Medtronic plc (MDT) Q2 2016 Earnings Report, Transcript and Summary

Good morning, and welcome to Medtronic's Second Quarter Earnings Conference Call. At this time, all participants have been placed in a listen-only mode. The call will be opened for a question and answer session following the speakers' prepared remarks. [Operator Instructions] I would now like to turn the call over to Ryan Weispfenning, Vice President of Investor Relations. Please go ahead?

Great. Thank you, Maria. Good morning and welcome to Medtronic's second quarter conference call and webcast. During the next hour, Omar Ishrak, Medtronic Chairman and Chief Executive Officer and Gary Ellis, Medtronic's Chief Financial Officer will provide comments on the results of our fiscal year 2016 second quarter, which ended October 30, 2015. After our prepared remarks, we will be happy to take your questions. First, a few logistical comments, earlier this morning, we issued a press release containing our financial statements and our revenue by division summary. We also updated our combined historical Covidien-Medtronic financial statement presentation, which is posted to our investor relations website. This presentation now contains FY'15 quarterly P&L stated on a month-aligned basis instead of the prior quarter-aligned basis. Comparisons made today will be against the month-aligned P&L. Next, you should also note that some of the statements made during this call maybe considered forward-looking statements and that actual results might differ materially from those projected in any forward-looking statement. Additional information concerning factors that could cause actual results to differ is contained in our periodic reports filed with the SEC and we do not undertake to update any forward-looking statement. In addition, the reconciliations of any non-GAAP financial measures are available on the Investors portion of our website at medtronic.com. Unless we say otherwise, references to quarterly results increasing or decreasing are in comparison to the second quarter of fiscal year 2015, and our year-over-year growth rates are given on a comparable constant currency basis, which adjusts for the negative effect of foreign currency translation and includes Covidien Plc in the prior year comparison, aligning Covidien's prior year monthly results to Medtronic's fiscal quarters. These adjustment details can be found in the reconciliation tables included with our earnings press release. With that, I am now pleased to turn the call over to Medtronic Chairman and Chief Executive Officer, Omar Ishrak.

