Medtronic plc (MDT) Earnings Call Transcript & Summary

Hi, everybody. Lee Hambright, U.S. Medical Devices Analyst at Bernstein. I'm thrilled to host Geoff Martha today, Medtronic's CEO. I'd love to thank everyone for joining over video conference. Just a couple of housekeeping items. [Operator Instructions] Second, at the end of the session, you'll have access to a 2-minute investor poll through Procensus. So Geoff, thanks so much for joining. Please kick us off with a short intro, and then we'll jump into Q&A.

Sure, sure. Thanks, Lee. Yes, I appreciate the invite and looking forward to this. So we've got just a couple of slides here I thought that could provide a little bit of context. Win, if you could advance to the first slide. Of course, we have our forward-looking statements. Look, just a summary here of -- I think, an executive summary, just to kick things off. I know there will be a lot of questions around COVID. And from our perspective, obviously, it's had obviously a devastating impact on our society. And look I'll start off by saying that we just -- our thoughts are with those that have been affected. We've had many of employees affected and, of course, our health care partners. And our hats are off and then our eternal gratitude to all the frontline health care workers that have just done amazing work. I mean these are long time colleagues and friends and to see what they're doing has been amazing. And as for Medtronic, this crisis, I think, really demonstrates what kind of company we are and what we stand for. We've been able to continue to invest in our employees, and I'll talk more about that, invest in our pipeline and our customer relationships. We're talking to customers more than ever. And the dialogue has changed with them, which I'll talk to you about. But at the end of the day, we feel we're going to come out of this, emerge much stronger. And I could feel this already. Getting to the pipeline, we talked about our pipeline well before COVID and it felt like we had the strongest pipeline in our history coming into COVID, and that hasn't changed. We've made progress throughout the COVID. And one of the key reasons we're so bullish about how we're going to come out of this crisis is our pipeline. And specifically, there's this timely convergence of our pipeline coming out with unique hospital needs, which I'll talk about. This remote capabilities, virtual capabilities and we just happen to have a very existing strong position there. And as we've launched new products, that's even extended our, what I would call, our lead in this, and it's really timely because it's what the hospitals are and our health care partners are asking for. And of course, growth from emerging markets. This is -- for us, it's an independent growth driver as emerging markets. I'll talk about that in a second. As it continues to grow prior to COVID, double-digit growth for 40 quarters in a row. So -- and we see that coming right back. Cash flow conversion, we ended our FY '20, even with the -- our Q4, which is for those that don't follow us too closely, we have a very odd fiscal calendar that ends in -- and ended at the end of April. So we had quite a bit of COVID exposure in our Q4, half of March, I'd say, 5 to 6 weeks of full-on COVID exposure in Europe and U.S. And of course, obviously, the whole quarter with China. And despite that, we still ended the year with a 97% cash conversion, and we're very proud of that. And in terms of our long-term earnings, EPS growth target, 8% with a nice dividend on top of that to give a -- we think, a good shareholder return. And then finally, our dividend. We have a -- we just announced another strong increase in our dividend in our Q4 earnings call last week. And this is the 43rd consecutive year of dividend increases. And look, at a time when a lot of people in med tech, a lot of our competitors, even the bigger competitors in med tech are raising capital, we're raising our dividend. And I think that speaks to 2 things: the strength of our financial health and our strength of our balance sheet; as well as our commitment to shareholders. So more on that later. Win, if you could advance. Just a quick snapshot on Medtronic. I'm not going to spend too much on this slide. Just one, a mission-driven company, which right now, it's been really helpful, especially as a new CEO. So I took over officially as CEO in the new fiscal year. So at the end of April. And having to make a lot of decisions quickly as a new CEO can be challenging, but having the mission there helped a lot. And it really clarified a lot of decisions and made my job -- has made my job a lot easier than people might expect in terms of having to be decisive and how to make decisions. And I guess, it's a real clarifier for us. In the middle there, here, the R&D, clinical investments. Like I said, the strongest pipeline we've had in our history. And the thing that I'd say is unique about Medtronic, and I think, Lee, know this is we have a really strong history of what I call therapy innovation in terms of identifying unmet clinical needs and really creating new standards of care. So not just iterative innovation, but whole new standards of care. We started the industry, our founder, Earl Bakken, when he invented the pacemaker, working with a cardiac surgeon named Walton Lillehei. And to this day, we're doing new -- starting new markets, like we'll talk about renal denervation or disrupting markets, like with the Micra and Pacing, and that's really who we are. That's unique. And then I mentioned emerging markets. You can see here, over 16% of our revenue is coming from emerging markets. That's very large compared to our competitors and anywhere from 42% higher to double our larger diversified med tech peers. And it is, like I said, an independent growth driver. Omar, our prior CEO, who you know, Lee, he really pushed this, and I intend to keep that