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Edited Transcript of MDT earnings conference call or presentation 20-Aug-19 12:00pm GMT

Q1 2020 Medtronic PLC Earnings Call

Dublin Aug 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Medtronic PLC earnings conference call or presentation Tuesday, August 20, 2019 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Geoffrey Straub Martha

Medtronic plc - Executive VP & Group President of Medtronic Restorative Therapies Group

* Hooman C. Hakami

Medtronic plc - Executive VP & Group President of Diabetes Group

* Karen L. Parkhill

Medtronic plc - Executive VP & CFO

* Michael J. Coyle

Medtronic plc - Executive VP and Group President of Cardiac & Vascular Group

* Omar S. Ishrak

Medtronic plc - Chairman & CEO

* Robert John White

Medtronic plc - Executive VP & President of Minimally Invasive Therapies Group

* Ryan Weispfenning

Medtronic plc - VP of IR

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Conference Call Participants

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* Christopher Thomas Pasquale

Guggenheim Securities, LLC, Research Division - Director and Senior Analyst

* Danielle Joy Antalffy

SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst

* David Ryan Lewis

Morgan Stanley, Research Division - MD

* Joanne Karen Wuensch

BMO Capital Markets Equity Research - MD & Research Analyst

* Kristen Marie Stewart

Barclays Bank PLC, Research Division - Research Analyst

* Matthew Charles Taylor

UBS Investment Bank, Research Division - Equity Research Analyst of Medical Supplies & Devices

* Matthew Stephan Miksic

Crédit Suisse AG, Research Division - Senior Research Analyst

* Rajbir Singh Denhoy

Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst

* Robert Adam Hopkins

BofA Merrill Lynch, Research Division - MD of Equity Research

* Robert Justin Marcus

JP Morgan Chase & Co, Research Division - Analyst

* Vijay Muniyappa Kumar

Evercore ISI Institutional Equities, Research Division - MD

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Presentation

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Operator [1]

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Good morning. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Medtronic first quarter earnings call. (Operator Instructions)

I would now like to turn the conference over to Ryan Weispfenning, Vice President, Investor Relations. Sir, you may begin.

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Ryan Weispfenning, Medtronic plc - VP of IR [2]

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Thank you. Good morning, and welcome to Medtronic's fiscal year 2020 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 26, 2019. 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.

During today's earnings call, many of the statements made may be considered forward-looking statements, and actual results may 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.

For this call, unless we say otherwise, rates and ranges are given on a constant currency basis, which compares to the first quarter of fiscal year 2019 after adjusting for foreign currency. References to organic revenue growth exclude the impact of material acquisitions and currency. Reconciliations of these and all non-GAAP financial measures can be found in the attachment to our earnings press release or on our website at investorrelations.medtronic.com. Finally, our EPS guidance does not include any charges or gains that would be reported as non-GAAP adjustments to earnings during the fiscal year.

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

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Omar S. Ishrak, Medtronic plc - Chairman & CEO [3]

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Thank you, Ryan, and thank you to everyone for joining us. This morning, we reported solid quarterly results, and we are off to a good start to the fiscal year.

Despite tough comparisons, we delivered revenue growth, operating margin and EPS all ahead of Street expectations. Q1 revenue grew 3.5% in constant currency, with outperformances in CVG, MITG and RTG, while Diabetes matched our expectations. This reflects the success in the market of our innovation and the benefit of our business and geographic diversification.

Our adjusted operating margin expanded 90 basis points including currency and 70 basis points constant currency as we continue to see the benefits of our enterprise excellence initiatives, particularly on the SG&A line. On the bottom line, we grew diluted EPS 7.7% or 9.4% at constant currency despite a 230 basis point headwind on EPS growth from the increase in our non-GAAP nominal tax rate.

Let's discuss some of the more important drivers of our performance. Starting with our Minimally Invasive Therapies Group, which delivered another strong quarter and surpassed our expectations, growing 4.8%. Through diversifying our sterilization supply network, we overcame the challenges related to our supplier's sterilization facility shutdown in February, returning to full sterilization capacity during the quarter.

In Surgical Innovations, Advanced Stapling grew mid-single digits and Advanced Energy high single digits. This was driven by new innovations in our Tri-Staple and LigaSure franchises, including our new EEA circular stapler with Tri-Staple technology and our Ligasure exact dissector. Respiratory, GI and renal also had a strong quarter, led by double-digit growth in GI Solutions and mid-single-digit growth in respiratory and patient monitoring. In CVG, we grew 1.4%, which was ahead of our expectations. CVG's growth continues to be tempered by challenges in drug-coated balloons, LVADs as well as CRM replacement devices given the longer-life batteries we launched several years ago. Regarding DCBs, we're encouraged by our better-than-expected performance as our case volumes increased following the FDA panel in June. We were also encouraged by the path forward outlined by the FDA in their letter to physicians earlier this month.

In CRHF, our pacing business is strong, growing 5% as our disruptive innovation, the Micra single-chamber transcatheter pacing system is taking share and expanding the market. Our U.S. single-chamber pacemaker share is now over 65%, with our revenue share over 80%.

In TAVR, we saw both the market and our growth accelerate to the mid-teens in Q1 on the back of the low risk data presentations at ACC. CMS published the final TAVR NCD memo in June, and we expect this will result in approximately 200 new TAVR centers in the U.S. We're already in active negotiations with about half of these centers, which are ready to start as we aim to become their preferred partner in TAVR devices.

In CVG, it is also worth noting the double-digit growth contributions from our Valiant Navion thoracic stent graft, our VenaSeal closure system, and also our TYRX Absorbable Antibacterial Envelope, which continued to accelerate post the RAPID data presentation at ACC. In addition, both our Reveal LINQ insertable cardiac monitor and Arctic Front cryoablation products grew in the high single digits.

In Diabetes, we grew 5.4%. And this was despite our U.S. business declining mid-single digits because of competitive challenges and the difficult comparisons versus the prior year when our U.S. business grew 33%. Our international business, which represents approximately half of our Diabetes revenue, grew 20%. The MiniMed 670G, which drove strong growth in the U.S. last year, is now experiencing that strong same strong consumer demand internationally as we launched into new markets. We now have approximately 200,000 people using the 670G system globally. In addition, we experienced strong adoption of the Guardian Connect Smart CGM system, which grew in the high 80s.

In RTG, we had another strong quarter, growing 4.6% as we successfully offset declines in our Pain Therapies business. Our brain business continues to deliver exceptional results, growing 11.4%, with strength in both Neurovascular and Neurosurgery. In Neurovascular, we grew in the mid-teens, our market-leading share improving through the strong adoption of our recently launched Solitaire X stent retriever as well as our Riptide Aspiration System and React catheters.

