Ladies and gentlemen, thank you for standing by. And welcome to the Medtronic Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] I would like to hand the conference over to Ryan Weispfenning, Vice President, Head of Investor Relations. Please go ahead, sir.

Thank you. Good morning and welcome to Medtronic's fiscal year 2020 third 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 and Geoff Martha, Medtronic President will provide comments on the results of our third quarter, which ended on January 24th, 2020. After our prepared remarks, we'll be happy to take your questions. First, a few logistical comments. Earlier this morning, we issued a press release containing our financial statements and the revenue by division summary. We also issued an earnings presentation that provides additional details on our performance and outlook. During today's earnings call, many of the statements made may be 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 statements. For this call, unless we say otherwise, rates and ranges are given on a constant currency basis, which compares to the third quarter of fiscal year 2019 after adjusting for foreign currency. References to organic revenue growth, exclude the impact of our Titan Spine acquisition and currency. Reconciliations of all non-GAAP financial measures can be found in the attachment to our earnings press release or on our website at investorrelations.medtronic.com. Finally, our EPS 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'm now pleased to turn the call over to Medtronic Chairman and Chief Executive Officer, Omar Ishrak. Omar?

Thank you, Ryan, and thank you to everyone for joining us. This morning, we reported results for the third fiscal quarter, Revenue growth was light this quarter, reflecting a series of largely transient issues which I'll walk you through in a minute. The good news however is that this was more than offset by 90 basis points of operating margin expansion well ahead of our expectations resulting in strong EPS and free cash flow growth, both ahead of plan. Importantly, despite the top line shortfall this quarter, our Q4 outlook is unchanged, as we expect significant revenue growth acceleration excluding any impact from the coronavirus. Q3 revenue grew 2.9% in constant currency and 2.6% organic. Revenue growth fell short of our expectations, driven in part by customers curbing their purchasing ahead of our new product launches, principally in CVG and RTG. In MITG, we upgraded the group's ERP system in the U.S. and Canada to our company-wide system, resulting in a temporary slowdown in our ability to supply customers, which in some cases resulted in loss procedures and lasted longer in the quarter than we anticipated. That upgrade is now complete. And as of early this quarter we're in the process of returning to full supply. All of these items led to our quarterly revenue underperformance. We weren't able to offset these issues, given that many of them emerged late in the quarter. I'm not happy with this top line performance and we are focused on quickly addressing the dynamics that led to this result. Geoff will provide a little more color on this later on the call. Looking down the P&L, we drove significant operating leverage despite the softer top line. Our adjusted operating margin expanded 90 basis points as we continue to see the benefits of our enterprise…

Thank you. As Omar mentioned, we delivered third quarter organic revenue growth of 2.6% and adjusted EPS with a $1.44 growing 11.6%. We ultimately came in $0.06 above the midpoint of our guidance and would attribute $0.02 to better than expected foreign exchange and $0.04 to operational outperformance, including tax. Our adjusted gross margin was 69.7% down year-over-year due in part to increased China tariff. We more than offset that decline with strong operating leverage, as we continue to implement and drive efficiencies and improvements across the company, while at the same time making investments ahead of upcoming product launches. This led to an adjusted operating margin improvement of 90 basis points or 70 basis points excluding the impact of currency. Below the operating profit line, our adjusted interest expense declined 36%, driven by our successful debt issuance and tender transactions that we completed last spring and summer. Our adjusted nominal tax rate was 13.6% lower than we expected due to increased deductions from the exercise of employee stock options and benefits from finalizing taxes owed uncertain returns. As you know generating strong free cash flow remains a priority across the company and you are seeing this focus come through in our results. Third quarter free cash flow with $2.1 billion, up 21% from last year, and year-to-date free cash flow was $4.9 billion, representing a conversion ratio of 90% well above our full year target of 80% plus. We remain committed to disciplined capital deployment, balancing investment in R&D and tuck-in acquisitions to drive future growth, while returning a minimum of 50% of our annual free cash flow to our shareholders and year-to-date we've returned $2.8 billion or 57% of the cash we generated, resulting in a total shareholder payout of 51% on adjusted net earnings. Now turning to…

Thanks, Karen. Id now like Geoff to make some remarks in the quarter and the outlook. Geoff?