momentum going. And under his leadership, it's up to the 16-plus percent of our revenue, growing over double-digit for 40 quarters in a row. That's pretty amazing. I don't know about before that. But since Omar's tenure, that's -- those are results. Why don't we go to the next slide here, trying to move this along, so we get to the Q&A. Okay. So -- and then the COVID-19 response here. You see these 3 vectors. Again, I think, like I said earlier, this whole thing tested us, COVID-19. And I think we responded well. And I'll put it in 3 categories: one, our employees, providing them both health, safety and financial security. So we provide strong financial support to all of our employees. For example, our sales force, like in the U.S. that are highly leveraged, where their compensation is tied to revenue. And obviously, revenue went way down in our Q4 and again, in this Q1 and we covered their compensation, kept them focused on their customers and not worrying about their financial health, if you will. Our manufacturing employees, we have all kinds of benefits programs, 30-day emergency leave with full pay, financial assistance for child care and things like that. I can go on. And then in terms of safety, we've done all the social distancing and the cleaning practices. And we're -- like in Mexico, for example, where we had more COVID cases, we actually partnered with a private hospital system there and basically providing concierge medical services for our -- for all of our employees in Mexico. But our manufacturing employees, it's a heavy manufacturing base for us. And then another health example for employees is, we have a telehealth business, which during COVID has seen an increase. But we added a COVID -- a respiratory protocol to that and offered that for free to all of our employees and their families, and this is a remote patient monitoring service that we have with the nurse call center. We do -- historically, we've done a lot of, for example, the VA, there -- chronic comorbid patients. We have like over 100,000 of the VA veterans on the service. And we extended this for a COVID protocol and are offering it to our employees for free and their families, quite frankly. So in the middle -- we can talk a lot about that -- a summary. The ventilator, the whole ventilator experience over the last couple of weeks has been extremely rewarding. We've got our internal ventilator capacity up 5x. By the end of June here, we'll be up 5x the units per month than we were in January. Plus, we've created, like I said, in tens of thousands of capacity with new partners outside the company, from all around the world. This speaks to the partnership. We open sourced one of our key ventilator products. And out of that came like 250 or more downloads of our designs. We gave a royalty-free license, and we've partnered with 5 companies like Foxconn in Wisconsin to produce these ventilators. And we're getting a lot of uptake from these from emerging markets. We also have other partnerships like with Intel to remotely control our ventilators from outside the ICU and remotely monitor them. SpaceX is providing us a critical part that helped us scale the ventilators. So we're very proud of what we've been able to accomplish with the ventilator, and we've built really strong customer and government relations through the -- throughout the pandemic, largely based on the conversations we've been having around ventilators. And then in the community, our foundation stepped up over $36 million in monetary and product donations. We've done a 2-for-1 match for our employees that want to give their money and their time. And we've offered some assistance for diabetes patients because a lot of our diabetes patients are younger. They don't -- like in the United States, for example, don't benefit from Medicare. And with the job loss that's happened as a matter of COVID and the loss of insurance, this has been a big program for a lot of our patients. Win, if you can go to the next page here. So just -- this is a big one for us. Our new products, and I suspect you'll have some questions on this, Lee. Just -- like I said, I'm not going to go through all of these. It's -- as the picture shows, this is a really good time for Medtronic in terms of product introductions. One that I'll talk about is our cardiac implantables. And this is the timely convergence I talked about. We just launched our latest ICD family called Cobalt and Crome, which has the -- here it is right here, which has this Bluetooth capability, this distance programming. It's the only device out there that you can -- in United States, that you can do distance programming. So the rep is outside of the room and can program. Normally, they're in the room with PPE or outside of the room, they can program the device. And even the electrophysiologist, the electrophysiologist who's monitoring the case, they can be anywhere in the world and dictating the program parameters by having a fellow or a resident in the room doing the procedure. And then when the patient has to do a device check, which is pretty regular, they normally would have to come into the hospital for that. Now we can do this all in the comfort of their own home. And a matter of fact, after our earnings call last week, we -- I was doing some press interviews, one of the reporters stopped and said, "Hey, I got to thank you because my wife normally has to come in. She's got a Medtronic pacemaker. Normally has to come in for device check and she was able -- we found out, she was able to do it from the home. And I can't tell you how much that meant to us as a family." They're very concerned about going in. And then, of course, Micra has a lot of that same -- those same characteristics on the Bluetooth and the remote -- the ability to program it remotely. Of course, this is 93% smaller than the conventional pacemaker and the benefit of this during COVID is just the lower