Good morning my name is Jacky and I will be your conference operator today. At this time, I would like to welcome everyone to the Medtronic's Fourth Quarter and Year-End Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question-and-answer session [Operator Instructions] Thank you. I would now like to turn the call over to Ryan Weispfenning, Please go ahead.

Thank you, Jacky. Good morning and welcome to Medtronic's fourth quarter conference call and webcast. During the next hour, Omar Ishrak, Medtronic Chairman and Chief Executive Officer and Gary Ellis, Medtronic's Chief Financial Officer will provide comments on the results of our fourth quarter and fiscal year 2016, which ended April 29, 2016. 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 our revenue by division summary. We also issued an earnings presentation that provides additional details on our performance and outlook. Next, you should also note that some of the statements made during this call maybe considered forward-looking statements and that actual results might 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 filed 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 investorrelatation.medtronic.com. Unless we say otherwise, references to quarterly or annual results increasing or decreasing are in comparison to the fourth quarter and full fiscal year 2015 respectively and all quarterly year-over-year growth rates are given on a constant currency basis. Our annual year-over-year growth rates are given on a comparable constant currency basis, which in addition to adjusting for the negative effect of foreign currency translation includes Covidien Plc in the prior year comparison, aligning Covidien's prior year monthly results to Medtronic's fiscal quarters. These adjustment details can be found in the reconciliation tables included with our earnings press release. With that, I’m now pleased to turn the call over to Medtronic Chairman and Chief Executive Officer, Omar Ishrak.

Good morning, thank you, Ryan, and thank you to everyone for joining us. This morning we reported fourth quarter revenue of $7.6 billion representing growth of 6% which was at the upper end of our mid single-digit baseline goal and exceeded our expectations for the quarter. Q4 important non-GAAP diluted earnings per share were $1.27 growing 18% on a constant currency basis. Before providing more detail on our Q4 performance, I would like to recap fiscal 2016. FY’16 was a transformative year for our organization, our first full-year after closing the largest ever Medtec acquisition. It was a year where in addition to executing a large complex integration, we closed 14 additional acquisitions totaling $1.5 billion. It was a year where we launched a number of ground breaking new products and extended our thought leadership within value based healthcare. We delivered record revenue of $28.8 billion grew at the upper end of our mid single-digit baseline goals and capped off our fourth consecutive year of achieving mid single-digit revenue growth. Our performance was broad based with strong progress against each of our three strategic pillars, new therapies, emerging markets and services and solutions. Our FY’16 non-GAAP dilutive EPS of $4.37 was in the upper half of the guidance range we established at the beginning of the year, representing constant currency growth of 15% and EPS leverage of 780 basis points. We executed in the Covidien integration synergies, delivering approximately $355 million in the fiscal year, which contributed approximately 440 basis points to our FY’16 EPS leverage. We improved our operating margin by 100 basis points including 120 basis points of improvement in SG&A. we reinvested in R&D organically as well as inorganically, absorbing any diluted impact through EPS and capitalizing on our strong free cash flow generation. These investments are…

Thanks Omar. Fourth quarter revenue of $7.567 billion increased 4% as reported or 6% on a comparable constant currency basis, which excludes the $179 million of unfavorable impact of foreign currency. Acquisitions and divestiture contributed a net 60 basis points to Q4 revenue growth. Our Cardiac and Vascular Group, which accounted for 36% of our total company sales, grew revenue by 8%, with all three divisions growing above the high end of our targeted mid single-digit range. In CRHF, we expect to continue to grow above market due to our differentiated MRI implantables portfolio and other new product introductions that Omar mentioned. We have now started U.S. physician training and shipments of our Micra TPS pacemaker. In AF Solutions, our business grew over twice the market in the mid-30s, and is now annualizing at over $0.5 billion. AF Solutions had another very strong quarter with aortic plan advanced following the compelling FIRE AND ICE trial, which was featured as a late breaker at ACC and simultaneously publish in the New England Journal of Medicine. Later this month, secondary endpoints from the FIRE AND ICE trial and rates of re-hospitalization and repeat ablation procedures will be highlighted in the late breaking clinical trials at the Cardio Sym Congress. In Coronary, we are holding global drug-eluting stent share in the face of major competitor launches. Due to our customers’ increasing preference for Resolute Onyx in Europe and many emerging markets, continue enthusiasm for the delivery characteristics of [Technical Difficulty] integrity in the U.S. and our expanding use of CVG multiline contracts in many geographies around the world. In Transcatheter Valves, we are seeing strong growth and we expect this market to grow $4 billion to $4.5 billion by 2020. Our U.S. share stabilized after the drop we saw in Q3, but not…

