Edited Transcript of MDT.N earnings conference call or presentation 21-May-20 12:00pm GMT

With that, I'm now pleased to become the shriek at to Medtronic foremost Executive Officer, GEoff Martha. GEoff?

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GEoffrey Straub Martha, Medtronic plc - CEO & Director [3]

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Thanks, Ryan, and due to everyone during joining us today. I wish everyone is staying noise and safe. And our thoughts are with the many nation who read been affected by the COVID-19 pandemic.

I'd garment to confess the incredible heroism, determine and sacrifice of the frontline health worry workers fighting COVID-19 too during our employees who are supporting them. Many of these frontline health worry workers are our long-time customers and friends, and we are continually inspired by their selfless efforts to worry during others.

As has been said, this pandemic presented the earth with an unprecedented challenGE, which required an unprecedented response, including by our team at Medtronic. And I'm extremely haughty of the path our employees read risen to the chance and jumped at to aid health worry workers, governments and NGOS, and during the path they've continued to uphold their communities and their families.

Our climax priority during this pandemic has been to insure the health and well-being of our 90,000 employees and their families about the globe. Our employees read been impacted by this virus garment everyone else. besides I'm grateful during the path our nation read continued to conduct their jobs and insist across these challenging circumstances. if that employee is an engineer working at the next innovation breakthrough at our factories making acute life-saving products, a sphere rep, assisting a physician at the front line with a Medical procedure, or any of our employees working virtually, we are sum fulfilling the Medtronic mission.

We've taken a amount of measures at our machine about the earth to defend our employees. And importantly, we've continued to invest at our employees during this time, including implementing give and recognition programs during business-critical, on-site workers. We're too protecting our sales reps from important impacts to their incentive compensation during this period. And we've developed an extensive emerGEncy forsake policy to furnish momentary earnings during employees who can't career remotely and are facing sure situations, such during family schooling, childcare issues or a sure COVID-19 diagnosis.

During the pandemic, we've been at the service of Medical professionals and health worry systems about the world, stepping up during physicians, Hospitals and health machine that are at the front line. We've developed and rapidly deployed new far procedure uphold and far monitoring solutions to diminish patients' and clinicians' exposure to the virus causing COVID-19. We've hosted dozens of virtual forums and Medical education programs to aid physicians navigate the challenGEs of the pandemic. We've too worked tirelessly to invent certain our products and therapies are readily available. The most visible sample of these efforts is the career we've done to expand our ventilators' capabilities and dramatically expand the ventilator production.

Physicians asked us if we could engineer a path to adapt ventilator settings remotely, exterior of the ICU and away from the patient. hence we partnered with Intel to mature a solution that we brought to the impartial at a affair of weeks. Furthermore, we're at trace to expand our product of ventilators fivefold from pre-pandemic levels by the sum of next month. We've enlisted aid from others to infer this, including SpaceX, who is working to furnish a acute valve during our PB980. And we flourish to closely comrade with key government authorities to isolate our ventilators to the communities that need it the most, including a contemporary concentrate at emerging markets.

But we understood that simply increasing our possess product volumes used to no be enough, hence we did what Medtronic does. compatible with our mission, we place patients first. We decided to invent our PB560 ventilator create specifications available at no price hence other manufacturers can use these specs at manufacturing ventilators during the pandemic. across this initiative, we're creating partnerships with larGE-scale manufacturing companies, such during Foxconn at the U.S., Baylis Medical at Canada, Vingroup at Vietnam, Walton masses at Bangladesh and Tata masses at India.

During this time of need, we've been supporting our communities. during the go of the fourth quarter, Medtronic, across with the Medtronic Foundation, has pledGEd more than $36 million at monetary and product donations to about 50 nonprofit organizations to uphold health systems, patients and vulnerable communities about the world. if you're interested at reading more at our response to our employees, our customers and our communities, I encouraGE you to shriek on our website, medtronic.com/covid19.

Now allow me become to our Q4 financial results, which read suffered due to COVID-19. Our revenues declined 25%, both continual cash and organic. This resulted at EPS of $0.58, which was down 62%. These results are at line with the newspaper free we provided last month, where we discussed the expected negative shock at our fourth area revenue resulting from a slowdown at procedures and the associated important deleveraging that was expected to influence our earnings. They're too compatible with the shock seen along the industry. It's important to note that our quarterly results learn an additional month of shock at April while compared to the quarterly results of our competitors at a calendar year cycle.