complication rates because the procedure is so much simpler and less invasive. Hospitals don't want patients coming back for complication rates. And this just makes it a lot easier. You have no leads. It's all self-contained. Like I said, 93% smaller, plus it has Bluetooth capability. So we're really excited about the portfolio. You see the soft tissue robot on here where we're entering the preclinical phase now and the commercialization of this now is in sight as we enter the preclinical phase. Our neuromodulation portfolio across the whole Pain Stim, we introduced the new DTM waveform here coming from Stimgenics, which we're getting -- the best results we've seen for pain, relief of pain. We're redefining the brain stimulation with our closed-loop brain sensing -- we launched what we call Percept, which has brain sensing, the first of its kind to send signals in the brain, and we'll shortly be launching a clinical trial around to do the closed-loop for that. So again, that will redefine the competitive dynamics in DBS, the sensing, and we're way ahead on that. And then InterStim Micro for overactive bladder. It's 3ccs. Very small device, much smaller than anything that's out there, including our latest competitor. And we -- right before COVID, we launched it in Europe, and we have a new competitor in that space, and they have taken some share. Our technology was older. And within just a couple of weeks, we took half of those accounts back before COVID with this device. So we're very excited about that. And then as I look forward to the beyond, we've got renal denervation here. This could be a $1 billion market for hypertension. As you know, hypertension is the #1 contributor to death around the world. And the current therapy, about half the patients don't really adhere to them. This is a onetime thing and with no side effects. And so assuming the clinical trial goes well here, which should be done in around a year or so, it's been delayed a little bit because of COVID. This is a -- could be a huge market for us. We're very excited about that. And then, of course our -- what else did I miss here? I think I'll stop there on -- I had 1 more I wanted to highlight there. What was the other one? Well, anyway, I'll just -- I'll stop there. Oh, the PillCam Genius. That was it. I knew there was one other. The PillCam Genius is another one that could be disruptive for colonoscopies. As you know, no one wants to do a colonoscopy. This is something with our partnership from Amazon. We'll send it to right to your home. You do this in -- the screening in your house and it uses artificial intelligence to identify polyps and then over the web, communicate with your physician to determine if you need to come in for further work. And I think 70% of the time, you're fine. But this will make that -- streamline that process. And it's a neat opportunity. It's a great opportunity for us as when we move into a more consumer-driven world. So Win, why don't we go to the next slide here? Again, getting back to -- ESG, as you know, is a bigger and bigger focus for investors. And for us, this plays right into our sweet spot, being a mission-driven company with several of our tenets talking about different aspects of ESG. Tenet 6 talks about good corporate citizenship, tenet 5 talks about the personal worth of employees, tenet 3 gets into quality. So we have 6 tenets in total. But a lot of them hit ESG, and this is something that's in our DNA. And 2 things I'll point out here: One is inclusion and diversity, where Omar was very bold here and set very aggressive targets. 40% of women for women leadership -- representation for women in our leadership ranks, which, by 2020, which we're very close to, and 20% for ethnic diversity and management above, and we've already hit that. We just won the Catalyst Award, which is the biggest award for advancing women in leadership. And I already mentioned our open source project with the ventilator where we put profits -- we put patients before profits. And in the end, it's going to make our business better. As I mentioned, these 5 partnerships that have come out of that. So, Win, next slide here. And then finally, kind of early priorities for me. Look, the company's -- as a new CEO, the company's foundation really is therapy innovation, and that will remain that. And really transit -- we've got this great pipeline. And in the near-term here, we are going to make sure that pipeline translates into differentiated growth and market share gains. So obviously, that's a big focus. Our diabetes business, the diabetes market is a big market. Big patient need. We have a market-leading position in the type 1 space. But we're losing share there. We've got to reinvigorate that business and we fully participate in all aspects of the diabetes market. And then finally, I want to drive a high performing culture. So we're a very mission-driven company. But there's certain obstacles that we have, the size of our company has created some bureaucracy that we need to cut through. I'd like to heighten the sense of urgency that we demonstrated during COVID-19 here in terms of redesigning our ventilator, partnering with Intel, redesigning our ventilator in 2 weeks based on some customer requests. I mean that kind of sense of urgency and speed and responsiveness to competitors is the thing that -- we need to bring that kind of attitude to the office every day or the remote office, depending where you are and really focus on market share. We've got all the fundamentals here, but adding this high-performance culture is a big deal and putting this market share mindset into the entire organization, not just our sales reps, but the entire organization, I think, will help improve our growth here and make it more consistent. So I think that's all I had. I ran through that kind of quickly, but I wanted to provide some context before we just jump right in, Lee.