Thanks Gary. While I have more to say next week at the Investor Day, I did want to take the opportunity to recognize Gary’s service to Medtronic today in what is his last earnings call as Medtronic's CFO. Gary has served in this role for the past 11-years and since May of 2005 and has been with Medtronic since 1989. Gary has been a constant counsel to me during the time that I have been here and his experience and knowledge and overall guidance has been critical and invaluable to both me and our overall team, as we have navigated through a very complex environment. Gary’s expertise will be missed, but he will still stay on as IT and Operations leader at least for a little while and we will still have the benefit of his strong counsel, more on that in the Investor Day. And we will now open the phone lines for Q&A and in addition to Gary, I’ll ask Mike Coyle, President for Cardiac Investor Group; Bryan Hanson, President for Minimally Invasive Therapies Group; Geoff Martha, President, Restorative Therapies Group and Hooman Hakami, President of Diabetes Group to join us. We want to try to get to as many people as possible. So please help us by limiting yourself to only one questions and if necessary a related follow-up. If you have any additional questions, please contact Ryan and our Investor Relations team after the call. Operator first question please.

[Operator Instructions] Our first question comes from the line of Mike Weinstein with JPMorgan.

Good morning guys. Thanks for taking the questions. Let me just try and clarify few items. So one, could you just maybe make a little bit clear for the FY’17 guidance, what does that assume in terms of your margins. Second, I think I understood the commentary on the first quarter, basically you are saying down side on a quarter basis, so let’s call it as 102, 103. Just want to clarify that? Thanks.

Okay. I’ll let Gary kind of take this one. Go ahead.

Yes. I mean as far as FY’17 margins, we would expect going forward based on the assumption obviously of the earnings per share on a constant currency basis growing 12% to 16% as we indicated. But the operating margins would obviously continue to improve similar to what you saw in the current year. Obviously the synergies in the Covidien integration as we indicated in the call would be a little bit less for next year, but the operating leverage from the rest of the business would be obviously a little bit more, if we move into the FY 207 period of time. So operating margin improvement, we are not getting into specific on that, but basically the assumption would be Mike that assuming a 12% to 16% constant currency earnings per share growth. You are going to see a similar kind of growth in operating margins similar to probably what you saw in the current year [indiscernible]. As far as the Q1 guidance, what we are trying to indicted in the call is that yes we are in the kind of that upper end of the range, taken into effect the extra week, et cetera. I think you are probably - the 102, 103 you mentioned is probably right and its well within that ranges is what people could probably be assuming.

Okay. And Gary, I was asking on the FY’17 margins, because the incremental inventory hit from FX. I’m just trying to think about the actual impacts on reported margins for the year? I would assume at that [indiscernible] get that range.

Yes, I agree, it will be. I mean you are right. On a constant currency basis we will continue to see in kind of improvement? The FX impact in the first quarter up $0.06 to $0.08 reflects that we are going to still see more FX on the inventory in that number. We saw a little bit higher number here in Q4 than what we had originally expected and that’s what based on our guidance at this point. Obviously that number continues to get even worse that could be a different issue. But right now, I think it will be a slight negative, but have mitigated, I should say some of the operating leverage we are getting on a constant currency basis as we saw during the current year. But we would expect to see again on a constant currency basis that would continue, but as reported you are right, it might be less of an impact in Q1. Thanks Mike.

Okay. And then Omar maybe just two questions. So one the commentary around surgical volumes, is obviously consistent with what we have seen from companies reporting from across the sector over the last month as well as not just device companies, but the hospital companies. Can you just tell us was the commentary about the uptick in surgical volumes is consistent over the course of the quarter, I mean is this something that you have seen even in April and maybe into May if you have insight into that? And then second, I was hoping you could just comment on the diabetes business, because your international performance was exceptionally strong this quarter and just trying to look forward to what’s going to play out in the U.S. once you get 670G approved here? Thanks.

Okay. Just a few words and then I’ll let both Bryan and Hooman kind of give you some more details. First, I think we saw steady improvement in surgical volumes through the course of quarter and I’ll let Bryan comments in a minute on the continued outlook. Why don’t you say that Bryan and then I'll take on diabetes. Go ahead.