Good morning. Thank you, Ryan, and thank you to everyone for joining us. This morning, we reported second quarter revenues of $7.1 billion, representing growth of 6% at the upper end of our mid-single digit expectations. Q2 non-GAAP diluted earnings per share were $1.03, growing at 11% on a comparable constant currency basis and reflecting 480 basis points of leverage, above our baseline expectation of 200 to 400 basis points. Q2 was a strong quarter. Our operational performance remains consistent and we believe sustainable across all our functions, groups and regions. At the same time, we are outperforming the overall market and delivering operating leverage. We are also executing on our value capture programs from the Covidien integration and realizing the targeted cost synergies. This combination of solid top-line growth and leverage is generating significant accessible free cash flow, which provides us enormous flexibility to deploy through strong returns to our shareholders, paying off debt and pursuing targeted acquisitions. Despite our strong performance however, we recognize foreign translation is a significant pressure to our bottom-line on a reported basis as it is for most multinationals, but we are attempting to offset this as much as possible by stretching our operations and through our conventional hedging programs. As we look ahead though, our confidence continues to grow around our ability to develop the right mindset; business models and offerings to lead and compete in the emerging value based healthcare models around the world. I am pleased with our organization's willingness and aptitude to explore new and novel ways for Medtronic to not only deliver better clinical and patient outcomes, but to tie success to these outcomes with providers, payers and governments. Our strong revenue growth is resulting from crisp execution on three growth strategies, therapy innovation, globalization and economic value. These strategies are designed to create competitive advantage for Medtronic by capitalizing on three long-term trends that we keep playing out in healthcare. Namely, the continued desire to improve clinical and economic outcomes, the growing demand for expanded access to healthcare and the optimization of cost and efficiency within healthcare systems. We have tried [ph] to take in each of our strategies into three independent growth vectors and we continue to quantify and communicate our performance against these goals. In therapy innovation, we are seeing very strong adoption of our new products. Our new therapies growth vector accounted for nearly three quarters of our total company growth contributing approximately 420 basis points. This remains well above our goal of 150 basis points to 350 basis points. In our cardiac and vascular group, which grew 8%, we continue to see strong growth from recently launched products that are helping to create important, rapidly growing new medtech markets such as transcatheter aortic valve replacement, drug-coated balloons, AF ablation and insertable diagnostics. CVG is also seeing new therapies drive growth in space businesses such as our recently launched Evera MRI ICD, which is helping to drive both, sequential and year-over-year global high power market share gains. Over the coming quarters, we expect to launch a number of additional exciting new products that will continue to differentiate us in the market and help protect and grow our leadership position. For example, we continue to make progress on bringing our revolutionary Micra Transcatheter Pacing System to the U.S. Last month, we had a very successful late breaking data presentation at AHA, and a simultaneous New England Journal of medicine publication. This data form the basis for our FDA submission, which we filed in Q2. In addition, CVG continues to invest in key intermediate to long-term technology programs. Building on our success in transcatheter aortic valves, we are particularly enthusiastic about our recent acquisition of COV. This company has a differentiated transcatheter mitral valve, which has the potential to create a new, multi-billion dollar end market. We are also making progress in enrolling our SPYRAL HTN clinical program for renal denervation, an important therapy that we are pioneering. Renal denervation has the potential to help fulfill the huge unmet need in treatment resistant hypertension. Overall, I feel that our strategy has positioned us exceptionally well in the global cardiovascular device market. The team is executing consistently, gaining share, developing new markets and effectively leveraging it is breadth of therapy innovations to positively affect the lives of thousands of patients around the global. In our minimally invasive therapies group, which grew 3%, new therapies such as our differentiated Endo GIA Reinforced Reload stapling system and LigaSure Maryland Jaw laparoscopic surgery sealer and divider are driving strong growth. MITG has a full therapy innovation pipeline, with a specific focus on four areas, the transition from open surgery to minimally invasive surgery, respiratory compromise, lung cancer and gastrointestinal cancer. Across these growth drivers, we are developing solutions that span the entire continuum of care aspiring to enable earlier diagnosis, better treatment, faster competition free recovery, and enhance patient outcomes through less invasive solutions. I am pleased with the clear strategic roadmap the MITG team has developed through a very complex mix of products and capabilities. The strategy supports the outcomes-based Medtronic mission and will serve as the foundation against which we are assessing our entire MITG portfolio. In our Restorative Therapies Group, which grew 5%, we have a number of new products driving growth. In Surgical Technologies, we recently launched O-arm 2 [ph] surgical imaging system NuVent sinus balloon. In Neurovascular, our pipeline Flex and Solitaire FR devices are leading the rapidly growing stroke market. In spine, our business outside the United States performed well and grew above the market. In the U.S., while our performance was below market, we did see sequential improvement after adjusting for the extra week in Q1. In Neuromodulation, while we continue to make progress against our FDA consent decree commitments and are focused in resolving this matter our - revenue has been somewhat affected by this situation. We also are facing increased competition in Pain Stim where our sales were flat compared to last year. Our Restorative Therapies Group is urgently addressing these specific issues as well as leveraging the breadth and scale of the group to the commercial implementation of surgical synergy. One example is a program that combines O-arm placements with increased spine implant commitments. Under our new integrated RTG sales management structure, we have already finalized several of these contracts in the first half of this fiscal year and have seen notable increases in our spine implants sales in these accounts. While still early, our expectation is that strategies like this will result in improved performance. Our Diabetes Group, which grew 11%, also has new products driving growth, including the MiniMed 530G and MiniMed 640G systems as well as MiniMed Connect, which provides convenient and discreet access to patient data and remote monitoring from the user smartphone. In our Non-Intensive Diabetes Therapy Division, we recently launched pattern snapshot for iPro Professional CGM, which uses new algorithms to streamline data interpretation for healthcare professionals. These advancements along with a full pipeline of new products and solutions are aimed at creating an annual cadence of innovation that can extend our leadership position globally. As a result of the products that are currently launching, as well as our robust pipeline and the potential of new markets across all of our groups, we believe, we sustain our new therapy growth vector at the upper end of the 150-basis point to 250-basis point range. Now let's turn to our globalization strategy. In Q2, emerging markets grew 11%, a sequential improvement over the prior quarter and contributed approximately 140 basis points to our Q2 total company growth. This was just below are baseline goal of 150 basis points to 200 basis points, but we are encouraged by a relatively consistent above market performance in countries that are under significant macroeconomic pressure. We continue to see increased diversification of our emerging market revenue, which stabilizes the growth rate and reduces the dependency of any single market. In Q2, Greater China, the Middle East and Africa, Latin America, India and Southeast Asia, all grew double-digits. In Mainland China, we grew 13% and improved sequentially the balance contributions from each of our four groups. We continue to implement our channel optimization strategy in China, which is focused on transitioning our distribution channel to include consolidated platform distributors. We are also leveraging the breadth of our therapies to establish expanded multiline selling presence in tier 2 and tier 3 cities. Another priority is to develop deep partnerships for the Chinese governments such as the one that we have already forged for the Chengdu Government in Sichuan Province and are looking to further broaden. Recently, our entire executive committees spent a week in China meeting with the several provincial and central government officials to discuss the creation of more partnerships across all of our businesses. Although complex, China will become the largest healthcare market over the long-term, serving more patients and doctors than any other country. We can never lose sight of this potential. In the Middle East and Africa, we grew 10%, driven by newly formed joint venture with our largest Saudi distributor. Despite political instability in the region, our team continues to deliver strong growth, reflecting the fact that governments in this region continue to prioritize healthcare investments. In Latin America, we grew 11%, driven by Mexico, Chile and Argentina. In Brazil, we significantly outperformed the market, with strength in MITG, Neurovascular and Neuromodulation. While the outlook in Brazil remains uncertain given the macroeconomic and healthcare challenges in the country, we believe we can outperform the market by continuing to partner with healthcare stakeholders to reduce costs while improving patient outcomes. We did experience some weakness this quarter in Eastern Europe and Russia, which together account for less than 10% of our emerging market revenue. This was a result of a planned distributor changeover in Eastern Europe, continued weakness in the Ukraine and Belarus and year end procedure delays affecting our MITG business in Russia. We continue to make progress in pursuing potential opportunities such as government partnerships to improved growth in this region. Across emerging markets, we are applying our standard market development activities as well as our differentiated approach of local channel optimization in China, India and Saudi Arabia and establishing government partnerships like the one in Chengdu. In addition, we are developing unique partnerships with private entities such as the Abraaj Group. In Q2, we made a commitment to Abraaj Group's growth market's health fund, which is focused in improving access to health care in Asia, the Middle East and Africa, as well as the other developing markets. Abraaj Group purchases our bills, hub hospitals, surrounded by networks of referring hospitals and clinics. We are strategic partners in this market development effort, with a commitment to improve patient access, healthcare delivery outcomes and efficiency and product supply within these Abraaj hospital networks. In summary, we believe that the penetration of existing therapies into emerging markets represents the single largest opportunity in medtech over the long-term. Turning now to our economic value growth strategy, our services and solutions growth vector contributed approximately 20 basis points to our Medtronic growth. While this overall result was below our goal of 40 to 60 basis points, it represents strong mid-30s growth, almost all organic. We expect to further improve our growth as service as a solutions is adopted and expanded across all our business groups. In Care Management Services, formerly known as Cardiocom, we had high-teens growth in Q2, driven by a strong performance within the U.S. via healthcare system. This business represents an important platform for us, especially as post-acute care services become even more critical in the bundled payment models of the future for different states. In Cath Lab Managed Services or CLMS, where we provide administration, operational efficiency expertise and daily management of Cath Lab [ph] hospitals, we continue to generate rapid growth. In Q2, we expanded our CLMS business into Latin America by purchasing a majority stake in auction to acquire Cardiored, a privately held Chilean Cath Lab Managed Services provider. Cardiored already has a presence in Chile, with long-term agreements to operate 10 Cath Labs and 9 private clinics throughout the country. We expect the Medtronic's scale will help to quickly expand Cardiored presence both, within Chile and throughout Latin America. We also continue to expand our operating room managed services or ORMS offering, which applies Cath Lab business model to an operating room setting, utilizing the breadth of our MITG products and expertise. We have now signed six ORMS deals, representing approximately $140 million in cumulative revenue with an average life of seven years. Since starting hospital solutions two years ago, we have now completed a total of 66 long-term CLMS and ORMS agreements with hospital systems, representing over $1.5 billion in revenue over an average span of six years and we have a large number of potential contracts at various stages of negotiation with providers around the world. We also continue to expand our solutions offerings into diabetes care delivery with Diabeter, a Netherlands-based diabetes clinical research Center that has developed a unique care model that incorporates standardized and scalable protocols and we continue to grow the number of Diabeter patients expect to expand Diabeter beyond the Netherlands to other countries around the globe as we transform our Diabetes Group from a market-leading pumps and sensor company to a holistic diabetes management company. All of these activities are expected to serve as building blocks for value-based healthcare, where payment is based in actual outcomes over specific time horizon. Specifically, we are creating unique offerings that combine bundled solutions across the care continuum to target specific patient populations or cohorts within a particular disease. This is consistent with the direction of CMS's bundled payment initiative, which we fully support and are encouraging expansion into other three states, where we participate. In the end, we remain convinced that there is an incredible amount of value to be realized in healthcare and we believe our technologies and services can play a central role, with providers, payors and governments to make this shift to value-based healthcare successful. Turning now to the P&L, and as I mentioned earlier, we delivered EPS leverage in Q2 of 480 basis points in a comparable constant currency basis, which exceeded our baseline expectation of 200 basis points to 400 basis points. All areas of our global operations are executing to the plan we laid out at the beginning of the fiscal year as we deliver our productivity improvements and cost synergy expectations. We also executed below the operating income line, delivering above plan financial performance through higher interest income, a lower tax rate and fewer shares outstanding. It is also worth noting that the strong performance was against a difficult comparison due to legacy Covidien's fiscal year end in the prior year. For the back half of this fiscal year, we expect to significantly exceed our baseline EPS leverage expectation of 200 basis points to 400 basis points. As we have communicated, this over performance will be driven by planned cost synergies from the Covidien integration. The integration of Covidien is in fact going very well. We are executing on our priorities to preserve, optimize, accelerate and transform. Our cultures continue to come together, talent retention and employee satisfaction, which we monitor and quantify through frequent employee surveys and focus groups remained strong. Our cost synergy efforts thus far have been focused in the following areas. In direct sourcing, where we are using best case contracts and improved purchasing power to achieve meaningful savings, common expense policies, which we are driving across the organization. Real estate, where we have now closed over redundant sites mostly back-office and field distribution centers and SAP, where we are bringing legacy Covidien entities on to Medtronic's common enterprise system, leveraging our internal expertise from having orchestrated similar system-wide implementation within legacy Medtronic. In addition to executing on the promise cost synergies, every function is encumbering additional opportunities for savings. Covidien acquisition is truly serving as a catalyst to re-examine and redefined our overall operating models and cost structures. Another key element of the Covidien acquisition that we are just beginning to execute on is unlocking our trapped cash. We were able to free a significant amount of our trapped cash in Q2, transferring $9.3 billion into accessible cash to an internal reorganization as part of the Covidien legal entity integration. The ability to deploy this cash in the U.S. gives us increased flexibility and options. We are working quickly and diligently to determine the best way to utilize this cash, with the priority of creating long-term shareholder value, and will communicate our strategy in the very near-term. This is just one more example of the benefit of the Covidien acquisition, perhaps even more meaningful than the cost synergies that we are delivering. The improved financial flexibility and our ability to invest in U.S. technologies and products as well as return additional cash to shareholders is and is expected to continue to be a significant differentiator for Medtronic shareholders. Our strong revenue growth and focus on operating leverage is generating significant free cash flow. In Q2, we generated $1.1 billion and are expecting to generate nearly $40 billion in free cash flow over the next five years. We are deploying our capital with a focus on M&A investments, providing strong returns to our shareholders and meeting our debt commitments. Earlier this fiscal year, we increased our dividend by 25% in and we expect to grow our dividend rate faster than earnings, with the intent of reaching a 40% payout ratio on a non-GAAP basis within the next few years. As an S&P dividend aristocrat, we remain focused on delivering dependable long-term dividend growth. This quarter, we also accelerated our share repurchase activity from our prior plans and are committed to returning a minimum of 50% of our free cash flow to our shareholders through dividends and share repurchases. Regarding investments, we remain disciplined when evaluating potential M&A opportunities. Any investment we must make must be aligned with and ultimately strengthen one or more of our three growth strategies, while at the same time offers high return metrics and minimize near-term shareholder dilution. In summary, I am extremely pleased with how our team is executing and Gary will not take you through a more detailed look at our second quarter results. Gary?