Excellent. Excellent. Thanks, Geoff. That's a great context. Thank you. So maybe jumping in and talking about a little bit about your priorities as you take the CEO role. As a global med tech leader, Medtronic participates in a very wide range of different therapeutic areas and markets around the world. As you've transitioned into your new seat over the past 6 months, what are the businesses or geographies that have surprised you most? And where have you been spending most of your time?

Well, look, as you know, before -- I've been at Medtronic now for 9 years and the group that I ran before -- so we have cardiology, neuroscience, surgery, which is basically legacy Covidien and then our diabetes business. And so one of the big -- the learning curve for me was getting deeper in the non-neuroscience areas. I mean, there's a lot of products. We said we participate in a lot of markets. We have a lot of products and getting to the depth, and I'm still working on that. I haven't solved, I haven't crack that code. One of the other products has been -- because there's a lot of new things happening. And like I said, a priority for me is innovation-driven growth. And so you really need to understand where the opportunities are, where the patient need is, where the market growth is. And allocate that capital properly. I felt like you had a good understanding of how to allocate capital within our neuroscience group, as you know, we call it RTG. But how do you allocate? What's the best opportunities to allocate capital across the company? And that's where I've been spending a lot of time and working with our business leaders and like our group leaders that run these -- the cardiovascular group, the neuroscience group, the diabetes business and the surgery business. Working together on more decisive and aggressive capital allocation. In terms of business, I've been the most surprised with -- it has probably our cardiac implantables. In terms of -- that's been a business -- that's a market that's been slower growth. And for us, we have a big position there. And we have not outgrown the market. And -- but as I meet with this business, a guy named Mike Marinaro runs a big piece -- he runs that business. There's a lot of energy right now, a lot of excitement between -- I mentioned earlier, all the need of health care systems around the world for the remote capabilities, and we just happen -- we've always prioritized that. And I don't know that that's really resonated quite as much with the market. But now it is. And we have that leading portfolio, and we're adding to it with this Cobalt and Crome launch or our High Power. And just the share that we -- the uptake that seems to be happening out there, I'm really excited about it. You can feel it talking to customers. There were -- I've talked to some big hospital systems. They're saying, look, we're going to make this remote thing a standard. And if they do that, and as they do that, we will benefit from that. And then Micra, I showed you the Micra earlier. I mean, even in April, our worst month, the bottom, it grew 20%. So the rest of the company, we were shrinking quite -- and we were down quite a bit and Micra is growing 20%. And in the months leading up to COVID, it was growing 60%. So taking a lot of share. So that whole business is in a great spot. And if you take a step back, our 3 biggest businesses: Cardiac Rhythm, Spine and our Surgical Innovations business from Covidien, all 3 of those are in great spots right now to take share for a variety of different reasons. So that's, Lee, to me, has been a pleasant surprise, Cardiac in particular.

Great. So we've heard you specifically emphasize at least a couple of strategic priorities: number one, the opportunity to simplify and streamline Medtronic's corporate bureaucracy; and number two, have the need to focus not just on creating new markets but on maintaining market share. Moving the goal post forward as the competition intensifies. Maybe just taking each of those 2 priorities in turn. I wonder if you can talk about some specific plans that you're most excited about in those areas.

I think I'll talk about at a high level here. On simplification, like we talked about, especially after Covidien, the company is very big and in a lot of different areas, therapy areas as well as geographies. And -- but med tech, it moves fast. It's based on innovation and moves relatively fast. And so what we are working on, with myself and the rest of the executive committee, is putting more empowerment down into our businesses. And changing Medtronic from like a $30 billion business made up of like 3 big business groups to more of $31 billion businesses. I mean, we may not get the $31 billion, it may be less than that, maybe it's 20 businesses that are a little big. But -- and pushing more of the decision-making down to them. And I think that is something that kind of got away from us after Covidien, I think. And then even before Covidien, it had kind of gotten away from us a little bit. And so kind of taking this opportunity of a leadership transition to push that down. And so you'll have more visibility to those businesses, those business leaders, their priorities and the decision -- as much decisions as possible with them. I think it's going to help us a lot. And then holding them -- but in parallel to that, hopefully gets back to the market share component, right? It's not just creating new markets and then letting others come in, take share from us. It's creating those new markets and maintaining them or even entering new markets where we're not, like in surgical robotics where we're not -- the shoe is on the other foot. There's a big player out there and we get to go in there and take share. But having that market share mindset. So it's a matter of -- it's not just cultural, but it's changing our incentive plans around market share and we're in that process right now of adding share to much more -- a bigger component to kind of our performance goals. So you're keeping your job. And then -- and over time, compensation as well.

Got it. Great. Medtronic, like you said, it's a mission-driven company. I've still got my mission medallion.

Great to see. Well, I got mine right here, too. I keep it on my desk. Here you go.

I love it. The culture of heritage, the heritage of innovation runs deep. How do you think about adjusting that culture and amplifying certain pieces of it without moving too far away from the heritage?