Thank you, Omar. There are a number of positive things from the quarter that I want to highlight. But first I'd like to address our top line performance. Even though much of it was transient we did not perform at the level we were expecting and the drivers surfaced at the end of the quarter. We just can't have surprises like this, for us nor for you. And we are making changes. At our upcoming Investor Day in June, I'm going to walk you through what innovation driven growth means for Medtronic and a comprehensive set of initiatives to take full advantage of the pipeline. These initiatives are meant to ensure we see the acceleration of our revenue from the pipeline and to improve our predictability. On that note, I want to discuss an aspect of our plan to address the surprise we saw this quarter. One issue is the weighting of our revenue to the final month of the quarter, which leaves us susceptible to surprises late in the game like what happened this quarter. Too often our largest orders come in at the end of the month. This dynamic makes the business challenging to manage, it stresses our operations and it really makes it difficult to mitigate headwinds that pop up within the quarter. So to fix this, we will change our current operating mechanisms, certain internal metrics and some incentives as well. And I want to flag the opportunity coming up with our extra week in Q1. The impact of the changes that I just mentioned likely won't be contained in a given quarter. So I'd like to use a good portion of the benefit that we would get from the extra week in Q1 to launch these initiatives. So when we guide to the first quarter…

Thanks, Geoff. I couldn't agree more with the approach that we are taking, and I'm just as excited about our outlook going forward. Before we start Q&A, I'd like to briefly note that we currently anticipate holding our Q4 earnings call which will be my last earnings call on Thursday May the 21st. Let's now move on to Q&A, in addition to Karen, Geoff and me our four group Presidents, Mike Coyle, Bob White, Brett Wall and Sean Salmon, are also here to answer your questions. As usual we want to try to get to as many questions as possible, so please help us by limiting yourself to 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. Operator first question please?

Your first question comes from the line of Bob Hopkins with Bank of America.

Thank you and good morning. Just I'll state both questions upfront to make it easy. First, I was wondering, in CVG, if we could drill down a little bit on ICDs given the weakness in the quarter and I ask because you know Boston Scientific also saw weakness in the quarter in their high power ICD business and the timing of your new launch you shouldn't really be a surprise. So I guess my first question is how can you have confidence that this isn't just a slower market? So that's question number one. And then the thing I also love a quick comment on is that, I realize it's too early for formal fiscal 2021 guidance, but you guys have talked a lot about accelerating growth in fiscal 2021, so are you still comfortable accelerating off of that 4.5% that we'll see hopefully in the fourth quarter on the same selling day basis? Thank you.

Thanks, Bob. Mike Coyle is the right person to address the ICD questions. Go ahead, Mike.

Yeah, we're not seeing anything that would cause us to have a concern that the overall market for ICD is somehow slowing significantly. Most of the challenges that we have in ICDs remain the issue associated with the replacement cycle and the fact that we were seeing essentially mid teens declines in year-over-year comparisons on replacement. As I've mentioned before that actually gets better as we get through the year and into next year, especially in the CRT-D area. And that is going to help us in terms of acceleration the ICD side. But the other point and you pointed out the surprise to us in terms of weakness in the number for the quarter was really in EMEA, in Europe and Middle East and Africa. That was where essentially we believe customers were holding off given the imminent launch of our Cobalt and Crome product families which now have launched into the market. And those products will be coming to the United States during the first quarter. The other thing that depressed the overall performance relative to where we thought we would be during the quarter is the fact that the TYRX anti-infective envelopes get captured under the ICD numbers when we report externally. And I think you may recall last quarter we had a fairly major you know, quality driven back order situation that we expected would be resolved completely during the course of Q3. We actually lost a number of – lots of product manufacturing, lots of product early in the quarter which now has stabilized. In fact, through the second half we're completely out of any kind of constraints on supply. So we expect that will flow through into the numbers in Q4 and obviously into next year, especially as we have new data that we'll be presenting at ACC on risk stratification for TYRX. So we think all of those things are going to help us accelerate the ICD market not only in Q4 but into next year.

