Medtronic plc (MDT) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the JPMorgan Healthcare Conference. I'm Robbie Marcus, the medtech analyst here. I'm very happy to have Medtronic presenting this morning. And warm welcome to Omar Ishrak, the Chairman and CEO. Omar?

Thanks, Robbie. And I'm only Chairman and CEO for the next 3 months, I think. But it's great to be here and talk to you. This is going to be my last presentation at the JPMorgan, but it's been a real pleasure talking to this group and everything that we've learned from you. But the most important thing is that I remain as excited as ever about Medtronic and where it can go in the future, and I'd love to share where we stand today and why I'm so excited about it. First, the forward-looking statements. I mean this is in our website. So please take a look if you need to, but I'm going to move on. This is background on Medtronic, and I think most of you know this. But really, I want to draw your attention to 2 of the most important numbers in this page. The first is the 75 million lives that have been improved in FY '19. We actually have made an impact to 75 million people in 1 calendar year. And that is a big number. And one of the things that I perhaps am most proud about, about my time at Medtronic is when I started, that number was close to 20 million a year. So we made a difference. And this is a yearly number. The second most important number on this page is the $2.3 billion we spend in R&D. And that's the number we want to grow and that's driven now through high productivity in R&D, which has created, as I'll talk about in a few minutes, the broadest and most robust and deepest pipeline that Medtronic has ever had. And so those are the 2 biggest things. And then the rest, you can see. We got 90,000 employees. We have $30.6 billion in revenue. We're in 150 countries and so on. But that's really -- if you want to think about Medtronic, think of those 2 things. And then the revenue and all that stuff follows and the earnings. Now I will talk today about our pipeline a lot and -- because I do think that this company is in a stage where it can really go to the next level of sustainable growth, driven by product innovation and product innovation that's meaningful and that makes a difference to patients everywhere in the world in a way that we think that the payment mechanisms and so on will follow because many of these innovations are that disruptive and new markets are being created, and I'll talk quite a bit about that. In addition to that, we worked hard to create a broad presence in emerging markets. And as these products come out, the U.S. or the developed world aren't the only places where there are patients. In fact, there are more patients in emerging markets. And the presence that we've got in emerging markets, we think, give us an acceleration of that growth that we get simply from the new product introduction. And on top of that, the company today is positioned financially in a fairly -- in a strong position with strong free cash flow conversion. And I will talk about how we are doing capital allocation, and our commitment here is that we will -- we were targeting an 8% EPS growth over a planning period, but equally importantly, that number grows as -- in terms of total shareholder return when you add in the dividend as well. So we need to execute obviously, but I can tell you that we've started to build a track record of consistent execution, and we intend to continue that. And that layered onto the best and strongest pipeline we've ever had will create a platform and this company will go to the next level of performance I've got absolutely no doubt. So with that, let me talk about innovation and how we think about innovation. Now the first row over here talks about continuous innovation and continuous innovation is essentially pretty unique to medtech, in general. Because medtech -- we create markets as I'll talk to in a minute. But then once we create a device that creates a brand-new market, then that device continues to enhance over time through yearly or periodic modifications that are based on user input, our own knowledge, our own technology growth. And that's something that continuously happens and something that we can never forget. And that is actually the bulk of the products that come out because these are base products that have been created. Initial clinical trials have been done and then continuous innovation being done on a rapid basis. Now that's not without any meaning in the sense that each of those innovative products have to have demonstrated clinical and economic value. And in medtech, we can actually prove that. And so that really differentiates the medtech industry from other health care sort of technology areas because it is something that goes on. And then we create new markets. And here, you can see a list, everything from renal denervation to a fully implantable LVAD, which we're working on. All of these, you can imagine, without me talking too much about it, will create brand-new markets. We'll provide therapies to patients today, where those patients have no hope, have no other avenue of treatment and -- or much more worse avenue of treatment. And these will create new markets. And once we create the new markets, then they will go into a cycle of market expansion and they'll go into a cycle of continuous innovation. And once that period goes on, then we disrupt. And there's no better example of that than the Micro product, and I'll talk more about that in a minute, where -- which has disrupted the pacemaker itself sort of decades after that it was initially launched. And it went through a period of market expansion and continuous innovation. But there's a whole series of disruptive products and platforms that we're -- that's in our pipeline that I'll talk to in a minute. So that's the way in which we think about innovation. Continuous innovation, inventing new markets, and then eventually, after a period of continuous innovation, disrupting those markets with new technology. And you can see from this statement why that R&D spend is so important for us and R&D spend, which is then geared towards making a real difference in patients. So with that, let me go on to our robust pipeline. And I won't spend too much time on this chart, but you can see why I say it's a broad and deep pipeline. We