Medtronic (MDT) Earnings Report: Q4 2016 …Medtronic (MDT) Earnings Report: Q4 2016 Conference Call Transcript The following Medtronic conference call took place on May 31, 2016,

CompanyName:MedtronicPLCCompanyTicker:MDTSector:HealthCareIndustry:HealthServices

EventDescription:Q42016EarningsCallMarketCapasofEventDate:147.13BPriceasofEventDate:80.48

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Medtronic(MDT)EarningsReport:Q42016ConferenceCallTranscriptThefollowingMedtronicconferencecalltookplaceonMay31,2016,08:00AMET.Thisisatranscriptofthatearningscall:

CompanyPart icipants

RyanWeispfenning;Medtronicplc;InvestorRelationsOmarIshrak;Medtronicplc;Chairman&CEOGaryEllis;Medtronicplc;CFOBryanHanson;Medtronicplc;PresidentofMinimallyInvasiveGroupHoomanHakami;Medtronicplc;PresidentofDiabetesGroupMikeCoyle;Medtronicplc;PresidentofCardiacandVascularGroupGeoffMartha;Medtronicplc;PresidentofRestorativeTherapiesGroup

OtherPart icipants

MikeWeinstein;JPMorgan;AnalystDavidLewis;MorganStanley;AnalystDavidRoman;GoldmanSachs;AnalystBobHopkins;BoAMerrillLynch;AnalystJoshJennings;CowenandCompany;AnalystMattTaylor;BarclaysCapital;AnalystKristenStewart;DeutscheBank;Analyst

MANAGEMENTDISCUSSIONSECTION

Operator :

Atthistime,IwouldliketowelcomeeveryonetotheMedtronicfourth-quarterandyear-endearningsconferencecall.

(OperatorInstructions)

IwouldnowliketoturntheconferenceovertoRyanWeispfenning.Pleasegoahead.

RyanWeispfenning (InvestorRelations):

Thankyou,Operator.Goodmorning.WelcometoMedtronic'sfourthquarterconferencecallandwebcast.

Duringthenexthour,OmarIshrak,MedtronicChairmanandChiefExecutiveOfficer;andGaryEllis,MedtronicChiefFinancialOfficer,willprovidecommentsontheresultsofourfourthquarterandFY16,whichendedonApril29,2016.Afterourpreparedremarks,wewillbehappytotakeyourquestions.

First,afewlogisticalcomments.Earlierthismorning,weissuedapressreleasecontainingourfinancialstatementsandarevenuebydivisionsummary.Wealsoissuedanearningspresentationthatprovidesadditionaldetailsonourperformanceandoutlook.

Next,youshouldnotethatmanyofthestatementsmadeduringthiscallmaybeconsideredforward-lookingstatementsandthatactualresultsmightdiffermateriallyfromthoseprojectedinanyforward-




lookingstatement.AdditionalinformationconcerningfactorsthatcouldcauseactualresultstodifferiscontainedinourperiodicreportsfiledwiththeSECandwedonotundertaketoupdateanyforward-lookingstatements.

Inaddition,thereconciliationsofanynon-GAAPfinancialmeasuresareavailableonourwebsite,InvestorRelations.Medtronic.com.Unlesswesayotherwise,referencestoquarterlyorannualresultincreasingordecreasingareincomparisontothefourthquarterandfullFY15,respectively,andallquarterlyyear-over-yeargrowthratesaregivenonaconstantcurrencybasis.

Allannualyear-over-yeargrowthratesaregivenonacomparableconstantcurrencybasiswhichinadditiontoadjustingforthenegativeeffectofforeigncurrencytranslation,includesCovidienPLCintheprior-yearcomparisonaligningCovidien'sprior-yearmonthlyresultstoMedtronic'sfiscalquarters.Theseadjustmentdetailscanbefoundinthereconciliationtablesincludedwithourearningspressrelease.

Withthat,I'mnowpleasedtoturnthecallovertoMedtronicChairmanandChiefExecutiveOfficer,OmarIshrak.

OmarIshrak(Chairman&CEO):

Goodmorning,andthankyou,Ryan.Tankyou,toeveryoneforjoiningus.Thismorning,wereportedfourthquarterrevenueof$7.6billion,representinggrowthof6%,whichwasattheupperendofourmidsingle-digitbaselinegoalandexceededourexpectationsforthequarter.Q4non-GAAPdilutedearningspersharewere$1.27,growing18%onaconstantcurrencybasis.

BeforeprovidingmoredetailonourQ4performance,I'dliketorecapFY16.FY16wasatransformativeyearforourorganization,ourfirstfullyearafterclosingthelargestevermedtechacquisition.Itwasayearwhereinadditiontoexecutingalargecomplexintegration,weclosed14additionalacquisitions,totaling$1.5billion.Itwasayearwherewelaunchedanumberofgroundbreakingnewproductsandextendedourthoughtleadershipwithinvalue-basedhealthcare.

Wedeliveredrecordrevenueof$28.8billion,grewattheupperendofourmidsingle-digitbaselinegoalandcappedoffourfourthconsecutiveyearofachievingmidsingle-digitrevenuegrowth.Ourperformancewasbroad-basedwithstrongprogressagainsteachofourthreestrategicpillars,newtherapies,emergingmarketsandServicesandSolutions.

OurFY16non-GAAPdilutedEPSof$4.37wasintheupperhalfoftheguidancerangeweestablishedatthebeginningoftheyear,representingconstantcurrencygrowthof15%andEPSleverageof780basispoints.WeexecutedontheCovidienintegrationsynergies,deliveringapproximately$355millioninthefiscalyear,whichcontributedapproximately440basispointstoourFY16EPSleverage.Weimprovedouroperatingmarginby100basispoints,including120basispointsofimprovementinSG&A.

WereinvestedinR&D,organicallyaswellasinorganically,absorbinganydilutiveimpacttoEPSandcapitalizingonourstrongfreecashflowgeneration.Theseinvestmentsareinlinewithourstatedstrategyandfurthersupportthesustainabilityofourlong-termgrowthandmarketleadership.

InFY16,weuntrappedapproximately$10billionofourcash,whichprovidedadditionalreturnstoshareholders,allowedustopaydowndebtandincreasedourfinancialflexibility.Wealsoincreasedourdividendsubstantially,by25%.Wereturned$4.5billiontoshareholdersintheformofdividendsandsharerepurchases,wellaboveourminimumcommitmentof50%.

DespiteourstrongoperationalperformanceinFY16,ournon-GAAPdilutedEPSonlygrew4%,afterincludingthe$0.47negativeimpactofcurrency.Whilewedohaveanearningshedgingprogramtoreducevolatility,andarelookingatnaturalwaystolimittheimpact,wedoseethisaslargelyoutsideour




controlandwefeelthatoverthelong-term,FXshouldbalanceitselfout.

Now,movingtoourQ4performance.6%revenuegrowthwasverystrong,especiallywhenconsideringthiswasbuiltupona7%growthquarterinQ4FY15.Wecontinuedtooutperformthemarketandthestrengthofourdiversifiedportfoliowasevidentacrossourgroupsandgeographies.SolidperformancesinDiabetes,CVGandMITGmorethanoffsetthechallengeswefacedincertainbusinessesinRTG.

Geographically,wehadstrong15%growthinEmergingMarketsandsolidmidsingle-digitgrowthindevelopedmarkets,including4%growthintheUS,8%growthinWesternEuropeand11%growthinAustraliaandNewZealand.Overall,wearepleasedwiththeconsistentperformanceineachofourthreegrowthvectors,newtherapies,emergingmarketsandservicesandsolutions.

InNewTherapies,wedeliveredabovegoalperformanceinQ4,contributing390basispointsforourtotalCompanygrowth.InourCardiacandVascularGroup,whichgrew8%,newtherapiesaredrivingstrongmarketoutperformance.We'rehelpingtocreaterapidlygrowingmarkets,suchastranscatheteraorticvalvereplacement,MRI-safeimplantabletechnology,AFcryo-ablationtherapy,predictivediagnosticsanddrug-coatedballoons.

InCRHF,wecontinuedtoseestrongsharegainsinhighpowerfromtheongoinglaunchoftheEveraMRIICD,aswellastherecentlaunchesoftheAmpliaMRIandCompiaMRIQuadCRT-Ds.Wealsosawexceptionalgrowthofover50%fromourTYRXinfectioncontrolproduct.

InQ4,wereceivedFDAapprovalforourMicraTranscatheterPacingSystem,theworld'ssmallestpacemaker,one-tenththesizeofatraditionaldevice.WealsoreceivedFDAapprovalforourVisiaAFICD,auniquesingle-chamberdevicethatcansenseinboththeatriumandtheventricleusingproprietarydetectionalgorithms,firstdevelopedforourhighlysuccessfulRevealLINQinsertablelooprecorder.

InCSH,ourResoluteOnyxDESdrovesequentialsharegainsinEuropeandourEvolutRtranscathetervalvegainedsequentialshareintherapidlygrowingTAVRmarket.InAPV,ourValiantCaptiviathoracicstentgraftandHeli-FxEndoAnchorSystemdroveabovemarketgrowth.OurIN.PACTAdmiralcontinuestooutpacethefastgrowingdrug-coatedballoonmarketonthestrengthofitshandlingcharacteristicsanddifferentiatedclinicaldata.

Overthepasttwoyears,ourCVGorganizationhasdemonstratedindustry-leadinglevelsofinternallydrivenR&Dproductivityacrossitsbusinessesandourforward-lookingproductpipelinelooksequallyrobust.MikeCoylewillsharemoredetailsonwhatisaheadforCVGatourInvestorDaynextweek.

OurMinimallyInvasiveTherapiesGroupgrew6%,ledbystrongabovemarketperformanceinsurgicalsolutionsandlowsingle-digitgrowthinPatientMonitoringandRecovery.GrowthinMITGiscomingfromfivekeygrowthdrivers;Open-to-MinimallyInvasiveSurgery,orMIS,GastrointestinalDiseases,LungCancer,EndStageRenalDiseaseandRespiratoryCompromise.

Open-to-MISgrewdouble-digitsinQ4,helpedbytherecentproductintroductionsinourAdvancedStaplingandAdvancedEnergyportfolio,includingtheLigaSureMaryland,EndoGIAReinforcedReloadwithTri-StapletechnologyandValleyLabFD10energyplatform.GIDiseasesandLungCanceralsogrewdouble-digits,withsolidgrowthinourGIDiagnosticsbusinessresultingfromstrongPillCamperformanceintheUSandEurope.