Well, look, I'm convinced that we can be a mission-driven company and a more competitive company at the same time, right? There's nothing in the mission that says that you can't go take share. And so that is kind of my fundamental belief. And we're not -- by emphasizing more on share and a more of a edge in the company, won't take away from our mission. And matter of fact, look, I do believe in a number of our therapies. We have a big lead, and it's just better for patients. And so I fundamentally believe that, and we just got to go out there and get this in the hands of more patients and more physicians, and that's -- it takes a competitive organization to do that. So I think you can do both. And the other thing is, another key piece of the heritage beyond the mission and putting patients first and emphasizing quality is the therapy innovation and taking what I call bets. When I first came to Medtronic, I was just blown away, and I still am, about the kind of -- and they're prudent bets, things like renal denervation or disrupting our pacemaker business with the Micra or disrupting the Spine business with robotics. And these type of bets, Medtronic makes, they don't all work out or like CoreValve for TAVR, that one really worked out. But they don't all work out. But by and large, they -- our betting average is pretty good. And we got to keep doing that. And so we won't change from that. I'm not going to -- you have to balance that with iterative innovation. The iterative stuff really helps you with the share and maintain that share. But the inventing new markets or disrupting them really gets the growth. Those are big shots in the arm to growth, big shot in the arm to the health care systems and patients and then the -- balancing it with some iterative helps us keep the share.

Yes. Got it. You talked about allocating capital across the businesses and the importance of invention. As you made your way around the businesses and saw who's best -- were there any maybe smaller ones that haven't gotten a lot of air time yet? Where you thought, boy, these guys have lightning in a bottle. We got to really ramp up investment here.

Well, that's a good question. I think we do have a number of -- like I think our Pelvic Health space as a new competitor comes in, and there's been a lot of focus on that. We have the -- in terms of neurostimulation for overactive bladder, we've been the only one in that market for a long time, and new competitor came in. And there's been a lot of focus on that market. I see a lot of innovation coming there to make that therapy continue to be smaller and less invasive. And there's a lot of patients that turn away from -- because of the -- it's a neurostimulator that's implanted. And I think there's going to -- through miniaturization and new algorithms, I mean that therapy will open itself up to a lot more patients around the world. Lee, we talked about PillCam Genius at the beginning. So our GI business, I think that's a very interesting business to disrupt the colon cancer space with -- in terms of the PillCam Genius. I think you could swallow a pill in your own home and replace the colonoscopy someday. These are things I think need -- continue to need to more investment. The other one is diabetes. It's a big market. I talked about it being -- we're being behind there. And a lot of questions. Just to be frank, people question, is Medtronic like the right owner? And we haven't really managed that business well. I got to kind of accept that critique that we haven't, I don't think. But I -- as we put a new leadership in there and we've taken a hard look at it and for me coming in new, it's an opportunity to relook at it. And we did that. And I feel really good about the pipeline. And it's just a matter of time. I mean we're not -- in order to kind of catch-up, we don't have to invent new things. We just have to execute on our pipeline, and we feel like it's adequately derisked. And I wish it were sooner, but that's an area we can put a lot more investment in, even than before because I do believe in the market, I do believe in our capabilities there.

While you're talking about diabetes, maybe, as you said, Medtronic's heritage is about really working with surgeons, identifying unmet needs and innovating new therapies. Diabetes is a different type of business, in that it's much more focused on the consumer. How does it fit within the company? And what do you need to do to kind of stem the share loss on pumps?

Well, obviously, on pumps as well as CGM. It's pretty easy on what to do to stem the share loss. We just don't have to get our pipeline out there. We have the technology. We've got great algorithms, right? In kind of insulin-dependent diabetes specific base of kind of more insulin-dependent type 2s and type 1s, it's the whole sensor pump and algorithm and then the confluence of all those. We've got -- what I would argue is the market-leading algorithms but our sensing is behind the key competitor there. And our pumps, I would add another word, but we're not behind there, but I think there's some features there that we just got to get out. And then the whole system together, I believe, is a winning combination. So we just have to get the 780G out the door here and eliminate some of the hassle factor of our current product. But how does it fit? I think, look, med tech is going to move more towards consumer, right? And the diabetes business, although right now, we're a little behind and then losing some share, we will catch up. And I'd like to think that we can put, based on our -- the breadth of what we have between the algorithms, the sensing, the continuous glucose sensing pumps as well as this great patient resources around, field resources and call center that help patients, which is differentiated, I think we can come up with a differentiated strategy that we're working through right now. But beyond that, it is a consumer-driven business, both product design and consumer marketing. And I do think other segments of med tech are going that way. We need to learn -- use the diabetes business to learn. I mean, like, Ardian, I do think for that to be as disruptive as it could be, we're going to have to do more direct-to-consumer. Even to cardiologists, there's so many cardiologists out there. They're almost like another form of a consumer, right? We're used to talking to specialists and -- but cardiologists and generalist physicians, GPs and consumer marketing, I think, will be key to Ardian's success, assuming the clinical data that comes back, with the results that we expect. So I think diabetes does -- we have to get more consumer, right. And I mentioned the GI, the PillCam Genius for colonoscopies, again, another consumer -- that will be another consumer play. So in our pipeline, we have a lot of consumer activity. And in diabetes, we're learning a lot. And we'll leverage some of the capabilities that we're building there from consumer product design and consumer marketing to other parts of Medtronic.