In Neurosurgery, our capital equipment sales continued to be robust. This is led by our Mazor X Stealth navigated robotic system, which not only is meaningfully outpacing the competition, but is also resulting in strong pull through of our other market-leading and differentiated capital equipment. Sales of our StealthStation navigation system grew over 20% this quarter, and our O-arm surgical imaging system grew close to 30%.

In Q1, our organic Spine revenue growth was the highest in 9 quarters. In addition, when you combine our Spine division sales with the sales of our capital equipment from our Brain Therapies division used in spine surgery, our Spine division grew 4.7%, with our U.S. Spine business growing at 6%. This is how our competitors report. And it represents a strong indication that our strategy of offering our enabling capital equipment with our spine implants is working as we are growing well above the spine market growth.

Now turning to emerging markets, which represents 16% of our revenue. We continue to drive strong growth in these markets as we optimize the distribution channel and in some markets localize R&D and manufacturing. In Q1, we grew emerging markets 12%, with strength coming from markets around the globe. China grew 11%, Eastern Europe 23%, including 28% growth on Russia. And the Middle East and Africa grew 15%. In addition, South Asia grew 13%; Southeast Asia, 12%; and Latin America grew 9%. Our strategy of emerging market diversification around the world is working as evidenced by our consistent delivery of double-digit growth in every quarter, overcoming economic cycles over the years in these different countries.

As a result of this quarter's outperformance and confidence in our outlook, we raised EPS guidance this morning. Q1 was clearly a good quarter despite several headwinds and otherwise tough comparisons. As we look forward, we are even more excited about what lies ahead as we expect the investments we've made in our pipeline to begin to pay off with multiple pipeline catalysts accelerating revenue growth and value creation for our shareholders.

In CVG, upcoming launches include the TAVR low-risk indication, which we just received last week; our next-generation Evolut PRO plus TAVR valve and our DCB AV fistula indication. CVG also has several launches coming up in CRHF, including the Reveal LINQ 2.0 insertable cardiac monitor, the DiamondTemp ablation system in Europe and our Micra AV pacemaker. In MITG, we are excited to host analysts in Hartford next month at one of the world's leading robotic centers where the analysts will experience a robotic-assisted surgical procedure that is part of our development and clinical testing process using our soft tissue robotics system. In RTG, we are launching the Midas Rex MR8 drill platform this quarter and continued to advance our Pelvic Health pipeline having started the regulatory approval process for InterStim II with MRI recharge-free system and our Interstim Micro with MRI, which is 3 cc in volume and rechargeable. We expect to launch both of these products next spring. In addition, we have next-generation products in Neurovascular and spinal cord stimulation, all of which are launching or preparing to launch in the next couple of quarters.

In Diabetes, we've submitted our non-adjunctive labeling application to the FDA, and we are preparing for the launch of the MiniMed 780G, our advanced hybrid closed-loop system with Bluetooth connectivity in the second half of this fiscal year. We're also making good progress on our pivotal trial for Zeus, our next-generation eye CGM sensor that will reduce finger sticks by 95%.

There are, of course, several more product launches that we're preparing for across the company. I won't cover them all today, but I will say that we are making great progress across the portfolio, and we'll keep you updated as we progress through this fiscal year.

And I'll leave you with what I noted last quarter, that we expect our growth rate to accelerate over the course of FY '20, with the second half growing faster than the first as we anniversary recent headwinds and bring multiple new products to market over the next several quarters. Moreover, we expect our top line momentum to build in FY '21, with each of our 4 groups having the potential to accelerate revenue growth next fiscal year as we get the increasing benefit of the FY '20 product launches as well as the benefits from the products slated to launch in FY '21.

Let me now ask Karen to take you through a discussion of our first quarter financials. Karen?

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Karen L. Parkhill, Medtronic plc - Executive VP & CFO [4]

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Thank you. As Omar mentioned, we delivered first quarter revenue growth of 3.5%, and adjusted EPS was $1.26, growing 7.7%. While we came in $0.08 above the midpoint of our guidance, it's worth noting that $0.02 resulted from better than expected FX, which, at current rates, we'll give back over the balance of the year. The other $0.06 was operational outperformance, including better-than-expected revenue and operating margin expansion and a modest benefit from tax.

Our adjusted operating margin was 28.2%, reflecting improvement of 90 basis points with currency or 70 basis points constant currency. We delivered a very strong improvement in SG&A as we continue to implement and drive efficiencies and improvements across the company under our Enterprise Excellence Program. In addition, we are seeing the benefits of the recent inclusion of operating margin as a component of our annual incentive plans across our groups and regions, which is driving increased focus on this important metric across the organization.

In the first quarter, we successfully executed a EUR 5 billion debt offering and used the proceeds to reduce U.S. dollar-denominated debt. This followed the similar EUR 7 billion transaction we executed in the fourth quarter. The combined EUR 12 billion issuances carry a weighted average coupon of less than 1%. The results of the combined fourth and first quarter transaction is an annualized reduction to our net interest expense of over $300 million, a savings that will benefit Medtronic for years to come.

Our adjusted nominal tax rate was 15.1%, lower than expected, due to the increased benefits associated with the finalization of taxes owed on certain returns and changes in operational results by jurisdiction. Generating strong free cash flow remains a priority across the company. First quarter free cash flow was $1.2 billion. We continue to target an 80% conversion rate above our peer average over our long-range plan. We remain committed to disciplined capital deployment, balancing investment and R&D and tuck-in acquisitions with returning a minimum of 50% of our annual free cash flow to our shareholders in the form of dividends and net share repurchases.

In the first quarter, we returned over $800 million or 70% of the cash we generated, resulting in a total shareholder payout of 50% on adjusted net earnings. We also increased our dividend by 8% in June, making this our 42nd consecutive year of delivering a dividend increase. In fact, our dividend has grown by 77% over the past 5 years.

Before turning the call back to Omar, I would like to update our annual revenue growth and EPS guidance. For the fiscal year, we continue to expect organic revenue growth to be approximately 4%. While the impact of currency is fluid, if recent exchange rates hold, foreign currency would have a negative impact on full year revenue growth of approximately 80 to 120 basis points.

Looking at annual organic growth by group, we now expect CVG to grow 2.5%, a 50 basis point increase from our prior expectation of 2% plus or minus. For RTG, we continue to expect growth of 4% to 4.5%. And for Diabetes, we're comfortable at the lower end of our 6% to 8% range. Finally, for MITG, we now expect growth of 5%, an increase versus our prior expectation of 4.5% to 5%. We expect our second quarter organic revenue growth to look similar to the first quarter, with currency having a negative impact of 70 to 130 basis points at recent rates.

By group, we expect organic growth in CVG and RTG to look similar to the first quarter; for Diabetes to grow low single digits, as we await new product launches; and for MITG growth to accelerate to 5.5% to 5.75%, driven by new products. And as I noted last quarter, we continue to expect our total company organic revenue growth to accelerate north of 4% in the second half of the fiscal year.

