Good day. My name is Shelby and I’ll be your conference operator today. At this time, I would like to welcome everyone to the Medtronics Fourth Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question and answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Mr. Ryan Weispfenning, Vice President, Investor Relations. Please go ahead sir.

Great, thank you, Shelby. Good morning and welcome to Medtronic's fourth quarter conference call and webcast. During the next hour, Omar Ishrak, Medtronic’s Chairman and Chief Executive Officer and Karen Parkhill, Medtronic’s Chief Financial Officer will provide comments on the results of our fourth quarter and fiscal year 2018 which ended on April 27, 2018. 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 a revenue-by-division summary. We also issued an earnings presentation that provides additional details on our performance and outlook. During this earnings call, many of the statements made maybe considered forward-looking statements and actual results may 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 and other filings that we make 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 our website, investorrelations.medtronic.com. References to quarterly results increasing or decreasing are in comparison to the fourth quarter of fiscal year 2017 and references to annual results increasing or decreasing our comparison to fiscal year 2017; references to organic revenue growth excluding the impact of material acquisitions, divestitures and currencies, references to pro forma exclude the impact of material divestitures. Unless we say otherwise, quarterly and annual rates and ranges are given on a comparable constant currency basis, which adjust for material divestitures as well as the impact of foreign currencies. All of these adjustment details can be found in the reconciliation tables included with our earnings press release. Finally, other than as noted, our EPS growth and guidance does not include any charges or gains that would be reported as non-GAAP adjustments to earnings during the fiscal year. With that, I am now pleased to turn the call over to Medtronic's Chairman and Chief Executive Officer, Omar Ishrak.

Good morning, and thank you, Ryan, and thank you to everyone for joining us. I am pleased to announce that this morning we reported strong fourth quarter financial results. Revenues grew 6.5% organic, coming in 100 basis points above the high-end of our guidance range. This marks the second straight quarter of 6.5% organic top-line growth enabling us to more than overcome a very tough first half of the year. Q4 non-GAAP operating profit grew 8% pro forma and 9% adjusted for currency, while non-GAAP diluted EPS grew 14% and 15% respectively. The operating margin expanded 80 basis points, pro forma constant currency and as we enter FY 2019, currency at current rates looks to be a tailwind to both margins and earnings for the first time in years. For the full fiscal year 2018, revenue of $30 billion grew 4.6% organically with a further 40 basis points from acquisitions. Non-GAAP diluted EPS grew 9% pro forma and 10% constant currency. The second half of the year was particularly strong overcoming several first half challenges including an IT disruption, multiple hurricanes, fires in Santa Rosa and supply constraints in diabetes. Despite all of this we recovered well and came in at the high-end of both the revenue and the EPS guidance we established at the start of the year. We also continued to drive margin expansion, reduced debt leverage, and returned $4.3 billion to shareholders. We made significant progress against each of our growth strategies. In Therapy Innovation, we executed a number of meaningful product launches and advanced a pipeline of increasingly ground-breaking medical technologies. We are creating new markets disrupting existing markets and leading in several of the fastest growing growth markets in medtech. In globalization, we continued to lead our industry in expanding access into markets around the…

Thank you, Omar. As mentioned, our fourth quarter revenue of $8.144 billion represented a 2.9% increase as reported and organic growth of 6.5%. Foreign currency had a positive $315 million impact on fourth quarter revenue. GAAP diluted earnings per share was a $1.07. Non-GAAP earnings per share were $1.42. After adjusting for the divestiture, non-GAAP diluted EPS grew 14% pro forma and 15% constant currency. The operating margin for the quarter was 30.2%, representing an 80 basis point improvement on a pro forma constant currency basis. Gross margin was down 50 basis points reflecting our sales mix in the quarter. The impact of mix on our gross margin this quarter was more than offset by a 150 basis point improvement in SG&A on a pro forma constant currency basis, reflecting our company-wide initiatives on expense leverage. Net other expense, which is included in our operating margin was $188 million. This was slightly higher than expected primarily due to mark-to-market on some of our investments. Foreign exchange in total had a 160 basis point negative impact on our operating margin in the quarter, primarily due to the year-over-year change in currency gains and losses related to our hedging program. But the good news is that based on current rates, we expect the currency headwind that flagged us for several quarters on the operating margin to turn into a tailwind in fiscal 2019 starting in the first quarter. Our fourth quarter non-GAAP nominal tax rate was 14.9%, slightly better than expected given favorable IRS audit resolution. Fourth quarter average daily shares outstanding on a non-GAAP diluted basis were 1.366 billion shares. As expected, this was roughly flat sequentially. Combining our $1.8 billion of net share repurchase in fiscal 2018, with the $2.5 billion we paid in dividends over the same period, our…

