?

For -- this is for the sensor, yes.

The sensor, yes.

So Kristen, this is Hooman.

The -- let me just touch on that.

First of all, it is, as we talked about, purely a demand equation.

And as you rightly pointed out, we have our Enlite 1 sensor, our Enlite enhanced sensor, our Guardian Sensor 3. All of those are experiencing strong demand, which, as Omar and Karen mentioned, we are working to fill the capacity in order to meet that demand.

It doesn't change our strategy overall, number one.

So strategically, actually, this increased demand means the strategy is working with respect to sensor-augmented systems.

And then as far as personal versus professional CGM, I would say 2 things.

One, as Karen and Omar alluded to in the commentary, we are still working with the FDA for the launch of our own personal CGM, which should hopefully happen this year, the Guardian Connect sensor with Sugar.

IQ.

That's number one.

And on top of that, we continue to go down the path within our non-intensive type 2 business to drive professional CGM more aggressively through primary care physicians.

So we're pursuing all 3 of these angles.

And that's been the strategy, and we will continue to drive that strategy.

Okay, perfect.

Awesome.

And so with the FDA just getting new lines up, that's just what's causing more of the delay and causing the backup in demand?

Not the -- I think you were pretty strong in saying, Omar, it's not the yields.

That's correct, yes.

It's not the yields.

It's capacity doesn't meet the demand.

It's not throwing away product and just the demand and getting more lines cleared by the FDA, okay.

Perfect.

That's clear.

Okay.

And then, Omar, I'm just curious on your thoughts of the recent FDA decision to kind of pull back on some of the bundled payments in terms of thinking going forward about the health care system and the direction of care.

I mean, to me, it doesn't really change, I think, the longer-term picture of where care is going and the need to reduce care, but I'm just curious on your thinking on whether this changes, ultimately, strategy and how you think about things going forward.

And then also, just comments strategically on there's been more consolidation in the industry, your thoughts competitively, where you're stacking up and especially in light of the divestiture, too, just kind of thoughts of the evolution of Medtronic and where you're positioned now.

Okay.

Thanks, Kristen.

First of all, that's CMS you meant, with the payment changes.

The change is really that it's not mandatory anymore.

I think there's general encouragement to move more towards value-based payments.

And I think it's not only CMS but the commercial payers are also looking at it in that dimension.

At the end of the day, value-based health care is around improving outcomes at a lower cost, and I think that trajectory is not going to change.

I think there's good realization of that.

I think operationalizing this requires granular work, and we're in the middle of that and we are driving that, partnering with both providers and payers and CMS in doing so as we come up with the right models.

So I would say that the change from the mandatory version is just that, that it's not mandatory anymore.

There's no real -- the change in philosophy about the value of bundled payments and the importance of outcomes measurements.

I think with respect to the industry, look, value-based care is where the industry has got to move to.

Consolidation gives you a capability to have a seat at the table.

It gives you more assets to use to deliver value-based health care because you probably need a variety of capabilities to do so.

But at the end of the day, innovation in this industry that's relevant for patients is never going to go away.

And let's not confuse getting broader in some ways with a lack of focus in specific physician partnerships and, therefore, driving innovation, which will then result in higher value.

That's what med tech does, and that is not going to go away.

I think the rest of (inaudible)

Your next question is from the line of Larry Biegelsen with Wells Fargo.

Let me just follow up on a question that was asked earlier about weak U.S. surgical volumes impacting the spine market.

Overall, calendar Q2 was pretty mixed for the large-cap med tech companies and -- with growth slowing.

So I wanted to see if you guys could talk about why you think U.S. surgical volumes might have been weak.

Maybe any insight on trends in July and August and why you think the spine market might be a little soft.

And then I had a follow-up.

Yes.

I think there's 2 things on that.

First of all, always remember that the U.S. market is driven by innovation cycles.

And as we go through innovation cycles, the underlying market is really dominated by these growth spikes that we get.

And as we move into an accelerating phase of innovation, you will see our U.S. performance go up across the board.

With respect to the underlying market, there's been a slight change, which is in the range of changes that have happened in the past.

And you're right that surgical volumes overall have been a little softer, as have spinal volumes.

A lot of this has to do with elective procedures, people backing away from those.

I think that's the best that I can -- that we've seen, that there's been an intentional sort of conservatism, if you like, maybe a caution about elective procedures right now in the middle of the year.