Turning to margins. We continue to expect operating margin expansion in the full fiscal year of approximately 40 basis points on a constant currency basis, driven by our Enterprise Excellence initiative. For the second quarter, we would expect a more modest improvement in operating margin, offset by a slight currency headwind as we invest ahead of multiple new product launches.

Given our recent euro debt offering that I mentioned earlier, we expect our non-GAAP interest expense to be in the range of $170 million to $180 million per quarter for the remainder of the year. In addition, we continue to expect our adjusted nominal tax rate to be in the range of 16% to 16.5% per quarter for the remainder of the year, which, when combined with our Q1 nonrecurring benefit, would imply an annual range of 15.8% to 16.2%. We remain focused on optimizing our underlying operating tax rate over time as the U.S. tax reform regulations are finalized.

With respect to earnings, we are increasing our fiscal year '20 EPS guidance to a range of $5.54 to $5.60, a $0.10 raise from the prior range of $5.44 to $5.50. This includes a negative $0.10 impact of currency at recent rates, with a slightly worse impact over the balance of the year offsetting a better-than-expected benefit in the first quarter. For the second quarter, we expect EPS of $1.27 to $1.29, including a $0.02 currency headwind at recent rates.

Now I will return the call back to Omar.

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Omar S. Ishrak, Medtronic plc - Chairman & CEO [5]

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Thanks, Karen. And let's now move on to Q&A. In addition to Karen, our 4 group presidents, Mike Coyle, Bob White, Geoff Martha and Hooman Hakami are also here to answer your questions. (Operator Instructions) If you have additional questions, please contact Ryan and our Investor Relations team after the call. Operator, first question, please.

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Questions and Answers

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Operator [1]

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Your first question comes from the line of Bob Hopkins with Bank of America.

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Robert Adam Hopkins, BofA Merrill Lynch, Research Division - MD of Equity Research [2]

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Just wanted to first say congrats on a really strong quarter and see if I could get some commentary about 2 product areas. First, on Diabetes. I noted that you were nicely in line this first quarter but have switched the guidance to the low end of the range. Just curious if you could talk about that a little bit. And then the other product question I had was just, on the robotic-focused Analyst Day for September 24, really looking forward to that day and getting all the details. But I was just wondering if in front of that day, you would be willing to give us at least a little directional sense for just launch time lines in the U.S. Is that more than a year away, within a year? Those are the only 2 questions I have.

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Omar S. Ishrak, Medtronic plc - Chairman & CEO [3]

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I'll let Hooman and Bob comment a little bit. First of all, on the Diabetes, I know we sort of tone down the numbers a little bit, but that doesn't remove our excitement regarding the upcoming launches here. The advanced hybrid closed-loop with Bluetooth connectivity in particular towards the end of the fiscal year is one that we're zeroing in on, and the clinical trials and so on are in progress.

We've had more competitive pressure than we'd like in the U.S. in the first quarter. So taking that into account, we decided to be prudent about what our guidance should be. But let's not take anything away from the product launches that we're anticipating in the second half. Those are on time, and we'll see when the result's in, but we're pretty excited about them.

I don't know, Hooman, if you want to add anything to that or...

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Hooman C. Hakami, Medtronic plc - Executive VP & Group President of Diabetes Group [4]

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Sure. Bob, thanks for the question. Maybe first, a little bit of color on the dynamics that drove Q1 and that I think will also sort of drive the guidance. If you recall from ADA, the quarter was pretty much in line with what we talked about at ADA. We anticipated strong OUS growth. Check. We -- in the U.S., we expected consistent consumables and CGM revenue from the installed base. Check. We said that we expected to renew our patients coming out of warranty in line with historical rates. We're able to do that. And then we said the most volatile thing was really the conversions in the U.S. of patients coming from MDI, and that also sort of factored in. We're able to balance all of that and deliver in Q1. Now as far as the rest of the year goes, it's virtually as Omar stated. It's a function of the pipeline, which remains on track versus what we discussed at ADA.

Now in Q2, we did expect to get some reimbursement for 670 in Germany, and we were hoping that, that would be an incremental contributor to offset some of the U.S. pressure that was discussed. But we're now assuming we don't get this and we'll get it next quarter. So for all of the reasons mentioned, this is why we're maintaining the range, but leaning toward the lower end of the range.

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Omar S. Ishrak, Medtronic plc - Chairman & CEO [5]

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Bob?

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Robert John White, Medtronic plc - Executive VP & President of Minimally Invasive Therapies Group [6]

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Yes. Sure. Bob, thanks for the question. Regarding the robot, we are excited, as Omar mentioned, to have the investment community experience a preclinical validation lab in Hartford next month. And the reason we're doing it there is it's certainly part of our preclinical testing and experience, and it's actually -- you'll get to see it in action versus just on a stage. So it's a really important event as we continue to gather preclinical data and experience on our system.

And in addition, during the day, there'll be panels with us Medtronic executive management. We'll have some expert surgeons there as well. And I know that Ryan sent the save the date out recently, and the invite will be coming from Ryan over the next couple of weeks.

But as respect to your question, Bob, we've not changed our commitment on our launch time lines to launch the product. Again, you specifically asked about the U.S., but of course, we're going to launch outside the U.S. in FY '20. This is a team that continues to hits its milestones. We're excited about the program, and we look -- we're looking forward to seeing you next month.

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Operator [7]

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Your next question comes from the line of David Lewis with Morgan Stanley.

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David Ryan Lewis, Morgan Stanley, Research Division - MD [8]

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Just 2 for me, one for Karen and one for Geoff. Karen, just thinking about the guidance for the second quarter, I think the last quarter, you suggested 4% growth for the second quarter. Now you're suggesting something closer to 3.5%. So is the relative change simply Diabetes and you still need some momentum improvement, frankly, sequentially to get to that number? And what drives that confidence?

And then just for Geoff, just on surgical robotics -- sorry, on spinal robotics, you definitely saw a significant change in relative growth versus markets sequentially, so things definitely improved in the core Spine business. Just kind of can you grow above market in core Spine this year? And if you could give us the Mazor or system placement number in the quarter, that would be great.

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Karen L. Parkhill, Medtronic plc - Executive VP & CFO [9]

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Yes. Thanks for the questions. In terms of 2Q, we're excited by the growth acceleration that we intend to drive in the second half. In 2Q, we're seeing some U.S. softness in Diabetes that we talked about, and we're seeing some pain market issues. But beyond that, we're very excited about the acceleration that we're going to drive. And it's just the first quarter, so we're focused on delivering as we move through the year.