have products that are driving growth now, which have been recently launched. We have been -- we have products across our different groups that will launch in the coming quarters and -- within the next fiscal year or so and then there's products which are beyond that, well beyond that. So you can expect from us a pipeline of products, which is not temporary. This is going to go on over multiple years. So let me start with a few clear examples. And the TAVR, which is the transcatheter aortic valve replacement device is an interesting example because in my time at Medtronic, I've seen this product being launched and created a market and being one of the biggest growth vehicles for us in the industry. And we -- I've seen this product being initially launched and then through a period of continuous innovation get better over time and expand into new markets. The [ low risk ] is the latest one. And now we're looking at bicuspid data. The ACC in March will further expand this market. And at the same time, we're doing continuous innovation like the Evolut PRO+, for example, which is launching now. In addition to that, in this space, we're also working on a transcatheter mitral valve replacement product, which will address an even bigger market. And that product now is in the middle of clinical trials. The APOLLO trial is for a transapical approach, on which we have done significant numbers of patients and we are pretty excited about the results, but we are also working on a transfemoral approach. And that will soon be integrated into this trial. So this is something that we think we're leading in, and something that will also create a parallel market, which is even bigger than the aortic valve market, which we started only a few years ago. Moving on, Spine is a great story for us, a business which is now growing and one -- a big growth driver for Medtronic. And that -- the story here is that the spinal implant integrated with our enabling technologies has moved the needle for us in that whole business and enabling technologies, really the driver for that was a robot. But once we have put the robot in, which had -- the Mazor robot, which has acceptance. Once we then integrated that with our stealth navigation system and we start to use that in conjunction with our O-arm and we have a pipeline through which this product will get refined with further and further integration, that together with continued innovation in our implants, things like the Titan interbody implant, which we just launched, which is an organic, but that will be an organic growth driver in the future. These things together will give us a real leadership position and -- more than leadership, a growth position in the spinal market, including enabling technologies. So we're really excited about this, and I'm really thrilled to see what has happened to this business, which at one time was not growing and now is one of our key growth drivers. And the success of the Mazor robot is also something that we're pretty proud about. Moving to robots more. We come to surgical robotics in general surgery. And we talked about -- we have not talked about in a fair amount of depth with our -- about this robot that we're going to be -- general surgery robot, which we'll be launching shortly. And we're working this. The progress on this product is going very well. Our time lines for release will depend on approvals and those approvals, as we stated before, first the CE mark and then the FDA approval. And we're going to be submitting them in the first quarter of next fiscal year. In terms of the first clinical installation, that's going well, okay. There may be a slight delay in that and may move into the first quarter as opposed to the second half of this year, but this is not going to affect the time line for regulatory approvals both CE mark and FDA mark. But more important than that, we're excited about what kind of financial difference this product -- revenue contribution this product will make both to MITG as well as to Medtronic as a whole. And you're talking about 200, 250 basis points of incremental growth for MITG based on this product. This is purely incremental over what we have today and this -- MITG is already running at about 5% growth. So this is incremental on top of that. That's going to happen within the next 2 to 3 years. And then that is going to have an impact on Medtronic. But we don't stop there. Our vision of robotics is that it's going to change general surgery. And this is only the launching platform for us. And I know that there's big competitors out there. This market is already created, but it's not even close to what it can be. And we with our overall infrastructure and presence are in a great position to enter this market, to drive this market and to convert general surgery into a robotic procedures in the developed markets as well as emerging markets. And this product is our launch point of that, and we're very close to launching this and one that we're really excited about. Then we move to diabetes. And we've got to do some work in diabetes. But in the pump area, in the closed-loop system; this is a product -- this is a market that essentially we created 2 or 3 years ago through the launch of the closed-loop system. There's competitors now and we've got some work to do here, but we're really excited about the 780G, which is, again, very close to its launch phase. The 780G is a product, which has an advanced closed-loop algorithm, one that has better time and range than what we have today, approaching 80% in adult feasibility studies. It will target blood glucose levels of about 100 in average both day and night. Today's sort of state-of-the-art ours is 120. General market is more like 160. So in general performance for the user, it will be better. But in addition to that, it will have a feature set that will allow -- that will be more forgiving to user behaviors. We're actually going to be presenting at the ATTD use case studies under extreme conditions and extreme conditions means what happens when the patient misses a meal bolus and how does this product react to that, and we've got some pretty good data to share there. So it's going to be more forgiving and that will make a big difference to these patients. And in addition to that, we'll have the full pivotal trial data at the ADA in June. The regulatory time lines