But again, it's within the range of movement of these markets over time, so it's not anything beyond that.

And I do think that innovation cycles are the ones that really move these markets much more dramatically, and I think as we go through this period of accelerating innovation, you're going to see that.

Any commentary on the spine softness?

Is that also procedure related?

And just for my follow-up, maybe, Mike, there's a couple of presentations coming up at ESC that could impact your Afib business, CASTLE-AF, as well as renal denervation, the Spyral off-med trial.

Could you talk about the significance of those trials?

And any other color you might be able to add before the data.

Larry, on the spine market, I just -- I do attribute it to what Omar was talking about, those broader themes around elective procedures.

A little more specifics.

We can rule out a few things.

I mean, we haven't seen -- we do have some visibility into the payers, and we haven't seen any increased pushback from payers, any increased like declines of procedures, because we do have a view -- insight into that.

We haven't seen that.

And in just talking to physicians, we haven't seen any other significant catalysts.

They still seem pretty positive about the market.

And so at this point -- again, like I mentioned earlier, we'll get more procedural insights in a couple of weeks, because the market data is delayed a little bit, the data that we get.

But at this point, we're attributing it to the broader elective procedure dynamics that Omar mentioned.

And then, Larry, on the questions about the clinical trials to come up here at ESC for late-breaking clinical trials, I don't have much to say on the CASTLE-AF study until we actually see the results there.

Obviously, our franchises are doing very well in that particular area, both therapeutically with the CryoAblation and continuing benefits from the FIRE & ICE study as well as, obviously, continued growth in the insertable loop recorder market, where, frankly, most of the growth that we see there is being dominated by its use in cryptogenic stroke and syncope.

So we don't expect those to be particularly impacted, but we'll obviously wait and see what those data are.

As it relates to the renal denervation, obviously, we've been working now for the better part of 3 years to basically look at the application of that therapy.

We've changed the device, obviously, to the Spyral device.

We have changed where we are doing the application of energy to go more distal into the renal artery.

We have changed the patient population that we are studying based on the evidence that we saw of who responded and who didn't in the original HTN-3 study.

And we also have obviously now executed on a randomized clinical trial, sham controlled for the both on off -- on-med and off-med arms.

And what's going to be presented at ESC next week is the off-med cohort -- patient cohort there.

So we think that's probably the purest look at the therapeutic value of renal denervation.

But we have simultaneous publication for that, and we'll discuss those results after they're actually presented at ESC.

It's from the line of Glenn Novarro with RBC Capital Markets.

I just want to ask one more question on surgical volumes.

So we get it, spine volumes in the U.S. were slower in 2Q, and there was some softness in General Surgical trends in 2Q.

But can you give us your expectations for the second half of this calendar year?

And the reason I'm asking is because one of the things we've heard is that these higher -- lower premium, higher deductible plans are starting to push more and more cases into the fourth quarter, similar to what we see in knees and hips.

So is that a possible explanation as to why we saw some softness in 2Q?

And is that a reason for volumes to get stronger in the back end?

I'm just wanting your thoughts on that.

And then I just had a follow-up question for Mike Coyle.

Okay.

Bryan?

Yes.

So what I would tell you is that, thinking in Q2, we get -- it's not a perfect science, by the way.

And so if you look at the variables that would drive lower surgical volumes in a quarter, it's very difficult to say what variable actually had the biggest impact.

So I don't want to draw any conclusions there.

What I know is that from our own field sales organization, from some of our key competitors that play in the space in their General Surgery type products, there was softness in the quarter.

I don't want to read too much into that, though, because it's 1 quarter.

We have quarters that are up, quarters that are down, so I'm not calling this a trend at all at this point.

And I certainly wouldn't want to draw any conclusions to any strength that would be happening in the fourth quarter as a result of this.

One other thing I would mention, in our Advanced Surgical business, though we always look at surgical volumes, one of the key things we concentrate on is moving current procedures from open to MIS, and that drives a lot of our growth.

So we're dependent on surgical volumes, but not completely dependent on surgical volumes in that business.

Okay.

And then, Mike, just 2 cardio questions.

One, maybe a little bit more color on what you're seeing in your Core Pacing business today given Abbott has now launched an MRI-safe pacer.

And then you're bullish on your stent outlook over the next couple of quarters with the Onyx launch.