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Geoffrey Straub Martha, Medtronic plc - Executive VP & Group President of Medtronic Restorative Therapies Group [10]

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Hey, David. It's Geoff. So regarding the Spine question, yes, we're definitely seeing strong momentum. Mazor has been a huge addition to our Surgical Synergy strategy, and it's having a pretty significant network effect, I'll call it, within RTG, one, as you pointed out on the implant side. And can we grow above the market? Look, we're expecting to grow above the market here. We think that the whole enabling technology and robotic strategy, that's where the market is going. It's going to cause the market to consolidate around a few players, and we intend to lead that and take share now and going forward.

As for the -- we're impacted by the way that the robotics -- Mazor having is on the rest of our capital equipment portfolio, which it's not something I completely expected. I mean our stand-alone Stealth for spine and Neurosurgery as well as our O-arm both grew over 20%. O-arm actually grew close to 30%. These are products that are in the market for a while. And I think this is the impact of having a larger capital sales force and a lot of excitement around these products. So -- and as for the placement, the number of units sales, I guess I've been told that I may be giving too much information in the last few quarters on this topic. So I'm pretty excited about it. Maybe I got a little -- but I can just tell you at this point, we're doing really well. I can -- I'll just leave it at that. We're doing really well above our expectations.

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Operator [11]

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Your next question comes from the line of Robbie Marcus with JPMorgan.

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Robert Justin Marcus, JP Morgan Chase & Co, Research Division - Analyst [12]

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Congrats on a good quarter. Karen, maybe we could start with a question on the P&L. This is the first time SG&A has been down year-over-year since first quarter 2017. You mentioned the operational excellence program. What exactly is driving the declines? And how sustainable is it?

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Karen L. Parkhill, Medtronic plc - Executive VP & CFO [13]

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Thanks for the question, Robbie. Yes, we were pleased with our SG&A performance, which clearly drove our operating margin expansion of 70 basis points on a constant currency basis. On SG&A, we are very focused on driving Enterprise Excellence Programs to drive further leverage and efficiency. We also introduced at the beginning of this year an incentive comp metric down into the organization on operating margin. And I think that metric is also helping to drive good cost control well down into the organization.

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Robert Justin Marcus, JP Morgan Chase & Co, Research Division - Analyst [14]

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Okay. And then on guidance for the balance of the year. You had a nice beat on the top line in the first quarter. You have a number of product launches hitting towards the back end of the year. Can you help us just maybe with cadence for the balance of the year? How you're thinking about the 4%? How conservative is that number still given you're only at a first quarter here? And some of the big product launches, and how we should think about those impacts to the top line. Appreciate that.

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Karen L. Parkhill, Medtronic plc - Executive VP & CFO [15]

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Yes. No. Thanks for that question, too. So look, we just finished our first quarter, and we had a strong first quarter. And we're really excited about the acceleration that we're going to drive in revenue growth throughout the year, particularly in the back half. That growth is really focused on strong product launches. And the exact timing of approval and launch is hard to predict. But we are excited about launching those in the back half. That will drive the acceleration. At this stage, that back half is going to have to be a decent amount higher than we had in the first half to end the year at 4%, and we're excited about that.

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Omar S. Ishrak, Medtronic plc - Chairman & CEO [16]

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Let me just also emphasize, Robbie, look, we laid the formula out. We had a good first quarter. The second quarter, we actually had the advantage of some of these comparisons being better in Services & Solutions and the LVAD in other areas. And so there is some growth there as well.

In terms of product launches, everything that we said is still completely in line, and they're coming through. We just got the low-risk TAVR approval. That is something that we were expecting actually a little later. We got it a little earlier. So all the other programs are completely in line. We're very excited about them. But it's only the first quarter, so we want to guide what we guided at the beginning of the year. But look, there's no hesitation on our part about the quality of these launches, when they're coming out, how excited we are about them, so that there may be no sort of confusion about that at all, and just take in the context of this as the first quarter.

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Operator [17]

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Your next question comes from the line of Vijay Kumar with Evercore ISI.

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Vijay Muniyappa Kumar, Evercore ISI Institutional Equities, Research Division - MD [18]

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Congrats on a really nice sprint here. Just 2 quick ones on the guidance here, Karen. If we step back to the early part of this year, a lot of confusion around tax regulations, EPS headwinds. And I think you guys were very clear about LRP not changing, correct? With the guidance raise this morning, at the high end, we're looking at 7% plus on the EPS. Just can you walk us through what the implication is for EPS? Is the LRP going up because the execution is coming in better for this year? And as a follow-up, I think tax rates, we were expecting some clarification in June, July time frame. Any clarity on what the tax rates read out and implications for the medium term?

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Karen L. Parkhill, Medtronic plc - Executive VP & CFO [19]

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No, thanks for the question, Vijay. Our long-range guidance on the bottom line is 8% plus over the long-range time frame, and that has not changed and will not change. Yes, in terms of the new guidance on EPS, largely driven by the beat we had this quarter and our ability to lower our interest expense, which helps to offset that tax rate increase. Our guide is above 7% on a constant currency basis -- on an actual basis for EPS on the high end. In terms of whether or not this year over the long range plan we'll get to the 8%, we'll see. But we're confident in our guidance right now.

And on tax regs, certain regulations have been finalized. There are numerous regulations to still be finalized. We do anticipate all of the regulations to hopefully be final prior to the end of our fiscal year. We will continue to focus on opportunities to optimize our tax rate. And where the regs are final, we are beginning to take action to optimize. But I would say it's very early and too early to tell what our tax rate will be on a long-term basis going forward. In the meantime, we expect our tax rate for the remainder of the year to be in that range of 16% to 16.5%. We did have some favorability in the first quarter by some nonrecurring items, and so that helps drive our year tax rate to what we guided to about 15.8% to 16.2%. Hope that's helpful.

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Operator [20]

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Your next question comes from the line of Chris Pasquale with Guggenheim.

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Christopher Thomas Pasquale, Guggenheim Securities, LLC, Research Division - Director and Senior Analyst [21]

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A couple of product-specific questions. First, on Pain Stim, can you quantify the inventory destocking you saw there? And whether you think that, that process is fully played out in 2Q -- or in 1Q or will continue to be a drag?

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Omar S. Ishrak, Medtronic plc - Chairman & CEO [22]

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Go ahead Geoff.

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Geoffrey Straub Martha, Medtronic plc - Executive VP & Group President of Medtronic Restorative Therapies Group [23]

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Yes, sure. I'm not going to, again, quantify specifically. But yes, we had a really strong Q4, first of all, and that contributed to some of this, and then the market slowdown also contributed to it. So I don't think the destocking will be a continued drag. The market slowdown is obviously, I think, caught -- the severity of it has caught us and our competitors a little bit by surprise, and that to me is the bigger issue.