WereceivedFDAclearanceinQ4,forexpandedindicationsforourPillCamCOLON2capsuletopotentiallyreachmorepatientsatriskforcoloncancer.RevenueinRenalCareSolutionsdoubled,largelyasaresultoftheacquisitionofBellco,apioneerinhaemodialysistreatmentsolutions.RespiratoryCompromisegrewintheuppersingle-digits,benefitingfromourcapnographymarketdevelopment




efforts.

WealsocontinuetomakeprogressinbringingournewCapnostream35tomarketinFY17.MITGcontinuestosupplementtheirbusinesseswithtuck-inacquisitions.InadditiontoBellco,thebusinessrecentlyagreedtoacquireSmith&Nephew'shighlyprofitableandfast-growingGynecologybusinessthatwillcomplementourexistingglobalGYNproductline.Weexpectthisacquisitiontoclosethissummer.

WealsorecentlysignedanagreementtotakeamajorityownershipintheNetherlandsObesityClinic,orNOK,whichIwilltouchonlater.AcrossMITG,wearedevelopingsolutionsthatspantheentirecarecontinuum,aspiringtoenableearlierdiagnosis,bettertreatment,fastercomplication-freerecoveryandenhancedpatientoutcomesthroughlessinvasivesolutions.BryanHanson,willdiscussthesestrategiesinmoredetailatnextweek'sInvestorDay.

InourRestorativeTherapiesGroup,whichgrew3%,wealsohaveanumberofnewproducts.InNeurovascular,ourSolitaireFRmechanicalthrombectomydeviceisdeliveringstrongresults,solidifyingourleadershippositionintherapidlyexpandingischemicstrokemarket,evenaftertheanniversaryoftheNewEnglandJournalofMedicinearticleslastyear.OurFlowDiversionproductsforthetreatmentofintracranialaneurysms,PipelineFlexintheUSandJapanandPipelineShieldinEurope,continuetoleadthemarket.

InSurgicalTechnologies,wehadmid-20sgrowthinImaging,drivenbystrongcustomerdemandforournewO-armO2SurgicalImagingSystem.InAdvancedEnergy,abusinessannualizingitover$250million,ourAquamantysSystemandPEAKPlasmaBladearedrivingconsistentupperteensgrowth.

InCoreSpine,newproductintroductionsacrossseveralproceduresresultedinasequentialimprovementtoourgrowthrate.Specifically,weareseeingincrementalrevenuefromourdifferentiatedOLIFprocedures,aswellasfromtherecentSoleraVoyager,ElevateandPTCInterbodylaunchesforTLIFandMIDLFprocedures.

We'realsorealizingsomeearlybenefitsfromourSpeedtoScaleinitiative,whichacceleratesinnovationandenablesrapiddeploymentoftheseproductsandprocedurestotheentiremarket.Lookingahead,we'reexpectingFDAapprovalforourdifferentiated2-levelPrestigeLPartificialcervicaldiscinFY17.Strongseven-yearclinicaloutcomedataonthe2-levelPrestigeLPwerepresentedearlierthismonthatAANS.

Asexpected,wefacechallengesinourNeuromodulationdivision.WhilewecontinuetomakeprogressagainstourFDAconsentdecreecommitments,wearestillexperiencingdouble-digitrevenuedeclinesinourdrugpumps.Ourrevenuehasbeenrelativelystablesequentiallyforfourquarters,soweexpectdrugpumpgrowthtoberoughlyflatgoingforward.

InDBSandPainStim,we'refacingincreasedcompetition.Butaswelookahead,we'reoptimisticthatdriverssuchasexpandedearlyonsetDBSindicationintheUSthatwereceivedearlierthisyearandnewstrategiesthatfocusourpainstrategiesonthegrowingopioidepidemiccanimproveourNeuromodulationresults.Onbalance,however,PainStimandDBScouldbeundersomepressureforthenextseveralquarters.

AsweenterFY17,wearerealigningourbusinesseswithintheRestorativeTherapiesGrouptoprovideastrongerfocusonthediseasesandconditionsthatweserve.Externally,wewillreportrevenueresultsforfourdivisionscomprisingRTG;Spine,whichincludesourCoreSpine,BMPandKanghuibusinesses;braintherapies,whichincludesourDBS,whichwe'renowcallingBrainModulation,Neurovascularandneurosurgerybusinesses;andpaintherapies,whichincludesourDrugDelivery,SpinalCordStimulationandInterventionalSpinebusinesses.Theremainingbusinesses,includingGastro/Uro,whichwearenow




callingPelvicHealth,AdvancedEnergyandENTwillbereportedexternallyastheSpecialtyTherapiesdivision.

AspartofthesechangesRTGisadoptingthegeneralmanagerstructurethatisprovingverysuccessfulindrivingasteadycadenceofmeaningfulinnovationinourCardiacandVascularGroup.Additionally,RTGhasaligneditscommercialorganizationtothisnewstructure,enablingthegrouptouseitsbreadthtodeliversolutionstohospitaladministratorsandpayers,whilemaintainingfocusonspecialistphysicians.GeoffMarthawilldiscussthesechanges,aswellasadditionaldetailsonhisturnaroundeffortsinSpineandPainattheInvestorDaynextweek.

InourDiabetesgroup,whichgrew10%,wecontinuetoseestrongadoptionofourMiniMed640GSysteminmarketswhereit'savailable.Insulinpumpsgrewover30%indevelopedgeographiesoutsidetheUnitedStates,despitehavinganniversariedthelaunchoftheMiniMed640Gthisquarter.WealsohadastrongquarterforMiniMedConnect,whichistheonlysystemprovidingremoteaccesstopumpandsensordataontheuser'ssmartphone.

Regardingourpipeline,weareontracktosubmitthePMAfortheMiniMed670GwiththeEnlite3CGMsensortotheFDAbeforetheendoftheyear.Oncelaunched,thiswillbetheworld'sfirsthybridclosedloopsystem.

Alsothisquarter,wewerepleasedtoreachanagreementwithUnitedHealthcaretobetheirpreferredinsulinpumpprovider.UnitedHealthcaresawwhatothers,includingUK'sNICE,haveseen;thatwearetheonlycompanywithevidencethatclearlydemonstratestheclinicalandeconomicvalueofourintegratedpumpandsensorplatform,forbothpatientsandforthehealthcaresystem.OuragreementwithUHCisarealaffirmationofourstrategytoinvestininnovationthatdrivesevidence-basedoutcomes.

InourNon-IntensiveDiabetesTherapiesbusiness,wecontinuetomakegoodprogressdrivingouriPro2professionalCGMsystemtotype2patientsbeingcaredforbyprimarycarephysicians.ThroughourpartnershipwithHenryScheinandourrecentlyannouncedcollaborationwithQualcommLife,weexpectcontinuedsuccessinourtype2business.

InourDiabetesServicesandSolutionsbusiness,weareontracktolaunchGuardianConnectinEuropewiththecurrentEnhancedEnlitesensorinearlyFY17,andintheUS,withthenext-generationsensorinthesecondhalfofFY17.GuardianConnectallowsustoprovidebothtype1andtype2patientsamultipledailyinjectionswithastandalonereal-timeglucosemonitoringsolution.WhenyoucombineourstandaloneprofessionalCGMproductswiththeapplicationsandcognitivecomputingcapabilitiesthatwewillbringthroughourpartnershipwithIBM,wewillprovidebothtype1andtype2patientswithnotjustasensor,butwithacomprehensivediabetesmanagementsolution.

Whilethemarketremainscompetitive,wefeelstronglythatourDiabetesbusinessiswellpositionedtodrivesustainedgrowthandHoomanHakamiwillprovidemoredetailsonourstrategyandprogressatnextweek'sInvestorDay.OurnewproductpipelineisrobustacrossallfourofourbusinessgroupsandweareconfidentthatwecandrivesustainablegrowthofourNewTherapiesgrowthvectorintheupperhalfofour150basispointsto350basispointsgoal.

Next,let'sturntoEmergingMarkets.InQ4,wegrew15%andcontributedapproximately185basispointstoourtotalCompanygrowth,wellwithinourbaselinegoalof150basispointsto200basispoints.Wecontinuetoconsistentlydeliverdouble-digitgrowthinEmergingMarkets,overcomingmacroeconomicpressuresincertaincountries.Thisisaresultofcontinuedexecutionofourdifferentiatedstrategiesofchanneloptimization,governmentagreementsandprivatepartnerships.

Alloftheseinitiativeshavetheabilitytoaccelerategrowthandleadtosustainedmarket




outperformance.OurEmergingMarketperformancealsobenefitsfromincreasedgeographicdiversification,reducingdependenceonanysinglemarket.WecontinuetobelievestronglythatthepenetrationofexistingtherapiesintoEmergingMarketsrepresentsthesinglelargestopportunityinMedTechoverthelong-term.

InQ4,ourbusinessesinMiddleEastandAfrica,LatinAmerica,SoutheastAsiaandEasternEuropeallgrewintheupperteens,andIndiaandChinagrewinthelowdoubledigits.NextweekatourInvestorDay,youwillhavethechancetosharemoredetailsfromtheleadersofourglobalregions.

TurningnowtoourEconomicValuegrowthstrategy.OurServicesandSolutionsgrowthsectorcontributedapproximately25basispointstoMedtronicgrowth.Whilethisoverallresultwasbelowourgoalof40basispointsto60basispoints,ServicesandSolutionscontinuestoachieverevenuegrowtharound50%.Weexpecttofurtherimproveourgrowthcontributionasthismodelisexpandedacrossallourbusinessgroups.

InCareManagementServices,formerlyknownasCardiocom,wegrewinthehigh20%sinQ4,drivenbystronggrowthwithintheUSVeteransAdministrationhealthcaresystem.CareManagementServicesrepresentsanimportantplatformforus,especiallyaspost-acutecareservicesbecomeevenmorecriticalinbundledpaymentmodelsfordifferentinterventions.

InourHospitalSolutionsbusiness,towhichweprovideexpertiseinoperationalefficiencyaswellasdailyadministrativemanagementofhospitalcathlabsandoperatingrooms,wehadservicerevenuegrowthinthehigh50s.Sincestartingthisbusinessalittleovertwoyearsago,wehavecompletedatotalof88long-termmanagedserviceagreementswithhospitalsystems,representingmorethan$2billionincontractedserviceandproductrevenueoveranaveragespanofsixyears.WhilethemajorityofthesehospitalsareinEurope,wealsohavemanagementcontractsinhospitalsinLatinAmericaandintheMiddleEastandAfrica.