When we exhibition at our Q4 revenue, the distinction at our private affair results can be explained by 4 factors: The first was the compound of urGEnt procedures versus those that are more deferrable. about sum of our businesses were affected by the refuse at procedure volumes this quarter. Health worry systems diverted their attention and wealth to fighting COVID-19. Governments implemented restrictions at elective procedures, and nation avoided seeking treatment flat during emerGEncy conditions. Our businesses that had a larGEr compound of products used at urGEnt procedures felt an impact, besides they were far less affected than those with therapies where the procedure could be deferred lonGEr.

The second factor was the loss of larGE bulk purchases shut the sum of the quarter. during you can imagine, the natural river of these orders, which nurse to be larGEr at April given our fiscal year-end, did no materialize. during I noted at our last pay call, preceding to COVID-19, we were already planning to diminish larGE bulk orders and remains them along the quarter, starting with our next fiscal year. With the pandemic, our efforts were clearly accelerated.

The third factor was centered about foremost equipment. nevertheless foremost tool represents a small amount of our overall revenue, there are sure businesses that read a higher compound and felt the shock of Hospitals and surGEry centers delaying their foremost evaluation and purchases.

The last factor was the type to which businesses and products and services that played a role at fighting COVID-19 or had concrete products and customers that were stocking ahead of the pandemic. This led to greater-than-expected growth at a grand little of our businesses. hence with these 4 factors at mind, let's exhibition at our results by affair group.

Our Cardiac and Vascular masses declined 33%. CVG's therapies nurse to overall be less deferrable, besides we calm saw substantial declines at procedure volumes. Moreover, CVG felt a greater shock than some of our groups from the reduction at bulk purchases, with especial shock at CRM implantables, diagnostics and transcatheter valves.

Our Minimally Invasive Therapies masses declined 12%. MITG's revenue compound is weighted more to the core of the deferrability spectrum, hence it did undergo a important shock from the refuse at surgical volumes, especially at the Surgical Innovations and GI, which both declined at the imply 20s. This was offset by growth at respiratory and patient monitoring too during at renal worry solutions.

In respiratory and patient monitoring, which was up mid-teens, we saw important growth at airways and ventilators during we sought to satisfy the COVID-19-related patient needs about the world. We significantly ramped production, which led to ventilator revenue about doubling. We too saw noise correlation at plead during pulse oximetry and capnography, besides the increased plead was offset by overall reduced plead during patient monitoring products, given fewer non-COVID-19 Hospitalizations and procedures. Renal worry grew tall only digits, driven by access catheters and critical and chronic dialysis products during dialysis treatment continued throughout the pandemic.

Our Restorative Therapies masses declined 32%. RTG's therapies nurse to be used at procedures that are more deferrable, including those at center Spine, pain Stim, ENT and Pelvic Health. RTG too was impacted by the reduction at guest bulk purchases and foremost tool purchases. RTG's NeurosurGEry business, at particular, has a tall compound of foremost sales.

Our Diabetes masses declined 7%. The refuse was driven by a defer at new patient starts at insulin pumps and due to the closing of physician offices during a originate of COVID-19 too during continued competitive pressure. This was offset by an expand at plead during diabetes supplies, including faithful glucose sensors and infusion sets, especially at international markets.

Next, let's newspaper our fourth area rule by GEography, which I count is a especially helpful path to analyze our results given the sequence of the pandemic to various regions throughout our quarter. First, China declined 38% and experienced the shock of COVID-19 during the sum quarter. Our revenue at China declined 46% at both February and March. We started to shriek on gradual sequential revenue improvements midway across March, and our April revenue improved to a refuse of 21%.

In Asia Pacific, our revenue declined 13% during we saw the shock of the virus at many markets across the quarter, with the amount of COVID-19 related cases peaking at some countries within the quarter. Korea declined 2% during COVID cases peaked at mid-March, and Australia and New Zealand declined 11%, with cases peaking at early April. Japan declined 14% during cases flourish to expand during we exited the quarter.

In EMEA, our revenue declined 10%. Western Europe revenue was tracking with expectations across mid-March, while we started to undergo a important decline. revenue at Western Europe declined 32% at April, driven by procedure delays and, to a lesser extent, fewer guest bulk purchases.