Okay. Thanks, Mike. I think, Karen, you're the best person to take the question.

Yeah. Thanks for the question on ‘21 Bob. Yeah, we're excited about our pipeline and what it has to offer for FY ‘21. I'd love to talk a lot about it, but we're close to finalizing our plan, so we'll give the official guidance on our Q4 call as you know. That said, I would think about accelerating growth for next year off of a full year basis as opposed to off of a sequential basis. And we're very confident in our growth acceleration of FY ‘21 over FY ‘20.

Okay. Thanks, Bob. Next question please?

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

Good morning. Just – maybe just one quick question for me here. Karen just to confirm for your last question is the right way to think about fiscal 20, I'm assuming a sort of 3.5% to 4%, but my one question I'll keep it to one is just to give a 4Q guidance I appreciate it's in line with consensus, but I think about Omar and Geoff’s comments about RTG and CVG, it seems like the 3Q dynamics getting better into the fourth. Shouldn't the fourth quarter be stronger as we see some of this catch up revenues? If you just help us quantify the third quarter issues and offer some clarity what fourth quarter implies in terms of recovery and drivers of acceleration. Thanks so much.

So let me take the beginning of it and then I'll let my colleague jump in too. So in terms of FY ‘20 that our fourth quarter guidance would imply FY ‘20 growth of 3.6%, 3.7%-ish [ph] And then on fourth quarter clearly because of the transient issues in the third quarter we expect some of that to come back. You know if you look at MITG and the ERP issues that we've talked about, we fully expect that to come back. And that's one of the reasons that we've guided MITG to you know above trend for the quarter. That we have lost some procedures, and those won't come back.

I think I don't know if I can add anything to that. You know, really the procedure losses in a business like MITG where the procedures happened that just isn't going to come back, will recover fully. I think in other areas like in the MCS business or LVAD business you know, that was share loss and there's pressure there and our growth is probably going to be lower than we were originally anticipating. So in balance we felt that holding the Q4 sort of previous guidance was the appropriate thing to do at this stage. We're obviously doing everything we can do to maximize that number.

Okay. Thank you, David. Next question please?

Your next question comes from the line of Robby Marcus with JPMorgan.

Thanks for taking the question. Maybe if we could shift to some of the product lines and specifically TAVR here, 13% worldwide growth came in a lot lower than the Street was expecting, you had the first full quarter of the low risk launch in the U.S., you're a competitor it did a lot better than this. Maybe talk to exactly what happened in the quarter, the dynamics in the U.S. and how you expect this to continue throughout fourth quarter and ’21? Thanks.

Mike, you want to take this?

Yeah, Robby. Obviously we were very disappointed with the performance in the US. If you look outside the US we - the implant growth rates were in the high teens and pretty much in line with the overall market. Actually a little better than the overall market because of the Japan influence. But in the United States obviously well below market with implant rates in the mid teens, whereas we would estimate the market in the quarter probably grew on the order of the low 30s. As we dug into that, we obviously headed into the holidays actually feeling pretty good that we were looking at implant rates in the low 20s. Obviously in retrospect that turns out to be lower than the market. But as we headed into the end of the year and into January, we saw a pretty meaningful decline in overall growth rates for implants and we dug deeply into that to figure out which accounts and where we were having the issues. And basically I think learning from that analysis was that it takes longer than we thought to have our reps become fully competitive in this market. It's probably a 9 to 12 month training exercise which in retrospect we probably should have ramped up in advance of this several quarters earlier than we did. The good news is that as we looked at the hiring that we did do, this quarter we expect to bring on 70 new sales reps and support personnel which is going to help us go from you know, given the 700 accounts that are selling ICD or selling - that are servicing this market, we probably have seasoned sales rep that is those who have a year or more experience in about two thirds of those accounts, by…

Thanks.