WeareattractingstrongcustomerinterestinHospitalSolutionsinregionsaroundtheworldandhaveafullpipelineofpotentialcontracts.WecontinuetomakeprogressinexpandingtheHospitalSolutionsmodelfromcathlabsintooperatingrooms,utilizingthebreadthofourMITGproductsandassociatedexpertise.We'vealreadysigned10operatingroommanagedservicesdeals,representingapproximately$250millionincumulativerevenuewithanaveragelifespanofsevenyears.

We'realsoexpandingoursolutionsofferingsintochronicdiseasemanagement.OneexampleisDiabeter,aNetherlands-baseddiabetesclinicandresearchorganizationweacquiredayearago,whichiscurrentlyoperatingfourcentersprovidingholisticdiabetescaremanagement.AnotherexampleisNOK,achainofclinicsintheNetherlandsformorbidlyobesepatientsundergoingbariatricsurgery.WesignedanagreementtoacquireamajoritystakeinNOKthismonth.

NOKofferspatientsanintegrated,comprehensivecaremodel,includingextensivescreening,pre-careprogram,bariatricsurgery,post-surgeryprogramandlong-termfollow-up.TheirapproachishighlysuccessfulandweplantogaincriticalinsightswiththegoalofexpandingNOK'sclinicstomorecountries,providingbroaderpatientsaccesstotheirmultidisciplinaryteamsofspecialistsandimprovingpatientoutcomes.

ThroughinitiativeslikeDiabeterandNOK,aswellastheonesImentionedearlier,we'reuniquelypositioningourbusinesstofocusonnotjustdevices,butprovidingservicesandsolutionsacrossthecarecontinuum.WhilealloftheseServicesandSolutionsarestillrelativelyearlystagebusinesses,theyrepresentimportantbuildingblocksthatwewillusetocreatecomprehensivevalue-basedhealthcareofferingswherebusinessmodelswillbebasedonmeasurablepatientoutcomesoverspecifictimehorizons.Ourorganizationisexploringnewandnovelwaystonotonlydeliverbetterclinicaland




economicvalue,buttotieoursuccesstotheseoutcomesthroughinnovativenewbusinessmodelswithprovidersandpayers.

TurningnowtotheQ4P&L.Wegrewnon-GAAPdilutedEPSby18%andEPSleveragewas1,210basispoints,bothonaconstantcurrencybasis.Covidiencostsynergiesofover$100millioninthequarter,wereinlinewithourexpectation,helpeddrivea180basispointimprovementinSG&AandwereamajorcontributortoourstrongEPSleverage.

Inaddition,ourbusinessalsodeliveredstrongunderlyingoperatingleverageinQ4.ThecombinationofCovidien'ssynergiesandunderlyingleverageresultedina260basispointimprovementtoouroperatingmarginafteradjustingforunplanneditems.

Ournon-GAAPoperatingmarginincludingthenegativeimpactofcurrency,was30.3%,whichwas70basispointsbelowtheexpectationswehadatthebeginningofthequarter.Thiswasaresultofthreeunplanneditemsthatnegativelyaffectedthegrossmargin.First,anadditional30basispointsfromtheFXimpactininventorythatisbasedsolelyonintra-quartercurrencyfluctuations.

Second,a20basispointimpactfromtheone-timepurchaseaccountingstep-upontheBellcoacquisitioninventory.Andthird,a20basispointimpactfromhigherthananticipatedscrapandobsolescenceacrosseachofourgroups.Withoutthesespecificunplanneditems,ournon-GAAPoperatingmarginwouldhavebeen31%andwithinourexpectedrange.Despitethesepressures,wewereabletooffsetunexpecteditemsatthebottomline.

Turningtocapitalallocation.WearedeployingourcapitalwithabalancedfocusonM&Ainvestments,meetingourdebtreductioncommitmentsandreturnstoshareholders.Weremainfirmlycommittedtoreturningaminimumof50%ofourfreecashflowtoourshareholdersthroughdividendsandsharerepurchases.

AsanS&PDividendAristocrat,weexpecttodeliverdependable,long-termdividendgrowth.LastJune,weincreasedourdividendby25%andweexpecttogrowourdividendsfasterthanearningswiththeintentofreachinga40%dividendpersharepayoutofprioryearnon-GAAPEPSinthenear-term.

Regardingsharerepurchases,inFY16,webeganexecutingtheincremental$5billionsharerepurchaseweannouncedearlierinthefiscalyear,inadditiontoourongoingsharerepurchaseprogramcompletingatotalof$2.3billioninnetsharerepurchasesinFY16.WealsocontinuetouseourcapitaltomakestrategicanddisciplinedM&Ainvestments,whichmustmeetourportfoliocriteria,namelythetargetsmustprovidealineofsighttoimprovingoutcomes,allowforMedtronictoaddvalueandwehaveacommittedteaminplacethatispositionedtowin.Inaddition,ourinvestmentsmustmeetourhighfinancialreturnhurdlesandminimizeanynear-termshareholderdilution.

BeforegoingtoGary,I'dliketonotethatinatransformativeyearwithasignificantnumberofcomplexmovingparts,ourteamdelivered.Ourstrongresultswouldnothavebeenpossiblewithoutthededication,teamworkandfashionthatour85,000employeesaroundtheworlddemonstratedeveryday.Wehaveundertakenastrategytotransformhealthcare.Wedon'ttakelightlythechallengesthisloftygoalplacesonourorganization.

Ithasbeenamazingtoseewhatourcombinedorganizationcanaccomplish.Wehaveformedacommoncultureandarecollaboratingwithourpartnersinhealthcaretoservemillionsofpatientsaroundtheglobe,fulfillingtheMedtronicmissionofalleviatingpain,restoringhealthandextendinglife.We'rebuildingonatrackrecordofdeliveringconsistentmidsingle-digitrevenuegrowthandwitheveryquarter,we'reincreasinglyconfidentaboutthesustainabilityofthisperformance.

Whilewerecognizethatwestillhavealotofworkaheadofus,wearewellonourwaytomeetour




integrationsynergy,freecashflowgenerationandEPSleveragecommitments.We'relookingforwardtosharingdetailsoftheseplanswithyouattheInvestorDaynextweek.

Garywillnowtakeyouthroughamoredetailedlookatourfourthquarterresults.Gary?

GaryEllis (CFO):

Thanks,Omar.Fourthquarterrevenueof$7.567billion,increased4%asrecorded,or6%onaconstantcurrencybasis,whichexcludesthe$179millionunfavorableimpactofforeigncurrency.Acquisitionsanddivestiturescontributedanet60basispointstoQ4revenuegrowth.OurCardiacandVascularGroup,whichaccountedfor36%ofourtotalCompanysales,grewrevenueby8%,withallthreedivisionsgrowingabovethehigh-endofourtargetedmidsingle-digitrange.

InCRHF,weexpecttocontinuetogrowabovemarketduetoourdifferentiatedMRIimplantablesportfolioandothernewproductintroductionsthatOmarmentioned.WehaveyounowstartedUSphysiciantrainingandshipmentsofourMicraTPSpacemaker.

InAFSolutions,ourbusinessgrewovertwicethemarketinthemid-30sandisnowannualizingatover$0.5billion.AFSolutionshadanotherverystrongquarterwithArcticFrontAdvancefollowingthecompellingFIRE&ICEtrial,whichwasfeaturedasalate-breakeratACCandsimultaneouslypublishedintheNewEnglandJournalofMedicine.Laterthismonth,secondaryendpointsfromtheFIRE&ICEtrialonratesofrehospitalizationandrepeatablationprocedureswillbehighlightedinthelatebreakingclinicaltrialsattheCardioStimcongress.

InCoronary,weareholdingglobaldrug-elutingstentshareinthefaceofmajorcompetitivelaunches.Duetoourcustomers'increasingpreferenceforResoluteOnyxinEuropeandmanyemergingmarkets,continuedenthusiasmforthedeliverycharacteristicsofResoluteIntegrityintheUS,andourexpandinguseofCBGmulti-linecontractsinmanygeographiesaroundtheworld.

InTranscatheterValves,weareseeingstronggrowthandexpectthismarkettogrowto$4billionto$4.5billionby2020.OurUSsharesstabilizedafterthedropwesawinQ3fromnothavingalargesizeEvolutR.WehavestartedourEvolutRXLclinical,whichisa60patient,30-dayfollow-uptrial.

InIntermediateRisk,wecompletedenrollmentinourSURTAVItrial,whichisexpectedtoleadtoFDAapprovalandwearemovingintocontinuedaccessforintermediateriskpatientsat60USSURTAVIcenters.InQ4,wealsosawastrongacceptanceofCoreValveinJapan,followingthefirstfullquarteroflaunch.

InPeripheral,wehadanumberofstrongdatapresentationsonourIN.PACTAdmiraldrug-coatedballoonlastmonthatCharingCross,includingmechanismsofactiondata,whichareresultingincompetitiveaccountconversions.WealsoreceivedFDAapprovalforachangetoIN.PACTlabeling,removingtherequirementforpre-dilatationandreplacingitwithsimplyappropriatevesselpreparation.TheselabelingchangesnowpositionMedtronicastheonlycompanyintheUSthatdevelops,manufacturesandsellsbothatherectomyanddrug-coatedballoonsascombinationtherapyforSFAdisease.

OurMinimallyInvasiveTherapiesGroup,whichaccountedfor32%ofourtotalCompanysales,grewrevenue6%.WecontinuetomonitorsurgicalvolumesintheUS,andweestimatetheremayhavebeenaslightaccelerationinthemostrecentquarter,withvolumesnowgrowingapproximately3%versusthe1%to2%rangewesawearlierinthefiscalyear.Weareseeingstrongermidsingle-digitgrowthintheUSoutpatientsurgerymarket,whileinpatientsurgeriesaregrowinginthelowsingle-digits.

InPMR,qualityissuesrelatedtothePuritanBennett980ventilatorandtheCapnostream20capnographymonitorhadacombinedimpactofapproximately$25millioninQ4revenue.Weexpectto




havebothoftheseissuesresolvedthissummer.OurRestorativeTherapiesGroup,whichaccountedfor25%oftotalCompanysales,grewrevenueby3%,withstronggrowthinNeurovascularandSurgicalTechnologiesandimprovedresultsinSpine,whichoffsetlowsingle-digitdeclinesinNeuromodulation.

