Like many other med-tech companies, Medtronic plc, of Dublin, saw COVID-19 affect its financial results for its fourth quarter and fiscal year 2020, as procedures were deferred in the wake of the pandemic. Quarterly worldwide revenue came in at $5.998 billion, representing a decrease of 26% as reported and 25% on an organic basis.
Cowen’s Josh Jennings noted that the company posted results that were in line with its April update regarding COVID-19’s impact. It also did not offer fiscal 2021 guidance. Still, he had a positive outlook for the company. “MDT has a compelling development pipeline and its regulatory timelines should not be negatively affected by the COVID-19 crisis, even though most clinical trials have been paused.”
Jennings also highlighted its strong financials, with $10.9 billion in cash, an undrawn $3.5 billion credit facility and the lack of public debt maturing until March 2021.
Still, some areas were hit. For example, the cardiac and vascular group saw fourth quarter revenue of $2.004 billion, decreasing 34% as reported and 33% constant currency. That was a result of a decline in deferrable procedure volumes and a reduction in quarter-end customer bulk purchases.
During a May 21 call on results, Bob Hopkins, an analyst with BofA Merrill Lynch, asked whether the company has a sense of what is happening for May. Karen Parkhill, executive vice president and CFO, said the company is seeing encouraging news in its biggest regions. For example, in February and March, it saw declines of about 46%. For April, that was more than halved. “And now we're seeing declines in China in the high teens, so continued improvement there,” she added.
Western Europe also saw declines in April of about 32%. The situation there also is expected to improve, as May should see declines of about 20%. “And in the U.S., the picture is a bit clouded when we look at April because of our bulk purchases, but we're clearly seeing procedural improvement across the U.S., and in May, declines of around 30% just in the first few weeks of May, which is better than what we had in April,” Parkhill added.
Geoff Martha, who was conducting his first earnings call as Medtronic’s CEO, addressed the pipeline and regulatory timelines during the call. He noted that the pandemic had interrupted a few of its recent launches, as there has been a delay in procedures. “This includes the European launches of our Percept PC deep brain stimulator, Interstim Micro rechargeable sacral nerve stimulator, Cobalt and Crome high-power CRM devices and the Diamondtempt ablation catheter.”
In the U.S., there was an impact on the launch of the arteriovenous fistula indication for the In.Pact Admiral drug-coated balloon, its Dtm therapy in pain stimulation and its Micra AV pacemaker. “It's worth noting that prior to the pandemic, Micra grew over 60% in the U.S. in both February and March,” he explained. “The good news is that as procedures come back, we expect these launches to pick up steam.”
For her part, William Blair’s Margaret Kaczor was focused on Medtronic’s position in a post-pandemic world from a strategy and product pipeline perspective. “On the former, management alluded to collaborating with many of its customers during COVID-19, providing solutions that it believes will put Medtronic in a better position to steal market share in several business segments after the pandemic,” she noted.
With that said, she noted that Medtronic "was light on details about these efforts for competitive reasons as it looks to leverage what it believes are unique product offerings to its customers.” The company appeared focused on its product offerings, with some added telehealth services, as opposed to price discounting. To her, this sounded positive, albeit similar to what other large companies have said.
Martha also highlighted Medtronic’s efforts to help during the pandemic, to include ventilator production. “Physicians asked us if we could engineer a way to adjust ventilator settings remotely, outside of the ICU and away from the patient. So, we partnered with Intel to develop a solution that we brought to the market in a matter of weeks.”
He also noted that the company is on track to boost its ventilator production fivefold from prepandemic levels by the end of June. To help in that effort, it has enlisted Spacex, which is working to supply a valve for the PB980. “And we continue to closely partner with key government authorities to allocate our ventilators to the communities that need it the most, including a recent focus on emerging markets.”
It also made its PB560 ventilator design specifications available at no cost to help other manufacturers during the pandemic.
Despite its efforts to help in the pandemic, quarterly revenues declined, resulting in an earnings per share of $0.58, which was down 62%. That said, this result was in line with what it detailed last month.
During the Q&A session, Robbie Marcus, an analyst with J.P. Morgan, highlighted Medtronic’s impressive balance sheet, adding that the company has discussed increased M&A over the last year. Given that asset prices are down about 20% across the board, he wondered whether M&A is on the table. “[T]he short answer is yes. I think it is a good time to do M&A. Like as you mentioned, asset prices are down. It doesn't mean that we lower our standards. I just think, again, we can play offense,” Martha said. He added that the company’s focus remains on tuck-ins.
Kristen Stewart with Barclays asked a question along a similar line, specifically whether the company would be watchful and waiting, given the COVID-19 backdrop. Martha acknowledged that it would be, while reiterating the company’s focus on tuck-ins.
Stewart followed up, asking whether the company would look at different M&A areas opportunistically in light of the pandemic, highlighting telehealth. "I wouldn't say it changes by the business areas,” Martha said. “So investing – and this is an area where I think Medtronic as a company, as an enterprise, this is an area we can add value to our different business units by making investments like these that can scale across a lot of them. … I don't know that [it] needs to be M&A. [A]nd … there are some opportunities there that we're looking at that are more around that whole idea of remote, but also just organic investments and partnerships with large and small technology companies.”