Medtronic plc (NYSE:MDT) Q4 2024 Earnings Call Transcript

Medtronic plc (NYSE:MDT) Q4 2024 Earnings Call Transcript November 21, 2023

Medtronic plc beats earnings expectations. Reported EPS is $1.25, expectations were $1.18.

Ryan Weispfenning: Good morning. Welcome to a crisp fall morning here in Minnesota. I’m Ryan Weispfenning, Vice President and Head of Medtronic Investor Relations. And I appreciate that you’re joining us this morning for Medtronic’s Fiscal ‘24 Second Quarter Video Earnings Webcast. Before we go inside to hear our prepared remarks, I’ll share a few details about today’s webcast. Joining me are Geoff Martha, Medtronic Chairman and Chief Executive Officer; and Karen Parkhill, Medtronic Chief Financial Officer. Jeff and Karen will provide comments on the results of our second quarter, which ended on October 27, 2023, and our outlook for the remainder of the fiscal year. After our prepared remarks, the Executive VPs covering our segments will join us and we’ll take questions from the sell-side analysts that cover the company.

Today’s program should last about an hour. Earlier this morning, we issued a press release containing our financial statements and divisional and geographic revenue summaries. We also posted an earnings presentation that provides additional details on our performance. The presentation can be accessed in our earnings press release or on our website at investorrelations.medtronic.com. During today’s program, many of the statements we make may be considered forward-looking statements, and actual results may differ materially from those projected in any forward-looking statement. Additional information concerning factors that could cause actual results to differ is contained in our periodic reports and other filings that we make with the SEC, and we do not undertake to update any forward-looking statement.

Unless we say otherwise, all comparisons are on a year-over-year basis, and revenue comparisons are made on an organic basis, which excludes the impact of foreign currency and second quarter revenue in the current and prior year reported as other, which stems from prior business separations. There were no acquisitions made in the last four quarters that had a significant impact on total company or individual segment quarterly revenue growth. References to sequential revenue changes, compared to the first quarter of fiscal ‘24 and are made on an as-reported basis, and all references to share gains or losses refer to revenue share in the third calendar quarter of 2023, compared to the third calendar quarter of 2022, unless otherwise stated.

Reconciliations of all non-GAAP financial measures can be found in our earnings press release or on our website at investorrelations.medtronic.com. And finally, our EPS guidance does not include any charges or gains that would be reported as non-GAAP adjustments to earnings during the fiscal year. With that, let’s head into the studio and hear about the quarter.

Geoff Martha: Hello, everyone, and thank you for joining us today. Q2 was another good quarter for us as we executed and delivered mid-single-digit revenue growth. The underlying fundamentals of our business are strong, and our growth was broad-based across multiple businesses and geographies, with cardiovascular, neuroscience, and medical-surgical all growing mid-single-digits, and diabetes accelerating to high-single-digit growth. Our new product launches are performing well and driving growth across many businesses. And we look ahead to the back half of our fiscal year, those launches, combined with several recent regulatory approvals, give us confidence in our ability to continue delivering dependable growth. And at the same time, we’re executing on our comprehensive transformation, including enhancing our global operations, quality, and supply chain.

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Q&A Session

And we’re decisively allocating capital into fast growth medtech markets and fueling innovative technologies in areas like robotics, AI, and closed-loop systems that will drive our growth over the next decade. We’re forging the path to durable growth as we execute on the actions needed to create long-term value for our shareholders. So now let’s get into the details behind our Q2 results. We continue to look at our portfolio of businesses in three categories: Established market leader businesses; synergistic businesses; and highest growth businesses. Looking first at the established market leaders, we had very strong performances across Cranial & Spinal Technologies, Surgical, and Cardiac Rhythm Management. Combined, they made up just under half of our revenue and grew 6% organic again this quarter.

Starting with Cranial & Spinal Technologies, continued adoption of our AiBLE ecosystem is driving consistent above-market growth. In Q2, we grew 7%. Digitization is transforming the competitive landscape in spine, and we’re leading the way with AiBLE. With our global footprint of over 10,000 systems, over 10,000 systems, we’re over 4 times greater than the nearest competitor. We are the first and only solution with integrated AI-based surgical planning with unit adaptive spine intelligence. Our Mazor robotic system is the first and only to offer bone cutting, a feature that was well received when we unveiled it at the North American Spine Society Conference in Los Angeles just last month. And we remain the clear leader in the intraoperative imaging and navigation space with our Oarm and StealthStation Technologies, both of which grew double-digits in the quarter.

As surgeons adopt AiBLE and we continue to expand our sales teams and invest in future innovation, we expect to maintain our leadership and extend our share gains in spine. Now moving to surgical, we grew 6% here. There was broad-based strength across our surgical franchise. Hernia and electrosurgery both grew in the double-digits on strong sales of our ProGrip and Dextile mesh and ValleyLab smoke evacuation systems. Advanced stapling and wound management both grew mid-single-digits. Cardiac Rhythm grew 4% with high-single-digit growth in cardiovascular diagnostics and cardiac pacing. In pacing, our micro-leadless pacemaker franchise grew 13%, driven by our U.S. launch of our next generation micro AV2 and VR2 devices. We’re also seeing strong growth in conduction system pacing, an alternative to traditional single or dual chamber pacing.

Our 3830 lead, the only approved lead for this novel form of pacing, grew strong double-digits again this quarter. And late in the quarter, we received FDA approval for our Aurora EV-ICD system, a game changer for the single chamber ICD space. Now we’re ramping up our training of implanting cardiologists on the Aurora technology. So Aurora delivers the benefits of a traditional ICD, including similar size, longevity, and pacing features, but without the leads in the heart or veins. And these benefits can be realized with one device and only one implant procedure. And just to drive this point home on size, there’s a big difference here versus the competitor’s device, and I mean big. Here’s an x-ray of an Aurora EV-ICD patient with the competitors right next to it just for comparison.

So in addition to all the clinical benefits of our EVI-CD, you can see that it’s meaningfully smaller and of course lighter than the competitors. And here’s the model that we’re giving our reps to explain the difference to customers. Now this is the size of the competitor’s device. And we can actually pop out the Aurora to show how much smaller it actually is. So it’s like those nesting dolls, except here we just pop out. We start with the big guy and then we go right to the small guy. So let me pop this out. So you see inside the model, here’s Aurora. Much smaller, much lighter. And speaking of weight, we actually had to put a series of weights inside of here to get the bigger device to exactly replicate the weight of our competitors. So we’re really excited about this as we’ve got a meaningfully better option for patients.

Our advantages will not only displace the competitor’s device, but will expand the population far beyond the existing segment. We think this can grow to become a billion-dollar plus segment. Turning to our Synergistic businesses, combined, they grew mid-single-digits in Q2. And we had several standout performances. Aortic grew 9% on strong momentum in our Endurant AAA franchise following the 10-year real-world durability data presented at the Charing Cross Symposium earlier this year. Our coronary business grew 6% as we gained share in international markets on the continued rollout of our Onyx Frontier drug-eluting stent. Cardiac surgery grew 9% driven by strength in perfusion and cannula, as well as the Nautilus ECMO Oxygenator. Our endoscopy business grew 13%, driven by continued adoption of GI Genius.