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Medtronic plc (NYSE:MDT)
Q2 2019 Earnings Conference Call
November 20, 2018, 8:00 a.m. ET


  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Good morning. My name is Zatania and I will be your conference operator today. At this time, I would like to welcome everyone to the Medtronic second quarter earnings 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. If you would like to ask a question during this time, simply press * then the number 1 on your telephone keypad. If you would like to withdraw your question, press the # key.

I would now like to turn the conference over to Mr. Ryan Weispfenning. Sir, you may begin your conference.

Ryan Weispfenning -- Vice President of Investor Relations 

Thank you. Good morning and welcome to Medtronic's second quarter conference call and webcast. During the next hour, Omar Ishrak, Medtronic's Chairman and Chief Executive Officer, and Karen Parkhill, Medtronic Chief Financial Officer, will provide comments on the results of our second quarter, which ended on October 26th, 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 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 statement. In addition, the reconciliations of any non-GAAP financial measures are available on our website, investorrelations.medtronic.com.

References to quarterly results increasing, decreasing, or staying flat are in comparison to the second quarter of Fiscal Year 2018 and references to organic revenue growth exclude the impact of any material acquisitions, divestitures, and currency. Unless we say otherwise, quarterly revenue growth rates and ranges are given on a constant currency basis, which adjusts for the impact of foreign currency.

All of these adjustment details can be found in the reconciliation tables included with our earnings press release. 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 Ishrak -- Chairman and Chief Executive Officer

Thank you, Ryan and thank you to everyone for joining us. Let me start today's call by taking a few minutes to remember Earl Bakken, the Cofounder of Medtronic, who passed away last month. Earl led our company for four decades, retiring as Chairman in 1989. He remained a beloved figure at Medtronic and continued to serve as Chairman Emeritus throughout his life.

Earl watched the company he started in a modest Minneapolis garage grow into the industry-leading multi-billion-dollar company that we are today. Earl remained steadfastly committed to the Medtronic mission, which he drafted nearly 60 years ago and remains the guiding principles of our company today.

I was fortunate to spend some time with Earl and treasure the memories of visiting him over the years. Earl improved the lives of millions of people, built a major corporation, and established an entire industry. We're excited to continue living his vision every day at Medtronic.

Turning now to Q2, this morning we reported another quarter of strong top and bottom line performance. Organic revenue grew 7.5%, marking the fourth straight quarter of 6.5% or better underlying revenue growth, reflecting once again strong growth across all groups and regions. Adjusted operating profit grew 11.3% or 10.6% adjusted for currency. Adjusted diluted EPS grew 14% or 13.1% at constant currency.

This was an outstanding quarter for Medtronic. As you can see from the numbers and as you'll hear over the course of this morning's call, we're executing on multiple fronts. Our comparators will naturally turn more difficult on the back half of the year, but we're growing both our market and our share across multiple businesses and multiple geographies.

Our new product flow continues to be robust with a series of recent launches running both share gains and new market development. We're also pleased with our sustained execution in emerging markets, where we grew 13.5%.

Our results this quarter were not just on the revenue line, but also down the P&L, delivering 130 basis points of operating margin expansion or 80 basis points when adjusted for currency. This performance reflects the focus throughout our organization on margin expansion and some early results from our enterprise excellence program.

Our organization is highly focused in improving free cash flow. In the first half, we generated over $2.4 billion of free cash flow, compared to $1.1 billion in the prior year. In all, an outstanding quarter.

But what I want to share with you today that is even more exciting than our quarterly and year to date is the progress that we're making in our pipeline, where we see more opportunities for growth both near and longer-term than at any time in our company's history. I'll cover the pipeline story shortly, but first, let's review our performance this quarter in a little more detail.

It's worth noting that each of our operating groups delivered organic growth ahead of Street expectations for the third consecutive quarter. Our results are based on not just one business or segment but across multiple businesses and geographies all executing against their plans.

Growth this quarter was led once again by diabetes, growing 27%, reflecting strong demand for our MiniMed 670G hybrid closed loop system, both in the US and now outside the US as we enter international markets. We have over 135,000 trained active users of our 670G system and we continue to generate strong real world clinical outcomes, this time in range exceeding 70%.

Emerging technologies revenue more than doubled this quarter, driven by the launch of our Guardian Connect stand-alone CGM. We continued to be pleased with the introduction of this product as it takes share in the $1 billion stand-alone CGM market. With the Sugar IQ assistant, Guardian Connect is the only smart CGM, using cognitive computing capabilities to provide personalized insights and predictive alerts.

Overall, sales of CGM from both the Guardian Connect and the sensors attached to pumps grew 70%, with over 90% growth in the US. Revenue from CGM now exceeds our pump revenue and is establishing a consistent long-term and dependable revenue stream for our diabetes group. Our restorative therapies group posted another record performance, growing 7.8% with very strong growth in the pain, brain, and specialty therapies divisions.

In brain therapies, our growth in spinal cord steam accelerated to the mid-30s this quarter, including mid-40s growth in the US. Customer feedback continues to be very positive with its evolved workflow algorithm and snapshot reports. In addition, our targeted drug delivery business grew low double-digits this quarter, with SynchroMed II continuing to perform well.