Thanks, Karen, and to summarize, we have delivered two consecutive quarters of strong revenue growth to finish our fiscal year. We also expanded our operating margin and delivered meaningful EPS leverage. Looking ahead, we feel good about the growth opportunities in our markets and our competitive position in these markets. We expect continued revenue growth and margin expansion and we also focused on generating strong free cash flow conversion and making the right investments to drive shareholder value. And finally, execution is our top priority. Before we turn to Q&A, we have the benefit of Mike Weinstein joining us earlier this month. Given his recent transition, we thought it might be helpful for him to make some comments. Mike?

Certainly. Thanks, Omar. I’ll make a few comments. I think we started - I think with a great quarter. There is a lot of work to do and I’d certainly don’t to want the street to get out ahead of us. But this was a good quarter. Six to nine months ago, when I was on the other side of this call, we on the sell-side were all worried about growth in the companies that always have to queue with the pace of competition, competitors introducing MRIs and tablet pacers, ICDs, deep brain simulators, Insertable Cardiac Monitors et cetera and now here we are six months later that Medtronic has delivered back-to-back quarters in 6.5% organic growth. Again, I don’t want everybody to extrapolate on that historic modeling 6.5% going forward, but I do think I speak to the breadth of the franchise and the number of growth drivers moving in the right direction, which honestly the street, myself included underestimated or missed six months back. RTG as you’ve noted Omar had its best quarter in years, growing 6% organic despite all the challenges we are aware in Spine market. Neurovascular grew high-teens, Neurosurgery grew low double-digits and the STS Pain Stim business has had a remarkable turnaround growing mid-teens this quarter after a meaningful decline in the first half of this year. So, that’s all heading in the right direction. Diabetes, obviously had a fantastic quarter growing 20% plus, well north of what the street was modeling and Guardian standalone hasn’t launched yet in the U.S. and that’s going to start this quarter. So I should go on and back off four operating groups, CVG, RTG, MITG and Diabetes the better than the street was modeling. But the good news is that it’s not just the top-line, margins are starting, and I emphasized starting to go in the right direction. Gross margins beat by 20 basis points, SG&A beat by 80 basis points, the FX headwinds margins which was severe this quarter at 150 basis points which we are all focused on three months ago, should go away as we head into FY 2019, obviously assuming at current rates. But there is a long way to go. And I think the good news is that we all know that as Omar said, execution is the number one priority right now and we are not going to let one or two good quarters go to our heads. But I feel good that we are clearly heading in the right direction and Investor Meeting on the 5th will give us a chance to talk about us more.

Good. Thank you, Mike. And let’s open the phone lines now for Q&A. In addition to Karen and Mike, I have asked Mike Coyle who is President of CVG, Bob White, President of MITG, Geoff Martha, President of RTG and Hooman Hakami, President of our Diabetes Group to join us. We want try to get to as many questions as possible, so please help us by limiting yourself to only one question and if necessary a related follow-up. If you have additional questions, please contact Ryan and our Investor Relations team after the call. And with that, operator, first question please.

[Operator Instructions] Your first question comes from Bob Hopkins of Bank of America.

Thanks very much and congratulations on a great finish to the fiscal year.

Thanks, Bob.

Yes, it’s a very clear strength and great to see. So I have a quick question for Karen and then a follow-up for Omar. Karen, to start with on operating margins, it’s obviously been a focus point for investors. You delivered 80 basis points of underlying margin in Q4 and 20 basis points for the full fiscal year and you are guiding to 50 for 2019. So I was wondering if you could just talk about the 80 basis points of underlying improvement in Q4, which was a little shy of what you were hoping for at the 100 basis points you talked about. And then more importantly, for fiscal 2019, can you talk about your goal of delivering 50 basis points of underlying margin improvement, which is above the 20 basis points you did this year. So, what are the drivers of that? How much of that is from the restructuring? Just, what gives you confidence, if you can do 50 next year when you did 20 this year? Thank you.