In the Americas, our revenue declined 32%, with the U.S. declining 33%; Canada, down 24%; and Latin America declining 15%. garment Western Europe, our U.S. revenue was tracking with expectations across mid-March ago experienced important decline, driven by a blend of procedure delays and the reduction of bulk purchases.

Turning to our pipeline. We count about the shock of COVID-19 at 3 categories: products that just received regulatory approvals at the past little months, products below regulatory review, and products that are at clinical trials or preparing to enter clinical trials.

Starting with the products that recently received regulatory approvals. The pandemic has interrupted some of our contemporary launches given the defer at procedures. This includes the European launches of our Percept PC deep brain stimulator, Interstim Micro recharGEable sacral courage stimulator, Cobalt and Crome high-power CRM devices and the DiamondTempt ablation catheter. It too slowed the U.S. launches of our AV fistula symptom at our IN.PACT Admiral drug-coated balloon, our DTM therapy at pain Stim and our Micra AV pacemaker. It's worth noting that preceding to the pandemic, Micra grew at 60% at the U.S. at both February and March.

The good news is that during procedures start back, we wish these launches to choose up steam. Moreover, we just received approval during Micra AV and our uncover LINQ 2 cardiac diagnostic overhear at Europe too during U.S. approval during our Cobalt and Crome high-power CRM devices, which we announced earlier this month. Our Cobalt and Crome offerings to be especially valuable at the modern COVID-19 surroundings during they are the first and unique Bluetooth-enabled high-power devices at the U.S. that allow during distance programming and better far monitoring.

Regarding the second type of products, those at regulatory review, the pandemic doesn't currently exhibition to be affecting the approval process. during a result, we're expecting a amount of approvals this quarter, including U.S. approvals during our Interstim Micro sacral courage stimulator, our Percept PC deep brain stimulator and our uncover LINQ 2. We're too expecting European approval this area of the MiniMed 780G. at the U.S., we hope approval this summer of a new product we're calling MiniMed 770G, which is Bluetooth-enabled and allows during wireless over-the-air software upgrade, ago launching our 780G afterward at the fiscal year. at addition, 770G will be the first hybrid closed-loop system available to patients aGEd 2 across 6. Patients who purchased the 770G will GEt the free software upgrade to 780G with our advanced hybrid closed-loop algorithm upon approval. We wish to emerge the pivotal results of our advanced hybrid closed-loop algorithm at adults at the virtual ADA parliament at June.

With the third type of our pipeline, those that are enrolling clinical trials or preparing to enter clinical trials, the pandemic has slowed things down during clinical experiment start-ups and enrollments read been placed at momentary pause. This includes our mild tissue robot, products at our diabetes CGM sensor pipeline and our Ardian at Med trial. Regarding our mild tissue robot, our talent to finalize the system at preclinical testing has been delayed. And given the doubt of the pandemic, it's either early to update you at time lines. However, we're exploring ways to expedite this career with the enthusiastic of minimizing the delay.

In diabetes, we flourish to be optimistic at our talent to shut the competitive gap at faithful glucose monitoring sensors. We intend to comply news to regulatory aGEncies at our Zeus transmitter at the sum of the summer, and we've completed verification of our Synergy sensor that will enable our IDE submission within the next little weeks. And at renal denervation, we will join our Ardian at Med news with our recently presented OFF MED news to uphold U.S. approval.

Look, we are excited about creating the new renal denervation impartial with its latent to treat millions of patients with hypertension. With sum these recently approved and near-term pipeline products, guest enthusiasm remains high. And collectively, these describe growth acceleration during we emerGE from the pandemic.

With that, allow me now plead Karen to accept you across a discussion of our fourth area financials and outlook. Karen?

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

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Thank you. during GEoff mentioned, our fourth area organic revenue declined 25% and adjusted EPS was $0.58, a refuse of 62%. We did read important deleveraging down the P&L at the area during we continued to invest during the future in spite of the lower revenue growth. sum margin declined by about 700 basis points, driven at larGE isolate by increased expenses during a originate of COVID-19, including manufacturing facility cleaning, increased protective equipment, bonuses during our mill employees, and higher wealth and obsolescence charGEs. at addition, we experienced a negative shock from mix, during products at higher plead carried lower margins. And we flourish to undergo a year-over-year shock from increased China tariffs. at appendix to a lower sum margin, our operating favour was affected by continued R&D investment at our pipeline and continued spending at SG&A during we purposely protected the variable compensation of our sales reps.

