Medtronic plc (MDT) Earnings Call Transcript & Summary

All right. Good morning, everyone. I'm Jamie Perse, healthcare provider analyst at Goldman Sachs, and I've formally been on the Med tech team as well. Our next panel is with Medtronic. We've got the Chairman and CEO, Geoff Martha. Thank you for joining.

Yes. Thanks, Jamie. Thanks for having us.

I want to start just high level with the utilization environment. It was a strong quarter for you guys in fiscal 4Q. It was a pretty good environment for everyone, probably easy comps as part of that. But what are you seeing just in terms of the utilization environment and the recovery? Let's start with the U.S.

Well, it's definitely improved. And I attribute it to the biggest factor, I think, would be the labor markets have gotten a little better. So a lot of the procedures that were -- some of the procedures that we're holding -- that were kind of lagging were really dependent on labor, like TAVR or things like that, you need to get imaging work up just to get to the TAVR procedure, and there were some backlogs there. And I think that's gotten a lot better. And so the U.S. is doing a lot better. And like we said on our call, our fiscal year ended in April, but even into May, we saw continued acceleration. And quite frankly, the U.S. for whatever reason, was a little bit behind Europe. Europe was stronger earlier and now we're seeing that translate in the U.S. and kind of keep going around the globe to our bigger markets. Japan has had a real strong balance in the last couple of months. And so overall, I think things are in a good spot from a procedure standpoint.

Yes. And the comments on acceleration in April and continuation into May, I mean that got some -- some focus. Has that continued just the momentum and you spoke about labor being a key piece of that? It feels like that has continued to get better. So has that health...

Yes, labor markets, and I was actually in D.C. last week and get to hear the Treasury -- Secretary speak a few times, and they're definitely saying labor markets are loosening up a bit. And we're seeing it both where you -- for procedure utilization, so healthcare workers. But for us, we're also seeing it in suppliers. A lot of the supply chain issues, everybody you hear about the commodities like certain chips and resins and things like that. But a lot of the issues that were short -- which is better now, but a lot of the issues were labor too. And so it's better on both ends.

Okay. Internationally, you spoke about Europe being a little bit ahead. Is that a market thing? Or just Medtronic product cycle piece that's made that recover...

I think it's a little bit of both. I mean, for whatever reason, even in cardiology, where I don't think there was a product cycle thing. We had a nice pickup there first, and then we saw it in the U.S. But in certain businesses like our diabetes business, for example, we had definitely more of a Medtronic thing where our diabetes business in Europe is doing great, growing mid-teens. And in the U.S., it was actually shrinking until now when we're launching our new technology.

What are you seeing in China? I mean it's always in the headlines. It's been all over the place over the last year or so, fits and starts. What have you seen in terms of the recovery in China?

Well, I'd say there's a couple of things going on in China. I'll just I could talk this whole time on China, but I'll keep it simple. One is the procedure recovery is back. I was just there a month ago and the economy, although it's still a little lighter than what they want, it's humming and procedures are back. The second thing we're seeing is the volume-based pricing. That's kind of happening over a 2.5-, 3-year period. And we're saying that by the end of our fiscal year, everything is going to -- in our portfolio that will have a VBP impact will be done. And so volume-based pricing is something that goes into our FY '24. It's all in our guidance. And then after that, we've been able to take -- we've been taking significant costs out because the market is now more of a contracted business, much fewer vendors, higher volume, more contracted. So we've been able to take sales and marketing out costs out to offset the pricing declines, but to mitigate, I wouldn't say offset. It's a lower profitable market. It used to be pretty high. It's a little lower profit margin for us, but still good. And then the third thing that we're watching in China is geopolitics. Every day, you pick up the paper, you read more about that. But it's we're investing in China. It's a big market, and it's growing. And we anticipate -- this last year, it was down for us because of VBP this year, more flattish. And then after that, it gets back to that high single-digit, double-digit growth.

I'll go to guidance. I'll segue there and go to China. What's in guidance for China? And are you seeing the environment progress in the way that you thought? I know it's you just guided by...

Yes, we just guided, there's a lot of questions around the guidance. I can talk about that. But your question on China. Yes, I feel like a year ago, 1.5 years ago, it was really hard to get your arms around VBP because the central government told you one thing and then the provinces were doing more aggressive things and moving faster. But now we've got our arms around it. It's in our guidance, like I said, by the end of FY '24, everything that we thought would be VBP -- that will have the [VBP] impact will be behind us. And all that's in our guidance. And we're seeing maybe even a little stronger China growth than we'd anticipated, honestly. And -- Yes. That was -- yes, China and guidance.