Yes. I don’t know that I would give specificity in the quarter, but I would say same thing across the quarter. So on more volume growth and what we had seen in the last few quarters. We use a bunch of data points to be able to get to that. One of the big data points that I personally use is calling our sales reps, because we are out in the operating room and we see the number of cases. And there is definitely feel there was increase in volumes during the quarter. Until I see it for another couple of quarters, I’m not calling it a trend, its one quarter, but certainly felt nice in the quarter.

And with diabetes I'll let Hooman comment, obviously we are very excited about the potential the hybrid closed-loop system. But I also very attention to much of the commentary around our broader based efforts, that is one aspect of growth in diabetes. I think we are very excited about what we can do about overall patient management and in our agreements that we can make the major stakeholders such as payers liquidated this last quarter. Hooman do you want to say few words?

Yes, sure thanks Omar. Hey Mike. I would concur with what Omar said, I think if you take look at our performance this quarter, 10% growth is strong, it was largely driven by OUS revenues and 640G and I think it just show you what kind of uptake we can get with the new product launch. The U.S. continues to be competitive and here we have a product that was launch in September of 2013. And so we don’t have the benefit in the U.S. of a new product like we do in Europe. But I think it’s underscores a couple of things. One is what Omar said is that our revenue base is becoming more and more diverse and we are seeing more traction from OUS revenues, from emerging market revenues and from call it non Type-1 revenues with Type-2 and Services & Solutions. The other thing that I think it shows is that when we do get a next generation platform here in the United States, we can expect some great results. The traction we are seeing in Europe and the feedback that we are seeing on our new pump platform is great we expect to see that here in the United States, once it’s launched. So as we get the 670G, we think there is going to be really strong uptick there and as you heard from a commentary things are on-track with respect to that. And then finally, the last point I would make it between now and when the next generation pump comes out Mike, we have got a log assets that we can leverage within the diabetes business in the U.S. the size of our sales force is the largest the size of our clinical team is the largest in the U.S. We have got the largest sale and service infrastructure for patients, we have got deep and broad payer relationships and on top of that we have got a growing Type-2 and solutions business here in the United States. So, we feel good even though the competition continues to intensify in the U.S. we feel good about our overall global performance and then once thing come with the new product we feel very, very good.

Thanks Omar. Okay.

Thanks Mike. Next question?

We will go to next question.

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

Good morning. Just a few piece of question here? Hi guys, first question Gary just to rectify fiscal 2017 guidance of non-Op items. Your free cash guidance for next year is very strong, I wonder if you could update us on two points, one is just the size and timing of anticipated buybacks in the guidance as well as the potential tax rate for fiscal 2017 and I have a couple of quick follow-ups?

Okay. Go ahead Gary.

Well, as far as the free cash flow, the guidance that we are giving $6.5 billion to $7 billion for next year is in-line kind of what we are expecting from our operating earnings growth and continued focus on working capital. So that expectation we do expect as we have indicated previously and we will talk more about it at the investor meeting that our free cash flow will continue to grow very nicely probably close to the double-digit range similar to the earnings as we go forward. So we are feeling confident about that. We are not getting specific obviously about what we are doing with share buyback, but as we indicated previously, when we announced the incremental buyback and if you watched historically, we tend to do that we said we are going to be more front-end loaded on that. And so I think you could assume the same thing as we go into FY’17 and its more front-end loaded than towards the back half of the year. So but we are not giving specific about how much we are going to be including in that piece of it. So as far as tax rate goes, I mean there is obviously the befit of R&D tax credit catch up during the current year. if you take that out of the equation, going forward we haven't provided any specific guidance on tax rate, but basically we are saying that your tax rate is going to be relatively flat with where we were currently at. So I wouldn't expect any significant uptick or reduction.

Okay. That's very helpful Gary, thank you. And then may be just a follow-up or two here. Omar or Gary I guess there has been a lot of focus as you know on quarterly margin performance for the net until we've have got the senior management is that there is a long-term margin opportunity here. Can you talk a little bit about your confidence and sort of long-term margin assumptions? Why you believe at double-digit earnings? How it can sustain it for a few years and I think about the Covidien synergy number you gave today, you know 225 to 250 certainly gets you to an 850 number in a few years, but it may not get you above that 850 number. So what is giving you the confidence that you can deliver this sort of may be double-digit earnings for longer?

