Medtronic plc (MDT) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Medtronic plc's 2020 Annual General Meeting. At this time, I will turn the call over to Geoff Martha, Chairman and Chief Executive Officer of the company.

Okay. Good morning, afternoon or evening, depending on where you are located around the world. I'm Geoff Martha, the Chairman and Chief Executive Officer of the company, and I will preside as Chairman of today's meeting; and Brad Lerman, our Corporate Secretary, will act as secretary of this meeting. In previous years, we have invited our shareholders to attend the Annual General Meeting in person in Dublin. However, in light of recent -- of risks associated with the COVID-19 pandemic and with the health and safety of our shareholders and employees being a top priority, today's meeting is being held in a virtual format only via live webcast over the Internet. It is now just after 9:00 a.m. Central Time, and I call the meeting to order. Before proceeding to the business of this meeting, I would like to introduce the other members of the Board of Directors who are joining virtually this morning. They are: Scott Donnelly, Richard Anderson, Craig Arnold, Dr. Andrea Goldsmith, Randy Hogan, Governor Mike Leavitt, Jim Lenehan, Kevin Lofton, Dr. Betsy Nabel, Denise O'Leary and Ken Powell. The previously announced retirement of Omar Ishrak as Executive Chair and Chairman of the Board took effect immediately prior to the Annual General Meeting, and he will not be standing for reelection as a director today. I would like to take this opportunity to thank Omar for his significant contributions to the company during his tenure and wish him the very best in his future endeavors. I would also like to welcome Kevin Lofton to his first Annual General Meeting as a Director of Medtronic. We are also joined virtually by Karen Parkhill, the company's Chief Financial Officer; Ryan Weispfenning, VP of Investor Relations; and representatives of the company's independent public auditing accounting firm, PricewaterhouseCoopers LLP. A majority of the total number of ordinary shares outstanding on October 15, 2020, the record date, is present at this meeting or represented by proxies held by the secretary and assistant secretary. Therefore, a quorum is present and this meeting can proceed. The inspector of election determines the exact number of shares present at the meeting and voting for or against each proposal. A final report of the number of shares represented and how they voted will be completed shortly after the meeting. In accordance with the company's articles of association, each proposal presented at this meeting will be decided by a poll. Any person or entity that held the company's ordinary shares on the record date is entitled to vote, and each ordinary share is entitled to 1 vote. Voting is by proxy and online ballot. As a reminder, shareholders attending the virtual meeting can vote their shares online from now until the closing of the polls by logging into the meeting website and clicking the Vote Here button on their screens. You do not need to vote via the website if you already voted before this meeting. We have 6 proposals today as discussed in the proxy statement. After all the proposals have been presented and the preliminary voting results announced, there will be an opportunity for questions in accordance with the rules of conduct of this meeting. [Operator Instructions] Questions submitted, which are related to matters properly before the meeting, will be addressed at the end of the meeting by the secretary or assistant secretary. Please note that similar questions will be consolidated and posed as one question. Questions submitted that are not addressed due to time constraints will be responded to by a representative of the company in due course after the meeting. I will now proceed with the business of the meeting. The notice of the 2020 Annual General Meeting was included in our revised definitive proxy statement that was filed with the U.S. Securities and Exchange Commission on October 13, 2020, and mailed or made available to our ordinary shareholders on or about October 29, 2020. In addition, our company's Irish statutory financial statements for the fiscal year ended April 24, 2020, which include both the directors' report and auditor's report were made available on October 29, 2020, to our ordinary shareholders of record as of the record date. Since an affidavit has been received from Broadridge, our mailing agent, confirming the notice of the Annual General Meeting was duly served, the notice can be taken as read. The polls are now open for voting. We will close the polls after the proposals have been presented. The first item of business is the consideration of a proposal to elect by separate resolutions 12 directors to serve as members of the Board of Directors of the company for a term of 1 year expiring at the 2021 Annual General Meeting. Our Board of Directors has, upon the recommendation of the Nominating and Corporate Governance Committee, nominated 12 persons to serve as directors. The 12 nominees of the Board are listed on Pages 11 through 16 of the proxy statement. All of the nominees are persons currently serving on Medtronic's Board. Since the company was not notified of the intention of any shareholder to nominate any other director at this Annual General Meeting, the only nominees who may properly come up for vote are the nominees recommended by the Board of Directors as set forth in the proxy statement. Accordingly, the floor is closed for nominations for directors to be elected by the shareholders. I propose that the election of each of the 12 nominees be put to a vote as 12 separate ordinary resolutions. Second, I propose that the ratification of the reappointment of PricewaterhouseCoopers LLP as the company's independent auditor for the fiscal year 2021 and the authorization of the Board of Directors of the company acting through the Audit Committee to set the auditor's remuneration be put to a vote as an ordinary resolution. Third, I propose that the approval on an advisory basis of the compensation of our named executive officers as disclosed in the proxy statement be put to a vote as an ordinary resolution. Fourth, I propose that the renewal of the Board's authority to issue shares under Irish law on the terms and conditions set forth in the proxy statement be put to a vote as an ordinary resolution. Fifth, I propose that the renewal of the Board's authority to opt out of statutory preemption rights under Irish law on the terms and conditions set forth in the proxy statement be put to a vote as a special resolution. Sixth and finally, I propose that the authorization of the company and any of its subsidiaries to make overseas market purchases of Medtronic ordinary shares on the terms and conditions set forth in the proxy statement be put to a vote as an ordinary resolution. The final item of business is to receive and consider the company's Irish statutory financial statements for the fiscal year ended April 24, 2020, and the related reports of the directors and auditors and to review the affairs of the company. Since copies of the Irish statutory financial statements for the year ended April 24, 2020, have been in the possession of our shareholders of record for the requisite period, I propose that they be taken as read and considered by this meeting. Since there are no further items of official business on the agenda, I declare the polls closed and ask the inspector of election to canvass the ballots and tabulate the voting results on each of the above 6 items. I now call on the secretary to provide the preliminary results of the voting.