OurUSCoreSpinebusinessdeclined1%,alargeimprovementoverthepasttwoquarters.WeestimatetheUSCoreSpinemarketisgrowing2%to3%,sowhilewelostshareyearoveryear,wedidgainovera100basispointsofshare,sequentially.WeexpectSpinetoreturntomarketgrowthoverthecomingquarters.

InEurope,wecontinuetobeaffectedbytheshipholdinInductorsBMP,whichisresultinginanimpactofapproximately$8millionperquarter.Ourlatestprojectionisthatourthird-partysupplierwillbeabletoresolvetheissuesometimeduringQ3FY17.

InNeuromodulation,itisworthnotingthatourQ4growthwasaffectedbythedivestitureoftheIntrathecalBaclofendrug,whichoccurredinlateQ3.Thisbusinesswasgenerating$7millionto$8millionperquarter.

OurDiabetesgroup,whichaccountedfor7%ofourtotalCompanysales,grewrevenue10%withstrongbroad-basedperformanceacrossallthreedivisions.ItisworthnotingthattheDiabetesGroupdouble-digitgrowthcameinthefaceofacompetitiveUSenvironment.Weattributethisperformancetoourfocusonbuildingdiverserevenuestreamsthroughageographicexpansionandgrowthinournewbusinesses.

ProductslikeMiniMed640GSystemwithEnhancedEnlitesensorandSmartGuardtechnologyhelpeddrivegrowthoutsideUS,whileourNon-IntensiveDiabetesTherapiesandDiabetesServiceandSolutionsdivisionsalsocontributedtooverallperformance.WhileweexpectthetoughUScompetitiveenvironmenttocontinueuntilwegetFDAapprovalforourMiniMed670Ghybridclosedloopsystem,webelievetherearesufficientdriverstocontinuetodeliverhighsingle-digittolowdouble-digitglobalgrowthinourdiabetesgroup.

NowturningtotheP&L.Q4non-GAAPdilutedearningspersharewas$1.27,anincreaseof18%onaconstantcurrencybasisafteradjustingforthe$0.10impacttoearningspersharefromforeigncurrencytranslation.Q4GAAPdilutedearningspersharewas$0.78.

Inadditiontothe$348millionaftertaxadjustmentforamortizationexpense,thisquarter'snon-GAAPadjustmentstoearningsonanaftertaxbasiswerea$118millionchargerelatedtotheretirementof$2.7billionofdebt,a$97millionnetrestructuringcharge,an$85millionchargeforacquisition-relateditemsanda$44millionimpairmentchargerelatedtoaninvestmentinBioControl.TheQ4operatingmarginwas31.8%onaconstantcurrencybasis.Thisrepresenteda210basispointconstantcurrencyimprovementovertheprioryear.

Afteradjustingforthenegative30basispointsfortheone-timeBellcoacquisitioninventorystep-upandnegative20basispointsfortheunplannedscrapandobsolescence,theoperatingmarginwouldhaveshowna260basispointconstantcurrencyimprovement,whichfellintherangeofourexpectations.ItisworthnotingthatASPdeclineswereinlinewithpreviousquartersanddidnotaffectthegrossmargin.

Ouroperatingmarginincludedagrossmarginof69.8%,SG&Aof31.1%andR&Dof7.4%,allonaconstantcurrencybasis.AlsoincludedinourQ4operatingmarginwasNetOtherincomeof$21million,whichincludednetcurrencygainsof$102million,primarilyfromourearningshedgingprograms.Thesecurrencygainswere$37millionlowerthantheprioryear.

Regardingourearningshedgingprogram.Whilewehedgedthemajorityofouroperatingresultsindevelopedmarketcurrenciestoreducevolatilityinourearningsfromforeignexchange,agrowing




portionofourprofitsareunhedged,especiallyemergingmarketcurrencies,whichcancreatemodestvolatilityinourearnings.

Belowtheoperatingprofitline,Q4non-GAAPnetinterestexpensewas$188million,slightlybetterthanourforecast.AttheendofQ4,wehadapproximately$31.2billionindebtandapproximately$12.6billionincashandinvestmentsofwhichapproximately$5billionwastrapped.InQ4,weprepaidapproximately$2.7billionofourdebt,utilizingaportionofthe$10billionofcashthatwasuntrappedinatransactionlastSeptember.

Ournon-GAAPnominaltaxrateonacashbasisinQ4was14.6%.Thiswasanimprovementtoourforecastandincludedanapproximate$40millionbenefitfromthereversalofavaluationallowanceassociatedwithforeignnetoperatinglossesfromourInterventionalSpinebusiness.

InQ4,adjustedfreecashflowwas$1.4billion,whichwasbelowourexpectationsduetotimingoncertainitems,butweexpectittorecovergoingforward.Weremaincommittedtoreturningaminimumof50%ofourfreecashflowtoshareholdersandalsocontinuetotargetintheeightcreditprofile.

InQ4,wepaid$531millionindividendsandrepurchased$660millionofourordinaryshares.AsoftheendofQ4,wehadremainingauthorizationstorepurchaseapproximately72millionshares.Fourthquarteraveragedailysharesoutstandingonadilutivebasiswere1.416billionshares.

BeforeturningtocallbackovertoOmar,letmeconcludebycommentingonourinitialFY17revenueoutlookandearningspershareguidance.Ourbaselinegoalistoconsistentlygrowourrevenueinthemidsingle-digitrangeonaconstantcurrencybasis.ForFY17,givencurrenttrends,weexpectrevenuegrowthtobeintheupperhalfofthemidsingle-digitrangeat5%to6%onaconstantcurrencybasis,constantweekbasis,whichexcludestheestimatednegative150basispointannualimpactfromtheextrasellingweekwehadinQ1ofFY16.

Assumingcurrentexchangeratesremainsimilarfortheremainderofthefiscalyear,whichincludeaEUR1.11andJPY110,ourFY17revenuewouldbenegativelyaffectedbyapproximately$25millionto$75million,withmodestFXheadwindsinthefirsthalfoftheyearturningtomodestFXtailwindsinthebackhalfoftheyear.InQ1,wewouldexpectrevenuegrowthtobeinthelowerhalfofour5%to6%annualrevenueoutlookrangeonaconstantcurrency,constantweekbasis.OurQ1revenuegrowthoutlookexcludestheestimatednegative6percentagepointimpact,orapproximately$450million,fromtheextrasellingweekwehadinQ1FY16,aswellasanegative$25millionto$75millionFXimpactonrevenuebasedoncurrentrates.

Turningtoguidanceonthebottomline.Webelieveitisreasonabletomodelnon-GAAPdilutedearningspershareintherangeof$4.60to$4.70,whichincludesapproximately$225millionto$250millionoftargetedvaluecapturesynergiesfromtheCovidienacquisition.WhiletheexpectedFXimpactonearningspersharefromourunhedgedcurrencieshasimprovedbyapproximately$0.05sinceMarch,thishasbeenoffsetbyanincreasedexpectedFXimpactoninventory.

Giventhis,assumingcurrentexchangeratesremainsimilarfortheremainderofthefiscalyear,foreigncurrencywouldhavea$0.20to$0.25negativeimpactonourFY17earningspershare.Ourguidanceimpliesearningspersharegrowthintherangeof12%to16%onaconstantcurrencybasisaftertakingintoaccounttheestimated$0.08to$0.10negativeimpactfromtheextrasellingweekinQ1ofFY16.

ForthefirstquarterofFY17,wewouldexpectearningspersharegrowthonaconstantcurrency,constantweekbasistobearoundtheupperendofourannualearningspersharegrowthguidancerange.However,itisworthnotingthatonareportedbasis,weexpectQ1earningspersharegrowthtobeslightlydowngiventheestimated$0.08to$0.10negativeimpactfromtheextraweekandtheexpectednegative$0.06to$0.08impactofFXbasedoncurrentrates.Asusual,ourearningspershareguidance




doesnotincludeanychargesorgainsthatwouldberecordedasnon-GAAPadjustmentstoearningsduringthefiscalyear.Omar?


Thanks,Gary.WhileIhavemoretosaynextweekattheInvestorDay,IdidwanttotaketheopportunitytorecognizeGary'sservicetoMedtronictodayandwhatishislastearningscallasMedtronic'sCFO.Garyhasservedinthisroleforthepast11years,andsinceMayof2005,hasbeenwith--sinceMayof2005andhasbeenwithMedtronicsince1989.

GaryhasbeenaconstantcounseltomeduringthetimethatI'vebeenhereandhisexperienceandknowledgeandoverallguidancehasbeencriticalandinvaluabletobothmeandouroverallteam,aswenavigatedthroughaverycomplexenvironment.Gary'sexpertisewillbemissed,buthewillstillstayonasITandOperationsLeader,atleastforalittlewhile.Andwe'llstillhavethebenefitofhisstrongcounsel.MoreonthatatInvestor'sDay.

WewillnowopenthephonelinesforQ&A.AndinadditiontoGary,I'veaskedMikeCoyle,PresidentofourCardiacandVascularGroup;BryanHanson,PresidentofMinimallyInvasiveTherapiesgroup;GeoffMartha,PresidentofourRestorativeTherapiesGroup;andHoomanHakami,PresidentofourDiabetesGroup,tojoinus.

Wewanttotrytogettoasmanypeopleaspossible.Sopleasehelpusbylimitingyourselftoonlyonequestionandifnecessary,arelatedfollow-up.Ifyouhaveanyadditionalquestions,pleaseconstantRyanandourInvestorRelationsteamafterthecall.

Operator,firstquestion,please.

QUESTIONS&ANSWERS

Operator :

(OperatorInstructions)

OurfirstquestioncomesfromthelineofMikeWeinsteinwithJPMorgan.

MikeWeinstein (Analyst-JPMorgan):

Goodmorning,guys.Thanksfortakingthequestion.Letmejusttryandclarifyafewitems.One,couldyoujustmaybemakealittlebitclearerforustheFY17guidance,whatdoesthatassumeintermsofyourmargins?Second,IthinkIunderstoodthecommentaryonthefirstquarter.Basicallyyou'resayingdownslightlyonareportedbasis,solet'scallit$102million,$103million.Justwanttoclarifythat?Thanks.


Okay.I'llletGarytakethisone.