Great. There's a follow-up on diabetes. You have this trend in diabetes towards this interoperability where you could get a pump from 1 place and a CGM from another place and an algorithm from another place. How does that affect -- I think the Medtronic diabetes strategy is most -- has generally been about the breadth of the solution, being able to bring all of the components. How does that change the game a little bit in diabetes?

Well, right now, it's changed it in that. Like you said, we had -- the only one with that whole system, that was a bigger competitive advantage. I mean it's still is a competitive advantage. Again, it's the -- it's all 3 of the components: the algorithm; the pump; and the sensor, plus our customer care. Our customer support, because of our -- that we've had to build up over the past 15, 20 years, is second to none. And it does take scale to support that. It took us a long time to build it up and it is expensive. So taking that all together is still an advantage. But when you have the interoperability, you have to -- each component has to be kind of at least tied for the best. And right now -- and then when you put them all together, it is an advantage. But if you have a weak link in that mix, it hurts. And that's what we're feeling right now. So our weak links aren't as protected as they used to be. And so that's just the truth. So we got to fix those weak links, which right now is CGM.

Got it. Great. So as we -- maybe let's zoom back out and talk about the shape of the recovery a little bit in post COVID. As we think about the shape of recovery for elective procedures, there's going to be constraints on both supply and demand. Maybe starting on the supply side, there's clearly a limit to how far hospital capacity can flex up to make up deferred procedures. How do you think investors should quantify that ceiling on capacity? What are you seeing out there so far in hospitals?

It's hard to quantify that. But look, we're seeing hospitals operate already. In the U.S., for example, like 110%, 115% of their historical capacity. And they're doing things. They're having to, I think, partner with -- pick partners. So hospitals have to do more with less, but also less vendors and they have to pick partners. And given our position right now and our ability to -- the actions we took during the crisis has put us in a nice position to be one of the partner of choice in med tech. And so we've had to work with them, for example, on how you have more productive ORs or Cath Labs, and we have a lot of experience with that. I think you've probably heard about our Hospital Solutions business that we have in Europe and the Middle East that where we actually run Cath Labs. And so bringing some of that expertise in the U.S. Cath Labs to make them more productive. These are things that are happening. The other things we're doing during this time is like, even robotic-assisted surgery like for general surgery. That takes longer per procedure. The setup, the procedures take longer. So I do think robotics is here to stay, and there's a huge growth opportunity for the industry. But during this COVID phase, and there's distributing less robotic procedures. Now it's going to come back, but they're doing less, and it's more MIS because it's faster. And so the hospitals are making moves like that, partnering with companies, and we're one of those partners to help be more productive. They're kind of being more selective about how they do their procedures like I gave the MIS versus robotic procedure case. And they're working on weekends, working longer hours. So I don't know how to -- where the cap is, but they're definitely -- we're seeing large systems, at least up to 115% right now. And I don't know that it will stop at 120%. And I don't know how long we'll be able to operate at those levels, but there's a bolus of patients coming through right now, and they've adjusted very well, including all the social distancing and taking care of their employees, and we help them with that as well a little bit. So...

You mentioned robotics versus MIS. In this environment, in this recovery period, do you think there's an opportunity for Medtronic to kind of take back some of that procedural share in MIS?

Yes. We're expecting that. Yes. And we're -- like I said, our Surgical Innovations business is well positioned right now. We used the COVID-19 period, we kept our factories running. Our SI business is largely MIS, our robots are not on the market yet. And a leader in MIS has been taking share over the last couple of years from its biggest competitors, biggest competitor in that MIS space. But despite -- for the last, I'd say, 2 years, constant supply problems. One thing or another. It was sterilization. We just didn't have the right capacity, hurricane, you name it. We've had all kinds of issues that have created supply problems. We use the COVID-19 time frame to keep those factories go on and fix those supply problems. So they're coming out of COVID now with full supply for the first time since the Covidien acquisition. And then on top of that -- and that's more of a sustained advantage. On top of that, for a period of time, robotic procedures will be down and so that should help us. Now that only lasts for a period of time and robotic procedures will come back. And we want them to come back. We're investing heavily in that space. But for -- that is a short-term benefit for us.

Yes. Great. Your balance sheet is strong. You showed your commitment to leveraging that balance sheet in your fourth quarter results. And your margins took a hit, of course, and they'll get a little bit worse in the near term, but you expect operating margin to rebound back to normal levels by the end of your fiscal year.

We do.

Many of your competitors at the same time have been much more aggressive with cost cutting. So this was a big strategic decision for you earlier in your tenure. Can you walk us through a little bit your thought process to invest more aggressively through the pandemic?