Thanks, Omar. Second quarter revenue of $7.058 billion increased 62% as reported or 6% on a comparable constant currency basis, which excludes the $452 million unfavorable impact of foreign currency. Acquisitions and divestitures contributed a net 30 basis points to Q2 revenue growth. Q2 non-GAAP EPS was $1.03, an increase of 1% versus the $1.02 delivered by Medtronic, Inc. last year, for an increase of 11% on a comparable constant currency basis after adjusting for the $0.12 impact to earnings per share from foreign currency translation. Q2 GAAP diluted earnings per share were $0.36, a decrease of 57%. This quarter's non-GAAP adjustments to earnings on an after-tax basis were up $442 million certain tax adjustment, primarily related to the internal reorganization that resulted in approximately $9.3 billion of previously trapped cash becoming accessible and $29 million loss on forward interest rate swaps related to the same internal reorganization, a $373 million amortization charge, a $56 million net restructuring charge and $32 million acquisition-related items charge, primarily related to the Covidien integration and a $17 million certain litigation charge related to increased product liability. For Cardiac and Vascular Group, which accounted for 35% of our total company, revenue grew revenue by 8%. CVG had strong performances in all three of its divisions, with each growing above the company average. Cardiac Rhythm & Heart Failure or CRHF, had another strong quarter with 7% revenue growth, which included mid single-digit growth in both, high power and low power, high 20s growth in AF solutions and low 30s growth and Services and Solutions. We estimate the CRHF implantables market is growing in the low-single digits and we continue to take share both, year-over-year and sequentially. High Power had particularly strong quarter in U.S. ICDs, driven by the launch of the Evera MRI ICDs, the only FDA-approved MR conditional ICD system. We also continue to see strong customer acceptance of our differentiated CRT-D technology, including our AdaptivCRT algorithm, quadripolar lead VectorExpress programming and improved device longevity. In low power, we are seeing strong demand for review link, which resulted in robust diagnostic growth in the mid-20s. Pacemakers sales also have solid mid single-digit growth in the U.S., where we gained over 400 basis points a share due to strong pacing pull-through generated by review link and increasing customer preference for MRI safe technology, including our recently FDA-approved Advisa SR MRI single chamber device. Looking ahead, we are expecting to receive FDA and CE Mark approvals for both, our Amplia MRI and Compia MRI CRT-Ds along with our Visia AF MRI single chamber ICD by end of the fiscal year. Our Coronary & Structural Heart division grew 10%, with mid-20s growth in Heart Valve Therapies, mid-single digit growth in coronary and low single-digit growth in Extracorporeal Therapies In Heart Valve Therapies, transcatheter valves grew in the high-30s globally, including mid-fifties growth in the U.S., our first full quarter of U.S. commercial launch of the CoreValve Evolut R. We estimate the global TAVR market is growing nearly 30%. In Japan, we are expecting reimbursement and launch of CorVel in Q3. Regarding the intermediate risk, we expect to meet our SURTAVI trial enrollment target this winter and submit to the FDA by the middle of FY'17, with data expected at ACC 2017. In our coronary business, drug-eluting stents grew mid-single digits globally, including high single-digit growth outside the U.S. on the strength of Resolute Onyx and mid single-digit growth in the U.S. from the continued acceptance of Resolute integrity. In balloons, we grew low double digits as we continue to gain share with our differentiated Euphora PTCA product family. In the Aortic & Peripheral Vascular division revenue grew 10%, including mid single-digit growth in Aortic, low double-digit growth in peripheral and mid-teens growth in endoVenous. In Aortic, while we face increased competitive pressure outside the U.S. and felt the impact of market reimbursement cuts from Japan, the business grew in high single-digits in the U.S., driven by the continued market adoption of our enduring Endurant IIs AAA stent graft. We also are seeing strong adoption of our Aptus Endo Anchor technology, which is resulting in competitive comp conversion and AAA device pull-through. In peripheral, we continue to execute on our U.S. launch of the In.Pact Admiral drug-coated balloon and maintain our leading market position on the strength of our exceptional, clinical and economic data. Data presented at TCT and published in JACC, showed sustained superiority in primary patency and re-intervention rates over balloon angioplasty at two years. Cost-effectiveness data released at Viva showed In.Pact Admiral lowers the overall cost of treatment. In endoVenous, we launched VenaSeal closure system in the U.S. last month and expect it to drive growth in this business going forward. Across CVG, the use of wraparound programs, services and solution bundles and multi-line contracting strategies continue to drive growth, with a number of cross business multi-line contract growing over 20% in U.S. Now turning to our Minimally Invasive Therapies Group, revenue grew 3% and accounted for 33% of total company revenues. MITG's revenue performance was driven by mid single-digit growth in surgical solutions and low single-digit growth in patient monitoring and recovery. It is worth noting that MITGs growth this quarter was slightly slower than its historical run rate as a result of a difficult comparison due to the legacy Covidien fiscal year end in the year ago. Surgical Solutions growth of 5%, included mid single-digit growth in advanced surgical and early technologies and low single-digit growth in general surgical. Advanced Surgical continued to benefit from new products and the continued shift from open to minimally invasive surgery. The business had solid growth in EndoStapling, driven by the Endo GIA Reinforced Reload as well as in Vessel Sealing as a result of the continued acceptance of the LigaSure Maryland Jaw. We estimate that surgical volume market growth in U.S., while still growing has normalized. General surgical benefited from the RF Surgical acquisition, which closed in Q2. Early Technologies delivered strong results, particularly in the U.S. from growth in gastrointestinal diagnostics. The Patient Monitoring & Recovery division grew 1% in line with its market. Respiratory & Patient Monitoring as well as patient care and safety grew in the low single digits, with Nursing Care declining in the low single digits. Respiratory and patient monitoring results were driven by growth in sensors and acute ventilators. Patient Care & Safety results were driven by strength in electrode sales, particularly in the U.S. While Nursing Care declined, it had strengthened in enteral feeding. Now moving to our Restorative Therapies Group, revenue grew 5% and encountered for 25% of the total company revenue. Results were driven by low 30s growth in Neurovascular and high single-digit growth in Surgical Technologies, with low single-digit growth in Neuromodulation flat results in Spine. In Spine, our overall international sales grew 5% and Core Spine business grew 6%, which was significantly above the market. Spine had strong double-digit growth in Japan, in the Middle East and Africa and solid mid-single digit growth in Canada and Latin America. Offsetting Core Spine's strong international performance was BMP, which had flat international sales in the quarter due to the impact of stop shipment in Europe. This issue is limited to our third-party manufacturing facility that only supply the European market. While the supplier has identified the remediation plan, we do expect to be off market for the remainder of the fiscal year, reducing our expected international BMP revenue by approximately $7 million per quarter. In the U.S. Spine declined 2% and the Core Spine business declined 4% underperforming the market, which grew in the low single digits. We expect our U.S. Core Spine performance to improve as we realize the results from our recently realign RTG commercial sales management as well as the implementation of the surgical synergy programs that Omar mentioned earlier. In addition, we expect Core Spine results to improvement as numerous recent and upcoming product launches reach scale, including our Elevate Expandable Cage and Solera Voyager System in thoracolumbar as well as our divergence standalone Divergence Stand-Alone Interbody Cage the ZEVO Anterior Cervical Plate System, the PRESTIGE LP Cervical Disc and ANATOMIC PTC interbody spacer in cervical. Turning to Neuromodulation, revenue increased 2%. We continue to face challenges in our drug pump business as a result of the FDA consent decree. The division had strong growth in deep brain stimulation driven by referral development, emerging market expansion and a commercial focus on surgical synergy, which combines Activa DBS implants with our peak surgery system, TYRX Antibacterial Envelope and O-arm imaging. In Pain Stim, while we are facing competitive pressure, we are receiving good reception of our AdaptiveStim HD programming options. In Gastro/Uro, we continue to see solid growth of our InterStim System for bladder and bowel control and we expect the recently launched Verify Evaluation System to result in increased implants going forward. In Surgical Technologies revenue grew 8%, driven by mid-teens growth in Advanced Energy, on strong sales of the peak surgery system and Aquamantys System. ENT growth was driven by sales of the NuVent sinus balloon and a backorder release of the powered ENT blade. The Neurosurgery business also had a strong quarter, driven by the U.S. launch of the O-arm 2 surgical imaging system. Our Neurovascular division had another strong performance in Q2, with revenue growth of 32%. Growth was driven by stent retrievers for treating acute ischemic stroke, where recent clinical data and AHA/ASA