Specialty therapies was led by strong mid-teens growth in pelvic health, driven by sales of the InterStim II neurostimulator. Transformative solutions also grew in the low double-digits, with strength in Aquamantys sealers and PlasmaBlade dissection devices.

In brain therapies, we had another strong quarter led by mid-teens growth in neurovascular, reflecting broad-based strength across stroke therapies. In particular, our Solitaire platinum stent continues to lead the market growing in the high-20s. Neurosurgery also had a good quarter, with strong capital sales of navigation and robotic guidance systems.

In September, we announced our intent to acquire Mazor Robotics and plan to close the acquisition in our third quarter. We believe that integrating the Mazor X robot with our stealth patient navigation and OR imaging equipment as well as with our spine implants creates a long-term competitive advantage for us in the spine market, one that we intend to capitalize on.

Our minimally invasive therapies group grew 6.8%, driven by balanced growth across both our SI and RGR divisions. Sales of advanced energy products grew in the low double-digits, driven by the adoption of enhanced LigaSure vessel sealing instruments and the F10 energy platform.

In advanced stapling, we grew in the high single-digits, as our innovative Signia surgical stapling system and Tri-Staple 2.0 endo stapling reloads continued to perform well in the minimally invasive surgery market. Our respiratory, GI, and renal division grew 7.3%, with strong results across all business.

Our patient monitoring business grew in the high single-digits, driven by robust sales of Nellcor pulse oximetry, Microstream capnography, and BIS anesthesia monitoring. The GI business grew in the low double-digits, including mid-teens growth in GI diagnostics, resulting from the launch of our calibration-free Bravo and the adoption of the Endoflip imaging system.

Our cardiac and vascular group grew 4.4% this quarter, with high single-digit growth in both CSH and APV divisions. CSH benefited from mid-teens growth in transcatheter valves, driven by global demand for our Evolut PRO valve.

CSH also continues to see strong adoption of the Resolute Onyx drug-eluting pen, posting low-20s growth in the US. APV's results were driven by solid growth in drug-coated balloons and improved performance in abdominal aortic stent grafts and the continued rapid adoption of the differentiated VenaSeal vein closure system.

In cardiac rhythm and heart failure, our pacemaker business grew high single-digits, including low double-digit growth in the US and low-20s growth in Japan on the strength of micro transcatheter pacing system and Azure wireless pacemaker. This offsets mid single-digit declines in heart failure, reflecting the headwind of fewer CRTD replacement sales given our introduction of longer-lasting implants over the last several years.

Now, turning to our revenue growth by geography, as I mentioned earlier, we continue to execute well in emerging markets, which grew 13.5%, representing 15% of Medtronic revenue. Importantly, our years of experience and investment are paying off in not just one geography but in multiple geographies. China grew 13% this quarter, Eastern Europe by 27%, the Middle East and Africa by 20%, South Asia by 14%, and Southeast Asia by 9%.

Our differentiated strategies of public and private partnerships and optimizing the distribution channel are making a real difference in emerging markets around the world.

Today, Medtronic has leadership positions in most of the fastest-growing markets in med tech and we're intentionally allocating our capital to higher growth markets and new opportunities. As we invest in these opportunities, we're looking to go beyond simply improving and innovating on existing products and therapies. Our goal is to invent and disrupt markets with our focus squarely on market leadership.

Pleased as I am with our results this quarter, even more important is the progress we're making in our pipeline, which contains more opportunities for growth than at any time in our company's history.

Let me now first give you a glimpse of some of what we have coming in the back half of this fiscal year. In RTG, the launch of the Mazor X Stealth, an integrated robotics and navigation platform should accelerate our spine and enabling technology growth. In brain therapies, the React catheter and Riptide aspiration system, along with our next generation solitary revascularization device should contribute to growth in the back half of the year and into FY20.

In CBG, our recently approved Valiant Navion thoracic stent graft system is expected to capture share and drive incremental growth, especially in the US and Western Europe. In Japan, we look forward to the continued rollout of our recently launched CRTP quad and Azure line of pacemakers, our IN.PACT Admiral drug-coated balloon, and the third-quarter introduction of our HeartWare HVAD system.

We also anticipate the release of two landmark clinical trials at the American College of Cardiology meeting in March. The first is the interim results of our low-risk TAVR study, which has the potential to expand indications to the low-risk patient population. The second is a rapid trial of our TYRX antibacterial envelope, which could enable guideline changes in cardiac rhythm implantables.

The pipeline at MITG is equally impressive, with expansion into key specialty areas of our Tri-Staple technology and our Sonicision ultrasonic dissection platform, as well as the launch of our next generation consumables for the Capnostream 35 portable respiratory monitor all being introduced in the back-half of this fiscal year.

Lastly, our diabetes business should benefit from the global launch of the 670G into multiple markets around the world. We're launching at least the next generation of Sugar IQ algorithms to accurately predict hypoglycemia up to four hours in advance, which will set the standard for predictive alerts.