But maybe talk about what's truly different about Onyx that could allow you to gain share in the stent market over the next, I don't know, 6 to 12 months.

Sure.

So on the Pacing side, the market is very stable.

We're seeing low single-digit to actually mid-single-digit unit growth for initial implants.

And obviously, the -- we've seen some modest share loss to competitors as they've entered with MRI.

But as now we have brought out Micra both in the U.S. and Europe and it will be coming to Japan this quarter, we are obviously seeing a recapture of, especially, the single-chamber unit share at much higher prices, obviously, with the Micra product.

And as we head into the second half of this year, we will be releasing our next-generation of pacing family, the AZURE wireless pacer family, both in Europe and in the United States.

It's actually just been released in Europe and will be coming to the United States in the second half.

So we think we will actually get back into a share capture mode with that particular product.

And then as it relates to the Onyx product, the feedback we've received from Europe and its early release here in the U.S. and also in Japan is that it's the most deliverable stent in the market, that it has the widest range of sizes and widths of any product, that it basically can go anywhere and has great visibility.

And we have seen it drive market share for us meaningfully in Europe to the point where we essentially recovered everything that had been given up as competitors had come in with their products.

So we are looking for a similar dynamic here in the U.S. and in Japan, and so we think we've obviously begun to see that.

We're seeking a price premium for the product, which makes it a little slower in its ramp in terms of having to get approvals from committees to go on contract.

But we are very encouraged with the feedback that we're receiving, and we expect it to be a growth driver for us for the rest of the year.

It's from the line of Matt Taylor with Barclays.

I guess, since it's the biggest change here, I just wanted to ask one follow-up on Diabetes.

As you're moving towards getting this new line up and running and adding that capacity, I guess, can you help us understand what the gating factors are in terms of predicting that timing or what the bottlenecks could be with setting up that new line?

And what could push that time line back or forward, if there's some conservatism in that guidance?

Yes.

I think, look, the major variable here is just the FDA approval that we need for the capital equipment that's needed for the line.

The rest of it is pretty straightforward.

We're replicating a line that -- a process that we know how to do.

And there's some level of -- things out of our control is the FDA time cycle for approval.

It's not anything that's different from what we've got approved in the past, and we expect this to go okay.

But it is something that's out of our control, and I think that's the major factor in getting the line up.

Is there anything else, Hooman?

No, that's exactly right.

We know the equipment.

We know the process.

So bringing the equipment in, doing all of the qualifications, that's something we feel very comfortable with.

Then there's obviously the variable of turning all of that over to the FDA and seeking their approval.

So as Omar pointed out, that's the single biggest variable in this that has uncertainty around it.

The other elements, we feel very good about.

And just to make it clear, we have gotten approval for this kind of stuff from the FDA in the past without any issues.

So there's nothing that's any different, but it is something that needs approval.

Okay.

And just a follow-up.

On the presentation, I noticed that CRT-D has actually declined low double digits this quarter.

So I was curious if you could give us some color on that, I was a little surprised by the magnitude of that decline, and if anything could change there going forward to improve that.

Yes.

The decline that you're seeing in the CRT-D is basically being driven by the U.S., and it is basically we are seeing low single-digit declines in initial implants for CRT-D.

We are actually taking market share in the initial implants, but we are also now seeing sort of low double-digit declines in replacements.

This is something we talked about a year ago in Q1 and Q2.

As a competitor had a major recall at the end of our Q2 and into Q3 and Q4, that obviously drove competitive replacements for us, which masked, if you will, that decline that's really being driven by the extending of battery life in the CRT-D space.

And that's what you're seeing sort of reflected in the numbers.

The other major driver for that, which is temporary to the Q1 results, is that we saw a fairly significant destocking of hospital-held inventory in the United States in Q1, where, essentially, the hospitals are looking not to hold as much inventory of product.

And if they want to take it, they want significant discounts to restock that, which we've opted not to do.

So that is more of a temporary issue that we think we'll not see this big of a magnitude of it going forward.

It's from the line of Joanne Wuensch with BMO Capital Markets.

Can we shift a little bit to the land of robotics?

You have a new surgical robot expected outside the United States this year.

And you mentioned Mazor in your comments.

Could you please give us an update on your thinking about those 2 aspects of your portfolio?

I'll let Bryan go first, and then let Geoff talk about Mazor.

I couldn't hear you very well.