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Christopher Thomas Pasquale, Guggenheim Securities, LLC, Research Division - Director and Senior Analyst [24]

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And then on the DCB front, can you just update us on the expectations for that franchise going forward? Do you think utilization has bottomed now post the physician communication? And if use is limited to high-risk patients, what does that mean for the growth potential of the business going forward?

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Omar S. Ishrak, Medtronic plc - Chairman & CEO [25]

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Mike, go ahead.

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Michael J. Coyle, Medtronic plc - Executive VP and Group President of Cardiac & Vascular Group [26]

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So back in March when the original FDA notification went out where they basically were saying for most patients, the risk would outweigh the benefits, we saw a fairly significant contraction. It was about a 50% reduction in U.S. volumes versus what they had been before, and on a global basis, within the -- in the low 40s. Obviously, as we came out of the panel meeting, there was a lot more data that was presented, updates on patient follow-up where we got to almost 95% follow-up on our patient base, which improved the safety profile of the devices, and then some very significant incremental data was presented from claims-based analysis and very large data sets that basically showed that the signal went away in these large numbers. And so we were very encouraged by what we viewed as an incrementally constructive FDA notification here that basically said that for certain high-risk patients who are at risk for reintervention, that, in fact, the benefits of DCB technology outweighed the risks.

And so we have now seen, instead of the reduction that we had indicated, something more like a 40% U.S. reduction, low 40s. And on a global basis, that's down into the low 30s reduction. So we think it's stabilized. It's actually improving since those data were put out. And we think as more data becomes available, this is going to shift from a discussion of class effect to basically individual performance of the individual products. Again, we are very encouraged by that because we have very significant randomized controlled data sets in the U.S., FDA support for SFA -- for the Japan study, our -- we have our global registry data as well as some new data sets that are going to be released in other indications. So our AV fistula indication is going to be -- the data is going to be presented at the upcoming CRCE meeting next month, and we are very encouraged that the more data that is coming out is basically focusing on the efficacy of these products and also showing that the signal that was of concern, as more data becomes available, is becoming less of a concern. And so we expect there to be an improvement, but obviously we need to see it return to growth until we get to the second half of the fourth quarter.

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Operator [27]

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Your next question comes from the line of Raj Denhoy with Jefferies.

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Rajbir Singh Denhoy, Jefferies LLC, Research Division - MD, Equity Research & Senior Equity Research Analyst [28]

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I wanted to ask a couple of questions on TAVR, if I could. So you mentioned there's been a couple of developments recently about the low-risk approval and the NCD. So I guess on those fronts, on the low-risk approval, I'm curious what your expectations are for what that will do to market growth. And secondly, for the NCD, you did mention you're in negotiations with a number of the new centers now that are looking to come online. And I'm just curious upon what basis those negotiations are going? Has there been a discussion of price or anything in terms of how those centers are choosing to go with here in terms of their TAVR programs?

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Omar S. Ishrak, Medtronic plc - Chairman & CEO [29]

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Mike?

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Michael J. Coyle, Medtronic plc - Executive VP and Group President of Cardiac & Vascular Group [30]

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So we would estimate that if you put in the bicuspid indication, which we expect will be an area focus with the additional data availability, that the low-risk patient population basically expands the available market by about 50%. And so that, with the addition of the NCD, where we expect to see approximately another 200 centers come on line, it obviously is going to give an opportunity for an acceleration of growth from where it was, let's say, last quarter which was for us around 12% up into the mid-teens and maybe a little bit higher than that. And that basically is really being supported by these new indications for use.

And in terms of the basis of negotiation with the NCD sites, they're really no different than what we've had with the pre-existing sites in terms of the compelling clinical evidence around these products basically makes any center that wants to be a full-service aortic valve center, they need to be able to do both surgery as well as transcatheter valves. And as a result, this is more about the training and education and getting them up to speed on optimal techniques for use of these products, and that's exactly what we're focused on.

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Operator [31]

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Your next question comes from the line of Joanne Wuensch with BMO.

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Joanne Karen Wuensch, BMO Capital Markets Equity Research - MD & Research Analyst [32]

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A very nice quarter. You've a number of new products that are launching over the next 12 to 18 months. Can you please give us a highlight of which ones are you the most excited about? And also, on the same vein, you've got 2 major medical meetings coming up with NASS and TCT. What should we expect to see there? And will any of those new products be there?

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Omar S. Ishrak, Medtronic plc - Chairman & CEO [33]

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Okay. I'm going to take that. Thanks, Joanne. And first, like you point out, there's a number of new products coming out, and again, there's many, but I'm going to go through a few of these that I think are the most exciting.

First of all, our general surgery robotic system, which you'll see live and in person in September 24. And I promise you, that'll be an exciting and eventful event for you. So we're excited about that.

Now beyond that, the Micra AV. Look, we've got 80% share in the single-chamber market, covering only 15% of the pacemaker population. That's growing up to 55% of the population. And I'm not going to put in 80% share, but that's at least what I expect. So that's a product I'm really excited about.

The LINQ 2.0, which is a second-generation diagnostic device. It's got a 5-year battery life; the Evolut PRO plus, which is now coming in the heels of the low-risk TAVR approval; the diabetes 780G, the MiniMed 780G that's got Bluetooth connectivity. It's a hybrid -- advanced hybrid closed-loop system. It's the second generation of the closed loop based on our experience and the database that we have on patients already. The Interstim Micro, which is a rechargeable device 3 cc in volume for Pelvic Health, which we're expecting approval in the second half; the DIAMOND-AF ablation catheter, which has got temperature sensing, which is a unique technology which we'll launch in Europe in the second half; and then there's the first time DBS system, too, which has sensing capability, the first time in this kind of a system and a great platform, for the first time a closed-loop system in DBS.

Now in addition to these launches, like you mentioned, some of these meetings in -- we're expecting to sort of share some data as well. The U.S. pivotal trial results for the IN.PACT AV fistula access program for dialysis patients, I mean, that's one we're going to share. The Symplicity renal denervation program, we expect some exciting results out of that, and the data from that we'll share. That DIAMOND-AF ablation catheter, I just mentioned that. That's a leap-frog technology because of temperature sensing, like I mentioned. We'll launch that in Europe but we'll share data on that in the upcoming meetings here. And then, finally the Diabetes system, we also expect to complete enrollment of the patients for the next few weeks. Specific to those 2 specific events, Mike, do you have any comments on that?

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Michael J. Coyle, Medtronic plc - Executive VP and Group President of Cardiac & Vascular Group [34]

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Well, as it relates to TCT, I think that's a little bit sooner than some of these data sets are going to be available, so I think I would steer you more toward meetings later in the year and into early next year so we will -- around the AHA time, we'll be talking about the MARVEL II data, which is the Micra AV performance. And then as we get into next year, as we look at the ACC, we would expect to be able to present the off-med components of the Symplicity Spyral study. And also, as Omar mentioned, between here and there, we will also have the IN.PACT Admiral AVF data. So there should be very meaningful data sets coming, but they're more going to be later in the year and into next year.