are all on track. The CE mark has been submitted. FDA submission is forthcoming. And this is, again, a product that's forthcoming and will move the needle for us in diabetes. Now here's another one that's going to disrupt the market. This is brain sensing and brain modulation. And what we have here is the first DBS device, which actually has been launched in Europe already, which actually senses signals from the brain. And using those signals, the stimulation patterns can then be adjusted, eventually becoming a complete closed-loop system with better care for these patients. In addition to that, this will have 3D -- this will have full -- 3T full body MRI compatibility. There's improved battery longevity. And again, as perhaps you heard just last week, we received the CE mark. We'll do our first patient on this product that -- I think this week, and we're expecting U.S. FDA approval in the spring. So this is another product, which we're really excited about, which will disrupt the market. No one's done brain sensing before. And that is new information to the doctors. And then using that information, we will change the stimulation patterns, which will take time for us to fully understand this, but one that we know will move the needle for patients in this market and make their care better and the standard of care go up. Equally exciting, another area that we're seeing disruption is in the area of pelvic health and one that I think you saw a press release this morning. Many of you have seen, we have just got CE mark clearance for the InterStim Micro, which is a 3cc device, an 80% reduction over the bigger can that's standard today. And it's one that's based on rechargeable technology. And it's something that we're really excited about, something that will contribute to disrupting this market. But in addition, there's a pool of patients who will still use the larger device InterStim II device, which will now have full -- 3T full body MRI compatibility. That's one that's a primary cell device. It doesn't require recharging. And this market is going to break up into patients who will put up with recharging and patients who will want a primary cell device with no need for recharging, and we will have both of those areas covered with new products which will be leading edge in this marketplace. Moving on to the product that I'm perhaps most proud of during my tenure at Medtronic and in this whole list. Like I mentioned earlier, Medtronic was started back in late 1950s with the launch of the first battery-powered pacemaker. That was the invention of a market. That market is going through a series of new and continuous innovation, some level of disruption with the implantable device. And as you all know, technology has changed a lot since 1960. And here we are in the mid-2000s between -- about 3 or 4 years ago around 2014, '15, we introduced Micra, which disrupted that market. Organically, we developed this and one that I'm truly proud of. Now the Micra VR, which we launched 3 or 4 years ago, only addresses 15% of the patient pool of the pacemaker patient pool. With the launch of the Micra VR -- with the launch of the Micra AV, we're going to address 55% of that patient pool and one that we're really excited about. We expect FDA approval forthcoming here by the end of this fiscal year and this product is going to make a big difference to the care of these patients. Remember, when you put a Micra in, the patient leaves the room and they are cured. There's nothing else. There's no wound to look after. There's nothing else. They feel better straightaway and they're cured. That's a big deal. And that's going to affect patients. It's got good reimbursement coverage and all of that, and we think it will really help us with our growth profile as well in a meaningful way. Atrial fibrillation is another area, which -- we've built our business around cryoablation, which is for paroxysmal AF. In the persistent AF area, we've had only a small presence but we have a pipeline now that's going to start to address that area. And the DiamondTemp product that we're going to be releasing very soon and expect -- we already have CE mark and we'll launch in Europe in the fiscal -- this fiscal year later. And then we expect U.S. FDA approval next fiscal year. But this is a product that has real-time irrigated catheter. It uses closed-loop temperature control, and it will change the way in which RF ablation is done. And we have a pipeline of other technologies in the area of RF ablation, which we'll share with you in the future. But this is a market we intend to win in. And then we have renal denervation. Again, a market that we have to create, an area that we started about 10 years ago and we haven't given up. This hasn't been easy. We've been through one series of trials, which had some issues. We stayed and we improved it. And now we're in the throes of thinking about launching this new product, which will be used for hypertension treatment for both on-med and off-med patients. There's a potential for a presentation of the -- of a pivotal trial for the -- for these patients at the ACC in March. It depends on the Bayesian analysis, but one that we're looking forward to. So this is, again, future. This is not next fiscal year, but beyond that, a future pipeline market creator that we're really excited about. So with that, you've heard the pipeline. And I could go on. I could spend the next hour here talking about those products. And each one is either significant continuous innovation, creating new markets or disrupting ones. And you can see that this pipeline is full and this pipeline covers multiple years and is the basis to take this company's growth profile to the next level. That's where we're going to go. But in addition to that, our work in emerging markets is -- gives us a basic platform, which we can live on. Emerging markets is now about 16% of our total revenue. We've grown in double digits for emerging markets. This chart shows FY '15, but we can go back another 5 years ahead of that, and we've still grown at double digits every year. So emerging markets on a constant currency basis, we've grown at double digits and one that because of our breadth, our direct distribution presence that we're increasing, we know we can continue. And increasingly now in certain countries, we are also doing local manufacturing, local