What was the question on the surgical robotics system?

Well, just an update on how you're thinking about that launch, applications and differentiations and anything else that you could add to the color of -- as we all look towards it.

Well, obviously, we're pretty excited that we're in the fiscal year that we're going to get it first human use.

So that's a positive.

We're in the what I would define as the pilot phase build right now, and we're obviously working very diligently for a verification and validation and also any things that we need to put together for regulatory submissions.

So we're heading down the path, feel confident with what we have today.

Obviously, with this complex of a product, a lot can happen in the V&V process, but we're feeling good about where we stand today.

And the strategy holds.

It's the same that I've mentioned before.

(technical difficulty)

Organization, from a mission perspective, is to move our patients from open surgery to MIS.

This is another tool to ensure that we can do that.

And we feel confident that once we launch this, we're going to be in a unique position to bring more value than any other company in the world.

We'll be able to fully service open surgical procedures, traditional MIS procedures and robotics surgery as well as provide operational efficiency services within the operating room.

So we remain very confident in the product, and we remain very confident in the overall strategy.

And then, this is Geoff, on Mazor.

As I think most people know, it's been -- it's public, it's out there, is our relationship with them has a continuum, if you will, and we're in this phase of the relationship that is a lead sharing.

And if we hit certain milestones and they hit certain milestones, we move to more of a distribution.

And the initial phase has gone very well.

It's tested the hypothesis that we believe robotics has a strong place in spine surgery, and it works well with our broader solutions around interoperative imaging and navigation.

And so we're very pleased with where the relationship is going.

And I think we can talk more about this in the next quarter here in terms of moving towards distribution.

In addition to that, a go-forward look on tighter product integration with our navigation and our interoperative imaging systems as well as our spine implant business, how this impacts their product road map as well.

But the relationship continues to go well, and it's growing.

Our customers see a lot of value in not just the robot, but the robot -- the Mazor X robot used in conjunction with our interoperative imaging system, the O-arm O2, as well as our navigation platform, the StealthStation.

And your final question will be from Isaac Ro with Goldman Sachs.

I wanted to spend a minute talking about the nature of your relationship with hospitals.

There are a couple of items here that have been brought up on that I thought are interesting.

One was just the nature of surgical procedures.

And I'm wondering if you're seeing any impact from the increase in prior authorization required by hospitals and payers before scheduling procedures, whether that's having an impact on volumes in Spine and elsewhere in your business.

Look, we don't have any direct insight into that.

We don't hear of that, as a specific reason.

And like I said, this range is within a fluctuation range that we've seen before, so we're taking it in that light.

And like we mentioned earlier, elective procedures probably are down a little bit, but again in the range that we've seen before.

And again, let me emphasize that product innovation in this market is what really strengthens these markets.

And we do you think that for the right procedures, where there's real value that the patient can see and the physicians can see, the procedures will happen and will grow when new innovation comes along.

And we are in the period of accelerating that innovation.

So we do expect our U.S. growth numbers to go up in the coming quarters, offset a little bit by the Diabetes slowdown in the next quarter or so because that's mostly -- almost all U.S. But really, surgical procedures themselves, I think, again, are in the range of history, of historical trends, and we expect our product innovation to positively impact those markets.

Okay, that's helpful.

Maybe just from another direction.

I think there was an earlier comment on the CRT-D business with regards to hospital inventory.

Are you seeing, at a higher level, any change in the way hospitals manage their inventory for your products?

I mean, it seems like, again, that customer group is a little bit stretched in terms of their financial health, and so just understanding how they're managing their cash flow and how that impacts you.

Well, no, I think their methodology for managing is more or less the same as it's always been.

And you go through these cycles, again, in the range that we've seen before.

And look, I hear, too, from hospitals just in general that they're concerned about their business flow, but again, it's nothing that's more than what we've seen before and in that range.

And for the right thing, they will do it.

But the buying patterns are in line with what we've seen.

Nothing dramatically different.

Okay.

So with that, let me thank you all for your questions.

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

And we look forward to updating you on our progress on our second quarter earnings call, which we now anticipate holding on November 28, which is a week later than normal given the closing time needed as a result of the divestiture to Cardinal Health.

Thank you all, and have a good day.

Thanks.

Ladies and gentlemen, this concludes Medtronic's First Quarter Earnings Conference Call.

You may now disconnect.