Source: Seeking Alpha
Medtronic, Inc. (NYSE:MDT)
Q1 2015 Earnings Conference Call
August 19, 2014 08:00 AM ET
Jeff Warren – IR
Omar Ishrak – Chairman and CEO
Gary Ellis – CFO
Mike Coyle – President of our Cardiac & Vascular Group,
Chris O’Connell – President of our Restorative Therapies Group
Hooman Hakami – President of our Diabetes Group
Mike Weinstein – JPMorgan
Matthew Dodds – Citi
David Lewis – Morgan Stanley
Kristen Stewart – Deutsche Bank
Bob Hopkins – Bank of America
Bruce Nudell – Credit Suisse
Matthew Taylor – Barclays
Josh Jennings – Cowen & Company
Larry Biegelsen – Wells Fargo
Good morning. My name is Vanessa and I will be your conference operator today. At this time I would like to welcome everyone to the Medtronic First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator Instructions).
Thank you. I would now like to turn the call over to Mr. Jeff Warren. Please go ahead sir.
Thank you, Vanessa. Good morning and welcome to Medtronic’s first quarter conference call and webcast. During the next hour, Omar Ishrak, Medtronic Chairman and Chief Executive Officer, and Gary Ellis, Medtronic Chief Financial Officer, will provide comments on the results of our fiscal year 2015 first quarter which ended July 25, 2014. After our prepared remarks, we will be happy to take your questions.
First, a few logistical comments. Earlier this morning, we issued a press release containing our financial statements and our revenue by business summary. You should also note that some of the statements made during this call may be considered forward-looking statements and that actual results might 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 filed with the SEC. Therefore, we do not undertake to update any forward-looking statement. In addition, the reconciliations of any non-GAAP financial measures are available on the Investors portion of our website at medtronic.com. Also, unless we say otherwise, references to quarterly results increasing or decreasing are in comparison to the first quarter of fiscal year 2014 and all year-over-year revenue growth rates are given on a constant currency basis. And finally, today’s earnings call does not constitute an offer to sell or the solicitation of an offer to buy any securities or solicitation of any vote or approval.
In connection with the proposed Covidien transaction, Medtronic Holdings Limited has filed with the SEC a registration statement on Form S-4 that includes a preliminary joint proxy statement of Medtronic Inc. and Covidien plc that also constitutes our preliminary perspectives of new Medtronic. The registration statement is not complete and will be further amended. After the registration statement has been declared effective by the SEC, the final joint proxy statement perspectives will be mailed to Medtronic shareholders and Covidien shareholders. You should review materials filed with the SEC carefully as they will include important information about regarding post transaction including information about Medtronic and Covidien, the respective directors, executive officers and certain other members of management and employees who may be deemed to be participants in the solicitation of proxy in favor of the proposed transaction.
Please also review the disclaimer page at globalmedtechleader.com for additional information on forward-looking statements and other important information on the proposed transaction. With that, I am now pleased to turn the call over to Medtronic Chairman and Chief Executive Officer, Omar Ishrak.
Good morning and thank you, Jeff, and thank you to everyone for joining us today. This morning we reported first quarter revenue of $4.3 billion, which represents growth of 4% and Q1 non-GAAP diluted earnings per share of $0.93, growing 6%. Our Q1 revenue growth is in the middle of our outlook range for the year and within our mid-single-digit baseline goal. Our overall organization again delivered balanced growth with strong performances in some areas offsetting challenges in other parts of our business. Significant this quarter was our performance in the U.S. where we grew 6%, the highest growth in this region for five years. We believe mid-single-digit growth in the U.S. can be sustained over the coming quarters based on the momentum of our new products.
Therapy innovation contributed over half of our global growth this quarter. When combined with our focus on globalization and economic value, further enhanced by our pending acquisition of Covidien, we are well positioned to further improve our competitive position and long-term growth profile. As we have done previously, we intend to quantify, communicate, and execute in each of our independent growth vectors. Our new therapies growth vector contributed 200 basis points to our overall growth in Q1, which was well within our previously stated expectations of 150 basis points to 350 basis points.
As I mentioned earlier, execution on several key new product launches helped drive growth this quarter. And looking ahead, we believe our robust pipeline will contribute significantly to our future growth.
Starting with the cardiac and vascular group, our Reveal LINQ miniaturized cardiac diagnostic monitor along with strong above-market performance in AF Solutions are driving clear growth acceleration. This helps propel our cardiac rhythm and heart failure business to 4% growth, a level of performance that we have generally not seen since the core implantables markets slowed down four years ago.
Over the past few years, the cardiac rhythm and heart failure team has systematically executed on a strategic plan delivering multiple new attractive growth drivers, including AF and heart failure management products and services, predictive diagnostics and deep miniaturization technologies. All of these growth drivers are clearly resonating in the marketplace more than offsetting pricing pressures in the more mature parts of the business.
Another highlight in Q1 was the strong execution by our structural heart team on the ongoing U.S. launch of CoreValve transcatheter valve. With the patent dispute behind us, our team is now laser focused on what really matters ensuring more patients have access to this life-saving therapy. The early results have exceeded expectations as we have been aggressively opening new accounts and have captured over 40% of the U.S. market in just two quarters of launching CoreValve.
Looking ahead in our Cardiac and Vascular group, we will launch our recently approved Attain Performa quadripolar lead system in the U.S. in the next few weeks, which coupled with our proven AdaptiveCRT algorithm, is expected to improve while U.S. High Power share as it already has in Europe and Japan. We also continue to make progress in a number of other meaningful products in our pipeline, including our SEEQ cardiac diagnostic patch, CoreValve Evolut R Transcatheter Valve, Resolute Onyx drug eluting stent, IN.PACT Admiral drug-coated balloon, and Micra leadless pacemaker. It is worth noting that in Q1, we realigned our four CVG businesses into three business units organized around disease states with a specific focus on comprehensive disease management.
These changes allow us to better capitalize on important trends in our global markets, including the general trend among global reimbursement models to focus increasingly on disease outcomes versus discrete episodes of care, the growing importance of longitudinal patient management in the cardiac rhythm and heart failure space, the increasing level of collaboration between physician specialties and the newly formed heart teams in the coronary and structural heart market, and finally the growing focus on new technologies for peripheral vascular disease management in the aortic and peripheral market.