Below the operating favour line, our adjusted advantage cost declined 30%, driven by our successful debt issuance and mild transactions that we completed last fountain and summer. And our adjusted nominal tax appraise was 12.6% during the area and 14.3% during the year. Both were favorably impacted by lower pay and the jurisdictional compound of profits. Excluding any nonrecurring tax benefits we received at fiscal year '20, our adjusted nominal tax appraise used to read been about 15%.

Despite the refuse at earnings, we did no madam our concentrate at driving free cash flow. at fact, we GEnerated $6 billion during the fiscal year, converting 97% of non-GAAP earnings, noise at our long-term tarGEt of 80%. And our financial place remains strong. at the past little years, we read made important decisions to affirm a noise and noise remains sheet, which enable us to no unique oppose important disruption, besides more importantly, affirm our concentrate at the wish term. We read abundant liquidity, with $10.9 billion of cash and investments during of the sum of the area and an undrawn $3.5 billion faith facility. at addition, we read no public debt maturing until March of 2021.

As we linger focused at the wish term, we will flourish to isolate our foremost to motivate our growth strategies, including investing at our pipeline to accelerate our long-term organic revenue growth. at addition, we read no slowed our affair development activities, during we continued to exhibition to appendix our organic growth drivers with inorganic opportunities, including minority investments and tuck-in acquisitions.

We too continued to concentrate at GEnerating proper returns during you, our shareholders, across both our organic long-term growth and our noise dividend. during an S&P dividend aristocrat, Medtronic has increased our dividend at the past 42 years. And this morning, we will invent it 43 by increasing our annual dividend, $0.16.

Looking ahead, the doubt of the COVID-19 pandemic makes it difficult to furnish our traditional annual and quarterly guidance. Instead, we are favourable to furnish our thoughts at the recovery. during you know, there are many factors that will influence its accelerate and trajectory, and these will alter by GEography and therapy. COVID instance volumes and latent resurGEnce will certainly play a role, during will updates to recommendations from government aGEncies at the resumption of elective procedures and provision of non-COVID-related health care.

Hospital talent will be another key factor. We confess that new protocols designed to insure patient and provider safety can slow the reply to complete capacity. And some health worry systems are planning to expand talent by extending workdays or doing procedures at weekends, although this isn't the instance at sum regions. Moreover, some Hospitals are at this point maintaining surGE talent at instance there is a second wave. We are assuming that any latent second ripple will be adequately contained, besides we are watching this closely and are prepared during a ranGE of scenarios. nevertheless it is calm early, we confide we read seen the worst of procedure refuse and are seeing encouraging signs of earlier-than-anticipated recovery at little places about the world.

In fact, the recovery has begun at China, although it is gradual. nevertheless the last rate there is calm uncertain, we've seen a reduction at our weekly refuse at revenue at the first little weeks of May, with high-teens refuse from the preceding year. at other parts of Asia, such during Japan and India, we are calm experiencing grave year-over-year procedure declines, and we flourish to wish lockdowns to shock our first quarter, nevertheless other markets garment Australia, New Zealand and Korea to flourish to shriek on recovery. at the U.S. and Western Europe, we started to shriek on sequential revenue improvement and wish to shriek on that continue. at May, we've seen our weekly revenue along Western Europe declining about 20% from the preceding year, and the U.S. has been declining about 30% at the same period.

With sum of this at mind, we currently wish first area revenue growth to be modestly worse than the fourth area during both the sum corporation and each of our groups. to be clear, we are seeing encouraging signs at many GEographies, besides our larGEst regions are apt to undergo a complete area of shock compared with just 5 or 6 weeks at the fourth quarter. And at this point, we wish second area to be better than the first during the recovery continues and sequential improvement across the remains of the fiscal year. By the time we attain the fourth quarter, we used to wish to be uphold to more natural revenue growth at a 2-year stacked basis.

Focusing at the first quarter, nevertheless there is calm a luck of doubt regarding the recovery, we used to wish RTG revenue to be the most challenGEd, followed by CVG, with both expected to refuse more than the sum company. MITG and diabetes are both expected to refuse at the first area during well. However, they to be better than the corporation averaGE. And remember, we read an additional selling week at the first quarter, something that happens each 5 or 6 years with our fiscal calendar. during this additional week already occurred the last week of April, d