Yes. So 2 comments. One, we did invest heavily during the pandemic. We invested by not cutting. It enabled us to keep our employees focused, keep them focused like our field resources, our manufacturing resources, our team that's doing the finished good distribution. We kept them fully focused, put them to full work. And that is -- and then that's allow like, for example, our field teams to partner with customers. Like so in our customers' hour of need, our field team was out there and not worrying about their compensation or -- we provide a lot of health benefits to their family. So it has helped us, I think, and we focused on these customer solutions, and I think it strengthened our position. And so because I do think that this is more of a -- we could talk about the new normal, but there's going to be a healthy recovery here back to some new normal that is still a very good market. And we want to take -- when that -- or however big that new pie is, we just want to -- we think we want a bigger slice of that pie. And so that's why we invested. Plus we have all these products coming out. I mean we just could not waste the opportunity for this pipeline that we've been building to come out of COVID and not being fully ready to launch those products. The other thing is down the road, though, I did talk -- one thing we do need to do is simplify the company. So we're -- that is something, is more of a strategic move versus reacting to COVID.

Let's talk about CVG a little bit. You're operating from a position of strength in Rhythm, CRHF, where you've got Micra in pacing and your Cobalt and Crome launches in High Power, building on your #1 share position. Structural Heart, CSH has been a little bit of a different story, where you're losing share in TAVR. Our competition is getting increasingly intense there with the launch of a couple of new entrants. You had some issues in Q3 related to underinvestment in the field. What does it take to get into a share taking mode in TAVR?

We have to talk to Mike Coyle about the specific -- all of the new things that are coming out in TAVR. But I can tell you this, we made those field investments. So those -- and that takes some time, right? We -- they have to go through training and have to be ready. And that training is coming to conclusion. So we feel our field is in a much better spot. I think the messaging, look, the products, ours versus the competitors, they're different, right? And they have different, I think, pros and cons, at least. And tightening up our marketing message and really focusing more -- so the physicians truly understand what the benefits of that product are. Look, we're seeing account conversions here. And I feel much better and I know Mike does, too, about where we stand right now with TAVR. So over the last couple of weeks, the part I've been involved with more has been tightening up our marketing message, getting -- making sure those field resources are ready to go and specifically visiting virtually. And even my last customer visit, before everything shut down, the pandemic was a TAVR site that just recently fully transitioned from the competition. And I just want them to understand why. Because they've all been proctored and educated by the competitor, and they did a full switch. And basically said, look, it was a broader cardiology contract that we put in place that helped to enable that. But all these surgeons, they felt like they could do all the cases that even though they were trained with the competitor, with our product. And it's a matter of educating them on the pros and cons. And I think we're in better shape than we were. But we'll see where the share dynamics go here in the next couple of quarters.

Great. So renal denervation has been a big focus area for investors, a huge burden of treatment-resistant hypertension. You've presented some promising data at ACC. How are you currently thinking about the size of that market opportunity and the potential [ rated ] therapy adoption?

So this is an area I'm very excited about. And for a number of reasons. One, the size of the market, we're talking about, it could be $1 billion market. Again, we feel confident. As you know, we did the off med results and we're bullish on the on med, but we'll see. We've been surprised before, but based on the way that trial is designed, based on all the changes we made to the product itself as well as the procedure, we feel we've got it right, but we'll see how the trial comes out. And like I mentioned before, this is an area that I believe represents a huge opportunity, just in and of itself, for the treatment of patients with hypertension but also to help Medtronic extend our consumer capabilities here. So again, what we're talking about is a potential $1 billion market. I'll continue to learn more about that and refine those numbers, but that's kind of how we're thinking about it right now.

Got it. So conscious of time, I know what people want to hear about robotics. It's been a big investment area for you in Surgical Robotics. As you said before, Medtronic's accustomed to opening up new markets and then working to fend off entrants. This is a different type of challenge for the company. What does it take to build this business and take share in Surgical Robotics?

When we got to get the rope, we got to build a robot here and get it out the door. I mean, it's complicated. We did it organically. I mean yes, Covidien got some technology early, early on. But by and large, it's been an organic program. It's a very complicated program. And it's taken longer than we'd like, but want to get it right. And the latest issues have been, over the last year, has been around software, which we feel like have crossed over that and are really close to starting like any day preclinical testing. So we got to get that, keep that -- keep going on that schedule. COVID slowed it down a bit because of -- to do preclinical, I mean it does involve getting people together, and that's been a little more difficult. But we feel we'll get it back on track here, and we're very excited about the capabilities. I think the other thing we have to do -- and I wouldn't say this has not been a strength for Medtronic historically. And I mentioned it in TAVR, is clearly communicating in a simple way, what are the benefits of this product? And we have some clear benefits. The U.S. Surgical legacy Covidien U.S. surgical end effectors are stapling and energy, are market leaders in taking share, and they've been taking share for a long time. And this system will benefit from that. It's more flexible than the competitor in terms of you can -- the arms are all together. And you can -- you don't need all 4 arms to have the procedure and you can move them around. And there's some real clinical benefits from our end effectors. There's economic benefits from the business model and the configuration of the robot and we got to get that out there. And finally, we have to build and have a good service capability, which will leverage the service capabilities that are coming out of RTG, for their imaging equipment, navigation and their Mazor X spine robots. So we'll have that to leverage and build from a service capability and we're building our commercial team now. And we've learned a lot from Mazor. We've learned a lot. It's different, the segment, but there's a lot of similarities. And so we've got to leverage those learnings and I feel -- I'm excited about it. I'm excited because the competitor that we're going after is strong, which gets me excited as to take on that kind of challenge.