GaryEllis (CFO):

AsfarasFY17margins,wewouldexpectgoingforwardbasedontheassumptionobviouslyoftheearningspershareonaconstantcurrencybasis,growing12%to16%asweindicated.Theoperatingmarginswouldobviouslycontinuetoimprovesimilartowhatyousawinthecurrentyear.Obviously,thesynergiesfromtheCovidienintegration,asweindicatedinthecall,wouldbealittlebitlessfornextyear,buttheoperatingleveragefromtherestofthebusinesswouldbeobviouslyalittlebitmoreaswemoveintotheFY17periodoftime.




Sooperatingmarginimprovement,we'renotgettingspecificonthat,butbasicallytheassumptionwouldbe,Mike,thatassuminga12%to16%constantcurrencyearningspersharegrowth.You'regoingtoseeasimilarkindofgrowthinoperatingmargins,similartoprobablywhatyousawinthecurrentyearasyoumodelthings.AsfarastheQ1guidance,whatwe'retryingtoindicateinthecallisthat,yes,beinginthethatupperendoftherangewouldtakeintoeffecttheextraweek,etcetera,Ithinkyou'reprobably--the$102million,$103millionyoumentioned,isprobablyrightinthatrangeasfaraswhatpeopleshouldprobablybeassuming.


AndGary,IwasaskingontheFY17margin,justbecausetheincrementalinventoryhiton--fromFX,I'mjusttryingtothinkabouttheactualimpactonreportedmarginsfortheyear.IwouldassumethatFXisgoingtonegatethat,right?

GaryEllis (CFO):

Iagree.Itwillbe.You'reright,onaconstantcurrencybasis,we'llcontinuetoseethekindofimprovement.TheFXimpactinthefirstquarterof$0.68reflectsthatwearegoingtostillseemoreFXontheinventoryinthatnumber.WesawalittlebithighernumberhereinQ4thanwhatwehadoriginallyexpectedandthat'swhatwebasedonourguidanceatthispoint.

Obviously,ifthatnumbercontinuestogetevenworse,thatcouldbeadifferentissue.Butrightnow,Ithinkitwillbeaslightnegativebut--mitigate,Ishouldsay,someoftheoperatingleveragewe'regettingonaconstantcurrencybasisaswesawduringthecurrentyear.Wewouldexpecttoseeonaconstantcurrencybasisthatwouldcontinue.Butasreported,you'rerighttheremightbelessofanimpactinQ1.Thanks,Mike.


Omar,foryou,maybejusttwoquestions.Soone,thecommentaryaroundsurgicalvolumesisobviouslyconsistentwithwhatwe'veseenfromcompaniesreportingfromacrossthesectoroverthelastmonthaswellasnotjustdevicecompaniesbuthospitalcompanies.Canyoujust--wasthecommentaryabouttheuptickinsurgicalvolumesconsistentoverthecourseofthequarter,beingthisissomethingthatyou'veseeneveninAprilandmaybeintoMay,ifyouhaveinsightintothat?

Andsecond,IwashopingyoucouldjustcommentontheDiabetesbusiness?Becauseyourinternationalperformancewasexceptionallystrongthisquarterandjusttryingtolookforwardtowhat'sgoingtoplayoutintheUSonceyouget670Gapprovedhere.


JustafewwordsandthenI'llletbothBryanandHoomangiveyousomemoredetails.First,Ithinkweyousawasteadyimprovementinsurgicalvolumesthroughthecourseofthequarter,andI'llletBryancommentinaminuteonthecontinuedoutlook.Whydon'tyousaythat,Bryan,andthenI'llcheckonDiabetes.Goahead.

BryanHanson (PresidentofMinimallyInvasiveGroup):

Idon'tknowthatIwouldgivespecificityinthequarter,butIwouldsaythesamething,acrossthequarterwesawmorevolumegrowththanwhatwehadseeninthelastfewquarters.Weuseabunchofdatapointstobeabletogettothat.OneofthebigdatapointsthatIpersonallyuseiscallingoursalesrepsbecausethey'reoutintheoperatingroomandtheyseethenumberofcases.Andthere'sadefinitefeel,therewasanincreaseinvolumesduringthequarter.Now,untilIseeitforanothercoupleofquarters,I'mnotcallingitatrend,it'sonequarter,butitcertainlyfeltniceinthequarter.





WithDiabetes,I'llletHoomancomment.Obviously,we'reveryexcitedaboutthepotentialofthehybridclosedloopsystem.ButIalsowanttodrawyourattentiontomuchofthecommentaryaroundourbroaderbasedefforts,thatthatisoneaspectofourgrowthinDiabetes.Ithinkwe'reveryexcitedaboutwhatwecandoaboutoverallpatientmanagementandinouragreementsthatwecanmakewithmajorstakeholderssuchaspayers,likewedidthislastquarter.Hooman,doyouwanttosayafewwords?

HoomanHakami(PresidentofDiabetesGroup):

Sure.Thanks,Omar.Hey,Mike.IwouldconcurwithwhatOmarsaid.Ithinkifyoutakealookatourperformancethisquarter,10%growthisstrong.ItwaslargelydrivenbyO-USrevenuesandthe640GproductandIthinkitjustshowsyouwhatkindofuptakewecangetwithanewproductlaunch.TheUScontinuestobecompetitiveandherewehaveaproductthatwaslaunchedinSeptemberof2013.Andsowedon'thavethebenefitintheUSofanewproductlikewedoinEurope.

ButIthinkthisunderscoresacouplethings.One,iswhatOmarsaid,isthatourrevenuebaseisbecomingmoreandmorediverseandweareseeingmoretractionfromO-USrevenues,fromemergingmarketrevenuesandfromcallit,non-type1revenueswithtype2andServicesandSolutions.TheotherthingthatIthinkitshowsisthatwhenwedogetanext-generationplatformhereintheUnitedStates,wecanexpectsomegreatresults.Thetractionwe'reseeinginEuropeandthefeedbackthatwe'reseeingonournewpumpplatformisgreat.WeexpecttoseethathereintheUnitedStatesonceit'slaunched.Soaswegetthe670,wethinkthere'sgoingtobereallystronguptickthereandasyouheardfromthecommentary,thingsareontrackwithrespecttothat.

Andthenfinally,thelastpointIwouldmakeisthatbetweennowandwhenthenext-generationpumpcomesout,Mike,we'vegotalotofassetsthatwecanleveragewithintheDiabetesbusinessintheUS.Thesizeofoursalesforceisthelargest.ThesizeofourclinicalteamisthelargestintheUS.We'vegotthelargestscaleandserviceinfrastructureforpatients.We'vegotdeepandbroadpayerrelationshipsandontopofthat,we'vegotagrowingtype2andsolutionsbusinesshereintheUnitedStates.Sowefeelgood.EventhoughthecompetitioncontinuestointensifyintheUS,wefeelgoodaboutouroverallglobalperformanceandthenoncethingscomewiththenewproduct,itwill--wefeelvery,verygood.


Thanks,Hooman.Thanks,Mike.We'llgotothenextquestion.

Operator :

OurnextquestioncomesfromthelineofDavidLewiswithMorganStanley.

DavidLewis (Analyst-MorganStanley):

Goodmorning.Afewquickquestionshere.Firstquestion,Gary,justtorectifyFY17guidance,somenon-opitems.Yourfreecashguidancefornextyearisverystrong.Iwonderifyoucouldupdateusontwopoints?OneisjustthesizeandtimingofanticipatedbuybacksintheguidanceaswellaspotentialtaxrateforFY17?AndIhadacouplequickfollow-ups.


Goahead,Gary.

GaryEllis (CFO):

Asfarasthefreecashflow,theguidancethatwe'regivingof$6.5billionto$7billionfornextyear,isin




linewithwhatwe'reexpectingfromouroperatingearningsgrowthandcontinuedfocusonworkingcapital.Sothatexpectation,wedoexpectaswe'veindicatedpreviouslyandwe'lltalkmoreaboutitattheinvestormeeting,thatourfreecashflowwillcontinuetogrowverynicely,probablyclosetothedouble-digitrangesimilartotheearningsaswegoforward.Sowe'refeelingconfidentaboutthat.

We'renotgettingspecificobviouslyaboutwhatwe'redoingwithsharebuyback,butasweindicatedpreviouslywhenweannouncedtheincrementalbuyback,andifyouwatchedhistorically,wetendtodothat,wesaidwe'regoingtobemorefrontendloadedonthat.IthinkyoucouldassumethesamethingaswegointoFY17,thatit'smorefrontendloadedthantowardsthebackhalfoftheyear.Andso,butwe'renotgettingspecificabouthowmuchwe'regoingtobeincludinginthatpieceofit.

Soasfarastaxrategoes,there'sobviouslythebenefitoftheR&Dtaxcreditcatch-upduringthecurrentyear.Ifyoutakethatoutoftheequationgoingforward,wehaven'tprovidedanyspecificguidanceontaxrate,butwe'rebasicallysayingthatourtaxrate'sgoingtoberelativelyflatwithwherewe'recurrentlyat.SoIwouldn'texpectanysignificantuptickorreduction.


Okay.Andthenjust--that'sveryhelpful,Gary.Thankyou.Maybeafollow-uportwohere.OmarorGary,there'sbeenalotoffocusasyouknowonquarterlymarginperformancebutthenetthatwe'vegotfromseniormanagementisthatthere'salong-termmarginopportunityhere.Couldyoutalkaboutyourconfidenceandlong-termmarginassumptions?Whyyoubelievethatdouble-digitearningsprobablycansustainitselfforafewyears?

AndIthinkabouttheCovidiensynergynumberyougavetoday,$225millionto$250million,certainlygetsyoutoan$850millionnumberinafewyears,butitmaynotgetyouabovethat$850millionnumber.What'sgivingyoutheconfidencethatyoucandeliverthisdouble-digitearningsforlonger?


Anumberofthings.TheInvestor'sDay,thiswillbeacoresubjectbecausewewanttoexplainthistoyouindetail.Itstartswithourrevenuegrowth.You'vegottogettoourmidsingle-digitrevenueonaconsistentbasis.Otherwise,you'vegotabighilltoclimbhere.Revenuegrowthhastobesustainableandithastobeconsistent.Thatissomethingthatwe'refeeling,asIsaid,betterandbetterabout.

Havingsaidthat,thenweneedoperatingleveragelikeyousaid.Andthatintheshort-term,comesfromtheCovidiensynergies.ButwhattheCovidiensynergiesdo,isitbuildsaplatformforusfromwhichwecancontinuethesamework.Aswekeepgrowing,takingadvantageofourscale,inourfunctionalcostsprimarily,wethinkwe'vegotproductivitythathasalongtail,alongtailthatwecancontinuetodo.Andinadditiontothat,ourproductcostreductionwillalsohavegoodsustainabilityasweconsolidateourmanufacturingoperations,whichreallyhaven'tevenbuiltintoanyofthesynergiesatallinour$850millionnumberbecausewefeelthatthatwouldtakelongerthantheinitialthree-yearperiod.