engineering and catering to those physicians because there'll be more emerging market physicians at some point than developed market physicians, and they will have their needs. And we need to be local and work with them to develop products that they're comfortable with and they will pursue. So emerging markets is another place that's important for us. And you can see how we're progressing there, double-digit growth on a consistent basis year after year, in fact quarter after quarter. Now let's get to the financial part of this presentation. First, free cash flow. And free cash flow is one that we took on a few years ago because we were not performing well. And if you want, that is one of my disappointments in my tenure as CEO that we let this thing happen, but we fixed it. We fixed it. And now we've got last year with an 83% free cash flow conversion, above our peer average. And we're committed to providing at least an 80% free cash flow conversion, and we expect to do this well. And the reason this has happened is because we've now got a much more granular focus on what it takes to deliver free cash flow, management of working capital, of inventory and receivables in particular. Managing onetime items, which will happen. In our non-GAAP earnings, you don't see onetime items, while in free cash flow you do. Currency. And we pay attention to all of that in a way that we can still provide that 80% conversion ratio on a consistent basis. Most important to follow, we've got a total Medtronic focus and this is the one metric that every single employee in Medtronic, over 90,000 employees gets a financial reward based on the performance of our free cash flow. So every employee in Medtronic gets rewarded by free cash flow. That's how important we think it is and that's how we think that everybody needs to play a role for us to deliver these numbers because there's no hiding here. This is the true cash flow that we generate and one that we're committed to delivering on and one that we're truly excited about. Now when you generate all this free cash flow, then you've got to pay attention to your capital allocation. And we've got a lot of ability right now to reinvest that free cash flow in the right areas. The most important investment that we make, as I've said now several times, is our organic reinvestment in R&D that creates this pipeline, that grows this pipeline and has the highest return that we have of any investment that we make. But we aren't going to invent everything. No matter how good we are, there are more engineers outside of Medtronic than inside Medtronic and they will invent things. And we need to be aware of that and have a methodology through which we can acquire and these tuck-in M&As where we bring in technologies that others have created and then we use our scale and our overall presence to bring those to market and they become growth drivers, organic growth drivers eventually is our strategy on M&A, and that has an increasing focus right now and one that you're beginning to see us -- just early this week, we -- last week, we talked about Stimgenics in the pain management area. There are other such. We talked about Titan in the spinal area. These types of tuck-in M&As will happen at increasing frequency as we start to use the free cash flow that we've generated and the capabilities that we have. Our dividend growth is something that you can depend on. That's in line with our earnings growth, with the dividend payout ratio of 40% and you can depend on that. And this company is strong enough that through our free cash flow generation, we can do that. That enhances our total shareholder return. And then opportunistically, when there is free cash flow available and there aren't appropriate places to spend it in M&A, we will do share buybacks. Through all of this, we are targeting an ROIC of 13%. ROIC is an important variable and an important metric, and you'll see that in a few minutes as part of our compensation as well. So it's something that we look at. Now this -- I'll spend a few minutes on this chart. This is our history of our dividend payouts. We've got a 42-year history, and we're S&P 500 dividend aristocrat and one that we're pretty proud of. And you can expect maintenance of this dividend and a 40% payout ratio. Over time, we've got enough ability to do that and you can be assured of that. That then results in a company that's targeting 8% EPS growth over the -- adjusted EPS growth over the planning period. And then that together with the dividend results in a double-digit total shareholder return. So here's a company that's $30.6 billion, at scale, serving patients, growing, using technology to grow, taking growth to the next level and delivering this kind of return and one that you can depend on at that scale. And you'll hear more about that in the coming quarters and in our Investor Day presentation later this year. The management team is compensated in a way that is friendly to our shareholders, and we continue to look at this and we modify and tweak this in a way that is shareholder sensitive and friendly. Some of the recent additions is the addition of the free cash flow component and the total shareholder return component in the long-term performance plan. And again, free cash flow goes well beyond management. Every employee gets that. But for management, this is the breakdown of compensation. So in summary, look, I couldn't be more excited about this company, about where we stand. And I hope I've conveyed that to you, my own excitement. And more than excitement, why I'm excited. I'm equally excited, and perhaps, most of all, with the succession process that we have in place here. Geoff Martha is in the audience here. He's going to take over as CEO starting in the new fiscal year. I'll remain as Executive Chairman. But really, this is going to be Geoff's company. And Geoff is someone that I'm going to continue to support, but I'm just excited about where this company is going to go. The pipeline is full. We know how to execute. We generate cash flow. We know how to invest that. This is going to be a company that makes a difference to patients around the world and will continue to do so based on the technology invention that we can make. Thank you all very much for your attention here today, and thank you very much for your support over the last 10 years. Thank you.