stroke treatment guidelines are driving rapid adoption of our SOLITAIRE FR revascularization device. The division also had very strong results in flow diversion, led by continued adoption with a Pipeline Flex device for the treatment of intracranial aneurysms. During Q2, the Neurovascular division announced two technology acquisitions, Medina Medical with its this Aneurysm Embolization Mesh technology for hemorrhagic stroke, which we believe can disruptive the core market as well as Lazarus Effect and its mesh cover technology that is complementary to our SOLITAIRE stent retriever platform. Now moving to diabetes group, revenue grew 11% and accounted for 6% of total company sales. The Intensive Insulin Management division grew in the mid-teens, including growth of nearly 40% in Europe as a result of strong sales of our MiniMed 640G insulin pump system with the enhanced Enlite CGM sensor This next generation system features SmartGuard predictive low glucose management technology as well as a new insulin pump design featuring a full-color screen. We continue to make progress in brining this technology to the U.S. as we have completed the clinical trials and are on track for early calendar 2016 submission to the FDA. In our non-intensive diabetes therapies division, revenue doubled on strong sales of the iPro 2 professional CGM technology. In addition to professional CGM, the NDT division continues to focus on market access and integrated patient care solutions for people with Type 2 diabetes. In our Diabetes Services and Solutions divisions, revenue grew in the mid-single digits, driven by strong growth in consumables, new Diabeter service revenue as well as sales from the recent launch of the MiniMed Connect. The uptake and user feedback on MiniMed Connect have been extremely positive and it is currently the highest rated connected glucose monitoring app in U.S. We also continue to partner with IBM Watson, combining our clinical expertise, close loop algorithm development and CareLink data analytics with IBM's Watson Cloud and Watson Analytics and machine learning capabilities. In early pilot run, using the database of 100 randomized patients was able to predict some near-term hyperglycemic events, demonstrating the potential possibility of applying cognitive computing to support diabetes management. Now turning to the P&L. As I discussed the operating items, it is worth clarifying again that my comments will be made on a non-GAAP comparable constant currency basis unless I say otherwise. The Q2 operating margin was 28.4%, which excludes our 100-basis point negative impact from foreign currency and represented a 20-basis point improvement over the prior year. This operating margin improvement, included a 60-basis point improvement SG&A offset by 20-basis point decline in gross margin, a 5-basis point decline in R&D and a 20-basis point decline in that other expense. This resulted in operating profit growth of 6.4% or operating leverage of approximately 60 basis points over revenue growth. In the coming quarters, we expect this leverage contribution to grow and be our majority contributed to our overall EPS leverage. In line with our expectations, the amount of Q2 operating leverage was lowered due to the difficult comparison against legacy Covidien's fiscal year end quarter, which included strong fiscal year in sales. We estimate that the total benefit in the prior year was approximately $50 million on our operating profit line. Adjusting for this operating profit growth would have been approximately 9% in Q2, representing operating leverage of approximately 300 basis points. Our operating margin included gross margins of 70.2% SG&A of 33.0% and R&D of 7.4%. Also included in our Q2 operating margin was net other expense of $57 million, which included net gains from our currency hedging program of $71 million. We hedged majority of our operating results in developed market currencies to reduce volatility in our earnings from foreign-exchange. However, growing portion of our profits are unhedged, especially emerging market currencies, which can create modest volatility in our earnings. Assuming recent exchange rates for the remainder of the fiscal year, which includes €1.06 and ¥123, we expect FY'16 net other expense to be in the range of $100 million to $130 million, which includes an expected impact for the U.S. medical device tax of approximately $210 million. For Q3 FY'16, we expect net other expense to be in the range of $10 million in income to $10 million in expense based on the previously mentioned exchange rates. We expect our operating margin for the second half of FY'16 to be in the range of 29% to 31% on an as reported basis, including 28% to 28.5% on an as reported basis in Q3. This forecast implies over 100-basis point improvement in our full fiscal year operating margin on a comparable constant currency basis, which on a reported basis is almost completely offset by a similar amount of negative FX based on current rates. This strong operating margin improvement supports the significantly greater than 400 basis points in earnings per share leverage we intend to generate in the back half of the year, primarily a result of the Covidien cost synergy programs. We continue to expect these value capture programs to result in $300 million to $350 million in FY'16 savings and a minimum of $850 million by the end of FY'18, spread roughly equally across the three fiscal years. Below the operating profit line, Q2 non-GAAP net interest expense was $172 million, which was an improvement to our forecast due to modest outperformance in certain investment income classes. Based on current rates, we would expect FY'16 net interest expense to be in the range of $700 million to $750 million, including $160 million to $180 million in Q3. At the end of Q2, we had approximately $35.8 billion in debt and approximate $17.2 million in cash and investments of which approximately $6 billion was trapped. This cash mix is a significant improvement from prior quarters due to the $9.3 billion internal reorganization we executed in Q2 as part of our Covidien integration. We expect to announce our strategy on how we intend to use these proceeds in the very near-term without likely focused on share repurchases and accelerated debt pay down while preserving financial flexibility. These potential actions are not contemplated in our current outlook. Our non-GAAP nominal tax rate on a cash basis in Q2 was 16.5%, which was an improvement from our forecast as a result of operational tax adjustments and the allocation of profits among jurisdictions in which we operate. On a full-year basis, we continue to expect our non-GAAP nominal tax rate on a cash basis to be in the range of 16% to 18%. We expect to be at the higher end of this range until the presently expired U.S. R&D tax credit is reinstated. In Q2, free cash flow was $1.1 billion. We remain committed to returning a minimum of 50% of our free cash flow, excluding the cash impact of non-GAAP adjustments to shareholders and also continue to target an A credit profile. In Q2, we paid $537 million in dividends and accelerated our share repurchase activity; repurchase $710 million of our ordinary shares. As of the end of Q2, we had remaining authorization to repurchase approximately 90 million shares. Second quarter average daily shares outstanding on a diluted basis were 1.429 million shares. For FY'16, we now expect diluted weighted average shares outstanding to be approximate 1.430 million shares, including approximate 1.427 million shares in Q3. Let me conclude by providing our fiscal year 2016 revenue outlook and earnings per share guidance. We now expect revenue growth for the back half of the fiscal year to be in the upper half of our mid-single digits baseline range on a comparable constant currency basis. Our second half revenue outlook assumes that MITG grows in the low to mid single-digit, RTG grows in mid-single digits, CVG grows in the mid to high single-digit and Diabetes grows in the high-single to low-double digits. While we cannot predict the impact of currency movements, to give you a sense of the FX impact of exchange rates were to remain somewhat yesterday for the remainder of the fiscal year then our full fiscal year '16 revenue will be negatively affected by approximately $1.45 billion to $1.65 billion, including a negative $330 million to $390 million impact in Q3. Turning to guidance on the bottom-line, based on our first half performance, we now expect non-GAAP cash earnings per share in the range of $4.33 to $4.40, which includes an expect $0.45 to $0.50 negative foreign currency impact based on current exchange rates and approximately $300 million to $350 million of targeted value capture synergies from the Covidien acquisition. As we look at the back half of our fiscal year, it is worth pointing out the uncertainty surrounding the U.S. R&D tax credit, which expired at the end of 2014, if Congress reacts actively renews the credit for 2015, we would see a $0.03 benefit in FY'16. Both, renewal and non-renewal scenarios are reflected in our earnings per share guidance. While we do not give early earnings per share guidance, when looking at the gating earnings per share consensus, we would not be surprised to see approximately $0.04 $0.05 shifted from Q3 to Q4, which assumes that the R&D tax credit is renewed in Q3. Finally, I want to point out that the updating historical Covidien-Medtronic financial presentations that Ryan mentioned earlier reflect lower FY'15 comparable earnings per share. However, this has no impact on our FY'16 expectation. As in the past, my comments on earnings per share guidance do not include any charges or gains that are recorded or would be recorded as non-GAAP adjustments to earnings during the fiscal year. Before turning the call back over to Omar, I would like to note that we plan to hold our Q3 earnings call on March 1st and our Q4 earnings call on May 31st. In addition, we plan to host our Investor Day on June 6, which will be held again in New York City. Omar?