Intheinterestofpreservingrevenueandnottakinganyrisks,that'swhywedidn'tjumpintothat.Whatitdoes,isitgivesuscontinuedsustainabilitybeyondthethree-yearperiod.Thosearethetwomainthings.It'sanareaofextremefocusforusandwethinkit'sveryimportantforustobuildaplanthat'ssustainableandthat'sdiversifiedinawaythatisreliable.Andwe'llwalkyouthroughalotofthoseatInvestorDay,butthat'sessentiallyourthinking.


Okay.Thankssomuch,Omar.I'lljumpbackinqueue.





Thanks,David.


We'llgotothenextquestion,please.

Operator :

OurnextquestioncomesfromthelineofDavidRomanwithGoldmanSachs.

DavidRoman (Analyst-GoldmanSachs):

Thankyou,andgoodmorning,everybody.IwanttogoovertotheCVGbusinessforasecondandmaybeyoucouldtalkinalittlebitmoredetailabouttheperformanceoftheTranscatheterValvebusinessandhelpusunderstandthepathtoreturningtomarkettypegrowthintheUSandmaybewhatyou'reseeingspecificallyfromanendmarketgrowthperspective,howthat'sevolvedsincetheACCandhighlightyourrelativecompetitivepositioning?


Goahead,Mike.

MikeCoyle (PresidentofCardiacandVascularGroup):

First,theoverallgrowthofthemarketisatthehighendoftherangesthatwehadbeenspeakingaboutinpriorquarters.Theglobalmarketappearstobegrowinginthemid-30s.Ourreportedgrowththisquarterisinthehigh20s.IthinktheprimarydifferencebetweenourgrowthandthemarketgrowthistheperformanceofthelargevalvesegmentoftheEvolutR.Wedon'thaveavailableyetthe34-millimeterversion.Whenwedogetthatproduct,wewouldexpecttobeabletohaveitsshareperformanceperformliketheotherthreesizesdoandprovideussharegrowthopportunities.Sothatwouldbetheprimarycurrentdynamic.

Intermsofoverallmarketgrowth,obviously,bothinternationalandUSgrowthiswellaboveasIsaidhighendofwherewehavebeenthinkingthemarketwouldgo.Wethinkthepositivedataintheintermediatesegmentthathasbeenavailable,A,fromacompetitiveandB,fromourownsubanalysisofourhighriskdatabodeswell(technicaldifficulties).Essentiallyanexpectationthatbythetimewegetto2021,weshouldbelookingatamarketthatisaround$4billionwithsomemodestpenetrationofthelowrisksegmentandofcourse,we'venowstartedclinicaltrialactivitiesinthatlowrisksegment.SoIthinkthatwouldbeourpictureofthemarketcurrently.


Okay.Andmaybejustafollow-upontheP&L.Clearly,you'veelectednottogivesegmentmargin,P&Lmarginguidanceormodelinghelp,whateveryouwanttocallitfor2017versuswhatyou'vegivenintheprioryear.Andgiventheinvestorfocusonthosemetrics,IwanttobeveryclearabouthowtothinkaboutthisforFY17,thatthecontextshouldbeessentiallystable-ishtomaybeslightlydowngrossmargins,leverageontheSG&Aline,youhavethisdynamicwithotherexpensegivingyoumodestreportedoperatingmarginexpansion,aflattaxrateanddownsharecountiswhatgetsyoutothe$460millionto$470million.ArethosetherightmovingpartstothinkaboutinthemodelforFY17?


That'sprettygood.

GaryEllis (CFO):




Yes,withoutgivinganymodelingviews--


Youfigureditout.

GaryEllis (CFO):

Ithinkyou'vesummarizeditwell.Again,we'retryingtofocusonwhatthetwoleversthatwearedriving,revenueandthebottomline,andtheleveragewetalkedaboutthere.Butyou'reright,toachievetheconstantcurrencyearningsgrowththatwehighlightedinhere,we'regoingtohavetocontinuegettingoperatingmarginimprovement,whichweexpectwithnotonlytheCovidienintegrationsynergiesbutclearlywithwhattheotheroperatingleveragecomponentswe'redriving.

Thegrossmargin,theonlycommentIwouldmaketoyourcommentsisI'mnotsosurethatthegrossmarginwillbedown.It'spossibleitwillbeonanasreportedbasisbecauseofFX.Buttherealityisweareexpectingsomeoftheoperating--excuseme,someofoursynergiestostarttobecominginthemanufacturingline.It'spossibleyoucouldseethegrossmarginbeingflattomaybeevenslightlyimproving.That'sprobablythebiggestfluctuationwesawhereinQ4,soIthinkyourassumptionsfornextyear,thewayyoulaiditout,isprobablynotabadassumptionrightnowuntilwecanactuallyshowthatwecanimprovethegrossmarginalittlebit.


Justtobeclear,Iwaslayingthatoutonasreportedbasisjusttoreflectthenumbersthataregoingtoendupinaconsensusbecausethat'swherewe'realsomyopicallyfocusedrightnow.That'swhyIwassayingdownonareportedbasis.

GaryEllis (CFO):

Iagree.


Butoperatingmarginsslightlybetteronareportedbasisyear-over-year.

GaryEllis (CFO):

That'sright.


Gotit.Thankyouverymuch.


Thanks,David.We'llgotothenextquestion,please.

Operator :

OurnextquestioncomesfromthelineofBobHopkinswithBankofAmerica.

BobHopkins (Analyst-BoAMerrillLynch):

Hello,thanksandgoodmorning.Canyouhearmeokay?





Yes.


Goodmorning.Sotwoquestions.Onelookingbackwardsandonelookingforwards.Firstlookingbackwards,Omar,I'dlovetogetyourtakeonsomething.Youguyshavereallybeenperformingverywellonthetopline,butoverthelasttwoquarters,youkindofstruggledtogettoyourgoalsonoperatingmargins.AndIjustwantedtogetyourtakeonthat.Isthisacasewhereyou'rejustnotquitegivingyourselfenoughroomwithguidancetoaccountforthenormalfluctuationsthatyouseeoraresynergiesmaybeyouexpectedalittlebitmore?Justwantedtogetyourtakeonthelasttwoquartersfromanoperatingmarginperspective?


Ithinkitreallyistheguidancebeingtootight.OurmainareaoffocusisoverallEPSandwefeltthatwithallthesemovingparts,thatwe'retobalanceandthengettoanEPSnumber.Thattightofaguidancethatwe'vetalkedaboutbeforewasreallydirectionalinbuildingtotheoverallEPSandifweknewthattherewasgoingtobethatmuchscrutinyontheoperatingmarginline,wewouldneverhavegivensuchatightrange.

Thesortsofthingsthathappened,therewasnowayinwhichwecouldhavepredictedthem.AndwiththingsliketheBellcoacquisition,anditsmath,wehadn'treallydonethataccuratelybecausewejustclosedtheacquisitionaweekbeforewedidourearningscall.Whenwelaiditout,someoftheseelementsbecameobviousandtherewerepressures.It'sabsolutelytherightthingtodoforthelong-termandit'sanextremelyaccretivepositivedealforus,butonanimmediatethree-monthbasis,youcangetsurprises.

Soreally,ourguidanceshouldhavebeenmorethoughtthroughandwereallyfeelthatmovingtowardsanEPSgoalistherightwaytolookatourCompany.Becauseit'sacompanywithalotofassetsandcapabilitiesandwethinkthatifitgrowsmidsingle-digits,deliverEPSleveragetoanextentthatgivesusdouble-digitEPSgrowth,return50%offreecashflowtoourshareholdersonaconsistentbasis,that'saprettygooddealifyoucandothatataconstantcurrencylevel.Gary,doyouwanttosayafewwords?

GaryEllis (CFO):

Bob,Ithinkyousaiditwell.Inhindsight,ifwewouldrealizehowmuchfocuswasgoingtobeontheoperatingmarginline,wewouldhaveprobablyclearlyhavegivenabroaderrangewhenweweretalkingaboutthatattheendofourQ3earningscall.30basispointrangethatwegaveonanasreportednumberwheretheFXandeverythingelsemoving,30basispointsis$20millionsomething.Soona$7billionCompanywithFXandalltheseothermovingparts,thatwasmymistake.Weshouldhavenothavedonethat.Butwedidn'trealizethefocuseveryonewasgoingtohaveonit.

ThereasonIthinkweweretryingtoaddressitandgetitoutthereforthemodelingwasexactlythat.It'snotthatwe'renotgettingthesynergies.Infact,ifanything,theCovidiensynergiesandtheotheroperatingleveragewe'regettingacrosstheorganization,wefeelverygoodaboutandwe'retrackingthatonaverytightbasis.It'stheothermovingpartsthatyougetfromalargeorganizationlikethisthatwegetspecificoncertainlineitemsiscreatinganissue.

Whatwe'retryingtodoasOmarsaid,isfocusonwe'redrivingthetopline.Wehaveplentyofleversincludingallthecostsynergiesthatwe'reachievingtodrivethebottomline.Butingeneral,there'sgoingtobesomemovingpartsinthemiddleandwewerewaytoospecificinQ3onthetightrangeontheoperatingmarginandthatwasmymistake.





Thesemovingparts,wehopetooffsetattheEPSlevelbecausethenthatgivesyouthefullflexibilitytobeabletodothat.Sothat'sthewayinwhichwearemodelingourbusiness.


Thankyouforthat.That'shelpful.Andthenoneotherquestionlookingforwardonthe2017guidance.First,areyougoingtoprovideanylongertermdirectionalguidanceattheAnalystDayonthesixth?Andthensecondly,itjustseemslikesincethelasttimeontheQ3call,yougavesomepreliminarythoughtson2017,anditseemslikewhatyou'redoingtodayisjustsortofnarrowingthatrangewithafewmovingpieces.

ButasIlookacrossthebusiness,thereareacouplethingsthatitwouldsuggesthavegottenbetter.You'vedoneadealthatlooksalittlebitaccretive.Youdidarefinancingthatlooksalittlebitaccretive.ImighthavethoughtthattheEPSguidancewouldbealittlebithigher.Ijustwonderifyoucouldcommentonthosetwothings?Anylong-termthoughtsandjustmaybesomethoughtsonthe2017guidance?