Thank you, Robby. Next question please?

Your next question comes from the line of Vijay Kumar with Evercore.

Hey, guys. Thanks for taking my question. I had two quick ones. One, Surgical Robotics, I think you mentioned some software updates just on time line there, you know, MITG, you have sequential acceleration. Is there anything baked on the robotic side there? And second, on margins. I appreciate the comments on you know, FX hedge gains you know, when you look at next year I think Geoff made some comments and changing incentives, so maybe just talk about margins for next year, are we still looking at in a constant currency you know, in the 40 to 50 basis points of expansion? Thank you.

Okay. Let me – Bob, will probably answer this. But you know, I'll just say off the bat that robotics is not in our financial numbers yet, and the overall program is more or less on track. So…

That's right, Omar. Thanks, Vijay for the question. To reiterate, first off, no updates from what we talked about at JPMorgan relative to the program, so it's just good news. And then the sequential acceleration of MITGs business is really all about us coming out of the ERP implementation, now that we've got that back on track and the system is running smoothly. So I hope that does it for you Vijay.

And then on the margins guys?

Thanks, Vijay. On margins for next year, we're going to continue to look at margin expansion, as we drive bottom line growth about top line growth every year. At this stage we haven't changed our long range guidance of 40 basis points constant currency margin expansion. So you can assume that at this stage.

Thanks, guys.

I can tell you Vijay, there is a focus in the organization around that. We've worked very hard to get a - an accountability around that. And you know, we're going to - you're going to - that's going to stay. We just need to fix our top line growth back to where it deserves to be based on our product pipeline.

Appreciate the comments Omar.

Okay. Thanks, Vijay.

Next question please?

Your next question comes from the line of Matt Taylor with UBS.

Hi. Thank you for taking the question. So the first one I want to ask was just on MITG ERP transition. I was wondering if that impacted any of the business lines within MITG more than the others. And are you seeing underlying share loss there. Or share gains. Can you talk about the underlying trends?

Go ahead.

Yes. Let me take that Omar. Matt, thanks for the question. The impact of the ERP transition affected all of the MITG product lines as we migrated into the single SAP system for Medtronic. And you know certainly we lost some procedures where we weren't able to ship products to customers. So while we think we lost procedures given the middle months of the quarter, we don't believe we necessarily lost a significant amounts of share. But certainly now that we're back on track with ERP system we're back to fulfilling those customer requirements.

Thanks. Just a follow for Mike or the team there. So it sounds like you're seeing a little bit of an improvement in the DCB trends at least in the U.S.. Could you speak to that and whether you think we could see any kind of continued uptick there or a change in the FDA stance at some point during the year?

Go ahead Mike.

Sure. We are seeing some modest improvement obviously as more data sets come in, they are providing more comfort to physicians and FDA for that matter I believe, that the signal that had been observed in those first three randomized trials around SFA seem not consistent with the new data coming in. Obviously one big dataset that we filed and got approval for was the AV fistula indication for DCB, which did not show this mortality signal in the paclitaxel arm. And we expect additional data to be coming out on that topic, including at the ACC where we think there'll be a presentation of a major data set based on claims, analysis. So that is creating a greater sense of confidence in the physician base that the significant morbidity issues that come with not using these drug-coated balloons and just using PTA balloons are beginning to get attention. And I think what we expect to see is continued improvement as data sets provide that - that level of comfort. So in this quarter we did see, on sort of selling day [ph] adjusted basis some sequential growth which is encouraging in the DCB and we expect if the data continue to come in as positive as they have that we'll see that continue.

