Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Medtronic PLC (MDT, Financial) reported its seventh consecutive quarter of mid-single-digit revenue growth.
- The company increased its adjusted EPS by 3% on a reported basis and 8% in constant currency.
- Strong performance in high-growth areas such as diabetes, pulse field ablation, and neuromodulation.
- Successful launch of new products like PulseSelect PFA catheters and Sphere-9 focal catheter.
- Raised full-year revenue and EPS guidance, reflecting positive momentum and strong market demand.
Negative Points
- Gross margin declined by 50 basis points, primarily due to currency impacts.
- Operating margin also saw a decline of 40 basis points year-over-year.
- Concerns about sustaining high growth rates in certain segments like Diabetes and CRM throughout the fiscal year.
- Potential challenges in ramping up manufacturing capacity to meet strong market demand for new products.
- Uncertainty around the timing of regulatory approvals and market launches for key products like Affera in the U.S.
Q & A Highlights
Q: Geoff, congrats on a really nice quarter here. Maybe my first question here is the organic execution in the quarter, well above your guidance expectations, I think, north of 100 basis points. It's also about your annual guidance, right? It seems like it was pretty broad-based. Based on your current outlook implies like your back half should be below what your 1Q performance was rate. So maybe just talk about sustainability of 1Q, why these trends can sustain in the back half? Were there any one-offs that drove Q1 performance?
A: Vijay, good to hear from you. There were no one-offs that drove the performance. Overall, it's sustainable because we're in the beginning stages of some exciting product cycles in high-growth markets. For example, neuromodulation and structural heart are seeing strong demand due to new technologies. While Diabetes and CRM had particularly strong Q1s, we expect continued growth but not necessarily at the same high levels throughout the year. Overall, we feel good about the underlying fundamentals and our focus on delivering on our commitments.
Q: Gary, welcome to your first earnings call. The gross margin performance here in Q1 was really strong. But your guidance still assumes a pretty meaningful step up in operating margins for the back half, right? And when I look at your EPS guidance, it looks like there was some benefit from share repurchases. Maybe just talk about your margin visibility for the second half and did that change over the last three months?
A: Thanks, Vijay. Our EPS starts with our top line, and our revenue growth was strong, a full point higher than the midpoint of our guide. Gross margins were about 40 bps ahead of consensus, and operating margin was in line. Below the line, there were some moving pieces, netting to about $0.01 with the benefit from the share count helping. The underlying leverage we're driving is pretty similar on a constant currency basis with high single digit every quarter. The ramp is really an FX story, with significant pressure in the first half due to FX, which will wane in the back half.
Q: I wanted to ask about diabetes. This is a pretty big shift in strategy for you. You've always been the provider with both the pump and the algorithm and the CGM, all in one. Now with Simplera about to launch, maybe just walk us through the strategy of why partnering with Abbott was in your best interest. Does this change your strategy at all?
A: Our strategy hasn't changed at all. The market now widely recognizes that AID provides better outcomes than CGM alone or MDI alone. We wanted to provide a seamless experience for patients who prefer a different sensor, and our partnership with Abbott allows us to do that. We're still committed to our system benefits and confident in our CGM. The Simplera launches in Europe have gone very well, and we're working with the FDA to get Simplera Sync approved for integration with the 780G system.
Q: I wanted to get your sense of the TAVR market today given some of the comments from the competitor there. How do you expect the FX launch to impact the market and share?
A: The market is pretty solid, growing in high single digits. Our data momentum, including low-risk data versus surgery and SMART data, has been compelling. FX has done exceptionally well in its early launch, and we expect it to continue to grow. The larger windows in FX allow for easier coronary access without any trade-off in deliverability, which has been well-received.
Q: How should we be thinking about the partnership with Abbott in terms of growing the installed base?
A: The most obvious opportunity is for the large installed base of users who prefer the Abbott sensor to now have access to our technology. We're working as fast as we can to incorporate that sensor into our system, providing a seamless experience where patients can choose between two sensor options but still benefit from our AID system.
Q: Can you talk about the progress with Hugo and the time line for US filing?
A: We're happy with the progress in the clinical work for Hugo. We've reached targeted enrollment and are working towards completing the filing. We're also making good progress in the enrollment of hernia and gynecology clinical series. We're committed to the robotics space and confident in our ability to compete, despite the strong entrenched competitor.
Q: Can you help us understand what areas strategically make the most sense for M&A in the portfolio?
A: Our M&A strategy focuses on value-creating tuck-in acquisitions in high-growth areas. We're looking at both product tuck-ins and adjacencies to existing businesses. With our operational footprint in a better spot, we can focus more on M&A to support our organic growth strategy.
Q: Can you talk about the structural heart market and any concerns about capacity constraints?
A: The structural heart space, including TAVR, is very underpenetrated with clear patient benefits. We're not hearing from our customers about capacity constraints. Hospitals have a long enough runway to plan for future capacity needs, and we can help build out capacity if needed.
Q: Can you give us some perspective on what you've seen in Europe post CE Mark for Affera and whether we should use that as a proxy for the US?
A: The demand for PFA has been unbelievably strong, and we're ramping up our capacity to meet that demand. In Europe, the uptake of PFA has been robust despite cost constraints. We expect the US market to adopt the technology even more rapidly once approved.
Q: Can you talk about the renal denervation market and the impact of CMS NTAP for Simplicity?
A: We're excited about the reimbursement progress for Simplicity. The inpatient payment is now determined, and the outpatient payment is on the table. We're working closely with CMS and commercial payers to ensure coverage policies that facilitate patient access. The level of excitement from physicians and patients has been phenomenal.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