Well, a number of things, you know in the Investor Day this will be our core subject, because we want to explain this to you in detail. But look it starts with our revenue growth, so you should kind of get to our mid single-digit revenue on a consistent basis otherwise you got a big hill to climb here. So revenue growth has to be sustainable and has to be consistent and that is something that we are feeling as I said better and better about. Having said that, then we need sort of operating leverage like you said and that in the short-term promising Covidien synergies, but what the Covidien synergies do is it builds a platform for us from which we can continue the same work. As we keep growing taking advantage of our scale in our functional costs primarily, we think we have got productivity that has a long tail, a long tail that we can continue to do. And in addition to that our product cost reduction will also has good sustainability as we consolidate our manufacturing operations, which we really haven't even built into any of the synergies at all in our $850 million number, because we feel that that would take longer than initial three-year period. In the interest of preserving revenue and not taking any risks that's why we didn't jump into that but what it does, is it gives us a continued sustainability beyond the three-year period. Those are the two main things it's an area of extreme focus for us and we think it's very important for us to build the plan that's sustainable and that's diversified in a way that is reliable and we will walk you through a lot of those in Investor Day but that's essentially how we are thinking.

Okay. Thanks so much and Omar. I'll get back in queue.

We will go to the next question please.

Our next question comes from the line of David Roman with Goldman Sachs.

Thank you and good morning everybody. I wanted just to go over to the CVG business for a second. And maybe you could talk a little bit more detail about the performance of the transcatheter valve business and help us understand the path to returning to market type growth in the U.S. and may be what you are saying specifically from an end-market growth perspective how that's evolved since ACC and highlight your relative competitive positioning?

Go ahead Mike.

Yes, so first the overall growth of the market is at the high-end of the ranges that we had been speaking about in prior quarters. So the global market appears to be growing in the mid-30s, our reported growth this quarter is in the high-20s. I think the primary difference between our growth and the market growth is the performance of the large valve segment of the Evolut R. we don’t have available yet the 34 millimeter version. If we do get that product we would expect to be able to have its share of performance and perform like the other three sizes do and provide us the share growth opportunity. So that would be the primary for the current dynamics. In terms of overall market growth, obviously both international U.S. growth is well above as I said the high-end of where we have been thinking that the market would go. We think the positive date in the intermediate segment that has been available A from a competitive and B from our own sub analysis of our high risk data, [Technical Difficulty]. Essentially an expectation that by the time we get to 2021, we should be looking at a market that is around $4 billion with some modest penetration of the low risk segment and of course we have now started clinical trial activity in that low risk segment. So I think that would be our picture of the market there currently.

Okay, and maybe as a follow-up on the P&L I mean clearly you have elected not to give segment margin - P&L margin guidance or modeling help whatever you want to call it for 2017 versus what you have given in the prior year. And given the investor focus on those metrics, it’s going to very clear about how to think about this for FY’17 that the context should be essentially stable-ish to maybe slightly down gross margin, leverage on the SG&A line. You have this dynamic with other expense giving you modest reported operating margin expansion, a flat tax rate and down share count is what gets you to the $4.60 or $4.70. Are those the right moving parts to think about in the model for FY’17?

That’s pretty good.

Yes, without giving any model view you know I think you have summarized it well. Again, we are trying to focus on what the two levers that we are driving revenue in the bottom-line and the leverage we talked about there. But you are right, to achieve the constant currency earnings growth that we highlighted in here, we are going to have to continue getting operating margin improvement, which we expect with not only the Covidien integration synergies but clearly with what other operating leverage components we are driving. The gross margin, the only comment I would make to our comments is, I’m not sure that the gross margin will be down, it’s possible that it will be on an as recorded basis because of FX, but the reality is we are expecting some of the - assuming some of our synergies will be coming in manufacturing line. So it’s possible you could see the gross margin being flat to may be slightly improving. But that’s probably the biggest fluctuation we saw here in Q4. So I think your assumptions for next year the way to laid it out is probably not a bad assumption right now until we can actually show that we can improve the gross margin a little bit.

And just to be clear, I was laying that out on as reported basis just to reflect the numbers that could end up in consensus because that’s where we also myopically focused right now. So that’s why I was saying down on a reported basis, but operating margin slightly better on a reported basis year-over-year?

That’s right.

Okay, got it. Thank you very much.

Thanks David.

We will go to the next question please.

Our next question comes from Bob Hopkins with Bank of America.

Hi thanks and good morning. Can you hear me okay?

Yes.