Thanks, Gary. Before opening lines for Q&A, I would like to reflect on our overall performance. Our team has come a long way, executing quarter-after-quarter. We are building a business with solid and diversified growth drivers, operational excellence, strong cash flow generation and disciplined capital allocation, but it is also important for us to remember that we have a long journey ahead of us and our work of fulfilling the Medtronic machine goes on. I am confident this team can execute consistently, balancing trade-offs and offsetting pressures to create long-term dependable value in healthcare. With that, we will now open the phone lines for Q&A. In addition to Gary, I have asked Mike Coyle, President of our Cardiac and Vascular Group, Bryan Hanson President of our Minimally Invasive Therapies Group, Geoff Martha, President of Restorative Therapies Group and Hooman Hakami, President of our Diabetes Group to join us. Where we are rarely able to get to everyone questions, so please limit yourself to only one question and only one follow-up. If you have additional questions, please contact our Investor Relations team after the call. Operator, first question please?

Our first question comes from the line of Mike Weinstein of JPMorgan.

Good morning. Can you guys hear me okay?

Yes. We can Mike.

Yes, Mike. Go ahead.

Perfect. Well, first off congratulation on another nice quarter. Let me, Gary, just circle back on your commentary on repatriated cash. My first question is really, it sounds like there is some commentary fourth coming in terms of what are you going to do with that cash? Any reason you are not being more explicit today as in the comments you made about potentially accelerating share repurchase and paying down debt?