Everything I just highlighted represents real innovation, enabling us to grow our markets and take market share. We have plenty of opportunities in FY20 as well, through Reveal LINQ 2.0, our next generation insertable cardiac monitor is just one example. This product will include Bluetooth connectivity, five-year battery longevity, and the ability to monitor additional physiologic parameters.

Another example is our next generation core valve platform in TAVR, the Evolut PRO+. The Evolut PRO+ features a lower profile and improved predictability of placement for enhanced ease of use.

But what excites me even more than these examples of continuous innovation are some of the more disruptive CVG technologies that will follow, including the Micra AV, our transcatheter cardiac pacemaker, which we're targeting for a late FY20 approval, enabling us to access and disrupt 56% of the eligible pacemaker market, up from 16% today.

Our extravascular ICD -- we're renewing the completion of our feasibility study and plan to start our US pivotal in early FY20, our Intrepid transcatheter microvalve replacement system, now enrolling its US pivotal, and Symplicity Spyral, our renal denervation system for hypertension patients, now enrolling in a pair of randomized control trials, building off the positive clinical results presented at EuroPCR earlier this year.

Each of these disruptive technologies in CVG has the potential to be multi-billion-dollar market opportunities. In MITG, we're preparing for an FY20 launch of our robotic-assisted surgery platform, one of the largest R&D programs within the company. We believe this platform, combined with our industry-leading surgical instruments and surgeon training centers around the world can expand the market for minimally invasive surgery.

In our RTG, we're developing next generation cranial mounted and closed loop DBS systems in our brain therapies division. In pelvic health, we're developing a microstimulator that is only 3 cubic centimeters and features full body MRI compatibility. In diabetes, we're developing an advanced hybrid closed loop system which we expect to launch in FY20.

Our next generation algorithms will improve timing range to over 80% by automating insulin delivery following a snack or a meal. In addition, the system will reduce the burden of carb counting, enable remote monitoring and automatic software downloads. We're also making advancements in our CGM sensors and expect a steady cadence of innovation that would drive non-adjunctive labeling, reduce the need for calibration, make the sensors smaller and longer lasting, all while using cognitive computing to enhance personalized insights for the patient.

These are just some of the highlights of our robust pipeline. I could continue, but the key message that I want to leave with you today is that we are executing on the strongest and most exciting pipeline in Medtronic's near 70-year history.

Let me now ask Karen to take you through a discussion of our second quarter financials. Karen?

Karen Parkhill -- Executive Vice President and Chief Financial Officer

Thank you, Omar. Our second quarter revenue of $7.481 billion represented organic growth of 7.5%. Foreign currency had a negative $95 million impact. Adjusted diluted earnings per share was $1.22 and after adjusting for foreign currency, adjusted diluted EPS grew 13.1%.

While we came in $0.08 above the midpoint of our guidance, it's worth noting that $0.03 was driven by stronger than expected FX tailwinds. Given this, we would characterize the balance as operational outperformance, including a $0.02 benefit from a modestly lower tax rate along with better than expected revenue and operating margin expansion in the quarter.

Adjusted operating margin was 27.9%, increasing 130 basis points or 80 basis points on a constant currency basis. We are expanding margins and at the same time investing more in research and development to enhance our pipeline and create long-term value.

Adjusted gross margin improved by 50 basis points or 10 basis points on a constant currency basis and adjusted SG&A as a percent of sales improved 50 basis points. We continue to execute on our companywide enterprise excellence program, driving improved efficiency, cost savings, and generating leverage on strong sales growth.

Net other operating expense was $73 million compared to $96 million in the prior year, with the decrease primarily due to the year over year change related to our currency hedging program. Our adjusted nominal tax rate was 13.3%, which was better than expected due to increased deductions from the exercise of employee stock options along with finalizing taxes owed on certain returns.

For the remainder of the fiscal year, we expect our tax rate to be 15% plus or minus. Second quarter free cash flow was $957 million versus $661 million in the prior year. As Omar said, improving cash generation is a priority at Medtronic, from the top of the company on down. We are pleased with our performance over the last several quarters and are seeing the benefit of our increase focus around cash flow.

We remain committed to disciplined capital deployment, balancing reinvestment with returning a minimum of 50% of our annual free cash flow to our shareholders. Combining our $1.2 billion of year to date net share repurchase activity with the $1.4 billion that we paid in dividends over the same period, our total shareholder payout ratio was 80% on adjusted net income.

In addition, the increased investment in organic R&D that I mentioned earlier as well as inorganic investments we are making in acquisitions like Mazor Robotics, are examples of our focus to increase our return on invested capital and create long-term shareholder value.

Before turning the call back to Omar, I would like to update our guidance. For the full fiscal year, we are increasing our organic revenue growth guidance from a range of 4.5% to 5% to a range of 5% to 5.5%. Importantly, given the strength of our first half and the upcoming product launches that Omar has mentioned, we are comfortable with the higher end of this upwardly revised range.

For the year, we expect diabetes to grow in the low to mid-teens, RTG to grow 5% to 5.5%, an increase of 100 basis points from our prior expectation, and MITG to grow 5% plus or minus, an increase of 50 basis points from our prior expectations.

With regard to CVG, we expect it to grow 4% plus or minus, which is a slight decline from our prior expectation, given a change in the accounting for third-party product going through our integrated health solutions business.

