Medtronic plc Morgan Stanley 24th Annual Global Healthcare Conference

The clock started ticking down, so I think that means it's time to get started. Thank you very much for joining us with Medtronic today, the CFO, Thierry Piéton. I appreciate the time. This is Peter Harrison from Morgan Stanley Investment Banking Group. Maybe real quickly, you've been with the firm a little over a year I guess now. Maybe real quickly, a little bit of your background on what attracted you to Medtronic, and let's jump straight in.

Sure. First off, thanks for having me, and thanks, everyone, for being here. Yeah, so I've been with Medtronic for a year and a half. Attracted by many things. First of all, the sector. I had begun my career with GE HealthCare, so I've always wanted to come back to MedTech at one point. Love the mission that Medtronic drives. I thought I could bring something from my automotive background as well to help improve the business. As usual, when you're picking a new company to work for, a lot of it was just the interactions with the people, with the CEO, Geoff, with some of the presidents of other portfolios, et cetera. So it felt like a great fit. It's been a year and a half, and it's been an absolute honor and privilege, so.

Great. It's been a bit of a volatile year for MedTech, and so- Yeah One thing that came across in the second quarter earnings was ACA subsidies, impact of procedures, capital equipment cuts and spending.

How are you thinking about- Yeah that impact, and what are you seeing at Medtronic?

Yeah, we get that question a lot. I think our portfolio is maybe a little different from some other MedTech companies in the sense that we tend to focus on acute procedures.

Typically, if you have a stroke or if you have arrhythmia with your heart or you need a valve replacement, you have to get it done, right?

Right. So it is not an elective procedure.

What we are seeing is the strength of the procedure volume has actually been really good, and you could see it in the numbers in the first quarter. Our biggest franchises, Cardiac Rhythm Management, surgical, spine, they have all been performing very well. If you look at our revenue mix, about two-thirds of it is Medicare. Another quarter is private payers, and Medicaid is about 10%, and ACA for us is less than 1% of our global revenue. So it kind of shows you the mix that we have got. Look, overall, procedure strength has been good, and I would say one thing that is interesting, our free cash flow performance was really good in Q1, and part of it was accounts receivable. So we are getting paid well, both in the U.S.

Yeah even in some typically challenging geographies in Southern Europe, et cetera, where it's always hard to collect the cash.

Q1 was very strong, so I think we see a lot of underlying strength, generally speaking.

Great. That's good to hear. The other macro trend obviously, or word we're hearing a lot is AI. That's on everyone's mind right now, and it's transforming many industries. How is it impacting Medtronic and- Yeah MedTech or hospital spending or whatever it might be, in your view?

Yeah. So for us, there's really two big things. One is in the product part of our business, and one is efficiency internally. If you take the product part, AI just gives us an opportunity to improve the procedure workflow, make the results better for the physicians, provide a better service for the hospital, improve the outcomes. I'll give you an example, right? We've got AI attached to one of our endoscopes, GI Genius. The result is that through a typical endoscopy procedure, the AI detects 50% more polyps- than a trained physician would with a naked eye.

It's great for the patient because you get a better outcome. It's also great for the hospital because maybe you can have a slightly less skilled physician doing that operation, right? Because the system's going to help. Another example would be in some of our spine procedures, the AI can help you do pre-op planning. So map how you're going to do the procedure, help you through the navigation during the procedure, and at the end of the procedure, give you feedback on what you did differently, better, what took more time, and so keep improving the way you actually do it. If you think from the patient, from the physician, from the hospital, there's a lot of benefit. For us, we're in a great position to integrate those new capabilities into the products.

Then there's obviously the internal efficiency part of AI. The obvious stuff is for back office, like I run finance, and we have more and more operations that are being digitized, such as accounts receivable collections, et cetera. In R&D, we're increasing the amount of software development that's done through AI directly. It just speeds up the way the company works, and we get efficiency out of it.