Yes, Mike. I mean, as we indicate in our comments, obviously, we are looking at this. We are excited about the opportunity that we are able to get access to this cash and make it available. We are looking at different options. As we indicated in our comments, obviously, the main focus of that will be, we did take on a lot of debt related to the transaction. We have commitment on the debt side that we want to look at, but obviously the other opportunity for us is to take a look at share repurchases and accelerate that as a potential. We are looking at both, options we are evaluating that. We are having conversation with our Board. As we make decisions, once we make those decisions, then we will communicate what our plans are, but we just do not want to get ahead of ourselves in communicating before. Again, we have had a full dialogue and discussion with the board.

Okay. Let me ask you about a couple of different business that to me stood out this quarter. I mean, there is whole bunch them, but let me just target a couple of them. Once, was your Diabetes business, and you commented on the growth you are seeing in diabetes, particularly Europe, where you have got some newer technologies available. Can you talk about the growth there number one. Number two, your Neurovascular business continues to do extremely well. We are seeing that obviously because of the ischemic sort of trials and what is happening in that market, but could you just give us your own thought on sustainability and what you want to do with that business going forward?

Okay. Mike, I am going to let Hooman and Jeff will answer this question, so Hooman why do not you go ahead with the questions.

Sure. Hey, Mike. Yes. We saw great growth in Diabetes, 11% overall. The European growth was really, I think, something that stood out. We had just incredibly strong growth in 640. We saw that not only in Europe, but also in Asia Pacific and I think what it shows is that new innovation here matters and this is something that we are going to continue to drive. We have got a plan to launch this product in the United States. You heard from the commentary that the trials was done and we are going to release it to the FDA in early 2016, so we are excited about that and I think what you are also seeing that I think it is worth noting is the 530G is doing incredibly well in the United States and we are seeing very, very good performance there on tough comps, so when you take a look at those two things. I think, we are seeing great performance within the group and we expect this to continue.

Okay. Geoff?

On the [ph] side it is a huge opportunity not just for Restorative Therapies Group, but for Medtronic. First of all you saw we did - these guys have done - our team and everybody has done a great job developing technologies and the clinical evidence and we want to maintain that leadership, so the two tuck-in acquisitions we did last quarter, I think, take our technologies roadmap out several years to maintain our leaderships there, so that is one. Then two, we are looking at the broader stroke care continuum from diagnostics working with Mike Coyle's group here in the link technology into patient management and referrals systems, so we think beyond the technology if you look across the care continuum, there is several waves of innovation here and this is a top priority for not just my group, but for Medtronic.

Okay. Then maybe just one question, and I will let others jump in. Omar, one of the questions we talked about last call, last call you remember I think industry was a little bit frustrated on the pace of margin improvement and part of it was tough to see because of the FX headwinds you guys were seeing. One of the questions was the degree to which some of the Covidien synergies and effectively some of the upside to this synergy targets, Mike had reinvested back on the business versus shown down to the bottom-line to shareholders. If you want just give us your own updated thoughts on that and how investors should be kind of expecting Covidien synergies to play throughout the year?

Yes. We have already said, as I said in my commentary they we are expecting some significant upside to 200-basis point to 400-basis point range and we will show that in the coming quarters. That is where we stand. It is pretty straightforward. You know, most of these synergies will fall through and we will go from there, but I do not want to minimize our operational performance outside of the synergies as well, because there is good work going on in productivity improvements in our products and SG&A. Some of it is using some of the new structures we are creating under the integration, but across the Board, we are delivering productivity and to the extent especially this year with the Covidien synergies, we really expect by the end of the year we will be above the range that we have talked about. As we have actually already done to a small extent in the first two quarters, but that amount will increase in the coming quarters.

Perfect. Thank you, Omar.

Thanks.

Our next question comes from the line of David Lewis of Morgan Stanley.

Good morning. Omar, I just wanted to come back to revenue for second. I think, your guidance for the upper end of 4 to 6 is consistently you said last quarter, but it is probably the most bullish component of the report this morning, so what is giving you the confidence in the acceleration sort of in the back half of the year? Not only it is the acceleration, because the comps get so dramatically harder as the anniversary the acceleration last year, so what gives you the confidence you still can sustain that momentum in the upper half of revenue in the back half as these comparables get harder.

I think the direct answer there is our new product momentum. I do not think we have been in a position in this company today with the products we have already launched and the upcoming pipeline that we have across the Board in virtually every group. The cadence of product innovation across the Board has increased significantly and when you sort of combine all of that together it makes quite a difference. That is our goal after all. We are in the end a technology company striving to sort of change outcomes. Now, in addition to that, we are completely cognizant of the fact that one of our main growth strategies is to diversify the sources of growth, so we see emerging markets actually steadily improving into the back half of the year and services and solutions again starts to keep growing because of programs that we are implementing across the Board are gaining traction across multiple regions, so those are fairly slow. It takes a little time for them to come through, but in aggregate they do come through and they all contribute. When you add all of that up together, we feel pretty confident to be in the upper half of the range and again for this to be sustainable good years does not mean that the next year would be bad. It has to continue to improve, so that is the outlook that we have on this.

Okay. Very helpful, and I just had a quick follow-up for Gary and one for Geoff. Gary, our math implies 12% to 15% constant currency earnings in the back half of the year is an acceleration from the first half. Does that jive with your math and how are you feeling about the $850 million number? Then for Geoff, I know it has not been very long that you have been at the helm on RTG, but I wonder if you could just briefly comment on the ability to achieve the type of network effects in RTG that have been so successful and accelerating Medtronic Cardio? Thank you.

David, to your first comment about earnings per share, the answer on the constant currency would be yes. That is what we would expect to see in the back half of the year. That is not - if you look at the first half of the year, basically we have seen between 11% and 12% kind of constant currency comparable growth overall, so we expect that to accelerate a little bit in the back half of the year as we talked about primarily because of more of the benefits of the Covidien integration and all the integration efforts coming through, so total related to the $850 million commitment that we have move to by FY'18, we are right in line. In fact, maybe slightly ahead of our plans to deliver $300 million and $350 million in the current year and right in line with the expectations on doing that for the full 850 by FY'18, so we feel very confident about that. We feel confident about that in our earnings per share guidance we are providing to the organization or to the investors, but in general yes that is right in line with our expectations but foreign-exchange does continue to be a negative headwind for us obviously, but on a comparable constant currency basis, we are seeing an acceleration in our growth.

Geoff?