Great, good morning. So two questions, one looking backwards and one looking forwards. First looking backwards, Omar I would love to get your take on something, you guys have really been performing very well on the top-line, but over the last two quarters you kind of struggled to get to your goals on operating margins. And I just want to get your take on that. I mean is this the case where you are just not quite giving yourself enough room with guidance to account for the normal fluctuations that you see or are synergies maybe you expected a little bit more, just wanted to get your take on the last two quarters from an operating margin perspective?

I think it really is the guidance being too tight. I mean look our main area of focus is our overall EPS and we felt that we are always moving partially with the balance and get to an EPS number. That tight of a guidance that we have talked about before was really directional in building the overall EPS and if we knew that there was going to be that much scrutiny on the operating margin line we would never have given such a tight range. I mean the sorts of things that happen, there was no way we predicted them and with things like the Bellco acquisition and its map, we haven’t really done that accurately, because we just closed the acquisition like a week before the we did our earnings call. And when we laid it out, some of these elements became obvious and there were pressures and its absolutely the right thing to do for the long-term and it’s a extremely accretive kind of positive deal for us but on a immediate three-months basis you can get surprises. So really our guidance should have been more thought through and we really feel that moving towards an EPS goal is the right way to look at our company. Because it’s a company with a lot of assets and capabilities and we think that it has been good mid single-digits, deliver EPS leverage to an extent that gives us double-digit EPS growth, return 50% of free cash flow to our shareholders on a consistent basis. I mean that’s a pretty good deal if we can do that at a constant currency level. Gary do you want to say a few words?

Yes. Bob, I think you said it well. I mean in hindsight if we would have realized how much focus was going to be on the operating margin line, we probably clearly would have given a broader range when we were talking about that at the end of our Q3 earnings call. You know 30 basis point range that we gave on an as reported number were the FX anything else moving 30 basis points is $27 million. And $7 billion company with FX and all these moving part. That was my mistake, we should not done that, but we didn’t realize the focus everyone is going to have on it. And reason I think we were trying to address that and get it out for the modeling was exactly that, it’s not that we are not getting synergies. In fact, if anything the Covidien synergies and other operating leverage we are getting across the organization, we feel very good about and we are attracting that on a very tight basis. It’s the other moving parts that you just get from a large organization like this that we get specific uncertain-line item is creating an issue. So what we are trying to as Omar said, is focused on we are driving top-line, we have plenty of levers including all the costs synergies that we are achieving to drive the bottom-line. But in general, there is going to be some moving parts in middle and we were way to specific in Q3 on tight range on the operating margin and that was my mistake.

And you know these moving parts we hope to offset at the EPS level, because then that gives you the full flexibility to be able to that. So that’s the way in which we are modeling our business.

Okay. Thank you for that. That’s helpful. And then one other question kind of looking forward on the 2017 guidance. First, are you going to provide any longer term directional guidance at the Analyst Day on the 6th? And then secondly, just seems like on the Q3 call, you gave some preliminary thoughts on 2017 and it seems like what you are doing today is just sort of narrowing that range with a few moving pieces. But as I look at across the business, there are couple of things that it would suggest have gotten better, I mean that you have done a deal that looks a little bit accretive, you did refinancing it looks a little bit accretive. So I might have thought the EPS guidance would be a little bit higher. So I just wonder if you could comment on those two things. Any long-term thoughts and just maybe some thoughts on the 2017 guidance?

We will certainly discuss the long-term strategy at the Investor’s Day, so just hold on for a week for that one. And in terms of the guidance, look like we just mentioned earlier, there are a lot of moving parts here and we have been burnt by FX before. And so, we just wanted to be reasonable in our approach and that’s the most accurate, I mean it’s not virtually conservative, nor is it a virtually aggressive kind of an estimate that we gave, it’s a fairly broad range. And obviously we do our best to maximize performance. That’s really the best I can do there with that range.

Yes. Again, remember Bob at the Q3 call, we really didn’t give any guidance for FY’17, we just said remember these factors as far as when you are putting together your thoughts for FY’17. And I think we basically have come in, as you said we have tightened up a little bit from that and as far as where we are at. FX it has been moving around, I mean you looked at even just a few weeks ago, it’s probably not $0.05 benefit from where we were - but may be as much as another $0.03 or $0.04 higher than that. So the dollar strengthened again a little bit. So we are being somewhat cautious, because as Omar said, FX has continue to be a headwind for us and we expect that in the next year. You are right, from and operating perspective, things are going very well, the revenue is strong, we are getting the operating leverage we would expect. But there is also lot of still moving parts, we still have a lot of integration efforts we have to get done, we are going live with SAP in Europe for the Covidien amities this week. So there is just still a lot of moving parts and we think the range we have given is consistent is what we communicated before and consistent with our long-term strategy.