Thank you, Mike.

Thanks, Matt. Next question please?

Your next question comes from the line of Kristen Stewart with Barclays.

Hi. Thanks for taking my question. I just wanted to ask Sean if you could just provide us his overall thoughts on diabetes since kind of taking over the role. And then if we could just kind of get an update on 780G, it sounds like that is getting pushed a little on the US into next fiscal year or maybe just some thoughts around timeline there? Thanks.

Sure. Thanks, Kristen. So as you know the diabetes business certainly has no small challenges to overcome, but I can tell you I'm really very encouraged with how we're seeing some derisking of the pipeline that we have going forward, in particular that sensor pipeline. I'm convinced that we've figured that out and it's a bit of time for us to get the pipeline flowing there. The 780G is an important catalyst for us to drive growth and we expect that to begin. We have filed the CE mark for that device, and we are anticipating, as Omar said, putting the clinical data module in the March timeframe. That review is going well. We're very interactive with FDA that we'll be meeting with them later this week and we'll give more update on exactly when the timing is as we get more information on it. So far we're happy what we're seeing both in the algorithms and you'll see some of that later this week as we stress the algorithm into some challenging conditions that will be announced at ATDD and that data flow and you'll see the full data set coming up at the ADA in June. So I'm seeing a lot of encouraging things as there are things to clean up obviously. We've got to get the new product flow going and we're confident that we'll be doing that starting soon.

And then just your comments around the derisking, particularly around the sensors. Can you just expand upon that? Do you think there's an opportunity to bring forward some of the sensor timelines?

Kris, I think the first thing is to meet the criteria for iCGM, and I'm confident that we're going to be able to demonstrate that, we'll have more information on that in the coming meeting. But probably at Analyst Day we'll show you some more of that. Its too early to comment on accelerated timing, but that's certainly the goal to push as fast as we can into the marketplace.

Perfect. Thanks, Sean.

Thank you, Kristen. Next question please.

Your next question comes from the line of Kaila Krum with SunTrust.

Thanks, guys. Thanks for taking our questions. So one quick one to clarify and then a question on the business. So on the coronavirus, I think you may have mentioned this but again just to clarify. Will you give full transparency on your China business performance in the fourth quarter?

Yes. We will. And we do disclose our growth rate in China already. So we will we will continue to disclose that. We will be transparent about the impact of the coronavirus.

Perfect. And then there's - there's obviously a lot of new product launches coming in the next few quarters. But I mean obviously it can be challenging to predict that the timing and the impact of when those new launches contribute. So I'm just curious how you're modeling your product contribution in the fourth quarter and as part of that re acceleration in the business? Thank you.

Well there are some that are pretty clear, things like the Micra AV, which launched last quarter is now in full steam and moving ahead well, and that one you know we're projecting a strong - strong success. There are others like the in the spinal cord stimulation market, we just launched the Stimgenics waveform on the Intellis platform. That's picking up. That you know, we were a little more guarded about that because that's newer. But for sure that's going to help us in the spinal cord stimulation market. Things like Cobalt and Crome in Europe, again, we have a history there and we can - we can project historically what such - that kind of improvement has caused and where we're going to put that into a model. So you know there's a mix of the level of you know sort of confidence intervals we have in these projections some very tight and you know Micra being one of the biggest drivers is very tight. The other is a little more unknown but positive nonetheless. I think that's the best I can do - or anyone else here, any products I've missed or any comments, you guys?

We've recently we've recently launched the Micro which is the new public health product in Europe which you know we're excited about that and the possibility for that looking to late spring launch in the United States. And then Percept, which is the new DBS with brain sensor technology has just launched in Europe. Similar timeframes in the U.S. approval and we're getting good uptake on that. So those are two very interesting platforms for us in the neuromodulation space.