Yes, thank you for the question, Bob. We were pleased with the operating margin improvement in the fourth quarter of 80 basis points. Keep in mind that that was driven through Covidien synergies that we are now benefiting from, as well as the company-wide focus on expense leverage and it was delivered mostly through improvement note at a 150 basis point improvement in our SG&A. But going forward, we do expect to continue to drive operating margin improvement, we have a company-wide program around Enterprise Excellence, which is intended specifically to drive margin improvement and also to help us offset pricing headwinds and continue to reinvest in our company. That Enterprise Excellence program is well structured, well underway and we are confident in our ability going forward to continue to drive this margin expansion. We’ll talk more about it at Investor Day as well.

Okay. And then, I did want to follow-up with Omar on the emerging market growth, because it just, it really seems like a standout in the quarter. It drove over two points of growth in the quarter. So, maybe talk about the sustainability of that emerging market growth. Were there any one-time things impacting emerging market growth in this quarter? And kind of what do you assume for fiscal 2019 in terms of emerging market growth? Thank you.

Well, thanks a lot. Like I mentioned earlier, the story in our emerging markets is our diversification and our presence in multiple geographies. While China is still the largest, we have significant presence in the Middle East and Africa and Latin America. And in the fourth quarter, all of these geographies grew in the mid – sort of in the mid-teens. And so, that helped a lot in the fourth quarter performance. Going forward, we certainly expect double-digit growth in the emerging markets. I’d say in the low double-digits, that’s what we’ve been performing consistently over time. There was certainly no one-time swing here in the fourth quarter. I think the diversification is playing out well for us with at least three big sort of geographic collection of countries that are well diversified amongst themselves. So that’s what gives us a confidence that we can continue to do this and above all the biggest confidence that we have is that we’ve been delivering this for the past five years. So there is nothing other than better performance to expect going forward as our strategy start to play out.

Terrific. Thank you.

Your next question comes from David Lewis of Morgan Stanley.

Good morning. Couple questions for Karen. Karen, just talking about, I want to start off with the growth. So, you mentioned that first quarter growth guidance, you are sort of assuming is comparable for your growth guidance for the remainder of the year. But, the first quarter is also the easiest comp of the year and if you go back to fiscal 2018, the defining element of that year was the first half was dramatically weaker than the second half. So, I guess, said more simply, what drives the momentum in improvement in the business across the remaining three quarters, if the first quarter is going to be comparable with the remainder of the year?

So, I would remind everyone that our first quarter comes off the heel typically of a very strong end to our fiscal year and the first quarter is typically not our most robust growth quarter. The second quarter will be the quarter next year that comes off very low comparisons, much more so than the first quarter. So we are confident in the guidance that we’ve given for the first quarter consistent with our annual guidance of 4% to 4.5%. But I would remind folks that both for CVG and MITG in the first quarter, we do expect both businesses to be on the minus side of that 4% with MITG having difficult year-over-year comparison from endo stapling and [capital] [ph] sales and CVG seeing the anniversary of some major product launches last year.

Okay, very helpful. Karen. The second question is just on cash flow. I know improving cash flow is a big focus for 2019 and beyond, I imagine it will be a focus for the Analyst Day in a couple weeks. But can you just talk about for fiscal 2019, the operating cash flow assumptions, CapEx assumptions, free cash flow conversion, and maybe a little bit about some of the executive compensation changes that maybe happening around free cash? Thanks so much.

Thanks for the question, David. On free cash flow for FY 2019, we said that we expect it to be between 4.7 and 5.1. We have improved our conversion ratio and honestly we expect to improve that conversion ratio going forward specifically over the next couple of years. In terms of things that impact cash on cash from operations, we expect that to grow in line with earnings, on CapEx, we expect CapEx to be roughly flat year-over-year. We intend to spend a little over $1 billion in CapEx like we did this year. And we will have certain other payments related to our restructuring program, some continued legal payments. But we do expect tax specifically when you include the $1.1 billion payment related to the Puerto Rico litigation to decline meaningfully. We will still have that potential $400 million payment to Puerto Rico, it’s unclear whether or not that payment will need to be made in fiscal 2019. It will be dependent on the outcome of the litigation. But, we will have that as well.