Well, great. Thank you, everyone. Happy to have the entire Medtronic team here. I thought I'd kick it off. We have the incoming and the outgoing CEOs here. And I thought I'd start off with the transition questions. So Omar, everyone has known you for the past ...

Nine years.

Nine years. You're leaving on a really good note. The company has exceeded expectations, meaningfully the last few years, the stocks at all-time highs, and you have probably the deepest pipeline in the company's history. And now, Geoff, you're taking over. From my interactions with both of you, somewhat different personal styles. Maybe just talk about as you take over the role starting the end of April. What are some of the changes we might see externally from the company and maybe some of the changes internally versus Omar's style?

Well, look, I think first of all, before we talk about change, the one thing we've got to make sure is that we execute on the pipeline you talked about. I mean it's been a lot of work in investment, time, energy, blood, sweat and tears to build that. So the first priority is to execute on that before we start talking about change. I think in terms of change, I'd say 2 things. I mean that are timely is -- we're a couple -- we're 5 years almost to the day from the closing of the Covidien transaction. And we doubled the size of the company in terms of people and a significant increase in revenue. And as we look -- we took out a lot of cost. But as we look at the company now, is the management team through the transition? The guys standing behind me, Karen. As we looked at this, I think there's some opportunities to simplify the company in certain pockets of the company. The -- we probably have a little bit too much bureaucracy, if you will. And so simplifying that is one thing that we've all talked about and want to go after. And I'd say the second thing is this, this is not a difference between Omar and myself. This is more, as you look at the company, Medtronic's been known and you just heard Omar's presentation as a company that develops new markets, invents things and develops new markets. And more often than not, we're many -- kind of, we're the first. And then you'll see, you wake up after all that work, like we're going to go through this with [ authority ] you wake up a few years later, and you started it but one of our competitors has a meaningful market share position. So without taking the focus off of that market development, I'd say an increased focus on market share and what it takes to be in a competitive selling mode and to hold the market -- hold our share and take share and everything and all the capabilities and the mindset and the culture that go with that. Adding that to the culture is something that, again, these are 2 of the things that the management team we've talked about and think this is something we really want to focus on.

So we only have 20 minutes left. And I don't think that will do justice to the pipeline and just even the updates and products you discussed in the presentation here. And as I look out over the next 6 to 12 months, Medtronic probably has, by far, the most product approvals coming, the most data presentations. Maybe we could just start with the announcement today with InterStim approval came 3 or 4 months earlier than expected. This is a product, it's the smallest on the market. It has 3T MRI capabilities. This is a big market for you. You've invented the market and hold the vast majority of the share here. So what should we expect from InterStim here going forward? How do we think about the launch and the competitive offering?