David, again, good question. I would answer it - three parts to the answer. One, from a market perspective, one thing that has helped the cardiovascular space is the emergence of the cardiovascular service line globally and we are seeing that not to the same effect yet. It is, I do not know 10-plus years behind as the neuro services line Neuroscience service lines emerge, but we are definitely seeing that trends emerge. The more that happens, the more it plays to our hand, because we have by far the best breadth to cover those Neuroscience service line, so that is one and that is a tailwind for us. The second is our internal capabilities of taking and this is different than actually cardiovascular. We have implants that work with Intraoperative Imaging and Navigation and we have both platforms and that gives us some flexibility. Now, we have to integrate those better and take them to market selling benefits versus features and we are working on that, but that is another tailwind and the Intraoperative Imaging navigation is a key driver to us getting this network effect so that we sell, like I said, solutions versus the features. Then thirdly, which we are copying the playbook from our Cardiovascular Group is changing the way our operating principles and our operating mechanisms, so that our business is - the silos come down to a certain extent and they are incented to drive these cross business unit deals where it make sense, so when you are bundling, if you will, intraoperative navigation and Intraoperative Imaging navigation with some of our implants. You need to have the incentives and the operating mechanisms and analytics to do that, so we are in the process of doing that, so those three things are the things that are driving it, but one thing that is gating it is the Neuroscience service line evolution in the marketplace.

Thank you very much.

Our next question comes from the line of David Roman of Goldman Sachs.

Thank you. Good morning, everybody. Omar, I was hoping if you go back to one of the things you referenced in your prepared remarks towards the contribution from new products I thinking above the sort of historical level or your target levels. Can you just sort of talk about what specifically influenced that and why that would not translate into better overall top-line growth? Is there any part of the new product story that has all cannibalistic of the base business or something that is happening in the end market that we would not have let that 400-plus basis points to new product to drive better overall top-line growth and that is obviously now throw any water on the resulting, but just for some perspective?

Well, a number of things. First of all, the new product growth includes the baseline product lines, so that inclusive of all of that. The only answer if we do the math is that the emerging markets and service and solution have to pickup. Remember, service and solutions because of the integration together with the Covidien, the baseline has changed, so therefore it is a 20 basis points where our number is like 40 to 60, so that is one aspect that will drag it down. Those numbers are small, but in the context of which you are talking about, you are talking about the ranges of the upper end here, so we are talking about 10s of basis points rather than and 100s, so they do make a difference. Then emerging markets also, as we climbed up into the range, probably will help. Outside of that it is a matter of how much above the 350 we actually get. Again, like I have said before, we just want to be a little cautions not so much because of our product launch activities but because of the environment around us, which you just never know, we just have a little cautious about macroeconomic pressures, political instabilities, those things or some healthcare rule changes, so we have given up passed experience of these things surprising us. We just got to be a little cautions, so that is really the best way I can answer this that I would really like to see all three of our growth vectors above our projections before we really confident that we can extend the range so that we get that level of diversification, but in nowhere am I any sort of less confident about our new products execution just because of the breadth of our pipeline I think that is going to happen. I just think the macroeconomic circumstances we just want to be a little cautious about that and therefore I want to see the other growth vectors also climb with the same range before we can get more bullish.

Okay. That is helpful. Maybe just a follow-up for Gary on the P&L and cash flow side, as we think about the sort of underlying operating profit of the business, obviously FY'16 is sort of a tail to have as we think the sort of normalized run rate of the business so we think about that 30% number that you are talking about exiting the year sort of that the right underlying profit of the business off of which to think about forward forecast. Then on the free cash flow side, the $1.1 billion you are talking about this quarter, if you annualized that that is pretty close to what you were as an independent company pre Covidien, so when do we start to see the benefit flow through to free cash flow and move toward that. That is your number target you put out therefore for FY 19?

Well, with respect to of the profit margin, I mean, you cannot take our Q4 number and annualized that because as you look historically the same way that you had with Covidien that we just talked about as far as the tough comparison. Our Q4, the profit margin is always much, much higher than the previous three quarters. That is historical, because we have a strong closing and so you have a lower rate. We cannot annualized the fourth quarter, but obviously we are in the 20% 29% range for the full-year that we have been talking about then we would obviously continue to build on that number, so that is kind of the - you take the average for the year and then build on that standpoint of the incremental improvements we will see from value capture going forward is what you should assume, but my only point is just do not take the fourth quarter annualized, because that it unusual it spite by the low-end the best profit operating margin tends to be in the fourth quarter, but we would obviously could expected to continue to improve. The cash flow in the quarter, $1.1 billion includes some restructuring cost resurgence stuff like that, so we pulled that out. You are closer to the $1.3 billion and the point if you looked historically Medtronic and Covidien, the cash flow also similar to the profits rose as we go through the year, so it is always actually that $1.2 billion or $1.3 billion about 40% to 50% versus where Medtronic, Inc. itself was a year going into the quarter, we would expect still for the current year that we are going to be somewhere around $6.2 billion to $6.5 billion in free cash flow and similar to what we talk about on the profit to the cash flow also improve in the back half of the year, which is normal because we are first half of the year we are paying off bonuses and things like that in the prior year in the cash flow just it spite historical nature is just lower, but in the back half of that will accelerate so we are still very confident that for the current you will be in that $6.3 billion to $6.5 billion and similar to what we have talking about our earnings growing close to double digits on that cash flow going forward over the next several years and generating as we talked about close to $40 billion in free cash flow over the next five years. We are still very confident about that.

Okay. Next question?

Our next question comes from the line of Larry Biegelsen of Wells Fargo.

Good morning. Thanks for taking the questions. Let me start with the Puerto Rico our tax issue. I think in September at our conference you said there would be a briefing in October did that happen and do you still expected the decision in late fiscal 2016. I think in the past you said most of these cases settle before decision. Do you still feel that it settlement it is more likely here as well and had upon? Thanks.

Well, I mean as far as the trial process, yes. There is a process where there is some briefing that had to be provided by both parties like the government and Medtronic that occurred I believe in October. That is all been done from what I understand and now we are in a situation is and the judges per view the judge has the option to take as long as sheets would you like in those case. We are assuming that at the end of our fiscal 2016 early into FY'17 is what she will make sure make a decision, but it can go longer too. This is her decision on how quickly she moves in making that decision. As far as settlement discussions, again, I cannot say anything on that, because obviously settlement discussions required two parties to come together and at the point of time, I cannot say anything about that at all. I mean you get happens to happens that in the mean time we are just waiting to see what the decision is from the court case.

Thanks. Then on emerging markets Omar, you bounce back this quarter plus 11% and based on your earlier comments it sounds like you expect that to - I just want it to be clear. It sounds like you expect that actually improved in the second half and I am asking, because we do look across medtech emerging market growth does not appear to have slowed so I just wanted to be clear that you think you can kind of in the second half of this year build off of the 11% and actually accelerate and is that mid-teens growth that you have talked about in the past so realistic? Thanks for taking the questions.

Yes. First, yes, we expect this growth to increased, the words I would you like to use and then I think I used in the commentary was that we would like to see steady increase and improved consistency, so I do not want this to like bounce back and forth between '15 and whatever. This things has to go steadily and our diversification across the emerging markets helps with that and I think we will see that I think the mid-teens goal is completely realistic over a period of time and that is what were aiming to get through the market opportunity is massive and it is really up to us to execute our variety of strategies and get the benefits from them, so in short, I expect this to steadily improved quarter-after-quarter.