Thank you very much.

Your next question comes from Vijay Kumar of Evercore ISI.

Hey guys. Congratulations on a nice quarter here. So maybe, Karen, you are just talking about the guidance and the cash conversion rate. So, for the EPS guidance what kind of assumptions are we making on capital deployment? When you talk about cash conversions improving, what should be a normalized cash conversion for this business? Can Medtronic go to in a 90% or north of 90% over the medium-term?

So, on EPS, we are assuming this is organic. We obviously don’t assume that we make any acquisitions or divestitures. On tax, I did say that we expect 14% to 15% tax rate for the year and on our debt, we expect that to remain relatively stable now that we have completed the debt paydown that we have talked about. In terms of return to shareholders, we did announce recently that we expect to repurchase $1.2 billion in shares throughout the year. That was commensurate with us talking about some debt tendering that we were doing. In terms of a normal cash conversion, keep in mind that our Medtech industry is typically around the 80% conversion rate and we expect to be improving to that range over the next couple of years. We are very focused on it and we expect particularly some of the one-time charges that we’ve had over the past will be diminishing.

That’s extremely helpful. And maybe one for Omar. Medtronic has done a fantastic job on the top-line, right. I think the issue has always been for us, maybe modeling some of the FX impacts in the moving parts, at the prior Analyst Days, Omar, a lot of the focus was on innovation in top-line, what’s happening with Medtronic, right. And when we think about the upcoming Analyst Day, is there anything going to be different at this Analyst Day in terms of focus? Should we be expecting any update on the Robot or anything else that you want to highlight? Thank you.

Well, I can assure you that technology and innovation will still be at the top of the agenda. That’s what we are most excited about. That’s what fuels this company. And we have got many – our pipeline is fuller than it’s ever been and we are extremely excited about it and we’ll be – and really looking forward to sharing all of that with you at Investor Day. But equally, we are laying out an enterprise excellence program and our focus in operating margins, our focus on cash flow are elements that are serious and I expect that will come through at Analyst Day. So, again, there is going to be no drop-offs in our excitement here on technology and if anything is increased, and you will see exciting examples from all our groups. But I do want to emphasize that the operating margin focus and our cash flow conversion focus is driven by our enterprise excellence program will be clear as well.

Sorry, on the robots, should we be expecting any update on the robot?

Well, look, we will, Robot is a major program for us. And obviously, we are going to talk about it.

Thank you guys.

Thanks, Vijay. Next question please?

Your next question comes from Larry Biegelsen of Wells Fargo.

Good morning. Thanks for taking the question. One on TAVR and one on just the new product launches in fiscal 2019. So, maybe for Mike Coyle, by our math it looks like, the worldwide TAVR market did slow a bit in calendar Q1. Is that accurate? And what are you seeing in the market? At PCR today, one of the presenters said that you would be presenting your low risk data at ACC in 2019. I just want to confirm that’s accurate, that would be pretty impactful. And just lastly on TAVR, Mike, any expectations for the MEDCAC, do you think it’s more likely to expand, keep the same or decrease tenors?