And the other thing I would mention is the DiamondTemp ablation catheter CE mark that we expect during the quarter which would obviously be even more of a benefit in Q1 of next year, as well as we're just in the early stages of the launch of the AV fistula indication for the IN.PACT Admiral balloon, so those will now get full quarter benefit during Q4.

I think to your question about how we project these you know, there's a historical sort of comparison that we can make against similar such launches and based on that we make a judgment in our in our planning and from that we derive guidance and our plan going forward. So there's a variety of that, but you know there's some judgment involved with this.

Thanks, guys.

Thank you, Kaila. Next question please.

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

Good morning. Thanks for taking the question. Mike, could you please put a finer point on the launch timing of that Cobalt and Crome in the U.S. and LINQ 2.0. What quarter are you expecting it. And Brett, on SNM, what are you seeing - for sacral neuromodulation, what are you seeing from the new competitor and what are your expectations for that business before micro is approved in the U.S. in late spring which I heard you say a minute ago. Thanks for taking the questions guys.

So Larry on Cobalt and Crome, we would expect that in the first quarter of next year probably in the first half of that quarter and then for LINQ 2.0 we would expect that product also in Q1 but in the second half of the quarter.

Yeah, then Larry on public health and on the Micro I think we you know expect some near-term slowing here with that particular product given the competition, the Micro itself in Europe has been received very well, just as a reminder it's about half the size of the competitive device, the recharge experiences significantly better and with the SureScan leads, leads, it is 1.5 and 3 Tesla full body conditional. So we're very, very excited about that product when it comes to the market in United States.

Thank you.

Thank you, Larry. Next question please.

Your next question comes from the line of Matt Miksic with Credit Suisse.

Hi. Thanks for taking the question. So I just have one on coronavirus and one on sort of the simplicity spiral timeline and post the data at ACC. So on corona, I understand a little bit early to put a finer point on the impact for Q4, but if you could maybe give us some sense of what the major moving parts are. I think we have about $2 billion dollars in China revenue round numbers, approximately kind of an annual run rate there. Obviously it's a moving target but you know things like what an impact in Q4 likely you know based on what you know now sort of come back in early Q, you know how transitory is that impact? And then on Spyral, just maybe walk through us with forward for us the timeline of what happens after OFF-MED and what that looks like as you continue to develop that that program?

Okay. Let me take the coronavirus question first, first of all we're pretty clear about where would our China businesses, it's roughly 7% of our global business. So you know you can - you can do the estimate there. You know the variables right now, one variable is that we've got to get our factories up and running so that we can supply you know different places in the world including China. And that is actually progressing well. But the main factor driving the number there will be the procedure uptake in China. You know China was in a complete shutdown mode for the first half of February and they're just beginning to start and even now even in places like Beijing and others procedures are only just beginning it's too early to tell how that will ramp up to the rest of the quarter. We know that in Hubei Province for example obviously shut down but that's solely a you know 5% of China there. But you know the rest of China in places like Beijing and Shanghai right now there are procedure delays. In addition to that a lot of physicians are being asked to actually go and help with the virus. And so you know there are many dynamics here that really difficult to predict. Now once the things stabilized it could well be a ramp back up. And because you know people need the procedures they've - they will get them at some point. When that happens is very difficult to predict right now. So that's why we're saying that wait till a little later in the quarter when we have some more data and see how things progressive we'll give you a full update. So with that, I am going to ask Mike to take the renal.

So our renal denervation, obviously, the first big milestone will be the pivotal trial on the OFF-MED, which will be presented here at ACC. But there is the second trial that is ongoing in parallel which is the ON MED trial. Unlike the OFF-MED, it has a six month efficacy endpoint. So if I were to set expectations for when those data were to become available I would expect that about a year from now. So about this time next year. In terms of the FDA interaction the ON MED or the OFF-MED data will be used in a modular submission as we know along with obviously the device supporting materials. So we think we can get the process with FDA to move forward and we do think we need the OFF-Med – excuse me, the ON MED data set in order to get final approval for the product and certainly it will be very important in terms of reimbursement to have those data. So that would be how I would set expectations. Obviously I think you know this final product is available in Europe currently and it does have CE Mark. So as these data sets become available you know customers can evaluate them and decide how they want to use that product.