We'llcertainlydiscussthelong-termstrategyattheInvestor'sDay.Sojustholdonforaweekforthatone.Andintermsoftheguidance,look,likewejustmentionedearlier,therearealotofmovingparthereandwe'vebeenburnedbyFXbefore.Andsowejustwantedtobereasonableinourapproachandthat'sthemostaccurate.It'snotovertlyconservativenorisitovertlyaggressive,anestimatethatwegave.It'safairlybroadrangeandobviously,wedoourbesttomaximizeperformance.That'sreallythebestIcandotherewiththatrange.

GaryEllis (CFO):

Again,remember,Bob,attheQ3call,wereallydidn'tgiveanyguidanceforFY17.Wejustsaidrememberthesefactorsasfaraswhenyou'reputtingtogetheryourthoughtsforFY17andIthinkwebasicallyhavecomein.Asyousaid,wetightenedupalittlebitfromthatasfaraswherewe'reat.

FXhasbeenmovingaround.Youlookatitevenjustafewweeksago,itwasprobablynot$0.05benefitfromwhereweweretalkingabout,itwasgoingtobeasmuchasanother$0.03or$0.04higherthanthat.Butthenthedollarstrengthensagainalittlebit.We'rebeingsomewhatcautiousbecauseasOmarsaid,FXhascontinuedtobeaheadwindforusandweexpectthatinthenextyear.

You'reright,fromanoperatingperspective,thingsaregoingverywell.Therevenueisstrong.We'regettingtheoperatingleveragewewouldexpect.Butthere'salsoalotofstillmovingparts.Westillhavealotofintegrationeffortswehavetogetdone.We'regoinglivewithSAPinEuropefortheCovidienentitiesthisweek.Sothere'sjuststillalotofmovingpartsandwethinktherangewe'vegivenisconsistentwithwhatwecommunicatedbeforeandconsistentwithourlong-termstrategy.


Thankyou.


Thanks,Bob.Nextquestion,please.

Operator :

OurnextquestioncomesfromthelineofJoshJenningswithCowenandCompany.




JoshJennings (Analyst-CowenandCompany):

Hello.Goodmorning,gentlemen.Thanksfortakingthequestions.IwashopingtojustaskfirstquestiononorganictoplinegrowthguidancethatyouprovidedforFY17,it'salittlebitofatighterrangethanwe'reusedto.Clearly,you'reconfidentinthelowerendoftherange,northof5%.Canyouhelpusthinkabouthowyousetthetopendoftherangeat6%andwhetheryou'releavingsomeconservatismintheguidanceandwhatneedstohappeninordertogettotheabovethattopendoftherange?


Well,weneedtodeliverwhatwetalkedaboutfirstbeforewethinkaboutgoingabovethat.Firstofall,therangeistighter,that'strue.Andwedidemphasizethewordsgivencurrenttrends.Weareoverallcommittedinthemidsingle-digitrangeandwefeelthatgivenourperformanceandgiventhediversityofourportfolio,wecangettotheupperhalfofthatrangelikewe'vediscussed.Andweneedtofirstdeliverthatconsistentlybeforewetalkaboutmeaningfulupsidebeyondthat.

LikeImentionedinpreviouscalls,whatwilltriggeranythoughtofconsistentlydeliveringoverthatwouldbeifweoverachievedoneachofourgrowthdrivers,newtherapies,servicesandsolutionsandemergingmarketsforafewquartersinarow.Onlythenwe'llhaveconfidencethatmorethan6%issustainable.You'llgettheoddquarterwherewedobetter,butyouwillgetsomepressuresinotherquarters.SoIdon'twanttobankonthatyet.

Likeyousaid,itisatightrangeandit'ssomethingthatweinternallydiddebateabout.Butgiventrendsandthefactthatwe'vebeenholdingthatlevelofperformanceoverasignificantperiodoftime,makesusfeelreasonablyconfidentthatit'ssomethingthatwecanachieve.That'sIthinkthebestresponseIcangiveonthatone.


Okay.Thanks.Andjustaquestiononlonger-termmargins.AstheServicesandSolutionsbusinesscontinuedtocontributetotherevenuebaseandtoplinegrowthatmoremeaningfullevels,canyoujusttalkabouthowweshouldthinkaboutthatcontribution'simpacttomarginsaswemoveforwardintoFY17,FY18andbeyond?Thanksalot.


We'lllaysomeofthatoutattheInvestor'sDay.Butessentially,asyoupointout,ServicesandSolutionsnetoperatingmarginonitsownisusuallylowerthanwhatwegetfromadeviceperspective.However,inalmostallofthesetransactionsandagreementsthatwemake,thereisadevicecomponentthatgetsattachedtoitandwegetincrementaloverallrevenueandwefindthatoverall,ouroperatingmargindollarsgoupsignificantlyasaresultofthesetransactions.Andthenaswegoforward,weexpecttoseeproductivityfromthoseServicesandSolutionsarrangements,bothfromtheservicesthemselves,butalsofromhopefully,lowercostofsalesinsomeofthoseaccountsofsupportsales.

That'sthewaywe'relookingatit.It'ssomethingthatwefeelthatwehavetocoverinouroverallmodelandyetdelivertheEPSthatwe'retalkingabout.Andthat'swhatwe'refocusedonanduseeveryothervariablethatwehavetocoverforthat.Becausewedothinkthattheservicesandsolutionsgivesusasustainablelong-termgrowth,whichisverysticky.Andbesidesthat,it'ssomethingthatourstakeholdersandcustomerswant.Soit'ssomethingthatwe'regoingtomanagefromouroverallbusinessperspectiveandnotgettoolineitemfocusedonthatone.Doyouguyswanttoaddanythingtothat?

GaryEllis (CFO):

Ithinkyousaidit,Omar.Inandofthemselves,theServicesandSolutionsbusinesshasalowermargin




justbyitsverynature.Buttherealityisthere'sbenefitsthatalsobenefittherestoftheCompanyfromthoseServicesandSolutionsthatactuallycanpotentiallyhelpleveragesomeofthemarginsonthosetypeofequations.It'salittlebitofaheadwind,especiallyhereinthenear-term,asOmarsaid.

Aswegetmoreefficientatit,wegetmoreproductivityoutofit,ingeneral,wedon'tthinkitwillhaveahugeimpactonouroveralloperatingmargins.Andobviously,itwillhelpsolidifyandgiveusmoresustainabilityinouroverallrevenuegrowthandeveninouroverallshares.So,wefeelgoodabouttheprospectoverallandhowitincreasesthebottomlinegrowth.Butyou'reright,inandofthemselves,thosecontracts,theServicesandSolutionscomponenthasaslightlyobviouslylowermarginthantherestofthebusiness.


Ithinkthatisanimportantpoint,ifIcanjustfollowup,justtogiveyouspecificity.WejustdidthisacquisitionofNOKintheNetherlands.That'sabusinesswhichdoesbariatricsurgeryaswellasothersupportareas.Andthenetoperatingmarginofthatbusinessislowerthanouraveragebutreasonable.

Whenyoulayerinoursurgicaldevicesintothosecontractsonaconsistentbasis,thatdrivesupourvolumeonveryhighmargindevices,whichgetscoupledtothistransactionandthereforeincreasestheoverallmarginratesignificantlyinthosekindsofaccountsfromwhatNOKoriginallyhad.Andsothat'sthekindofthingthatwethinkwecanscalearoundtheworldandgetsignificantbenefit.


Great.Thanksforallthedetail.Thankyou.


We'lltaketwomorecallers,please.Nextquestion.

Operator :

OurnextquestioncomesfromthelineofMattTaylorwithBarclays.

MattT aylor (Analyst-BarclaysCapital):

Thanksfortakingthequestion.Justwanttogobacktoyourearliercommentsaboutsurgicalvolumes.Iwascuriousifyouhadanythoughtsaroundwhat'sdrivingtheincrementalimprovement?Isiteconomyorcoverageorproducts?Whatdoyouattributesomeofthatimprovementto?


Well,giventhatitisconsistentwithwhatallthehospitalsarereporting,I'vegottosaythattheoverallhealthcaredemandifyoulikeintheUS,issomethingthatisonanupwardtrajectory.That'sgottobethefundamentalreasonandit'sprobably--someofitisjustnaturaldemographicswhichprovidesthis.

Theotherisprobablywe'reseeingsomeoftheimpactoftheAffordableCareActandalloftheinitialpiecesofincreasedcoveragemighthavebeenmoreupstreaminnatureindiagnosticsandsoon.Someofthesewillleadtomoreprocedures.ThosearetheonlythingsthatIcansortofintelligentlytalkabout.Otherthanthat,justwhatweexperienced.

Itisnotsomethingthatiseasytopredicttobefairandwelookatallkindsofdifferentfactorsandthendothebestwecan.Wehaveleadingindicators.Wetalktopeopleandwegetasenseforit,buteverythingelsethatIjustsaidwasclosetoconjectureonmypart.




BryanHanson (PresidentofMinimallyInvasiveGroup):

Iwouldsaythesame.It'sverydifficulteventoget--you'vegottogotodifferentdatapointsandtriangulatejusttogetasenseforwhat'shappeningtothevolumestogodeeperlevelthanthatandunderstandwhyit'sdifficulttomakeassumptions.It'sverydifficulttopinpointthespecificreason.

TheotherthingIwouldreferencebeyondjusttheincreaseinoverallvolume,theotherthingthatwe'reseeingisamixshift,amuchgreatergrowthintheMISproceduresversusopen.AndthisisprettyconsistentwhenIlookatotherplayersinthemarketplaceandIlookattheirrevenuegrowthinthequarter.

SoI'mreallyhappyaboutthatandtruthfully,that'sprobablythebiggeropportunity,asmalluptickinsurgicalvolumesintheUSversusarealchangeinmixshifttoMIS.I'llgowiththemixshifttoMISalldaylong.Andthat'sprettyconsistent,again,withwhatwe'veseen,whatourrepsaretellingus,andwhatwe'reseeingfromothercompaniesthatareplayinginthesamespace.Thattomeisreallythestory.


Thanks.AndjustoneonSpine.Youdidalittlebitbettertherethisquarter.Youwereflat.Canyoutalkaboutyouroverallstrategythere?YourecentlyannouncedthisdealwithMazor.CanyoutalkaboutsomeproductsflowandotherimprovementsthatcouldhelpSpinethisyear?