Great. I've got an audience question about China, whether the U.S.-China relationship seems increasingly uncertain, it's a growing focus on nationalized supply chains. I know you've spent a lot of time personally in China, starting years ago with the Conway deal. How do you think about Medtronic's outlook in China? And are you considering any adjustments to your supply chain?

Well, from a -- let me just answer the supply chain piece first. Not -- our supply chain -- we had that hurricane a couple of years ago. We learned something around business continuity from that. We were exposed to the hurricane in Puerto Rico more than we would have liked. And so I feel like our business leaders and our operations leaders have the right business continuity in place. And our exposure to China from a supply perspective, is manageable. We've got -- so that's not something that's been a problem, and we don't anticipate it being a big problem, but we'll continue to watch that. But the longer-term -- look, China is a huge market. And there's a lot -- I mean, obviously, there's 1.4 billion patients. There's more physicians than any other market in the world. It will be the largest health care market, and we have to be a leader there. And the path to leadership is -- and we have a really good base there. Over a $2 billion business. We've got already local manufacturing, local products. We've got great partnerships with various provinces. Huge footprint of education centers there or building a new one in Chengdu, a state-of-the-art physician education center. And we have hundreds, a couple of hundred -- over 300 engineers there to do local innovation. But we have to take that to another level. I basically when -- what I'm suggesting the company does, is basically localize another Medtronic in China. It's that big of an opportunity, and we need to localize a lot more of our products, and we -- it justifies a bolus of investment to localize more products there. And what I mean by localize, not just manufacturing, but the local R&D, doing that same -- the patients aren't all that different. It's not a physiological difference between a Chinese patient and a western patients. It's more the health systems are different. And there's a lot more volume, the physicians get a lot less training. So our products have to behave differently. So those needed to be designed specifically for that health system. That health system is starting to demand it. And the government is demanding -- a favoring for share of local companies. And so we are preparing to grow even more of that behavior, whether it's a carrot or a stick in terms of tariffs or whatever. So our long-term outlook on China is bullish. We want to localize more. And if trade barriers go up, we want to have a locally contained ecosystem there. But I think long-term, my personal view is that China needs U.S. and U.S. needs China economically. And over time, there'll be a pragmatic approach here.

We're running out of time, unfortunately, but I've got to ask you this. This is the strategic decisions conference, so when you look ahead to the next -- to your tenure as CEO, what do you see as the top couple of strategic decisions? And how do you think about those?

Sure. I mean, look, we just talked about one, China. I mean, I do think, especially now where people are questioning, I just gave you my answer there. It's just a question of how much you put in there. But China is a big one. For us, I mentioned getting -- building up more consumer muscle is another one for us. Another big one would be AI and data. These are -- we have a number of plays there. We bought a company in diabetes that helps with AI for diabetes algorithms. We just bought a company at London called Digital Surgery to put AI into our robotics platform. We've got -- we have a partnership with Viz.ai in stroke, which is a AI platform that helps identify potential strokes through imaging for health care systems. We have a lot more data scientists than I knew about in our Cardiac Rhythm business, designing their algorithms. But having a broader AI play across the company is a big strategic decision and investment that we need to make. Today, it's focused but it's too narrow. And I think we need to step that up. And the other one that's come up more recently is the virtual everything. I mean the virtual -- how do you -- virtual case support for procedures, virtual device programming, virtual patient management or remote patient management. As I mentioned, we have a lot of that built into our technology. We have a remote patient -- a separate remote patient management business that is not tightly connected to our core business. We bought it a number of years ago to learn this. And now that's looking like a good investment and taking a step forward in telehealth and remote is, I'd say, a fourth. But those are some big ones that we need to continue to think about.

Excellent. Awesome. Well, unfortunately, we're out of time. I wish we had another hour to get through all the interesting parts in Medtronic's business. Thanks so much, Geoff, for joining. I'll just remind investors to click on the Procensus link on the left side of your screen for just a short survey on Medtronic. Geoff, thanks so much. Really appreciate it.

Thanks having me. It's great. Thank you.