Great. Thank you.

Thanks, Matt. Next question please.

Your next question comes from the line of Chris Pasquale with Guggenheim.

Thanks. Mike, I just want to circle back on the 4Q CVG growth outlook. It sounds like some of the headwinds there like LVADs and TAVR may take at least another quarter to address. I'd imagine that there's potentially some risk that U.S. ICD growth slows ahead of those launches just like we saw in Europe. So Micra AV should help, there's a couple of things that go your way which is the confidence in driving that acceleration in the fourth quarter? Thanks.

Sure. I think as you point out you know, we have lowered our expectations for the LVAD numbers just based on you know not seeing the sequential share capture in Q3 that we had seen in Q2. You know, it's some competitive indications approvals. But on the other hand you know obviously we got the Micro AV early in terms of you know we expected that it would be later in the quarter when we were setting guidance last quarter and the customer response has been strong in terms of interest in the technology. And as a reminder this is a product that carries a 3x price uplift relative to a standard dual chamber system and our indications for use cover all AV patients. So we expect that an opportunity to drive this product meaningfully into the market above what we were thinking a quarter ago when we were giving guidance for Q4. In addition although obviously the Cobalt and Crome products won't be in the US they will be in Europe. And so unlike last quarter where we really had no meaningful new products and we saw the customers pausing and while waiting for new products. Now we have a number of new products globally that are obviously going to make a difference for us. And so net, net we're pretty much holding our expectations for growth where we were a quarter ago despite the moving pieces in this quarter.

And does the guidance contemplate a pause in U.S. I see the orders ahead of those launches?

It certainly shows no meaningful acceleration in those - in those numbers, so its something along the lines of what we've had. And as I said we're also seeing some improvement in the replacement cycle generally because of the CRT-D side of things. And the other thing I should mention is obviously we will anniversary in March the paclitaxel issue, which was a big step down in the prior year quarter which gives us just an easier comp to work with as we've seen sequential growth on a selling base basis the last couple of quarters in DCB.

Thanks.

I don’t disagree that TYRX, although we won't get to share capture this quickly. We certainly have sequential growth.

Absolutely. That we were constrained for more than half of last quarter in terms of supply and now we are essentially unconstrained. And in addition, we are expecting to get labeling expansion to one year dating on that product in the United States which will help us significantly in terms of just the logistics of its growth.

Thanks, Chris. Next question please.

Your next question comes from the line of Pito Chickering with Deutsche Bank.

Good morning and thanks for taking my questions. To follow up on Rob's question on U.S. TAVR, I understand if sales rep issues are holding back growth of new accounts. But are the sales reps really holding back growth and establish accounts. Is that where the growth is falling? Is it from the new accounts or from established accounts? Thanks so much.

Yeah, it's a great question. Actually what happened was there was a tremendous focus on launching the Evolut PRO+ as well as opening up the NCD accounts. And what we wound up doing because of the relative maturity of a good bit of our field force is pulling reps who were supporting large accounts to help with that expansion into new accounts. And obviously with a new competitor entering the market, and you know some complex messaging having to come in as well as you know low risk patients were approved. It just proved to be too much. We were spreading our field too thin. And so you know obviously we've refocused back into those large accounts to make sure that our messaging around hemodynamics, the benefits of the Evolut PRO+ in terms of profile are now adding the pericardial wrap into the large device segment and then obviously just selling the benefit to the hemodynamic data that was presented at ACC a year ago. Those are things now that we believe are helping to show this acceleration in growth that I referenced as we head into this quarter versus where we were in January.

Thanks, Pito. Next question please.