So, thanks for the question, Larry. In terms of the TAVR growth profile for the quarter, we would peg TAVR growth at somewhere in the vicinity of the high-teens, which obviously is a slowdown from two years ago in mid-20s. But for the fiscal year, it was low-20s, but still that’s very strong growth given the size that that market that’s grown to and for us, obviously, we’ve been growing faster than that in the low-20s. So, it’s been an important growth driver for and we expect it to continue to be an important growth driver for us. In terms of pipeline, we are going to cover that at the Analyst Meeting. Next Tuesday, we will show you what we have in terms of beyond EnVeo with the system that is now going on the United States and into Europe, we will talk about that pipeline in terms of both iterations and then some of the more significant platform investments that we are making in TAVR going forward and as mentioned what we are doing in mitral. And then, in terms of the MEDCAC, our position is a bit intermediate to what we hear coming from the society as I meant from some competitors in the sense that, we believe that all current news – the current mass coverage – decision to coverage all of the indications we use for TAVR that are approved and we don’t see constraints at the moment in terms of being able to meet demand. We do think it’s the – what the societies are proposing as adopted that we can see upwards of 35% of the centers now falling out of the ability to provide TAVR and we think it would a problem for the access for this life-saving technology. And so, our view would be to maintain the national coverage decision until there is an expanded FDA approval for indications that are not covered by the MTD. And that would then give us time to basically evaluate the question of our centers that are smaller and a lower volume actually performing worst than those at high volume. And frankly the data that we have seen today would not support a conclusion that we are seeing meaningfully worst results in those smaller centers. So we think, the MCD as it exists today is good. We will support its continuation and we think it might be the right time to look at that maybe in a couple of years.

Thanks, Mike. And Omar, I know you have your Analyst Day, obviously in a week or two. But just for – just to give us confidence in your guidance for fiscal 2019, what are the product launches that you are most excited about for fiscal 2019? Thanks for taking the questions, guys.

Thanks. I’ll just name a few and as you mentioned, we will go through our overall pipeline in greater depth. The Pain business, this turnaround in Pain is very significant and we are extremely excited about what we are seeing and we are seeing that with the Intellis product, our Evolve workflow in our snapshot reporting. I think it’s a unique element in that industry and it’s a massive turnaround as recently as in the first half of this year and something we are getting a lot of traction. So I think, continued momentum in Pain is something that we will definitely see. Diabetes is the other one. I mean, we are just starting there to get the full benefit of the 670G in the U.S. and we are extremely excited about what we see. But equally, we’ve got penetration of the 670G into global markets. On the back of the 640G which is already very successful. And then the Guardian Connect is a whole big opportunity which I mentioned was also is a big area for us. I think in CVG, you heard Mike talk about it. But there is many areas here. One that, I don’t know the exact contribution to growth, but I am extremely excited about its further evolution of the Micra product, which is a revolutionary product for us and one that we are extremely proud about. And the consistent growth that we’ve seen in surgical technologies within MITG will continue. We have a rich pipeline of products and they come out regularly and that will be sustained into next years. So, we expect an exciting year, full of new products, which will continue to fuel our growth.

Thanks for taking the questions, guys.

Thank you, Larry. Next question, Shelby?

Your next question comes from Robbie Marcus of JPMorgan.

Hi and congrats on the good quarter.

Thanks.

Two of the businesses that stood out were Diabetes and Spinal Cord Stim and Omar, you touched on this just briefly in the last question. But, do you have new product launches there maybe you could give a little more color into what you are seeing in the dynamics with the product launches? And how you think that's impacting the market?

Sure. I’ll let the two group leaders kind of briefly comment on that. So, Hooman, do you want to go with Diabetes first?

Sure. Robbie, I think that the quarter was really strong. We had some great balanced performance across businesses, across geographies. I’d say, there were really two main drivers. The first is strong global pump growth that we saw and Omar just touched on this a second ago. The first was just continued strong uptake of the 640G in markets outside the United States, but in particular, Europe. And then, we have seen continued strong performance out of the 670G in the U.S. and this is really encouraging, because in many ways, we are just getting started here. So, you look at those dynamics, all of those things led to six points of share gains for us across both consumable and durable pumps this past quarter which we are obviously really excited about. The second big driver for us was the pull-through of sensors. This is as we sell more integrated systems, we are seeing more sensor pull-through. So both the 640G, the 670G are driven by sophisticated algorithms where the pump and the sensor work together to keep a patient in control. As we sell more of these systems, the more sensors we pull-through. So those two dynamics were really the catalysts for us this quarter and then, looking forward, we expect both of these things to continue and for us starting to capitalize on a standalone CGM market that we are just starting to get into.

And Geoff, say few words about Pain.