Thank you.

Thanks Bob.

Next question please.

Our next question comes from the line of Josh Jennings with Cowen & Company.

Hi good morning gentlemen. Thanks for taking the questions. I was hoping to just ask first quarter on organic top-line growth guidance that you provided for fiscal 2017, it’s a little bit of tighter range than we are used to. Clearly your confident in the lower end of the ranges at north of 5%. But can you just help us think about how you set the top end of the range at 6% and whether you are leaving some conservatives in guidance and what needs to happen in order to get to above that top end of the range?

Well, we need to deliver what we talk about the first. So before we think about going above that. First of all, the range is tighter that’s true. And we did emphasize a word given current trends. We are overall committed in the mid single-digit range and we feel that given our performance and given the diversity of our portfolio, we can get to the upper half of that range like we have discussed. And we need to first deliver that consistently before we talk about meaningful upside beyond that. Like I have mentioned in previous calls, what would trigger any thought of consistently delivering over that would be a fee, sort of over achieved on each of our growth drivers, New Therapies, Services & Solutions and the Emerging Markets for few quarters in a row. Only then we will have confidence that more than 6% is sustainable. You will get the odd quarter where we do, do better. But you will get some pressures on other quarter. So I don’t want to bank on that yet. Like you said, it is a tight range and it’s something that we internally did debate about, but given trends and the fact that we have been holding that level of performance over a significant period of time sort of makes us feel reasonably confident that it’s something that we can achieve. So that’s I think the best response I can give on that one.

Okay, thanks. And just a question on longer term margins. As the Services & Solutions business continue to contribute to the revenue base and top-line growth in more meaningful levels, can you just talk about how should we think about their contributions impact to margins as we move forward into fiscal 2017, 2018 and beyond? Thanks a lot.

We will lay some of that out in the Investors Day, but essentially as you pointed out Service & Solutions net operating margin on its own is usually lower than what we get from a device perspective. However, in all most all of these transactions and agreements we have make, there is a device component that gets attached to it and we get incremental overall revenue and we find that overall our operating margin dollars go up significantly as a result of these transaction. And then as we go forward, we expect to see productivity from those Services & Solutions arrangements both from the services themselves, but also from hopefully lower cost of sales in some of those accounts of support sales. That's the way we are looking at it, it's something that we feel that we have to cover in our overall model and yet deliver the EPS that we are talking about. And that's what we are focused on and use every other variable that we have to cover for that, because we do think that the Services & Solutions gives us a sustainable long-term growth which was very sticky. And besides that it's something that our stakeholders and customers want. So it’s something that we got to manage from our overall business perspective and not get too kind of align that and focus on that one. Do you guys want to add into that?

No, I mean I think you said it Omar, I mean in and out of itself the Service & Solutions business has a lower margin just by its very nature, but the reality is there is benefits that also benefit rest of the company from those Services & Solutions that actually can potentially help leverage some of the margins on those sides of the equation. So it's a little bit of a headwind especially here in the near-term as Omar said, but as we get efficient at it we get more productivity out of it, in general we don't think it will have a huge impacts on our overall operating margins. And obviously it will help solidify and give us more sustainability in our overall revenue growth and even in our overall shares. So we feel good about the prospect overall and how it may increases the bottom line growth, but I think you are right in and out of themselves all those contacts the Service & Solutions component has a slightly obviously lower margin than the rest of the business.

I think there is an important point if I can just follow-up, just to give you a specificity. We just this acquisition of NOK in the Netherlands that's a business which does bariatric surgery as well as other services and support areas and the net operating margin of that business is lower than our average, but sort of reasonable. When you layer in our surgical devices into those contracts on a consistent basis that drives up our volume on very high margin devices, which gets coupled to this transaction and therefore increases the overall margin rate significantly in those kinds of accounts from what NOK originally had. And so that's the kind of thing that we think we can scale around the world and get significant benefit.

Okay great. Thanks very much.

Thanks Josh.

Thank you.

We will take that two more callers please. Next question?

Our next question comes from the line of Matt Taylor with Barclays.

Hey thanks for taking my question. Just wanted to go back to your earlier comments about surgical volumes. I was curious if you had any thoughts around sort of what is driving the incremental improvement, is it economy or coverage or products. What do you attribute some of that improvement to?