Okay. Let's go straight to guidance. I mean you just guided 4% to 4.5%. You signaled for modeling purposes, the lower end of the range, as Karen said to set you up for success this year. How should we interpret that guidance and being at the low end of the range? Is it conservatism? Why that approach?

Okay, I think we wanted to set ourselves up for success. I mean, we feel a lot of things are inflecting in a positive way for us right now. And along with that, so you've got a couple of things going on. You get the -- we just talked about the markets are in a good place. Medtronic specifically, we've gone through a really difficult time over the last 2, 3 years. And now we have a lot of things inflecting in a positive direction at once. And we don't have any businesses or any areas other than VBP that are -- which we -- that are taking a step back. And we feel like we feel good about that. But all that being said, we wanted to make sure we set ourselves up for success. And that's reflected in our guidance. But don't displace our guidance for lack of confidence in either the markets and where the company is right now. We can -- you can ask me all about it, but we feel good.

Where are you baking in additional conservatism this year? You've got diabetes. We'll see how the ramp progresses there in the U.S. as you get products back on the market and the macro environment, supply chain, labor, all of these things. I mean where are you putting additional clinic...

There's a little bit of uncertainty around China. It seems to be playing out in a positive way, like I said earlier. Diabetes, when we had just gotten the news and we're going to be talking at [indiscernible]. I'll be there with [indiscernible] in, I think it's June 25 with [indiscernible] and Ali Dianaty, who's the head of technology for that business, and we'll be talking about our pipeline, and we'll give you an update on the 780G launch in the U.S., but it's -- we're very excited about it. So there's some unknowns that I'd say that were reflected in there. But nothing new, nothing specifically that -- nothing bad, nothing new.

Okay. Okay. Two macro topics I want to touch on first staffing. It's just been -- it's been an impediment all last year continues to be in some markets. You mentioned TAVR. What are you hearing from hospitals now in terms of their ability to do procedures? And is that still a bottleneck at this point?

Not like it used to be. I mean it was -- when I would go -- pride myself in spending quite a bit of time with our customers and especially in the U.S., but now I'm flying more globally. But in the U.S. specifically, a couple of months ago, 6 months ago, there were a lot of frustration and emotion when you talk to heads of different departments like TAVR, and they were so frustrated with the -- came in today, had to cancel two cases because so and so didn't show up or the imaging didn't come in or this or that. You're not hearing that. It's still a bit fragile, but it's in a lot better space.

Is there still room to progress and that unlocks additional volume? Or is it just no longer really...

Yes, it's hard. There's a lot of other things going on. It's hard for me to predict that. I don't know the answer to that, if there's more room to run, but it feels good right now.

Okay. And then on supply chain, this has been a challenge for a lot of med tech companies over the last year. What's the state of the global supply chain?

Again, like I said earlier, a lot of it -- people were -- a lot of analysts and investors are focused on the commodity shortages, like I said, like resins or the plastics and certain large chips, larger-formats, semiconductors. They're still a bit fragile, but they're in a lot better spot. We're supplying demand. We're now shipping down, and we're now eating away at our back orders. It feels a lot better. But another driver of that was just labor market and our suppliers. Suppliers that couldn't staff their lines. And then on top of that, you bring in new labor and they have to be trained. So it hurts their productivity. So that's in a better spot as well. And then specifically, we had -- for our surgery business, we had a couple of specific supply issues that kind of came together that really brought that business to its knees for a while, where it couldn't supply, and it was impacted in our growth, and it's such a big business for us. It impacted Medtronic's growth. Now that is [indiscernible] business, and we've been saying all along that, that business is more contracted physician preference business, and it would kind of come back with when our supply chain comes back. Well the supply chain is coming back and that business is snapping back for us and -- and that's behind us.

How are you thinking about designing the supply chain for more resiliency going forward? And...

Great question.

And I guess how do you do that without adding a lot of cost?