Turning to margins, we outperformed in the second quarter and are making good early progress on our enterprise excellence initiative, which is offsetting a stronger than expected headwind from mix. Looking at the second half of the year, we remain confident in our ability to deliver on the 50 basis points of full-year underlying operating margin expansion. Despite the mix headwinds and the impact of both China tariffs and expected dilution from the Mazor acquisition.

As Omar mentioned, there are more opportunities to drive accelerated topline growth than at any point in Medtronic's history. As such, our intent, wherever possible, is to accelerate R&D spending while still delivering on our margin expansion commitment.

With respect to earnings, as mentioned earlier, our strong operational performance including tax benefits have resulted in $0.08 of outperformance in the first half of the year versus the midpoint of our quarterly guidance. This has allowed us to absorb nearly $0.10 of headwinds, including foreign exchange, that is a net $0.05 worse than the beginning of the year as well as the expected second half impact of China tariffs and Mazor dilution.

For these reasons, we have elected to leave our adjusted EPS guidance unchanged in the range of $5.10 to $5.15, which implies constant currency EPS growth of 9% to 10% at current rates. As such, we continue to be comfortable with Fiscal '19's street consensus.

While the impact from currency is fluid, if recent exchange rates hold, our full year revenue would be negatively affected by approximately $420 million to $520 million. Despite the incremental headwind on the topline, given the benefit of our hedging program, CapEx is still expected to be a modest positive to Fiscal '19 operating margins and neutral to earnings and free cash flow.

Moving from the year to the upcoming third quarter, we expect organic revenue growth to be in the range of 4% to 4.5% and while we face tougher comparisons, we are also comfortable with the high end of the range. We expect diabetes to grow in the high single-digits, RTG and MITG to grow 4.5% plus or minus and CVG to grow 3.5% plus or minus.

We also expect continued operating margin improvement, consistent with our full-year guidance. We expect third quarter adjusted diluted EPS in the range of $1.23 to $1.25. If recent rates hold, revenue would be negatively affected by approximately $120 million to $170 million. Operating margin would have a slight to modest benefit and the impact to EPS would be neutral.

Finally, on free cash flow, we continue to expect to generate between $4.7 billion and $5.1 billion in fiscal year 19 and over the next couple of years, we expect to make additional progress on improving our conversion of earnings into free cash flow as we continue to drive increased focus across the organization.

Now, I will return the call back to Omar.

Omar Ishrak -- Chairman and Chief Executive Officer

Thanks, Karen. Before going to Q&A, I want to thank all of our employees around the world for another strong quarter of execution and dedication to the Medtronic mission. As I mentioned at the start, this was an outstanding quarter. We're executing on multiple fronts. Our end markets are strong and we are leading in several of the fastest-growing markets in medtech.

In addition, we're allocating our capital across our business and focusing incremental resources and our biggest growth opportunities. In the process, we're driving upwards to the right, while at the same time driving operating leverage and margin expansion. We're also improving our free cash flow conversion with major emphasis on this across our entire organization.

This will create additional capital that can be returned to shareholders or reinvested to drive future growth creating long-term shareholder value. Finally, over the balance of this fiscal year and into FY20, our pipeline contains numerous growth opportunities and has never been stronger. We expect to develop and bring to market a long list of technology innovations which will improve the lives of millions of people around the world, help healthcare systems become more efficient, and ultimately grow the intrinsic value of Medtronic.

We know there is much work to be done, but we are up for the challenge and I am excited about these opportunities. With these, let's now move to Q&A. In addition to Karen, our four group presidents -- Mike Coyle, Bob White, Geoff Martha, and Hooman Hakami are here to answer your questions. 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.

Questions and Answers:


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

Bob Hopkins -- Bank of America Merrill Lynch -- Managing Director

Thanks. I appreciate the opportunity to ask a question and congrats on a great last 12 months. First of all, Omar, your tone today on the pipeline and the innovation coming out of Medtronic seems even more confident than you expressed at the analyst day earlier this year. So, in light of that, how would you characterize the potential for upside to your goal of 4%+ revenue growth? Is there upside to that in light of what you're seeing in your business today?

Omar Ishrak -- Chairman and Chief Executive Officer

Thanks, Bob for the question. First, you're right about the pipeline. We're more excited today than we've ever been. Sure, our goal is to make those opportunities count and over the long-term, certainly we expect to perform better than what we said. That's always been our goal and that will continue.

The most important thing is that we're executing and that gives us increased confidence. We're executing from a revenue perspective. We're executing from a margin perspective. Most importantly, the products are coming out on time. The products are delivering the impact that we think they should deliver and if we put all that stuff together, we're really optimistic about the future.

At this stage, we have a plan that we present analysis in six months and then we will keep it the way it is. But make no mistake -- this company is executing. We've got a tremendous opportunity pipeline and we'll deliver.


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

David Lewis -- Morgan Stanley -- Managing Director

Good morning. This is going to start with Omar and then a question for Karen. Omar, I think the key question this quarter, obviously a great quarter, just given the divestiture last year in the hurricane, it's hard to decipher the second quarter results reflect a material acceleration in the growth and obviously, your guidance implies stable in the back half of the year.