Your next question comes from the line of Matthew O'Brien with Piper Sandler.

Morning. Thanks for taking the question. I'll just stick with one. Geoff, I appreciate you don't want to say much about this new program that's going to implement until Investor Day in June. But you know we've seen contract manufacturers do something like this before but never really a manufacturing company do something like this. So can you just talk about the potential economic impacts to Medtronic. I mean, do you have to scale to kind of you know work through some of these things on the top line if you're going to be better pricing there to be a little bit of gross margin pressure or longer term so there's some free cash flow impacts here. So just how do we think about you know some of the puts and takes here of this new program?

Yeah. Well you know, look - and just one clarification on when I spoke about, I think this is the second question around where some of these changes impact are margins and the answer to that is no, right. We've you know we're talking about focus on increasing our revenue and the overall revenue growth, as well as the consistency and predictability of that revenue growth, but we don't want to take a step back on them - on the margin improvement that we've - that we've built up and the cash flow conversion improvements that we had done over the last couple years as a result of our - these are sustainable changes from our enterprise excellence program. So we don't want to take a step back on that. What I mentioned this morning, on this morning's call was a very specific changes that we want to make to improve orders that are coming in late in the quarter. We have a couple of our larger orders, you know, that were coming in late in the quarter which stresses our system and we've got to execute better really to get those in earlier. We're putting too much pressure on the last month and that that's specifically what I spoke of this morning. And what I hinted at for Investor Day was more on what are we doing to realize the full benefits of the pipeline. We look - the fundamentals of the business are strong. What I mean by that specifically you guys know the markets are doing well. We have a good market share positions, but more importantly in terms of momentum the product pipeline is coming to fruition here. So we need to make sure that we put the right programs in place to realize the full benefits of that pipeline you know, around commercial execution. So that's we'll get into more of that on Investor Day. What I talked about this morning was more having a regular cadence - a moving some of our back end loading of our quarter and spreading that more evenly throughout the quarter. But nothing regarding you know, nothing change regarding margin.

Thank you.

All right. Thanks, Matt. I think we've got time for one more question please operator.

Our final question will come from the line of Josh Jennings with Cowen.

Hi, good morning. Thanks for taking the questions. Just two questions for Karen on margins. Just on the gross margin pressure you've experienced so far in fiscal ‘20. Can use to help us understand the drivers of that. And is this and it's sub 70% level the new normal? Or is there a recovery path? And has it been FX, pricing pressure, mix shift? And then just on the other income tailwind that you've experienced in fiscal ‘20 outside of FX hedging can you talk about the drivers of that benefit and then how sustainable and predictable that line item will be going forward? Thanks for taking the questions.

Yeah. Thank you, Josh. No problem. So on gross margin one of the larger prices that we’ve had on gross margin is the increase in China tariff. And as long as they stay that will be a continued pressure. Gross margin is obviously impacted by mix and as we introduce some of our key new products that should help gross margins going forward. And as we think about the net other expense or income line item, we had a benefit this quarter that was primarily driven by a swap program that we have in place to hedge the gains and losses that are part of our deferred compensation program and SG&A. And so that was really driven that. Our SG&A line would have been even better if it didn’t have a loss that we effectively offset by a gain in net other.

Thank you.

Thank you, Josh. Omar, do you want to wrap up?

Yeah. Well, thank you all for your questions and behalf of the entire management team, I’d like to thank you again for your continued support and interest in Medtronic. Look we'll get this thing right. We've got a task to do here, we’ll get acceleration growth profile in Q4 and that will continue into FY ’21. Our product pipeline is strong and this team is committed behind it, we couldn’t have – I couldn’t have asked better team and more committed and we’ll get this thing right, I assure you. And then we really look forward to updating you on our progress on our Q4 earnings call. Thank you.

Ladies and gentlemen, this does conclude today's meeting. Thank you all for joining. And you may now disconnect.