Well, there's a huge opportunity for us because the way we are managing it for cost -- cost productivity and get resilience at the same time. Let me explain. We manage this in a fragmented way. Each one of our businesses had their own supply chain. And when you added it all up, I mean, some businesses shared, we have like 13, 14 supply chain organizations. We're now down to one. And what that does, just -- let's just take supply sourcing, for example, we, instead of having where you could use it [a dozen] -- take a commodity like metals and maybe we need a dozen, 15 suppliers. We'd have hundreds. And so what happens is we're fragmented. We're small even though we're a large company, we're small to that supplier. And we were -- and so when the markets got turbulent, we weren't above the line for them. And on top of that, we weren't getting the best pricing. So now that we've centralized this and we've put like, I think, an all-star team of sourcing and supply chain professionals from all different industries, we kind of went out, like drafted them. Med tech is a fun place to come and apply aircraft, and they're bringing a whole new expertise to Medtronic, but even to med tech. And so what we're doing is take like we just recently did a metals request for a proposal. And we're bringing hundreds of suppliers down to a dozen. And we're going to have higher volumes and better price. We're not going down to one. We're going to still have a dozen. So we have the resiliency and their strategic suppliers with contracts and service level agreements with us that we didn't have before, and we're getting better pricing at the same time. So the reason we're able to get better resiliency and better pricing at the same time, which might seem counterintuitive is because where we work. And it's a big improvement.

So are you starting already to see the benefits on the cost side?

The cost side is early because -- because first, the focus was resiliency, right? We just -- I mean, literally, it was -- we had an internal project name for this, but effectively, it was taking a lot of our resources and embedding them in the suppliers because they needed help not just labor help, but they needed like technology assistance because they just didn't have the labor. That piece of it is kind of waning off as the conditions are getting better, and we're moving into more of a focus on cost of goods sold, productivity here, and there's a lot of room to go here, whether it's examples of bringing our supply base down to a smaller number, more strategic suppliers, better pricing or consolidating facilities. We have too many facilities still. There's a lot of opportunity here that's going to be -- I think our cost of goods sold productivity will be 2 to 3x what we got prior to the pandemic, and this is going to go on for as long as I can see.

Yes. It's a good segue way to gross margins, which I want to go to next. They're down 400 basis points versus pre-COVID. How much of that is transient that you can get back versus permanent?

Well, look, the bulk of it is, as you call transient, it's tied to inflation. I'm not -- I did listen to the Treasury Secretary last -- [indiscernible] with her twice last week, but I'm not Treasury Secretary or the Fed. But I do think inflation, a lot of that was inflation. We do think that's coming down and the tight market in the supply chain. That's improved, tied with inflation and a strong dollar. So these things have to work their way through, but they do, from my perspective, feel a little bit more -- not -- I wouldn't say they're permanent for sure.

And you've spoken about this 2- to 3-quarter lag of manufacturing going into inventory and then cost of goods. Where are we in that? I'm just trying to understand if things stay as they are now stable, does that imply gross margins should begin to recover from here? Or is there still kind of a bolus of manufacturing variance?

We still have a little bit of time to -- like I said, we feel good about the top line growth. We had a good back half of the year, we're going to grow from there. And then the margins, we have the plans in place to bring them down, bring the cost down and bring the margins up. We got to have the inflation work up. But that -- we still have some time to work through -- I don't want to call it a [bolus], but there's still some cost sitting on our balance sheet that needs to work through. So they need to stabilize first.

Okay. And you started to mention and Karen said on the call, you have the plans and work in place to start to stabilize gross margin and then recover.

Exactly.

Can you give us more color on the plans and the work involved, where are you in executing against the gross margin recovery?

Yes, she didn't give you exact timing, but it is -- we still -- like I said, we have a period of time we need to stabilize and we'll grow from there. The plans are -- we've been working on these for a while. I mean so we're well into them. And it is things like -- for us, the biggest one is on the cost of goods sold. Well, first of all, we're talking about -- let's talk about gross margins. First of all, the pricing environment is -- especially once VBP is over is better. Now the last 2 years, we've been able to do -- our pricing dynamics are better overall at the company. And we think that's sustainable. That's maybe 200 basis points which we weren't getting pre-pandemic. So that's on the pricing side. Then you go down to the cost of goods sold side. And again, some of it's less in our control like inflation and FX, and that is definitely getting better. but the cost of goods sold 60-plus percent -- over 60% of our cost of goods sold is tied up in materials. That's why it's so important that supplier strategy I talked about, that's well underway and you'll be seeing that impact for years.

Why do you feel the pricing dynamic is sustainable? I mean hospitals are going through their own challenges pushing back on price. Is this a Medtronic specific thing or industry thing? I mean why do you think...