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Omar S. Ishrak, Medtronic plc - Chairman & CEO [35]

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And then NASS, Geoff?

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Geoffrey Straub Martha, Medtronic plc - Executive VP & Group President of Medtronic Restorative Therapies Group [36]

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So NASS, yes, we saying the -- talking about a number of things. First, in core Spine, where we have a number of launches, probably the biggest of which this year is this corpectomy device this T2 -- we're calling it T2 STRATOSPHERE. We've got OLIF single position and then, of course, the Titan, which we just closed. The integration is going very well. And we'll walk you through how that's going to impact our overall portfolio. But I'd say think of Titan as a surface technology platform that's going to apply to our existing broad-based Spine portfolio.

We'll also talk more about Surgical Synergy and robotics, as I mentioned earlier, and how that rollout is going. And our road map for new features that we are going to be adding to the enabling technology specifically -- kind of all enabling technologies, specifically robotics, because we do have a very specific road map that goes out over the next 2 years, all meant to basically drive procedural improvement, both from an economics standpoint and a clinical outcome standpoint.

And then finally, biologics. We have a general manager we put in charge of our biologics business about 1.5 years ago, and he's really done a good job in investing not only in INFUSE, but our broader bio portfolio, which we can talk to you more about that, which I think is kind of underrated right now. It's actually helping drive some of our growth.

And then finally, one thing that's not NASS related, and I think Omar ran out of breath before he got to -- we did on Pain Stim, we did -- we have a new -- a next-generation talus device, which we haven't spoken about before, that we can talk about later in the year at NANS. So this gets back to not NASS but obviously the broader product launches we are excited about. We haven't really talked about this, and so at the NANS this year we'll be talking about that as well as some new stim pattern work we've been doing. And then, of course, our 12-month Vectors data, we'll be talking about at NANS as well. Because I think this pain stim market is super sensitive to innovation and then we're where -- the market's innovation low versus where we were in the past 18 months and I think it's going to be -- launches like this will get that market going again.

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Operator [37]

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Your next question comes from the line of Kristen Stewart with Barclays.

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Kristen Marie Stewart, Barclays Bank PLC, Research Division - Research Analyst [38]

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Congrats on a good quarter. So just want to just circle back on the product front to 2 kind of product categories I just want to dive a little bit deeper into. So on the Interstim Micro side, you had mentioned that that's FY '20, and I think you had also mentioned I guess a rechargeable version. I just want to clarify that, understand that product a little bit more. Is that going to be a same but smaller device? And what's kind of just the confidence around getting both of those products out in FY '20? And then I have one follow-up.

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Omar S. Ishrak, Medtronic plc - Chairman & CEO [39]

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First, it is rechargeable and it's 3 cc, so it is smaller. But Geoff, you can add some more color there.

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Geoffrey Straub Martha, Medtronic plc - Executive VP & Group President of Medtronic Restorative Therapies Group [40]

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Yes, I think -- I mean, we've began, Kristen, the regulatory process on both the current InterStim II, the primary solve but adding MRI capabilities to that. But the bigger one will be, obviously, the rechargeable device that's, as Omar mentioned, is very small. This, we are anticipating happening -- the initial launch in Europe in the spring and a littler later in the U.S. but so -- when you say FY '20, over in Europe and then U.S. would be late FY '20 or early FY '21. And because -- look, we're submitting a PMA supplement. We don't think we need to -- a separate clinical trial, and we've been talking about this with the FDA to confirm our thinking. So we're really excited about this and the features on -- the combination of our smaller size, the 3 cc -- I'm talking about the rechargeable, the micro, the smaller size, the 3 cc, the overdrive battery technology and the MRI capability, it really is advantage -- is a big advantage for us no matter what the competition is saying on this. Yes, this is the same technology combo platter that's powering Intellis whose performance has surprised many of us and propelled us back to leadership in SCS.

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Kristen Marie Stewart, Barclays Bank PLC, Research Division - Research Analyst [41]

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Okay. And then the other device was just the same size of InterStim today, but just a MRI-safe version?

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Geoffrey Straub Martha, Medtronic plc - Executive VP & Group President of Medtronic Restorative Therapies Group [42]

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Exactly. One of the things that I think is important is that -- and I think are -- I think people are starting to realize this, but rechargeable is not meant for every patient. So having both a primary cell and a rechargeable, and a very small rechargeable I think is going to cover -- will cover a much broader spectrum of patients than just the rechargeable.

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Kristen Marie Stewart, Barclays Bank PLC, Research Division - Research Analyst [43]

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Okay. Perfect. And then just broadly I guess with Micra AV, that seems to be more the significant launch you guys -- or I guess, Omar, you were just saying that you were hoping that you could see I guess an 80% share in that market category as well. How are you just feeling about bringing that to market? And then also maybe just talk about the extravascular ICD as well and just kind of the time lines there. I think you were supposed to be starting or did start your pivotal studies with that product.

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Omar S. Ishrak, Medtronic plc - Chairman & CEO [44]

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Without being biased towards one thing, I will tell you that this is the one product that I'm certainly most excited about because of the -- if nothing else, the symbolism that the Medtronic was started as a company which invented the pacemaker market, and here we are 60 years later disrupting that market with a device that is way ahead of any competition. And the 80% share is actual fact, and that 15% will be covered. So an expectation that, that kind of share trend should continue over time is quite realistic. But I'll let Mike add some more color to this.

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Michael J. Coyle, Medtronic plc - Executive VP and Group President of Cardiac & Vascular Group [45]

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Well, remember, there are 2 aspects to this. One is obviously the procedural penetration, and then there's also the price increase that we get over the device, which is essentially in the single-chamber market is about 3x the prevailing pricing in a standard device system. So the reason you see a procedural share, including our traditional single-chamber system in around 65% range and then having an 80% revenue share is because of that step up in price.

Now as we move into the Micra AV, we basically have been to date really confined to patients who needed ventricular pacing who also had atrial fibrillation. Now we -- any patients with AV block, impact conduction in the -- or normal rhythm in the atrium becomes a candidate for this device. And so the available market goes from 15% up to 55%, 60%. And so that's why we view it as a big opportunity to drive share in the real benefits of this technology are even though pacemakers are relatively safe for implant, almost all the complications come from either the pocket or the lead. And so by being able to put a device directly into the heart and having a 10- to 12-year battery life, then this really offers significant clinical advantages to patients, and that's why we're excited about it.

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Kristen Marie Stewart, Barclays Bank PLC, Research Division - Research Analyst [46]

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EV-ICDs, you...