Thank you, Mr. Chairman. The preliminary results of the voting are that Resolutions 1 through 6 are carried with the requisite percentage of votes cast in favor.

As the final tabulation of the polls may take some time, the final results of the polls will be announced on a Form 8-K to be filed with the U.S. Securities and Exchange Commission no later than 4 days after today. This concludes the formal portion of today's meeting. I will now be happy to take questions or comments. I will hand over to Brad Lerman for the Q&A session.

Thank you, Mr. Chairman. A few questions from individual shareholders were submitted in advance of the meeting, some of which covered similar topics. The first line of questioning relates to Board member diversity and whether the Board has a plan for increasing the number of female directors or directors from diverse racial and ethnic background.

Thanks, Brad. As disclosed in our proxy statement, our 3 female and 2 racially diverse directors together constitute over 40% of our Board. Although we do not currently have a formal diversity policy, our Nominating and Corporate Governance Committee is committed to identifying a diverse pool of qualified director candidates to recommend to the full Board for election as part of its ongoing Board refreshment activities. And the 3 most recent directors appointed by the Board to fill vacancies consisted of 2 female and 1 racially diverse candidate. And adding more ethnic and gender diversity is a priority as our commitment to diversity must be reflected on our Board.

The next question, Mr. Chairman, is what is being done to innovate on the pain therapies front?

Well, as we shared at our Investor Day in October, we've been heavily invested in pain therapies, which is part of our Neuromodulation business. We acquired a company earlier this year called Stimgenics and their unique pain stimulation waveform called DTM. We paired the DTM therapy with our Intellis platform, and this has really reinvigorated our business and put us on the offensive. In October, data was presented which showed DTM on our Intellis platform provides superior back pain relief at 12 months. And when you pair this with our Overdrive battery technology, which comes with a 9-year warranty, we're gaining new implant share despite the disruption from COVID. We're also investing in 3 randomized controlled trials to expand our pain therapies indications, which have the potential to more than double the size of the market. Finally, we're investing in new pain therapies technologies in our pipeline, which we haven't yet disclosed for competitive reasons. Take all this together and you could see that we view pain therapies as a growth driver for Medtronic and one where we're on the offensive with our innovation.

The next question is, when will the robotic assistant surgery system, Hugo, launch in the United States?

We're excited about bringing our soft tissue robotics system to the market. Now we haven't provided a specific date for FDA approval. We have said that we intend to file our IDE with the FDA toward the end of the first calendar quarter 2021, so in about 3 months. The IDE, when approved, will allow us to start our clinical studies in the U.S. We also plan to submit for CE Mark at about the same time, which when approved will allow us to begin selling in Europe and other CE Mark countries.

The next question is, would management review the pay for the lowest compensated employee to consider if it is fair and livable?

Medtronic reviews its compensation practices annually to ensure that we are compliant with all wage laws in each country and to ensure that our pay and benefit levels will attract and retain skilled employees for all of their jobs.

The next question is, where can one find more information on the performance of directors?

I'm not exactly sure what is meant by performance. But we have a highly engaged Board that holds me and the management team accountable. Pages 10 through 23 of our proxy statement contain detailed information on the qualifications and responsibilities performed by our directors and Board committees. In particular, over the past year, the Board has had a large positive impact on the company, including executing a CEO leadership succession plan, guiding the company through a global pandemic and supporting the management team on our journey of creating our new operating model.

Mr. Chairman, the final question or perhaps comment simply says "reinstate disability option to liquidate shares."

Yes, I'm not exactly sure what the comment is referring to. But assuming it relates to our retirement plans, I would note that our plans already provide for vesting of employees, employee unvested equity compensation and the ability to sell due to retirement, death or disability.

Thank you. Mr. Chairman, with that, and in accordance with our rules of conduct, we will need to bring the meeting to a conclusion. As noted earlier by the Chairman, properly submitted questions that we have not been able to address due to time constraints will be responded to by a representative of the company in due course after this meeting.

Since there is no additional business to be conducted and we have come to the end of the meeting, I'd like to thank everyone for attending, and I formally declare the 2020 Annual General Meeting closed and adjourned.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.