All I know is on the industry is what I see in the public comments. And I have picked up on, and I'm sure you have two other companies that are focused on it. We focused on it at a need during the pandemic. And quite frankly, the question is why weren't we as focused on it before? Somehow we got lulled into hey, every year, in certain markets, we should have a certain -- we should expect a certain price. And when you -- and when we said, those assumptions if we did certain things differently, can we change those assumptions? And we've had the ability to do that the last 2 years. So I think it's just us focusing, making this a priority and -- in the face of inflation and FX and everything like that. And I do think that's sustainable.

Okay. How much of this 400 basis points do you think you can get back over time?

We even said, I mean, because how much will go all the way to the bottom line? Another question I get is like should you be putting more in R&D? But I can tell you this, we feel good about the ability to drive gross margin accretion. Now how much will go all the way down, that's something we got to work through.

Okay. SG&A has been an offset to the gross margin pressure. I guess, just how much more efficiency can you extract there and you...

Well, I think we had a meaningful bolus of that over the course of the last couple of months. But I think as you go forward, we are doing things a little differently where things like our merit increases that were, I call that 3% a year, whatever. We're now 3%, 4%, we're now telling the businesses you need through -- business process improvement to drive that kind of productivity in your SG&A every year and have that kind of mindset. And then we're focusing on those gross margins much more so than we had in the past. So I'd like to think that our company has got a different execution mindset with the people that we're bringing in, new changes, different focus on pricing, different focus on capital allocation, different focus on -- more focused on the global operations and supply chain to grab the -- some cost efficiencies every year that we can put back in. Some goes down to the shareholders, some of this into R&D.

And R&D, you've been pretty clear, you're going to protect this, and it's not going to be a driver of margins. If do you -- when you look across the portfolio, are there areas where you think you need to incrementally invest, or is it more about reallocation of R&D dollars?

It's a little of both. I mean we've been working on the allocation. So we've had this capital allocation framework. We've identified our top growth areas. And as we sit here today, we've identified these 5 top areas. And then we've got our big 3 businesses like surgery and cardiac rhythm and spine that you need to -- you can't -- you've got to meaningfully iterate to kind of keep them -- and they're all in really good spots right now to keep them there and make sure on the other 30% of your revenue. So if 20% in that top bucket, 30% is in that -- I'm sorry, 50% is in the big 3 businesses. The other 30%, you got to invest in us, so none of them take a step back. So I feel we're in a pretty good spot there. But I do think that over time -- and it's not going to be like a big jump at once. I'd like to get our R&D as a percentage of sales, a little bit more than it is. So growing faster than sales.

Okay. Let's go to EPS. I mean you just guided $5 to $5.10 for this year. you've been signaling for a couple of quarters now. It was going to be a tough EPS year. How should we think about getting back to the 8% target? Is 2025 too soon for that? I mean how to think about getting back...

We didn't give that kind of guidance yet I think in terms of the exact timing, but I would say this, that key to us is getting that top line durably at that -- if you're not durably growing at that kind of 5% range -- 4.5%, 5%, it makes it hard on that 8% EPS. So I want to make sure that we're durably growing at 5%. Looking at our markets, looking at our pipeline, I feel confident in our mix, we should be at that 5%. And we did it the last 2 quarters, but I'd like to have investors have confidence that it's kind of locked in. And so we have to prove that. That helps a lot, that kind of revenue growth and the leverage that comes from that. And then these gross margin plans I talked about as well as a more continuous improvement on SG&A versus these boluses of restructurings, it's not healthy. So there's continuous improvement on SG&A to cover inflation and other things and continue to meaningfully cost of goods sold productivity every year. I think we'll be in good shape on that 8%.

Okay. So top line is a key variable...

Top line -- the productivity on the SG -- on the cost of goods sold line, which we talked about. And then it doesn't -- we don't need -- just using modern technology and business process outsourcing. On the SG&A line, we don't need big cuts and then you have a good path at 8%.

Yes. I mean the question I want to ask is if you can get to 5% next year? I mean, there's a lot of businesses inflecting, which we'll get to in a minute, some of the specifics. But if you can get to 5% or around there next year. Are there still headwinds to EPS in...

Well, we talked about that -- we talked about the -- oh, 2025?

Yes. Just thinking ahead, we know what your guidance is for this year, but just thinking ahead to next year, are there still things that are going to impede EPS growth in that 8% target next year?

Yes. I don't -- we haven't before modeled that out and provided that color yet.

Okay. Let's just go to portfolio strategy real quick. You've divested a couple of things. I think you've signaled probably not doing a lot more this year in terms of divestitures. There's a lot of execution around that. When you look at the portfolio, I mean, where do you -- what criteria are you looking at for things that are essential to keep versus things that are candidates for divestiture?