Well, give that it is consistent with what all the hospitals are reporting, I have got to say that the overall healthcare demand if you like in the U.S. is something that is on an upward trajectory. That's got to be the fundamental reason and it's probably some of it is just natural demographics which provides this. The other is probably we are seeing some of the impact of the Affordable Care Act and all of the initial pieces of increased coverage might have been more sort of upstream in nature in diagnostics and so. I mean some of these will lead to more procedures. Those are the only things that I can sort of intelligently kind of talk about. Other than that just what we experienced. It is not something that’s easy to predict to be fair and we look at all kinds of different factors and do the best, we have leading indicators, we talk to people and we get a sense for it, but everything that I just said was close to conjecture in my part.

I would state the same, I mean it's very difficult even to get - you got to go to the different data points and triangulate just to get a sense of what is happening to the volumes, to go deeper level than that and understand why it's difficult to make assumptions, but it’s very difficult to pinpoint specific reason. The other thing I would reference beyond just the increase in overall volumes, the other thing that we are seeing is a mix shift, a much greater growth in the MIS procedures versus [indiscernible] and this is pretty consistent when I look at other players in the marketplace and I look at their revenue growth in the quarter. So I’m really happy about that and truthfully that's probably the bigger opportunity, a smaller uptick in surgical volumes in the U.S. versus a real change in the make shift MIS, although the make shift MIS all day along. And that’s pretty consistent again with what we have seen and what the rest are telling us and what we are seeing from other companies that are playing in the same space. That’s to me is really the story.

Thanks, and just one final, you did a little bit better, this quarter you were flat. Can you talk about your overall strategy there that you recently announced the deal with Meso can you talk about some products flow and other improvements that could help [indiscernible]?

Sure. We detailed some of are in the commentary, but I’ll let Geoff kind of comment on that directly. So go ahead Geoff.

Yes sure, so heading the Meso deal I mean we are very excited about that. That is I'll call it one-way of multi-pronged strategy around what we call surgical synergies and we feel as we move out into the future, this surgical synergies will be in spine our calling card. We have got very strong enabling technology platforms in navigation and imaging, we are excited about the partnerships in robotics with Meso and then integrating these platforms as we move forward to provide to differentiate spine procedures both economically and surgeon experience. Low radiation, just an easier surgical procedure et cetera, we think is going to differentiate our spine business. And so as you move forward and this isn’t five-years from now, this is going to take place quarter-over-quarter as we continue to emphasize this. So this is something we are very excited about. And as we move forward, outside of surgical synergies, we do have a number of products starting in our FY’14, FY’15 our spine business put a lot of effort into revamping the product portfolio and the products that are hitting the market now are Elevate Cage for example, VOYAGER another one and this quarter launching our or OLED procedures, I’m calling then our second generation OLED procedures. We are getting a terrific uptick in these things. My only regret is that two quarters ago when we are planning we didn’t plan aggressively enough and because I think we are hitting our maximum with sets and if we had more sets, you see more growth. So that’s something that we are factoring into our planning going forward to deal a little bit more aggressive, but both from a product standpoint and then from what we call surgical synergy standpoint things are looking very good for our spine business right now. And as you pointed out, every quarter we have improved over the last five quarters and it’s a big shift, it take a little bit of time to kid of change directions and we should see continued improvement quarter-over-quarter.

Great. Thanks.

Thanks Matt. We will go to one more caller please.

Our final question comes from the line of Kristen Stewart with Deutsche Bank.

Hi, thanks everybody. Hope you all had a happy Memorial Day weekend. I had a couple of questions. Just wanted to go back to the RTG and the new reporting divisions. Is there anything I guess to be set forth to kind of the four different businesses? Is it more just alignment with the underlying surgeons or is it just to kind of facilitate maybe better structure to improve the performance? How should we think about that? I’m just kind of curious it has anything to do with just perhaps isolating spine and perhaps thinking about it as maybe less core.