Can you help us characterize how you see the first half of the year for Medtronic relative to the second half of the year for Medtronic? Should investors think about the business as being more stable in your mind on an underlying basis? Is this business accelerating into the back half of the year or is there the potential to accelerate on a momentum basis into the back-half of the year?

Omar Ishrak -- Chairman and Chief Executive Officer

Thanks, David. First of all, the main point to take away from this is sure, there were some favorable comps from the hurricane, but the underlying growth that we've delivered in the last few quarters has definitely continued into this quarter and we expect that to continue into the back half. That's why we're raising the guidance and like I said, the underlying growth and the momentum from all the product that we've talked about give us a lot of confidence that we will certainly deliver on that.

The pipeline for the back half, like I mentioned very specifically is there. We expect those to convert into real momentum. So, I've got no qualms at all about the underlying growth of the business. That's steadily getting better as new products come out. Now, in the back half, obviously, there are some tough comps, but going back to the overall underlying growth and looking over the past several quarters and looking into the future, there's a steady improvement as we go forward.

David Lewis -- Morgan Stanley -- Managing Director

Okay. Karen, just thinking about the first quarter, you talked about second quarter being a better margin improvement quarter for the company. You suggested at our conference maybe margins could get even better into the back-half of the year. Can you help us understand, just given your comments on investment what we saw here in the second quarter? How should we think about back-half margin improvement versus the first half? I'll jump back in queue. Thanks so much.

Karen Parkhill -- Executive Vice President and Chief Financial Officer

Thanks, David. We are focused on delivering that 50 basis points of margin expansion we outlined at the beginning of the year. As we have opportunities, we are also focused on increasing our R&D investment to accelerate our pipeline where we can. So, as a result, despite the fact that we have worked hard on operating margin expansion and delivered this quarter, we're focused on the 50 basis points for the full year.

That does imply operating margin expansion in the third quarter roughly in line with our guidance for the full year and fourth quarter, slightly higher than that just given the math. Typically, we deliver more leverage at the back half and in the fourth quarter than we do in the front half.


Your next question comes from the line of Robbie Marcus of J.P. Morgan.

Robert Marcus -- J.P. Morgan -- Analyst

Congrats on the great quarter. Karen, I wanted to ask you about the free cash flow because this is several quarters in a row where we see really nice year over year improvement and free cash flow. Can you talk to the sustainability of this and maybe touch on some of the programs you've put in place to improve that from prior years?

Karen Parkhill -- Executive Vice President and Chief Financial Officer

Thanks for the question, Robbie. We are very pleased with the free cash flow that we've been able to deliver in the first half of $2.4 billion, which is a significant improvement over the first half of last year. And it's really due, as Omar said, to a very strong focus throughout the company on improving cash, not just through earnings growth, but also through working capital improvement.

In the first half, we had strong improvement in accounts payable and accounts receivable in particular, but also a focus on managing our larger one-time items as best we can and staying within the parameters that we've outlined on those one-time items. So, we're focused on free cash flow. We believe that this focus is highly sustainable. It has obviously been built into our incentive comp metrics throughout the company and we're focused on achieving what we outlined at investor day.

Robert Marcus -- J.P. Morgan -- Analyst

Another question I wanted to follow up on is there have been a lot of noise in two of your product lines in the market this quarter, both on diabetes about the timing of your next generation pump and then in the spinal cord stim market about the what the true growth on a volume basis is there. Can you talk about the sustainability of the spinal cord stim market growth and comment on the reiteration of the fiscal year 20 for your next generation pump?

Omar Ishrak -- Chairman and Chief Executive Officer

I'm going to ask Geoff to take the spin cord stim. I think he's very anxious to give a reply.

Geoff Martha -- President of RTG

Sure. Appreciate the question, I was thinking of how I was going to work this in anyway. We're seeing really strong market growth that is in the low-20s and we see that sustaining. There's a lot of innovation and new clinical data coming out in the space with a very nice patient impact. We see it continuing. I saw and read the comments from one of our competitors. We're just not seeing that. Obviously, we grew 35% in spinal cord stimulation in Q2 worldwide and 45% in the US.

Hooman Hakami -- President of Diabetes Group

And on diabetes, your question about our advanced hybrid closed loop system -- there's been no change to the timing of that product versus what we said at analyst day and also at ADA. We know who's communicating this information and it's just incorrect. There are no changes from the timeline and it's as simple as that.

Beyond those timelines, we're really excited by what this technology and this product promises to bring. We've done a lot of work. We've got three feasibility studies down. Those feasibilities indicate a time and range that is close to 80%. To put that in context, the person without diabetes has a time in range of 85%. We're really excited about that.

When we take a look and compare our performance against published data of competitive systems, our nearest competitor is going to have a timing range that's less than what we have with our 670G system and with a higher targeted glucose range.

So, timelines are holding. We're making great progress and we're excited about what the system is going to be able to do.

Omar Ishrak -- Chairman and Chief Executive Officer

Let me also add that these two segments we're very excited about. We're going to own these segments. I'm virtually engaged with both of these groups on a very regular basis. I'm interested in it and I'm very confident that we will not only introduce these products that we talked about but we will lead in these markets.