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Michael J. Coyle, Medtronic plc - Executive VP and Group President of Cardiac & Vascular Group [47]

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And EV-ICD, we will be -- are beginning the pivotal trial associated with that. We haven't talked a lot about that trial design, but it is getting underway now.

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Operator [48]

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Your next question comes from the line of Matt Taylor with UBS.

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Matthew Charles Taylor, UBS Investment Bank, Research Division - Equity Research Analyst of Medical Supplies & Devices [49]

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I just wanted to start with a quick follow-up on that AV question. So Mike or Omar, is there anything different about AV versus single chamber in terms of the speed of the launch? I mean you have people trained on single chamber now. You have reimbursement in place. Could this uptick actually be faster than single chamber?

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Omar S. Ishrak, Medtronic plc - Chairman & CEO [50]

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Well, I'll let Mike answer that. I think it is a new concept though, so that requires some buy in maybe. I don't know, Mike, you...

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Michael J. Coyle, Medtronic plc - Executive VP and Group President of Cardiac & Vascular Group [51]

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On the one hand, the procedural aspects of this are very similar. They're almost identical to the single-chamber device. And of course, as you point out, we've done the training associated with this. But there are number of physicians who basically said, they don't do enough single-chamber devices to make it worth their time to do the training. Now we get this device in, we're going to see more physicians coming on stream who want to learn the technique, which is going to be helpful to us, not just in this new indication for use but even in the traditional single-chamber pacing. So that will be helpful. There are some aspects of the patient follow-up that are different, and we are going to be spending, as we did with the initial launch, a lot of time making sure that the physicians are trained on what to look for both in the implant procedure and in the discharge process. And so we are going to be very careful in terms of rolling out updated training even to those who have been trained before. But to your point, I think it should have a marginally faster adoption rate than what we saw with single chamber.

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Matthew Charles Taylor, UBS Investment Bank, Research Division - Equity Research Analyst of Medical Supplies & Devices [52]

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And then just on surgical robotics, I was hoping you could maybe talk about the strategy as it relates to Mazor and how that informs what you might do with the soft tissue surgical robot. And are you thinking about using robotics anywhere else?

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Robert John White, Medtronic plc - Executive VP & President of Minimally Invasive Therapies Group [53]

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You want me to take the first one?

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Omar S. Ishrak, Medtronic plc - Chairman & CEO [54]

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Yes, please do.

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Robert John White, Medtronic plc - Executive VP & President of Minimally Invasive Therapies Group [55]

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Look, it's a great question. The work that Geoff and his team have done with Mazor absolutely is influencing how we think about our commercialization approach with the soft tissue robot. As Omar's mentioned many times in the past, Medtronic is uniquely positioned with high-value consumables, and if you think about our leading position with end effectors in the surgery space and the trusted brand that we have with surgeons, the ability to pair those instruments with our robot is incredibly important. And of course, we've been training surgeons on surgery for over 60 years, and we've pioneered innovations in that space. And so when we look at what Geoff and team have done with RTG from a service capability, from a commercial model capability, I think we are very much aligned to learn from that piece. I don't...

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Omar S. Ishrak, Medtronic plc - Chairman & CEO [56]

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Yes. Let me also add -- answer the question regarding other areas. Let me tell you that in virtually every area that we have a procedural presence, we will look at robotics because that's how it's going to be. And we're learning from our current experience, but I can tell you that the data analytics capability, we're just beginning to evolve. Combination with a robot with other capital equipment, especially ones for visualization and for navigation that we're showing with Mazor is not only restricted to spine alone. Planning procedures, planning the procedure upfront and then using that to guide the robot in specific ways, that's a core capability that we've -- we're starting to develop with Mazor, but we will translate across into surgical robots so sometime in the future, the procedure is different.

So there are some core areas where we are learning, which we will apply to virtually every area that we've got procedures. And I can tell you it's a big area of focus for us, both organically as well as inorganically. And one that we expect to be leaders over the long term, not just in one procedure, because across all procedures, and be the company who rewrites the way surgery is done in the next decade. So make no mistake, this is a core area for us, and we'll see much more of -- about robots than just the 2 that you're looking at today in the future.

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Geoffrey Straub Martha, Medtronic plc - Executive VP & Group President of Medtronic Restorative Therapies Group [57]

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One area in the short term that we are moving into would be other cranial procedures. So we have the Mazor Renaissance, which is indicated for cranial procedures. In Medtronic, we're launching another cranial -- a smaller cranial robot. And these robots will be used for lead placement, for example, in deep brain stimulation procedures, EEG placement for epilepsy as well as tumor resection, so tumor resection itself. So those are 2 different robots applied to various cranial procedures, brain procedures as well.

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Operator [58]

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Your next question comes from the line of Matt Miksic with Crédit Suisse.

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Matthew Stephan Miksic, Crédit Suisse AG, Research Division - Senior Research Analyst [59]

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So I had just a couple of product-related follow-ups. The first for Mike on TYRX, the antibacterial mesh product for CRM. The WRAP-IT results obviously didn't get the same attention that low-risk TAVR did at ACC, and yet this could be over time another potential share gainer for this business. And just wondering, Mike, if you could give us a bit of an update on what's been happening since the data was presented, what kind of response have you gotten? Maybe what are the next steps and drivers we could look at over the next 12 months or so? And then I had a follow-up for Geoff.

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Michael J. Coyle, Medtronic plc - Executive VP and Group President of Cardiac & Vascular Group [60]

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So we've been very pleased with TYRX performance since the ACC presentation of the WRAP-IT data. We have seen meaningful acceleration of its adoption as a result of those data. In this past quarter, we were mid-30s growth for the product. As you point out, it not only helps us in terms of revenue per procedure. And we view the at-risk patient population to represent a little over half of the patients because it applies to essentially large devices, so ICD, CRT devices in initial procedures as well as all replacements, including pacemaker replacements. And so as a result, it's helping us not only in terms of our overall revenue share, but we actually are seeing in the high-risk patients them selecting Medtronic because they want to use the TYRX product, and that's helping us with initial implant share across our portfolio, especially on the High Power and on the CRT side of things.

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Matthew Stephan Miksic, Crédit Suisse AG, Research Division - Senior Research Analyst [61]

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And then in terms of guidelines or things that may -- we may be able to look for over the next 12 months or so?

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Michael J. Coyle, Medtronic plc - Executive VP and Group President of Cardiac & Vascular Group [62]

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Well, we are working with the data sets and the professional societies to see if we can get this into indications for use. We also are expanding the application of the envelope to other parts of the Medtronic business, including the neurostimulation devices, both for the brain as well as for pain as well as for Pelvic Health. And so it's helping us in both regards. I'm not yet ready to address timing of any indication or guidelines expansion, but we are working on that.