No, actually it is not isolating, it’s the other way around actually. But Kristen there is a couple of changes going on and we will get into this next week, but just summary. One moving into these different reporting divisions is really putting the businesses, organizing them by disease, state or condition versus technology and the example I'll give is neuromodulation. I mean that was the business largely held together based on technology implantable stimulator and from whether the gastro euro which we are now calling Pelvic Health or whether it be DBS or pain stim they are all calling on different physicians, specialties and we really felt we would get more traction if we organize by disease state versus by technology. So that’s going to help us one, focus on the physicians appropriately and two, innovate because when we are innovating we are looking across the disease sate and across the character changing rather. So that’s the one change and the other change that Omar mentioned in the commentary was moving into this general manager structure. So that gets to more execution and this is something that CVG has done over the last four-years, five-years where you are having General managers that are 100% focused on the individual therapy segment that they serve in this products within that therapy segment. So making your businesses more smaller, more focused and granular. So that’s another component of that and along with this we have fairly sweeping leadership changes across RTG and many of the leaders that are now running a group have top performers from other parts of Medtronic. And so combined with the different structure, the disease state organization with this GM structure to drive innovation and we have new proven players from other areas of Medtronic, we feel very good as we hit FY’17.

And again to clarify the spine comment. Look, this is specific spine customer and the only thing we did is remove interventional from that and that is not the same customer. It made a lot more sense to group that together with pain, where we have a lot of associated therapies and we were missing the big picture look at pain by splitting up all the different very significant non-opioid therapies that we had. And so this is really a disease based look and look at our customers and that will drive innovation and it will drive a clear picture of how we go to market with our sales force. And then it finally leads value based healthcare, driving for outcomes, is the only way in which you are going to do it.

Yes. You know another thing on spine, regarding surgical synergies. As you know the enabling technology platforms sit in what we historically call surgical technologies that component other is now in our brain business, so NAV and imaging. We actually go to a small surgical synergy team, which is a bridge between that business and our spine business and looking at our integrated technology roadmap by procedure as we move out and that also works for DBS as well. So before we had two separate businesses that weren’t linked quite close enough in my humble opinion to drive the surgical synergy benefit. So we put a small team and includes marketing as well as engineering talent to drive that integrated technology roadmap and that value proposition. So just in Q4 alone we had 50 new kind of combined capital equipment spine core metal deals, which is significantly more than we have had in the prior three quarters combined. And this is something that is a result of that and as we move forward, you will see the technology roadmap more integrated. So we have actually built a little bit of bridge between spine and our capital equipment business.

So taking the structure that was successful with CVG in kind of overlaying that?

Yes. Absolutely.

Okay. And then just follow-up on diabetes. I saw today the announcement or if I guess it was maybe last week with Qualcomm with the Type-2 diabetes. Maybe if you could just expand a little bit more of that. It’s just see more of the emphasis on Type-2 this seems to be kind of very early stage. When might the product like this kind of come out or just kind of how should we think about what I guess look for to next week?

Yes, sure. Hi Kristen. Look, we continue to be excited about and focused on our Type-2 business. This is a new business unit that we put in place a little over a year ago. And we will talk you about the product roadmap next week at the Investor Day session, so you will get more insight there. But sufficed to say that our focus within Type-2 - first the Type-2 population is 90% of all patients with diabetes, so it’s a huge market opportunity. And when you take a look at those 90% of the patients, what we have decided to focus on is really monitoring those 90%. We could have gone the rout of insulin delivery, because that’s also a core competency, but insulin and delivery within that Type-2 population only addresses about 10% of that 90%. The broader opportunity is within monitoring and what you see with Qualcomm Life, what you are seeing iPro 2 and our new Pattern Snapshot capabilities are really our efforts to bring more and more advanced monitoring solutions to those Type-2 patients. And at the end, our goal isn’t just to deliver a sensor to those patients or just the product, it’s really to deliver an integrated solution to those patients where we bring not just a technology, but capability through analytics and insight that I can give those patients actionable information, so that they can better managed their disease. And also to do the same thing for physicians, who are managing those patients. So we are really excited about the opportunity. As you said, we are just getting started, but we think there is a tremendous amount of runway in this business.

Thanks very much to you guys.

Thank you.

Okay. It’s time to close the call out here and I would like to remind that we plan to host our Investor Day next Monday June 6th in New York City. We look forward to having a more detailed discussions with you on our plans to deliver on these strategies that we outlined today. And I would also like to note that we anticipate holding our Q1 earnings call on Thursday August 25th. And finally, in conclusion, as we have noted, we continue to focused on delivering consistent mid single-digit constant currency growth, strong EPS leverage and recurring a minimum of 50% of free cash flow to our shareholders. FY’16 was indeed successful and transformative year for our company and looking ahead, we feel we are well position to participate and lead in the transformation to value based healthcare, which can ultimately create long-term dependable value for our shareholders. And with that and on behalf of our entire management team, I would like to thank you again for your continued support and interest in Medtronic. Thank you and all of you please have a great day. Thanks.

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