I think, Geoff, you've run the RTG business. You're one of the key leaders of this, so you are better suited to answer this, so go ahead.

And Brett's standing -- Brett Wall's standing right behind me. Look, this is -- like you said, this is an exciting market that's gone under the radar outside of our company, I think. Inside the company, it's been a big focus area for us. And look, we're excited to offer a broader set of products for this patient pool. We do think the patient pool is -- it's well under-penetrated. And offering them different options. So now we'll have -- today, as you know, we have the recharge free, right, the primary cell device, which is, and I think people tend to forget this. It is the majority of the market, and we believe will remain the majority of the market, period, okay? Primary cell, recharge free. We used to call it primary cell, but competitors call it recharge free and so we'll call it recharge free. And so now we, with this announcement today, we'll have now MR labeling for 1.5 and 3T for that. And no one else has that in the market today. And now -- and then we also -- and also as you said, the European approval, the CE mark for the Micra -- the Micro, rather, which is the recharge version, which is 3 cc. So you're going to have the same 1.5, 3T MR labeling. It's going to be the smallest. It's got our proprietary batteries, which is a proprietary chemistry that it just isn't matched in the industry. So we feel very good about this. We've got some other innovation that we're working on to bring to this market that will continue to make this, give the patients more options, recharge, recharge free, smaller, less invasive, more upstream. This is an area that we intend to not just lead -- develop this market. But again, I talked about earlier, protect and grow our share.

I don't want to be greedy since we just...

Well, I think just the main thing. We have the broadest portfolio with this approval in Europe of any company. When you look at recharge free, when you look at the rechargeable market. And the thing about the Micro, it's 3 cc's. It's half the size of the competitive device, 3T and 1.5T, which is really important and the recharge experience that the patient is going to receive is significantly better with our overdrive battery technology, and that's really important. There's one thing about battery fade. Our battery barely fades at all over time. You recharge it, you recharge it, you recharge it, and it maintains a charge. And the other thing about it is, when the patient wants to recharge that, it locks onto the battery and charges and doesn't require the physician to implant it perfectly. That's what you have to do with the other devices.

The last thing I'd say here is, look, we're vertically integrated here on the batteries, the whole thing we -- this isn't our first rodeo with an implantable device. And our -- quite frankly, competitors are out there saying all kinds of things, and we're just going to show them.

Great. Omar, you mentioned in the presentation that the surgical robot first-in-human trial might be delayed a few months from end of fiscal year '20 into first quarter of fiscal '21. Can you give any color on why the delay and what continues to give you confidence in the approval timing?

Yes, because I mean look, this is -- you're trying to park a certain [ date ]. This is a certain amount of software that has to be released. And all I'm saying is that it may not be exactly at that time should -- might push out a little bit. But the most important thing is that that's not significant enough to make a difference to our regulatory submissions. Remember, the software is all the submission work and all of that can be -- has been done because everything works. The hardware is done. Now the features are done, all the stuff is done. We just got to make sure that all the bugs are fixed and all of that. And we just want to give us a little bit of room here. But the submission timings aren't going to change. And that's what's going to drive our growth profile. So to stick to a particular date for a software release is really not a practical thing here.

So very minor adjustment.

Yes.

Okay. Maybe if we talk about diabetes for a second. This is a business that's underperformed a little bit over the past year. Expectations came down last quarter. You're going to have the 780G data at the ATTD conference next month. Then, I believe, some extreme situation patients with full pivotal data at ADA in June. This could potentially be the best treatment paradigm for patients. If you can hit the 80% time in range, 99% of time, but the weak link here is still the CGM component. So how do you think about driving a patient adoption here where patients, general, Americans are lazy in general, I'll say that. You don't have to. And they'll take the easiest option and pricking your finger several times a day, may not be the easiest choice for people. So how do you drive adoption, when you might have the best therapy?

Yes. One of the balances that you got to look at is I don't think they like entering the [ meal ] data either. So here's a product which without entering some of the [ meal ] data is still pretty resilient. So the product itself is much more forgiving. And so you're trading off a little bit the more sort of cumbersome, if you like, sensor calibration, all of that versus a product that might require less interaction. It's much more forgiving to other data that want us to put in which they're estimating anyway. So I mean that's at least one way to look at it. I don't know, Sean, do you have anything to add to that?