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

Vijay Kumar -- Evercore ISI -- Managing Director

Hey, guys. Maybe just back to the earlier question on comments on pipeline, increasing confidence on the growth outlook. Maybe Omar -- in a couple of points that you mentioned, TYRX, that could change guidelines here, some comments on robotics being your largest R&D program -- should I tie those two comments to the confidence you're expressing on growth as saying something incrementally changed here on robotics and TYRX and is this going to be big drivers for you guys? How should we be thinking about your LRP of 4% to 4.5% just given all the comments you laid out on the pipeline?

Omar Ishrak -- Chairman and Chief Executive Officer

First, with respect to TYRX, what's changed is the fact that these clinical results will be published shortly. It's a program we knew was coming, but the time has come for those results to be released and we'll see where we go from there. That's an important event. It's something we planned for, so in that sense, it doesn't change, but the fact is that it's happening and we're executing and it's coming to fruition and we'll see how the results pan out.

With respect to the robotics program, that was simply a confirmation that we're on track. It is the most important program in terms of the financial commitment for Medtronic at this stage. It is one that we're really excited about, not just in the short-term but in the long-term and the way we address both the general surgery market and the minimally invasive market.

So, we just highlighted those examples. There are several other examples that we talked about but there's nothing to take away from that that something has changed except our increasing confidence of the delivery of the results emanating from those programs. Obviously, with the clinical trial, we have to see what the results are.

That's the best takeaway here. Like I mentioned earlier, we just put our long-range plan in place. We've put certain numbers in place. We've increased guidance for the second half of the year based on our underlying growth. That's as far as we want to go right now. We're executing this year and we're feeling confident by the future.

Karen Parkhill -- Executive Vice President and Chief Financial Officer

Vijay, I would say our long-range plan did not have a cap of 4.5% like you mentioned. It was 4%+ and it was meant to consistently deliver year after year and in years where we have very strong pipeline, we can deliver more.


Your next question comes from the line of Glenn Novarro of RBC.

Glenn Novarro -- RBC Capital Markets -- Managing Director

Hi, good morning. Two pipeline questions -- first, for Mike Coyle -- on mitral valves, Mike, can you give us an update on where you are with the transseptal approach and then can you give us some of your thoughts on the repair market and your plans there? Then I had one follow-up for Bob on robotics.

Mike Coyle -- President of CVG

Thanks, Glenn. We're still digesting the results that came out here at CTC. So, we're trying to digest those relative to the internal investments that we've made. We are still very strongly leaning toward the use of replacement because of the improved hemodynamics that you get relative to repair and we are continuing to execute on our product development pipeline to get to that transseptal program, which we think is going to be very important to the long-term growth of the replacement market.

We're not ready to update timelines on that yet. The work is still in what we call the phase zero or feasibility stage, but we do see a path to getting to a transseptal system and we are continuing to execute on it. That said, we think the mitral repair market looks interesting. We have a couple of internal programs, one purely internal, one with an outside incubator that are also in phase zero development stages and we will decide how we want to proceed with that as we see the results of the technology development.

Glenn Novarro -- RBC Capital Markets -- Managing Director

Bob, on robotics, you're reiterating you'll launch in Fiscal 20. Can you give us a little bit more clarity? Is it the first half of '20, the back half of '20? Will the first cases be international or US?

Bob White -- President of MITG

Hey, Glenn, thanks for the question. Again, I think the key takeaway message is very consistent with what we talked about at investor day preparing for that FY20 launch. I'm not going to get too specific relative to first half or back half but we feel really good about our progress. In fact, we've made really important progress across the hardware, software, and the verification of validation testing. So, we're proceeding really well across that.

I would say you can expect the first launch to be outside of the US. We are in active discussion, as you can imagine, with all the competent authorities around the world, but that certainly will happen outside the US first.


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

Larry Biegelsen -- Wells Fargo -- Analyst

Good morning. One for Geoff on SCS, one for Hooman on diabetes -- so, Geoff, you've done really well with Intellis but you start to anniversary the launch. How should we think about the sustainability in the growth of this business? What's next for the business from an innovation standpoint? Would you consider looking externally at emerging SCS technologies?

Geoff Martha -- President of RTG

Sure. Like is aid, the market is strong. We are seeing this low-20s percent growth. The other thing I forgot to mention was our growth is based on volume, not price increase. It is a strong market. There is, like I said, a lot of innovation. As we anniversary, we are investing -- first of all, we have clinical data coming out. We'll be presenting interim clinical data on our vectors trial at NAND. So, I think that -- we've seen the clinical data really move competitive surgeons. So, there's a lot of surgeons for us out there that are waiting for some incremental data from us. We think there's upside for Intellis and the workflow as that data comes out.

In addition, we're investing in other new indications through some clinical work we're doing. To your point, there's a number of technology innovations out there, internally and externally, that we're reviewing. I wouldn't say anything is off the table internally or externally. But clearly, we're going to continue to invest in the segment.

One of the things that has really helped RTG overall in our performance in the last several quarters has been systematically allocating capital to the high-growth segments in our area. So, this is clearly one that we see sustainability, both technology and clinical innovation. So, I wouldn't take anything off the table.