Well, when we're looking at some of these divestitures, we're kind of looking at what's the -- is the investment -- how does it rack up compared to some other opportunities we have? Like -- and so some of them, like dialysis, for example, we completed that partnership with DaVita, and we're very excited about it. We're still -- we're the big 50% holder, investor, believe in that technology. But the P&L investment that, that would take and the impact on the rest of the P&L just didn't rise above the line versus what else we have. And so in that case, let's say, hypothetically, we were investing $100 million, we divest that. It's now off of our P&L. We're still spending that $100 million, invest -- it's just we put that into other areas. So that's how we're thinking about it is we've got some -- these -- like these top 5 areas: Nerve vascular, structural heart, soft tissue robotics, diabetes, AFib. These are areas that we could definitely put more money into and that's what we're really focused on. So picking those high flyers and allocating, assuming they're executing and those markets continue to perform. We think those are secular growth markets, all 5 of those, and we're executing. There's more we can put in there. And that's why we're prioritizing that. But we have to make sure our base is always healthy which is our cardiac rhythm, surgery, which is our largest and spine. And so you've got to make sure -- you can't just stretch them too far. You've got to make sure they have enough for meaningful iteration. And then the balance, we're looking -- we want to make sure we're investing enough, so they don't take a step back.

Well, let's go to one that you mentioned, diabetes. You guys put a press release out this morning. You started shipping the 780G in the U.S. You've got ADA coming up, I assume that will be a big event for you guys with the relaunch. How should we think about the cadence of share recapture in the U.S.? And it's probably been a frustrating environment for your customers over the last couple of years. How do you win them back?

Our patients, you mean? Yes, end customers. Well, look, we went back with the clinical outcomes. I mean I talked to a long time endocrinologists, a very tenured endocrinologists who quite frankly, has not been a big fan of Medtronic over the last couple of years, and she literally was crying on the phone with me like could not believe the impact 780G, like crying in a good way, it was having on patients. I mean everyone's talking -- look, stand-alone CGM, no finger sticks, that's a big market and will continue to grow. We're really focused on automated insulin delivery, AID. This is a big deal for insulin-dependent diabetics and the Medtronic people are focused on is time and range. Our algorithm we believe gives the best time and range. We're seeing in the wild with the 780G, like beyond our clinical trial, we're seeing better results than we anticipate -- than anybody anticipated based on this meal detection technology. That's what you'll hear about in [ ADA]. It's meal detection technologies that's looking at insulin levels every 5 minutes and then making adjustments is driving these high 80%, 90%, even 100% time in range, which is a huge deal for diabetics. And it puts car -- puts the whole disease state in the background and mitigates. And that's very exciting, and that's why it's something that's very hard for patients to deal with and for doctors.

Important clarification, crying in a good way. Good to hear.

We've got a little reaction from the crowd here. There's the donuts out there that look pretty good. And maybe people who have had a few of those donuts and kind of...

Europe's clearly been strong on the diabetes front with the full portfolio 780G. Is that the right proxy to think about U.S., and where it can go from here?

Yes, I would like to think so, and we'll see. People point out to me that maybe the U.S. is more competitive. I'm not sure. Europe's, we feel like all the competition is there as well. But yes, we think the business is going to get back to. We're very confident the business is going to get back to that double-digit growth.

Okay. What can you say about your next-gen CGM and where the pipeline is going?

Well, we call it Simplera. So it was 780G the system is launching in the U.S., it comes with Guardian sensor 4, okay? It's still larger and harder to put on than we'd like. The Simplera or the next gen, we've applied for CE Mark months ago. And we believe that will be on the market sometime in the fall in CE Mark countries, and we applied for the FDA approval a couple of weeks ago as well as months ago. I don't know the timing of that approval, but it is half the size of our current sensor, and it takes 2 seconds to put on. I mean, we -- I actually went through our clinical trial. I'm not diabetic, but I wanted to see, and it's very easy to use. So we think that's coming soon, and it will have even a bigger impact. So let me give you some statistics like you make your -- from an economic standpoint, we've been talking about clinical outcomes, and we think about clinical outcomes, but from an economic standpoint, you make your money in the automated instant delivery business on the consumables. Our CGM has double the attach rate where we have 780G where we don't. So people -- and that's with our existing sensor that is not as good as its new when it's coming. And that makes our diabetes business is a lot more profitable. So when we get that -- those sensor -- we have never seen a sensor of attach rates like this. It's because you get that meal detection technology only when our system is using our sensor.