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Omar S. Ishrak, Medtronic plc - Chairman & CEO [63]

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Then also the -- TYRX is a core technology that we've essentially developed. And while that in itself is one thing, what it pulls along with it in terms of our devices is something that will become a true differentiator for Medtronic in the long term. And we're investing in that area to make sure that we can sort of broaden the usage of TYRX over time. So that's a key technology area of focus for us, which we think we're well differentiated.

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Michael J. Coyle, Medtronic plc - Executive VP and Group President of Cardiac & Vascular Group [64]

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It also has helped us immensely in our value-based health care programs from the standpoint that having performance guarantees is something that our customer base really is looking to as us having skin in the game as they shift to at-risk sort of arrangements with payers. And we now have over $1 billion in revenue associated with essentially performance-guarantee programs, and $800 million of that is tied to TYRX.

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Matthew Stephan Miksic, Crédit Suisse AG, Research Division - Senior Research Analyst [65]

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That's super. And then over, Geoff, if I could, on Spine and pain. So the Spine implant growth, over 2% in the U.S. and 2% worldwide. That does look like it's ahead of market growth to me at this point. Geoff, if you could maybe just provide a little bit of color. Obviously, you're happy with the placements in the quarter, but maybe color as to how the pull-through dynamics work on the systems you've placed over the last few quarters.

And on pain, I know you'd mentioned during your prepared remarks, it's still kind of a softer market or a tough market to sort of project. Maybe some sense of when that settles out and we get a better sense of spinal cord stimulation and what that market's really growing at.

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Geoffrey Straub Martha, Medtronic plc - Executive VP & Group President of Medtronic Restorative Therapies Group [66]

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Hey, Matt. So I'll take the spinal one first. So to kind of break it down, I mean we've talked about the use of spine robotics and the linkage with our implants. And how as the utilization of Mazor goes up, we'll get more pull through. And we're in the early, early stages of that. So we're getting, if you're looking at 3 kind of metrics on that, we're getting the robot sales. That's kind of the socket race. So we're doing very well there, as indicated. And when they use Mazor, our customers are using Medtronic, and that attachment rate is close to 70%. And that's going to go higher as we get more of the Mazor X Stealth Edition out there, where the navigation is into Mazor.

Remember, when we talk about placements also, we've got a bunch of Mazors out there that we're upgrading to Stealth Edition. So our attachment is really strong, and so what we're really driving here is the utilization. That involves a lot of training, and so that's what we're doing. We've got all kinds of demo labs and training labs with different customers. And we've built up a whole new 100-person component of our sales force that's like a SWAT team that goes into these accounts and works with the surgeons, with our team, the surgical staff and I guess with our reps to train everybody and get them comfortable doing robotic procedures. So we're in the early innings of that, and as that increases, you're going to get more pull through.

But what we're seeing now is that these robots are getting us into competitive accounts where -- and giving us something to engage on with surgeons. And the C-suite, quite frankly, are very encouraged in this for a variety of reasons, and we're using this to get into competitive accounts. And once we are in there and we walk in with our broad -- or our good service, our broad portfolio, which now includes Titan, that's having a more immediate impact so that there's an initial impact as we get into competitive accounts and then there's a longer-term impact as we drive utilization. So I guess that this strategy has a long runway ahead of it, and we're in the very early stages and we're already seeing impact.

For spinal cord stimulation, look, I'm kind of like a little embarrassed that the industry -- our competitors and ourselves don't have a more specific answer as to what is driving in the short term. But look , I'd tell you I think this is a very innovation-sensitive market, and we had a lot of innovation come out in a pretty condensed period of time from us and our competitors. And now it's come down a little bit. And then seeing that, we've made some trade-offs in RTG and have accelerated our spinal cord stimulation and prioritized our spinal cord stimulation pipeline. So like I said, we've -- we accelerated the next-generation Intellis into this fiscal year, and I don't want to get in too much of the features. We're going to talk about that at NASS and what that means. But it is a next-generation device. Behind that, we have a -- in the next year behind that, a new primary cell device coming out, which, like I said in Pelvic Health, same applies for spinal cord stimulation. You need a broader set of both rechargeable and primary cell devices.

And then in addition to that, we're working on closed loop for spinal cord stimulation. We have a very active program on closed loop or you may heard it. It's called ECAPs out in the market space. So we've got that coming as well. That's a little further out. But we've got a pretty robust pipeline that we'll have a pretty regular cadence, and I think that's going to drive the market. I do think this market should be a high single-digit grower based on all the demographics as well as the opioid crisis here in the U.S. and a few other markets.

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Operator [67]

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Your final question will come from the line of Danielle Antalffy with SVB Leerink.

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Danielle Joy Antalffy, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst [68]

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Congrats on a really solid quarter. Karen, I wanted to follow-up on a question Robbie asked regarding SG&A. And it does feel like that you are seeing benefits from including operating margin as a component of the annual incentive plan. Just wondering if you can parse out exactly where you are in rolling out that process across the organization, and if you can quantify where you are relative to where you expect to be longer term as it relates to that and parse out how much that's contributing to this quarter's operating margin expansion versus some other dynamics, i.e., the product pipeline or improving product mix. And that's all I have.

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Karen L. Parkhill, Medtronic plc - Executive VP & CFO [69]

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Sure. Thanks, Danielle. We introduced operating margin in our incentive comp at the total company level last fiscal year. And then this fiscal year, we drove it down into the organization. It's hard to parse out the benefits of that, but I would say we do have strong cost control around the company that started last fiscal year and has continued into this fiscal year. But we're also purposely driving greater efficiencies across the company as we work to leverage our size and scale in our back offices in our customer service centers and across our enabling functions. And those programs are all driven as part of enterprise excellence, and we're clearly seeing the results. We are tracking the savings. And you're seeing it now show up in our margin expansion.

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Omar S. Ishrak, Medtronic plc - Chairman & CEO [70]

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Okay. So let me close this out. First, thanks for your questions. But before I completely close it out, I want to say just a couple of more sentences. We talked a lot about our product pipeline today, but let me just remind you that almost everything we talked about is actually in the second half of FY '20. This momentum is not going to stop going into FY '21. And as was noted earlier, if I had more breath, I could probably continue in 2 or 3 launch in FY '21. It's not going to stop. And I really mean it, and we all mean it when we say that today, we have the strongest and the broadest pipeline that we've ever had in our history, and you'll see that thing play out in the upcoming quarters.

So it's with great excitement that I really want to close this call out. And on behalf of the entire management team, I'd like to thank you for your continued support, your interest in Medtronic, and we look forward to updating you on our progress in our Q2 earnings call, which we'll be holding on Tuesday, November 19. So thank you all very much for your interest. Thank you.

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Operator [71]

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This concludes today's call. You may now disconnect.