I'd just say there's large segments of the population that really are trying to chase the very best outcomes they can get. And there's no question that if we can deliver what we've seen in the feasibility. There is no rival to that level of outcome. So they'll make these trade-offs. And it's not forever either. We do have a robust sensor pipeline, which will make better the ease of use, getting down the calibrations as well as an extended-wear infusion set which [ cuts through the time ] every week you have to change your set out. So the culmination of getting these great outcomes without more effort -- it's starting there and it'll continue into the rest of the pipeline.

Great. And I saw in the slide, it said U.S. filing imminent. Is that still on track for U.S. approval by the end of fiscal '20?

I don't know, what's the thing on this?

We filed the CE mark and we're very, very close to filing the FDA...

FDA. So the approval depends on...

On the hardware part of that.

Okay. So maybe first quarter.

Nothing's changed in the guidance of what we've given.

Okay. I want to see if there are any questions from the audience?

This is for you, Omar. You joined, I believe, it was June 2011 [indiscernible] today. Obviously, you've done really well. You became sort of a turnaround CEO as I remember it correctly. You've done really well. [indiscernible] Do you have any regrets? Is there anything you could have done better?

Yes. The question, just repeating, lots of good things about me. And then do I have any regrets. That's the question. But really, look, you know I've talked about that quite a bit. There's lots of things I could have done better, and there's no shortage of it in retrospect. But perhaps the biggest thing is that we should have paid attention to the free cash flow. We've got too hung up on the adjusted EPS numbers and the fact that the free cash flow is just there. And everything is open, including currency and onetime events and all of that. And we could have done better there. I mean I don't know if we would have been perfect, but we could have done better, if we just paid more attention. And to have seen how quickly we moved the needle on that by getting everyone engaged. We could have done that 2 years ago, 2 years before that or 3 years before that. So I think that would have made a big difference to the credibility of the company because we lost credibility during that period. So that's the -- if I were to pick one area, it's that. I mean there's all kinds of other stuff that goes on. But that's the biggest one that I've seen.

Any others? So Medtronic now is pretty much done with its debt paydown from the Covidien acquisition, you have a building cash balance on the balance sheet. Maybe you could discuss some of the priorities for the use of cash? The general rule is when a new CEO comes in, there's no major M&A transactions in that year. Maybe just talk about your priorities for the use of cash and how you're thinking about M&A right now?

Well, we will do M&A transactions. I mean that's -- we're going to go in. And this is, to some degree, an evolution of the leadership. A lot of the things that Geoff talks about and wants to do I'd have done as well, and I think Geoff can do them better. I'm serious, he can do them better because of his own style and approach, but it's one that I would fully support. So you should look at this transition as a pretty straightforward, seamless transition. And certainly, there's no -- if there is an M&A transaction. And remember, Geoff used to run business development strategy. So he knows the stuff cold and then is integrated in the process and if you were going to do a major transaction, he knows about it right now. So don't think of this as that kind of a step change, where we're certainly going to look at everything brand new. I think that's the right way to look at it. Outside of that, the use of cash, like I mentioned earlier, organic reinvestment. And then there is tuck-in M&A because we do think that the tuck-in M&A, remember, we're going to look for companies which have organic growth profiles that we can then grow organically after the first year. So they add to our growth levels. Those are the 2 biggest things. And then beyond that, there's the dividend obviously which we'll protect and share repurchases if we don't find any other deals to do...

We remain committed to returning greater than 50% of our free cash flow to shareholders too. But obviously, our biggest priority is to grow the long-term value of the company, and we do that through organic and inorganic investments.

So M&A, dividend, share repurchase, is that the right way to think about it?

That's the right order, yes.

I think just to add, Geoff, you can talk about [indiscernible], the intention to increase our level of activity has been there. We've already seen some of that. We announced Stimgenics last week.