Do you think that product can be competitive on a stand-alone basis? Stand-alone CGM?

We're not counting on that. Yes, we're not counting on that. I think -- I always want to be transparent. We think maybe not this generation, but the next one after that would be more competitive. And so let's talk in 2 years.

Okay. Let's go to the surgical robotic program. What's the latest just on reception in international markets? And what are the specialties that are gravitating to it? How are they using it?

Well, look, we've got -- and I've come to learn that you get urology, gynecology and general surgery. And the general surgery indication is the more complicated one. And we've got all those in some countries, and we'll have them all, and we're building those indications. And so it's handling the most complicated surgeries on par with the competition and getting great feedback. I mean I see surveys. The more surveys -- I saw a survey last week out of New York 2 weeks ago, talked about, hey, here's the pros of Hugo, here's the pros and cons of the competition. And it's, I like them both the same is what the New York said. So we're seeing a lot of that. So it's a competitive -- we're getting great feedback on it.

Can you give any updates on just how the U.S. IDE is progressing and ...

I can't. I don't want to go too deep into it. Otherwise, it's progressing well. It's a dynamic structure here where you have to do some cases and then present that data to the FDA. And if they're happy to each move on to the next phase, and there's a couple of phases, it's been a dynamic design. So they could say, okay, that's good enough. Or you know what, I want you to go try this over here, try to -- so it's why we're not trying to hide anything or it be coy here. It's just a more of a dynamic process with the FDA, but it's gone really well.

And you're starting with the urology indication that you see it's -- the market is much broader than that. How do you think about getting the other indications? Can it be competitive in the U.S. institutions that want to use it more broadly before those indications?

Well, look, we -- the surgeons determine how they use it, and we're going to only sell it based on the indications, but the surgeons will use it how they see fit. And the feedback has been really strong.

Can you say anything about timing for future indications?

I don't know that, honestly. I don't know that specific. Right now, we're just trying to get the trial through, and I don't know the other indication timing, honestly.

Can you talk about the pricing strategy a bit? I mean in the past, you guys have talked about that cost is a big barrier to robotic adoption. How are you guys thinking about the cost?

So again, I don't want people to think that we're discounting our robot. Our robot is going to be roughly on par based on what the market analysis I've seen with the competition in terms of the price of the unit. Why we think it's -- why we're confident that it's more cost effective is because it's compatible with our laparoscopic technology, and it's also -- like the surgery tower can be used. It's because it's more mobile and modular, that's the word I was looking for, mobile and modular, you can -- instead of having the 4 aren't attached, you can move them around. You can have 2 over here or 2 over there, and the surgery tower that can be used in our laparoscopic business. So it's more work -- it's a more -- from a case perspective, it's more of a workhorse because it's backwards compatible in the laparoscopic.

What about the instruments though? I mean, if you convert Medtronic lap to Medtronic robotic?

That's -- when that happens, right, when we get our stapling and we get our energy on Hugo, wow, I mean that's what people want. That there's a lot of technology and stapling and energy. That's the physician preference part of our surgical franchise, which is a very durable. You get that on the robot, that opens up a lot, because that's what surgeons are trained on. And there's a ton of -- everybody is focusing on the robots, but there's a lot of technology that into factors. And so we need some time to get them all converted over, but that's what we're working on. That's why we feel like our surgery business is so well positioned. Think about it. A lot of the -- we have like -- like in the case of Medtronic and J&J, we do a lot of the cases, most of the cases. And Intuitive sold a lot of robots, and the robots aren't doing as many cases yet. So now we are the one company that has the instruments that the hospitals rely on for the bulk of their cases in laparoscopic surgery, and we've got a competitive robot. We're the only one with both of those. We feel -- and it's a contracted business. So we feel good about where we're going with this business.

How is the hospital CapEx environment just broadly?

We've seen it -- they're still buying the equipment, acquiring the equipment. We've seen -- I'd say the change we've seen is it's more of a moving to leases than cash or finance leases, but operating leases. So that's one change we've seen. And in some cases, we've done -- we do some earnouts where you can pay for it over time. So whether it's an operating lease or an earn-out, the revenue is spread out over time versus getting it all up front at once.

Okay. I think with that, we're up on time.

All right. Thanks, Jamie. Appreciate your time to talk.

Thank you.