Yes, sure. Sure, Robbie. Obviously, Intellis is off to a strong start for a couple of reasons. One, the device itself, I mean, it’s much, much smaller than the competition. It’s a much faster, three or four times faster recharged, very little battery saved over time, MR compatible, et cetera. And so, just a real compelling differences there. And in addition, our Evolve Workflow which really drives the outcome has been, I believe underappreciated. And these two things taken together get us back in the game. Regarding Evolve, we are still building credibility as we produce more robust data over time. We just launched our Vector trial which is our prospective clinical trial testing multiple aspects of Evolve. We are thinking enrollments underway and on schedule and we anticipate the first release of this data at NANS in January of 2019. In addition, we published some other data from, we call the Verdolin data from Dr. Verdolin. We’ve presented that recently at two scientific meetings and we got really strong results. So this is an independent physician study nearing real world outcomes and we had 83% of the 114 patients, 114 patients had 75% pain reduction. So this is really good result. So after three months, we saw similar results. So, we are seeing really strong data from Evolve and that’s going to continue to build over the course of the year and I think help us access a whole new group of physicians and patients. So, we are – as Omar indicated, we are really excited about the Pain Stim business and the strong market growth and how we are positioned within it.

Thanks and a quick follow-up for Karen. With FX moving so much, maybe you could help us think about how it might impact the gross margin and the other income line? And with higher interest expense run rate, what that might be for next year? Thanks.

So, in terms of FX, with the recent movement over the last month in currency rates, we do now expect a bit of a headwind for the full year from FX on revenue and I mentioned between $50 million to $150 million. But I also mentioned the good news is that we still expect a positive impact from FX on our operating margin, on our EPS and on our free cash flow and the key reason for that is our hedging program. Based on where rates are today, we do expect gains in our hedging program that shows up in our net other expense line item and positively impacts our operating margin. You had a second question, Robbie. Will you remind me that one?

Just the - how will FX impacts down the P&L and what interest expense might look like given the higher run rate?

Right. So on interest expense, obviously, interest expense – the interest rates have been increasing. So we will have a modest impact from that on an interest expense perspective. On an interest income perspective, I did mentioned that, we are focused on continuing to liquidate our overseas portfolio and as we do that we will have interest income coming down a little bit.

Thanks, Robbie. Take the next question please.

Your next question comes from Isaac Ro of Goldman Sachs.

Good morning guys. Thank you. A question on the 2019 op margin expansion guidance that you gave for that 50 basis points, if I think about your prior plan for that $3 billion in gross cost savings through 2022, could you help us understand kind of what’s embedded in the 2019 guidance for margin expansion as it relates to that program to be helpful to understand the pacing there and the net effects?

Sure, so, when we gave our enterprise excellence, when we announced our enterprise excellence program and talked about the over $3 billion in savings and leverage that that would deliver through 2022, we also said that we expected over $500 million to $700 million impact or positive savings in leverage annually each year. That is now embedded into our forecast. So that program is designed to offset pricing pressure which we expect continued pricing pressure. It is also intended to help ensure that we can continue to reinvest, particularly in R&D and it is intended to drive operating margin improvement and expansion. And for next year, I mentioned, we expect operating margin expansion of about 50 basis points pro forma constant currency.

Okay, got it. And then, maybe just a follow-up question on couple product specifically on SCS. Omar, you called out the mid-teens growth there. I think a little bit better in the U.S. and just trying to understand as we think about the sequential trends from here as Intellis ramps, and do you expect that growth rate to accelerate on a year-on-year basis? Trying to figure out kind of what’s embedded there? Thank you.

And Geoff, Do you want to take that?

Yes, sure. Look, it’s clearly off to a strong start. I’ve cautioned you to not extrapolate continued further growth in terms of market share until some of this data comes out. The data that I mentioned a few minutes ago is going to take some time and that will – I think drive incremental growth, but we do think it will maintain. This is a sustainable growth driver, but in terms of acceleration, we really, I think need to provide more data in order to accelerate that growth rate. But it is not kind of a one-time blip. We do think this is going to sustain.

Okay, thank you.

Thanks, Isaac. Next question please?

Your next question comes from Raj Denhoy of Jefferies.

Thank you, Anthony for Raj. Maybe two product questions and then an operating margin question. Just to clarify on 670G share gains, is that from prior on the MDI patients who are existing pumps/CGM users? So that’s the first product question. The second would be on SPYRAL. You had data out at EuroPCR. Maybe just to recap on why this program is different from the prior Symplicity program and what the update on market opportunity is there? And then on operating margins, can you clarify that mark-to-market gains and losses on securities? How that could impact operating margin next year? And if the company is contemplating shifting that out of other income? Thanks.