Thanks for taking the questions guys.

Thanks, Larry.

Our next question comes from Bob Hopkins of Bank of America.

Thanks. Can you hear me okay?

Yes.

Great. Good morning. A couple of quick things, first, for Gary the synergy that particular $300 million to $350 million for this year. Can you just give us a sense as to how much has been realized here in the first half and also Gary if you would mind just walking through a little more detail why you think the streets sort of needs to shift a little bit from in terms of earnings from Q3 to Q4?

Well, as far as the synergy number of the $300 million to $350 million, I would say right now we probably have already achieved about 40% of that the 35% to 40% has already been incurred. We have indicated previously that a bigger portion would be in the back half of the year and that is kind of what we are still expecting, so I would expect that 60%-plus of the benefit will at the back half of the year so. We are right in line with our plans and our targets the back slightly ahead of where they are at but approximately 40 % we have already realized up to this point. With respect to the guidance just as far as taking look at the quarters and stop, all we are looking If you look historically, our Q2 and Q3 historically both revenue and bottom line are relatively consistent and there is not a big change overall between those two and we did a $3 here in the current quarter. We are assuming that there will be an R&D tax credit. There is a benefit for in the third quarter, so overall I would get you more in the $5 to $6 range and all we are saying is, that versus where the street it is at I think it is a bit higher than that number. On the other hand I would tell you I think the street loan lower in Q4 versus what we would have historically see as far as an uplift. So our saying is if you look at our historical modeling Q2, Q3 are usually relatively consistent and it is Q4 where you sees a big jump I think there has been two much way we put in Q3 right now and but again these are your models you guys can put together how you like, but that's if you look at history I think you are going to see that you are a little lit bit probably lower high in Q3.

Then for Mike and Omar and thanks for that Gary, can you guys just put in perspective the MRI safe ICD launch in the United States. Maybe relative to the MRI safe pacer launch how just how should we think about this launch in terms of the ability this product to take share or you are the only one in the market with such a product and then Omar I was wonder if you could just give some broad thoughts on kind of the state of Medtech right now in terms of what you are seeing across your businesses in terms of your surgical procedure volumes pricing just kind of a broad look at the current point of time if you do not mind?

Okay. Mike do you want to go first?

Yes. Bob maybe the best way to think about is just some statistics around mix, right, if you look at dual chamber pacemakers right now. Probably two-thirds of our product is MRI safe as we sell into initial implants - and with the recently, two quarters ago we launched the single chamber. We are probably now up to somewhere around 40% mix in single-chamber for MRI safe and we just launched the MRI safe ICD and our mix in the quarter would be probably somewhere around 20% so there is still a lot of room to run there. Obviously, we have not yet released the MRI safe CRT-D which we expected to do by the end of the year. So I think that might give you some sense of sort of how we see the mixed change taking place within our business.

With respect to the overall medtech market, look we have had a - the medtech industries has actually had a pretty good year and I think a lot of that is you look knowledge is driven by U.S. growth so U.S. has been stronger than I can remember for a long time and that is not only the medtech sort of companies but also hospitals. Now as we going to sort of calendar year '16, there will be some anniversarying that is happening and also some of the hospitals have reported slightly sort of lower growth rates, so we are watching this carefully. I do not know to what extent the procedure growth will continue at the same rate of growth. I do not think it will slowdown, per se, but the growth rate might well slowdown. So that is what we are watching very carefully and I think coming after the next couple of months it is pretty crucial to see how procedures go, but again really at the end of the day this is a U.S story and to a certain degree emerging markets Medtech has been resilient in the emerging markets compared to other industries simply because of the nature of the industry itself that governments continuing to invest there so that has been reach the bottom really has not fallen out that all and although I think we have our performed the overall market into the market in general it has been pretty resilient. So those things holding U.S. growth is what has driven the medtech industry. I think U.S. growth will anniversary probably steady a little bit. On the other hand, medtech in emerging markets might well start to improve I mean I do not know. I know our projections are that we will start to improve overall we will have to see, hope that helps.

Thank you very much. Thank you.

We have time for one more question, operator.

Thank you. Our final question will come from the line of Josh Jennings of Cowen & Company.

Hi. Good morning. Thanks a lot for taking the question. Just wanted to, Omar, start with first one is although it is relatively early since the close of the Covidien transaction, you have had three quarters of combined entity experience and just wondering how you are evaluating the entire product portfolio and whether or not you feel like you have increased flexibility now that pruning the portfolio or weed out lower growth, lower margin products and business units and whether we should be expecting that?

I think I kind of alluded to that a little bit. First of all, since the acquisition, we have set up Minimally Invasive Therapies Group under Brian. Brain and his team are really charted, a very clear and compelling vision for the future, which is outcomes-based and very aligned with the Medtronic mission, so that was the first step and I think I talked about the four areas of focus within MITG. Now we are looking at the entire range of assets that we have within MITG and kind of assessing that against the strategy and as we go through that process which were in the middle of doing in the next 6 months or so, we will take action as is necessary, but that is the way in which we are gauging it. So the first step was to kind of decide clearly and get full sort of excitement with the team and agreement with the team that this is where we should go which I think the team is put in place and understand with the core product technologies are that drive that and solutions that are necessary for that. Next is to look at the breadth of everything else and see what fits and what doesn’t. I mean somethings clearly do not and we’ll have to see how we monetize those assets as we move forward, but by and large that is the way in which we are looking at this.

Great. Then just follow-up for Omar and Gary, any updated views on potential revenue synergies outside of peripheral neurovascular? Thanks a lot gentleman.

Look, that is an area that is pretty active I mean one thing that you just try about was the in stroke were the linked our product feeding into the stroke care and vascular channel is one that is pretty high in our list. I can tell you that as a business, as a leadership team we work to figure out methodologies where internally we can have our selling groups of multiple products and do it in a way that is scalable unsustainable and then in an organized way around the world I think that first step was pretty important. So that area certainly is a big sort of enabler for us to move products around various sales channels and we have done that and we will have to see how these things go forward but there is a lot discussion between sales team using those principles without getting distracted from their main focus as to how accelerate their growth. So we are optimistic that we will start to see those but the specifics of those right now are still sort of being generated. The other area that I will point is the translation of the operating room managed services from Cath Lab I mean that is a big step for us and the acceleration there is pretty exciting. As you can see, like I said we have already closed six of those deals $140 million in cumulative revenue that is much faster than anything that Covidien was originally planning for and we are only beginning there, so those are the ways in which we are looking at this right now. Over time, we are creating a structure where we can use the combined nature and assets of our company to address many different problems both, from a technology perspective and from a comorbidity perspective, which would be an increasing problem in healthcare where we think we have the breadth of assets that we can address very effectively. Okay. With that thank you all very much for your questions and on behalf of the entire Management team I would like to thank you again for your continued support and interest in Medtronic and we look forward to updating you on our progress in our Q3 call in March 1. Thank you and all of you please have a great day. Thank you.

Thank you. This concludes today's conference call. You may now disconnect.