Larry Biegelsen -- Wells Fargo -- Analyst

And Hooman, first, it looks like the implied second half guidance for diabetes is mid-single-digits. I know it's high single-digits for the third quarter, but a little lower in the fourth quarter on an implied basis. Is that how we should think about diabetes going forward? Is there any update on the Harmony sensor timeline? What's the regulatory pathway for Harmony and 690G? I heard the fiscal 2020 launch. Thanks for taking the questions.

Hooman Hakami -- President of Diabetes Group

There was a number of different things in there, Larry. Let me just knock them off one by one. As far as the back-half goes, you heard that we're reiterating from Karen the fact that we expect to grow for the full year low to mid-teens. This obviously translates to an implied deceleration of growth from what we've seen over the past four quarters. There's no doubt about that.

Let me just remind you that if you go back to last year, during the first half of last year, we had CGM capacity constraints that prevented us from not only meeting full CGM demand but also pump and integrated CGM system demand. Then we started to increase that capacity in Q3 of last year and were at full capacity in Q4. So, we had a lot of pent-up demand. We had some back orders. That revenue catch-up that basically came in the back-half of last year is impacting our comps for the back-half of this year.

The other dynamic I'd point out, Larry, is Animas. Animas we're anniversarying two out of the three revenue components in Q3 of this year. All of the consumable's revenue, all of the out of warranty conversions are going to no longer provide a year over year benefit. That's commentary on comp.

If you take a look at it, there are going to be these quarterly fluctuations. We're really excited about the opportunity we have here. We talked about our pipeline, advanced hybrid closed loop and FY20, which we're committed to delivering. This is a multi-year growth opportunity for us, for the company, and we keep intending to innovate and to lead.

Now, very quickly, from a CGM perspective, what you're going to see from us are sensors that are going to come out with non-adjunctive labeling, high CGM standard, and then following that, what we're going to achieve are smaller sensors, longer-life sensors with continued accuracy that also feed in cognitive capability into it.

So, as far as the sensor pipeline goes, there's really been no change versus what we said at either the analyst day or ADA and the teams are executing against the plan that we laid out.


Your next question comes from Raj Denhoy of Jefferies.

Raj Denhoy -- Jefferies -- Analyst

Good morning. Maybe one on spine and one for Karen. On the spine business, the underlying growth there is still noted as flat and you did highlight that with Mazor now and the integrated system you hope to launch. Any timelines on when you expect to see improvement in the underlying spine business? Maybe you could comment on underlying market conditions in spine, which have been relatively flat recently as well.

Geoff Martha -- President of RTG

Yeah. So, this quarter was not our best quarter and corresponding biologics. A big driver of that was Infuse was down relative to prior year due to some customer buying patterns. However, the natural demand for Infuse is strong, mid-single-digits, so I'm not concerned. On the market, the market, from our perspective, seems to have stabilized, still slower than it was a year or two ago as price declines are offsetting procedure growth, so you're getting either flat to low single-digits to growth. But it has stabilized and it's starting to inch back up a little bit.

But for us, we do feel we are very well-positioned to take share in this market over the next couple quarters and years. Three big drivers -- one, as you mentioned, Mazor -- our robotics, which is part of our surgical synergy strategy, we're seeing the leading indicators of this improvement.

For example, robotics sales, we look at every major account as a socket and the key is the robotic sale. We are beating our expectations and we're two times the sales of our competition and that is before we've launched the stealth addition. That's where we integrate our navigation into the Mazor X, which just got approved with the FDA and we'll be launching in January.

Of those robotics sales, 70% of those were placements, meaning the account chose to pay for them with incremental spine share over the next four years. So, these are great leading indicators. Then utilization of the robot system is up 10% over the last quarter. Then finally, use of Medtronic implants with these systems has gone from 28% in Q4 to nearly 50% in Q2. So, all these leading indicators are pointing in the right direction.

The other big driver for us is OUS. We have a strong presence outside the US. A lot of our competitors aren't as strong outside the US, especially in China. Overall, RTG grew 17% in China. A big driver of that was spine. Finally, the third one, we talked about speed to scale in the past. I think we still have upside in our speed to scale strategy. We've got a couple portfolio gaps that we're closing. Those three things added together, I feel like we're going to take share in the market, whether it's low single-digits or what have you, over the next couple years.

Raj Denhoy -- Jefferies -- Analyst

Maybe Karen quickly, you did note the potential to increase spending to support a lot of these growth prospects that Omar outlined. When one thinks about the 50 basis points of margin expansion you've outlined for this year and continued margin expansion to the next couple of years, how much -- if the topline continues to outperform, will you spend that in a sense in order to support that growth or can investors really expend some of that to flow through to the bottom line?

Karen Parkhill -- Executive Vice President and Chief Financial Officer

Thanks, Raj. We're committed to margin expansion. As we outlined over the long range, we talked about 40 to 50 basis points for the long range. For this year, we talked about 50 basis points. So, we're committed to that. We're also focused through our excellence program on driving greater effectiveness and continued efficiency to deliver that margin expansion but also to enable us to increase our investment in R&D whenever possible. So, we're balancing delivering that margin expansion with accelerating our R&D pipeline.