Hooman, do you want to go?

Yes, with respect to the 670G, we are getting penetration of the 670G really across, I would say, patient populations certainly our own installed base competitive conversion and MDIs. So we are seeing all three. I think as you look forward though, we do expect more penetration within MDI, because as the data comes in and now we have, as you heard from the commentary, 70,000 trained patients where the results are in line with the pivotal. As more of this data comes through and as physicians see this data, I anticipate, we will see even a greater penetration within MDI.

Mike, do you want to take Spyral?

As it relates to Spyral, there are a whole bunch of things different about the data that were presented here both the Off-Med that we’ve shown back at the ESC last fall, as well as the data shown yesterday at the PCR Meeting. For one thing, the device is different the HTN3 data we are studying the Flex device. This is Spyral which basically is targeting in different part of the anatomy going more digital in the renal artery, which is where we are seeing congregation of the nerves that we are trying to denigrate. So, that has been an important contributor to the reliability of the denigration. Number two, the patient population is different. In the original study, we had mostly loaned systolic patients, older patients involved to a very extensive, if you will hardening of the arteries which were less responsive to the treatment. And so, that by moving to a patient population that is actually a bit left sick, but has both systolic and diastolic tension. We’ve seen a much higher response rate which was shown in the HTN3 data and obviously has now elevated here. In addition, we are using ambulatory blood pressure measurement as the basis for the analysis which gets away from a lot of the whitecoat and hypertension issues that were shown. But probably the biggest difference here is that, what’s become clear is that patients are non-compliant to their medications and we showed the data that basically 40% to 50% of patients who say they are taking medication are not taking the medication. We were able to validate that by looking at not only your analysis but also blood levels. And it’s very clear that that was a huge confounder to the original HTN3 data and then it created case variability in the statistics. And so, by carefully factoring that out in our analysis, we were able to now show, not only with the Off-Med study that we’ve shown, but now with the On-Med study that we’ve shown yesterday that we have not only statistically significant, but clinically significant reductions in the blood pressure levels. And so, we are now rolling into the pivotal study using the adaptive Bayesian design, which means we are already 35% through the enrollment phase of the study for the pivotal trial. So, it’s a very exciting program for us and something that we spent a lot of years fixing and now we are moving ahead with the pivotal trial.

Karen, do you want to take that?

And on operating margin, yes, I did mention we had some mark-to-market losses in the quarter. They were primarily related to the warrants that we own on Muzor and yes, we are planning to shift mark-to-market gains and losses going forward into non-GAAP reporting.

Thank you.

Thanks, Anthony. Next question, Shelby.

Your next question comes from Bruce Nudell of SunTrust.

Hi, good morning. Thanks for taking my question. Omar, a question for you and then, a couple questions on products. So, firstly, just looking at the midpoint of top-line guidance next year, it’s feeling like, you are thinking developed markets for Medtronic grow 2.5% to 3% and emerging markets more 12% to 15%. Is that the right way to be thinking about it? And is that really the slowdown in developed markets really just due to the product introduction timings?

Emerging markets are in the double-digits and I think that’s the way you should model it. I think we’ve got confidence in that and then the remainder is the developed markets. So, I think if you build the model out from that, that’s the basis you do it. So, we are pretty confident on the double-digit emerging market as a baseline and then the swing will be in developed markets which is usually driven by innovation cycles.

Okay, thanks so much. And then, Geoff, just on the spinal cord stimulation, what’s the internal confidence that the low kilohertz, sub-perception is really close to 10 kilohertz and that waveform optionality is also very important to having durable long-term pain relief?

Well, that’s been our position in our data is proving that out that we believe that patients benefit over time from the optionality between high dose and low dose energy. And we are going to continue to do more and that’s really the heart of Evolve Workflow. Right, so, one, make it simple, one having the flexibility to between high dose and low dose, we think over time, produces the best outcomes. However, you need to provide physicians with a recipe for doing that. So they can get consistent outcome and mitigate complex patient follow-up and that’s our Evolve Workflow and we are very confident in that. Not just internally, but you are seeing external confidence building, I mentioned the Verdolin data that we just talked about in the couple of scientific conferences recently and that our Vectors trial, that we will be – announcing the data on that in NANS 2019.