Sure.Wedetailedsomeofthatinthecommentary.I'llletGeoffcommentonthatdirectly.Sogoahead,Geoff.

Geof f Martha(PresidentofRestorativeTherapiesGroup):

Sure.SohittingtheMazordeal,weareveryexcitedaboutthat.ThatisI'llcallitonelegofamulti-prongedstrategyaroundwhatwecallsurgicalsynergies.Andwefeelaswemoveoutintothefuture,thesesurgicalsynergieswillbeinSpine,ourcallingcard.We'vegotverystrongenablingtechnologyplatformsinnavigationandimaging.We'reexcitedaboutthepartnershipinroboticswithMazor.

Andthenintegratingtheseplatformsaswemoveforward,toprovideadiffer--todifferentiatespineprocedures,botheconomicallyandclinicallyandthesurgeonexperience,lowradiation,justaneasiersurgicalprocedures,etcetera.WethinkisgoingtodifferentiateourSpinebusiness.Andsoasyoumoveforward,andthisisnot--thisisn'tfiveyearsfromnow.Thisisgoingtotakeplacequarter-over-quarteraswecontinuetoemphasizethis.Sothisissomethingwe'reveryexcitedabout.

Andaswemoveforward,outsideofsurgicalsynergies,wedohaveanumberofproducts.StartinginourFY14,FY15,ourSpinebusinessputalotofeffortintorevampingtheproductportfolio.Andtheproductsthatarehittingthemarketnow,ourElevatecageforexample,Voyager'sanotherone,andthisquarterlaunchingournewOLIFprocedures,I'mcallingthemoursecond-generationOLIFprocedures,we'regettingaterrificuptickinthesethings.Myonlyregretisthattwoquartersagowhenwewereplanning,wedidn'tplanaggressivelyenough.BecauseIthinkwe'rehittingourmaximumwithsetsandifwehadmoresetswe'devenseemoregrowth.

That'ssomethingthatwe'retakefactoringintoourplanninggoingforwardistobealittlebitmoreaggressive.Butbothfromaproductstandpointandfromwhatwecallsurgicalsynergiesstandpoint,thingsarelookingverygoodforourSpinebusinessrightnow.Asyoupointedout,everyquarterwe'veimprovedoverthelastfivequarters.Andit'sabigshift,takesalittlebitoftimetochangethedirectionandyoushouldcontinuetoseecontinuedimprovementquarter-over-quarter.





Thanks.


Thanks,Matt.We'llgotoonemorecaller,please.

Operator :

OurfinalquestioncomesfromthelineofKristenStewartwithDeutscheBank.

KristenStewart (Analyst-DeutscheBank):

Hello.Thankseverybody.HopeyouallhadahappyMemorialDayweekend.Ihadacoupleofquestions.JustwantedtogobacktotheRTGandthenewreportingdivisions.Isthereanythingtobesaidforjustthefourdifferentbusinesses?Isitmorejustalignmentwiththeunderlyingsurgeonsorisitjusttofacilitatemaybebetterstructuretoimprovetheperformance?Howshouldwethinkaboutthis?I'mjustkindofcuriousifithasanythingtodowithjustperhapsisolatingSpineandperhapsthinkingaboutitasmaybelesscore?


No,actuallyit'snotisolatingSpine.Theotherwayaround,actually.There'sacouple--Kristen,there'sacouplechangesgoingonandwe'llgetintothisnextweek.Justsummary,one,movingintothesedifferentreportingdivisionsisreallyputtingthebusinesses,organizingthembydiseasestateorconditionversustechnology.

AndtheexampleI'llgiveisNeuromodulation.Thatwasabusinesslargelyheldtogetherbasedontechnologyandplanablestimulator.Andfromwhetheritbegastroeuro,whichwe'renowcallingpelvichealth,orwhetheritbeDBS,orpainstim,they'reallcallingondifferentphysicians,specialitiesandwereallyfeltwewouldgetmoretractionifweorganizedbydiseasestateversusbytechnology.So,that'sgoingtohelpusone,focusonthephysiciansappropriatelyandtwo,innovate.Becausewhenwe'reinnovating,we'relookingacrossthediseasestateandacrossthecarecontinuum,rather.That'sonechange.

AndtheotherchangethatOmarmentionedinthecommentarywasmovingtothisgeneralmanagerstructure.Sothatgetstomoreexecution.AndthisissomethingthatCBGhasdoneoverthelastfouryears,fiveyears,whereyou'rehavingGM's--generalmanagers,thatare100%focusedontheindividualtherapysegmentthattheyserveandthoseproductswithinthattherapysegment.Andsomakingyourbusinessesmoresmaller,morefocusedandgranular.Sothat'sanothercomponentofthat.

Andthenalongwiththis,wehavefairlysweepingleadershipchangesacrossRTG.AndmanyoftheleadersthatareyounowrunningthegrouparetopperformersfromotherpartsofMedtronic.Andsocombinedwiththedifferentstructureanditsdiseasestate,organizationwiththisGMstructuretodriveinnovationandnewplayers,provenplayers,fromotherareasinMedtronic,wefeelverygoodaswehitFY17.


Andagain,toclarifytheSpinecomment,look,there'saspecificSpinecustomer.Theonlythingthatwedidwasremoveinterventionalfromitandthatisnotthesamecustomer.ItmadealotmoresensetogroupthattogetherwithPainwherewehavealotofassociatedtherapiesandweweremissingthebigpicturelookatPainbysplittingupallthedifferentverysignificantnon-opioidtherapiesthatwehad.This




wasreallyadisease-basedlookandalookatourcustomersandthatwilldriveinnovationanditwilldriveaclearerpictureofhowwegotomarketwithoursalesforce.Andthen,itfinallyleadstovalue-basedhealthcare,drivingforoutcomes,that'stheonlywayinwhichyou'regoingtodoit.


AnotherthingonSpine,regardingsurgicalsynergies,asyouknowtheenablingtechnologyplatformssitinwhatwehistoricallycallthesurgicaltechnologies,whichthatcomponentofitisnowinourBrainbusiness,soNAVandimaging.Weactuallybuiltasmallsurgicalsynergyteam,whichisabridgebetweenthatbusinessandourSpinebusinessandlookingatanintegratedtechnologyroadmapbyprocedureaswemoveout.AndthatalsoworksforDBSaswell.

Sobefore,wehadtwoseparatebusinessesthatweren'tlinkedquitecloseenoughinmyhumbleopiniontodrivethesurgicalsynergybenefit.Soweputasmallteamthatincludesmarketingaswellasengineeringtalenttodrivethatintegratedtechnologyroadmapandthatvalueproposition.

SojustinQ4alone,wehad15newcombinedcapitalequipmentSpinecoremetaldeals,whichissignificantlymorethanwe'vehadinthepriorthreequarterscombined.Andthisissomethingthatisaresultofthat.Andaswemoveforward,you'llseethetechnologyroadmapmoreintegrated.Sowe'veactuallybuiltalittlebitofabridgebetweenSpineandourcapitalequipmentbusiness.


SotakingthestructurethatwassuccessfulwithCBGandoverlayingthatto--


Absolutely.


Andthenjustafollow-uponDiabetes.Isawtodaytheannouncement,orIguessitwaslastweek,withQualcommwiththetype2diabetes.MaybeifyoucouldjusthaveHoomanexpandalittlebitmoreonthat?It'sbeeninterestingtoseemoreoftheemphasisontype2.Thisseemstobeveryearlystage,butwhenmightaproductlikethiscomeoutorjusthowshouldwethinkaboutwhattoIguesslookforwardtonextweek?


Sure.Hello,Kristen.Look,wecontinuetobeexcitedaboutandfocusedonourtype2business.Thisisanewbusinessunitthatweputinplacealittleoverayearagoandwe'lltalktoyouabouttheproductroadmapnextweekattheInvestorDaysession,soyou'llgetmoreinsightthere.Butsufficeittosaythatourfocuswithintype2,first,thetype2populationis90%ofallpatientswithdiabetes.Soit'sahugemarketopportunity.

Whenyoutakealookatthose90%ofthepatients,whatwehavedecidedtofocusonisreallymonitoringthose90%.Wecouldhavegonetherouteofinsulindeliverybecausethat'salsoacorecompetency,butinsulindeliverywithinthattype2populationonlyaddressesabout10%ofthat90%.Thebroaderopportunityiswithinmonitoring.AndwhatyouseewithQualcommLife,whatyou'reseeingwithiPro2andournewpatternsnapshotcapabilitiesarereallyoureffortstobringmoreandmoreadvancedmonitoringsolutionstothosetype2patients.

Andattheend,ourgoalisn'tjusttodeliverasensortothosepatientsorjusttheproduct,it'sreallytodeliveranintegratedsolutiontothosepatientswherewebringnotjustatechnology,butcapability




throughanalyticsandinsightsthatcangivethosepatientsactionableinformationsothattheycanbettermanagetheirdiseaseandalsotodothesamethingforphysicianswhoaremanagingthosepatients.Sowe'rereallyexcitedabouttheopportunity.Asyousaid,we'rejustgettingstarted,butwethinkthere'satremendousamountofrunwayinthisbusiness.


Thanksverymuch.


Thankyou.


Okay.It'stimetoclosethecallouthereandI'dliketoremindyouthatweplantohostourInvestorDaynextMonday,June6,inNewYorkCity.Welookforwardtohavingmoredetaileddiscussionswithyouonourplanstodeliveronthesestrategiesthatweoutlinedtoday.AndI'dalsoliketonotethatweanticipateholdingourQ1earningscallonThursday,August25.

Andfinally,inconclusion,aswe'venoted,wecontinuetofocusondeliveringconsistentmidsingle-digitconstantcurrencygrowth,strongEPSleverageandreturningaminimumof50%offreecashflowtoourshareholders.FY16wasindeedasuccessfulandtransformativeyearforourCompanyandlookingahead,wefeelwe'rewellpositionedtoparticipateandleadinthetransformationtovalue-basedhealthcare,whichcanultimatelycreatelong-termdependablevalueforourshareholders.

Andwiththat,andonbehalfofourentiremanagementteam,I'dliketothankyouagainforyourcontinuedsupportandinterestinMedtronic.Thankyouandallofyoupleasehaveagreatday.Thanks.

Operator :

Thankyou.

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Medtronic (MDT) Earnings Report: Q4 2016 …Medtronic (MDT) Earnings Report: Q4 2016 Conference Call Transcript The following Medtronic conference call took place on May 31, 2016,