Yes, I think what we're looking to improve and working with the -- Karen and the group leaders behind me is a healthy cadence of tuck-in M&A, whether it be a tuck-in within a group, an adjacency -- adjacency for Medtronic or just identifying a segment, and I'm not going to kind of signal what segment it is. It's a lot of places, there's only 2 or 3 deals in those segments, but identify a segment, and it could be a series of smaller bets for that segment because we have a really strong channel presence and the disease state is underpenetrated, and we feel it's the right time. And those series of smaller deals add up to moving the needle for that therapy area. So that's how we're looking at it. Potentially, most of these deals tend to be like U.S. or Israel, or these technology tuck-ins. That's the priority. But we may -- there may be some things coming out of China here because they're -- I know the dynamics for China and U.S. right now is a little -- it can be a little dicey, but there is real innovation going on in China. So we've got our eye on that as well. We've got a fund there and an M&A team there as well that's dedicated for China. And so you might see some more of that. But it is -- that's the focus versus you said the general rule for a new CEO is not to do big. I'm not thinking about that general rule. I'm just -- right now, this is our focus.

Got it. And I think that's a good segue. Emerging markets, what? Plus or minus 10% of sales from Medtronic?

No, no more than that.

[ It was 16% ].

My mistake.

They obviously [ hear me ], you might have jumped over me.

We saw China as 40% of that in the slides. You've had really good growth in the emerging markets over the past few years. How do you think about keeping those elevated growth rates? And do you see any positives or negatives coming out of your large markets and -- in this segment?

Yes, let me -- I'll let Geoff kind of comment in a minute. But first of all, the key to our growth there, consistent growth has been the diversification across these markets. And China is 40%, but 60% is not China. And the dynamics in these markets are quite different. If I were to pick like the 3 biggest pools there. It's China, it's Latin America, and it's the Middle East and Africa. I mean those are the 3 biggest pools of growth now, and they're diversified. Now we're growing the other areas like Southeast Asia and India fairly rapidly now, but they're not big enough yet. So that diversification is a big element. The other thing is a real concerted effort. And this doesn't come easily. It's taken us a while to build this platform of how to go direct in these markets. If there's going to be more physicians in emerging markets and developed markets, we better know those physicians. And you and I are going to do that through distributors. But when you do that, your margin rates actually go up, which we then reinvest back in creating those markets. So that's the cadence that is the core to emerging markets. This is just not showing up to a place, putting an office up and selling. This is more than that. And we've built that infrastructure. Geoff, you want to ...

I look at it when Omar came in, in 2011, one of those big focus areas was emerging markets, right? And back then, that's when our sales as a percentage of revenue was in those -- was the 10%. Now it's the 16%, which is a massive shift, especially now that we're 32 or $31 billion versus $11 billion back then. It's a pretty massive shift. We started out as a sales and marketing organization in these emerging markets. Under Omar's tenure, we've moved to, I'd say, we have businesses in these where we have -- we've invested in market access capabilities. So regulatory capabilities and the like and quality. And we've gone direct. So all that has helped us really driven that growth. And there's still a lot of runway left with that strategy. The paradigm that we're -- we want to move to in select markets is localization. Where you're designing your products in those markets for those markets. And the driver there is really the health care systems are different, like China is the obvious one, the volume in a Chinese center is so much higher than the volume in the -- high-volume Chinese centers, orders of magnitude more volume than a high-volume, a U.S. center and the resources aren't as great, and our products need to accommodate that. And for the lower training that many of their physicians get and the lower resources. They don't always have all these MR machines and everything like that. So we need to factor that in. And there'll be -- we need to have that capability of having our upstream marketing people there work with those physicians and the health systems in those markets to design those products in the country for the country. And that's probably the next frontier for us in a scaled way. We have it today in spots, but not in a scaled way, a systemic way.

Great. Just thinking about the EU MDR rules that kick in, in May this year. We saw all the product approvals you expect over the coming months, many of them are global launches. How are you thinking about prioritizing some of your submissions into Europe, prior to the MDR rules kicking in versus after?

As far as I know, I know we've got that thing covered...

Yes, no, we have -- there has been a focus on accelerating. If you can accelerate without cutting corners, it's a matter of focus and investment. There's an incentive on our part to do that. And I believe we've done that. And I don't know if you guys have any comments on that?

A very detailed plans by business.

The notified bodies have to be approved. We've done that. And then so by business, we're looking at where they stand and the business guys are all on that. So we've talked about approval time lines, that's taken into account.

It is a big investment for us. And so as we think about getting compliant with EU MDR, we are rationalizing some of our older products around it, but we're doing it smartly, and we're on track.

Great. Any last questions? All right. Great. I think we can end it there. Thank you very much.

Thank you very much.