And my final question is, SAPIEN 3 showed very good results extracted from the TVT registry in bicuspid patients. I am pretty sure you guys have done the same sort of analysis and could you just say how core of that was looking in that registry amongst bicuspid patients that of course important once the low risk label is garnered?

Yes, Bruce, we are prepared to show the data, but we are absolutely doing that analysis as the basis for an approval for bicuspid. And obviously, the rich dataset of TVT is going to provide us the basis for being able to see what the effect is. But we are very optimistic about that analysis being supportive of seeing similar outcomes to what we see in the intermediate risk and higher risk groups.

Thanks so much.

Thanks, Bruce. Shelby, we’ll take one more question, please.

Your final question comes from Steven Lichtman of Oppenheimer.

Thank you. Hi guys. Just first question on core spine. As you mentioned during prepared remarks, the recent soft patch here is well-known. Just wondering what your latest views on the market are? Maybe most recent dots on the drivers of the growth challenged and do you think we could see a pickup and if so, what would be the driver there?

Well, first of all, look for Medtronic Spine, I am pleased with our performance against the softer market that you mentioned. We grew our Spine business as reported 1%. And then when you combine that with our enabling technologies, which like – things like, Spine Navigation, and Robotics, we grew closer to 3%. So, we believe this is definitely outpacing the competition. Now, regarding softer market, I mean, look, what we are seeing is that, historically, the procedure growth has outpaced the pricing pressure for maybe a net 2% - 3% global market growth. But in the last couple quarters, that procedure growth has softened and it has not outpaced the price declines, the price pressures. So, you are seeing more of a flat to slightly down market. That’s why I am pretty excited about our performance and that’s been driven by the Spine and the Core Spine and biologics piece is in the high-single-digit growth and BMP and our lateral approach called OLIF, strong double-digit growth with our PRESTIGE LP Cervical Discs, and then, we’ve got a number of new product launches that are just starting to take hold, our SOLERA VOYAGER 5.5/6.0 system, ARTiC-L 3D printed titanium cage, and then, coming up here shortly, we’ve got an INFINITY posterior cervical system coming to market. So that's the whole speed to scale strategy of our Core Spine business. And then on top of that, our Navigation, Robotics, power tools, nerve monitoring, all that together, in its further integrating that, and helping physicians to use these tools to improve both clinical and economic outcomes. We believe that combined with our Spine business is going to be growing 3% plus going forward. And the final thing I would say that’s helping our Spine business maybe versus some others as our global exposure. In China for example, which is a big business for us, our Spine business growing 8%. So our OUS growth is stronger than our U.S. growth and pulling up the business. So, those three things continued speed to scale of our product launches within Core Spine, enabling technology and improving clinical and economic outcomes and really differentiating us and helping our core spine business. And then, finally, the mix of OUS growth, particularly in our emerging markets. Those three things will help us grow faster than the market in terms of predicting the market, it’s that hard to do. We think – we don’t think it’s going to get much weaker. We do think maybe a slight uptick, but it’s very hard to predict that.

Great. Thanks for that. And then, just last thing, Karen, the clarification on capital allocation in FY 2019, you are clear on the reduced interest income as you position the balance sheet post Tax Reform. But are you assuming any uses of that freed up cash whether through reinvestment in the business or enhanced buyback beyond the $1.2 billion that you’ve previously talked about?

No, at this stage, we – the liquidation of these assets probably will take some time. So we are not necessarily anticipating any large change in capital allocation other than what we’ve already communicated.

Okay, thanks guys.

Okay, so with that, thank you all very much for your questions. And on behalf of the entire management team I’d like to thank you for your continued support and interest in Medtronic. We look forward to discussing our long range plan with you at our Investor Day, a week-and-a-half from now on Tuesday, June the 5th and we also plan on holding our next earnings call, the Q1 earnings call, Tuesday, August the 21st. So, thank you all very much.

This concludes today’s conference call. You may now disconnect.