Omar Ishrak -- Chairman and Chief Executive Officer

Let me also add to that we are, as you heard me say and all of us comment on -- we're extremely excited about our opportunities. We're excited about the fact that we're executing internally. So, we've got a tremendous internal R&D pipeline. We're not going to invent everything. There are all kinds of opportunities externally as well. We've got a strong balance sheet. We've got lots of firepower and you'll see us moving ahead.

Those are decisions that we'll make over time, but I want to reiterate the opportunities in med tech today have been stronger than I've ever seen it and certainly, our execution deserves us to be able to invest more and we'll carry this forward. Having said that, we're committed to the guidance we've given and the long range plan that we've talked about, but I just want to point out the opportunity here is tremendous and we'll act accordingly.

Ryan Weispfenning -- Vice President of Investor Relations 

We'll take one more question, please, Zatania.


Your final question comes from the line of Kristen Stewart of Barclays.

Kristen Stewart -- Barclays -- Analyst

Hey, everyone. Thanks for fitting me in. I just wanted to go back to a question Bob had asked with respect to the guidance from an EPS perspective for the full year. If I'm looking at the commentary relative to what you reported back in August, it seems FX is still expected to be neutral. I just want to make sure I'm understanding the differences there.

It seems like you beat by 8, but if I'm listening to correctly, the only real difference would be the incremental tariffs and then also Mazor, which is 5. Should I think about the guidance's being more conservative or are there moving parts in other expense or interest expense or even the assumed level of share repurchase that maybe I'm not appreciating?

Karen Parkhill -- Executive Vice President and Chief Financial Officer

Sure, Kristen. I wouldn't read too much into it. We did have a beat in the second quarter and in the first half. Part of that beat, we would attribute to better than expected FX. That would be about $0.03 in the second quarter and about $0.06 in the whole first half. But we do expect EPS to be for the full year no longer a tailwind from FX.

We now expect FX to be neutral for the full year. Because we've had a headwind from FX in the first half and we expect it to be neutral now in the third quarter, that just implies that we'll have a greater headwind in the fourth quarter from FX that we've built into our guidance. We've absorbed lots of headwinds from an FX headwind to China tariffs and Mazor and maintained our overall guidance and we expect FX to have a negative impact in the fourth quarter.

Kristen Stewart -- Barclays -- Analyst

Okay. It sounds like it was more the timing of FX impact a little bit more in 2Q than you had previous anticipated that was more of a second half assumption.

Karen Parkhill -- Executive Vice President and Chief Financial Officer

Yes, that's correct.

Kristen Stewart -- Barclays -- Analyst

Omar, just thinking about the commentary around this increased R&D spending, where do you think the appropriate level of spending should be? You're running around 7.9 for the first half of the year. Is that a good level we should think about or something even higher than that. Historically, Medtronic has been more in the 8 to almost 9. How much more would you increase R&D?

Omar Ishrak -- Chairman and Chief Executive Officer

I think the ranges you're talking about are within the range of movement according to the dynamics of the investments we make at a certain point in time. That kind of percentage shift you're going to see. The bigger point here is that indeed, there are opportunities, like I mentioned several times already, both internally and externally. We'll execute on this and take this on a measured way.

As we see ourselves executing, as the opportunity that comes along our way is something we can deliver on, makes sense, is within the strategic alignment of our company, then we'll go forward with it. This company is about technology. It's about R&D. But we're not going to be stupid about it. We have to be responsible, but at the same time, as we start to execute, I expect that number to go up. I'd like it to be higher, but will take that on in a measured way both internally and externally.

Kristen Stewart -- Barclays -- Analyst

Okay. Perfect. Thank you very much.

Ryan Weispfenning -- Vice President of Investor Relations 

Thanks, Kristen. Omar, do you want to close us out?

Omar Ishrak -- Chairman and Chief Executive Officer

Yes. Thanks, Ryan. Thank you all for your questions. On behalf of the entire management team, I'd like to thank you again for your continued support and interest. For those in the US, I want to wish you and your families a very happy Thanksgiving. We look forward to updating you on our progress on our third quarter earnings call, which we currently anticipate holding on Tuesday, February the 19th. Thank you all very much.


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

Duration: 62 minutes

Call participants:

Ryan Weispfenning -- Vice President of Investor Relations 

Omar Ishrak -- Chairman and Chief Executive Officer

Karen Parkhill -- Executive Vice President and Chief Financial Officer

Mike Coyle -- President of CVG

Bob White -- President of MITG

Geoff Martha -- President of RTG

Hooman Hakami -- President of Diabetes Group

Bob Hopkins -- Bank of America Merrill Lynch -- Managing Director

David Lewis -- Morgan Stanley -- Managing Director

Robert Marcus -- J.P. Morgan -- Analyst

Vijay Kumar -- Evercore ISI -- Managing Director

Glenn Novarro -- RBC Capital Markets -- Managing Director

Larry Biegelsen -- Wells Fargo -- Analyst

Raj Denhoy -- Jefferies -- Analyst

Kristen Stewart -- Barclays -- Analyst

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