Medtronic Sees Revenue Losses Due to COVID-19 Pandemic

On April 21 Medtronic plc provided an update on its response to the COVID-19 pandemic, the impact on its business, and its strong financial position.
 
First and foremost, Medtronic has taken a number of steps to help ensure the health and well-being of its more than 90,000 employees and their families around the globe. Second, the company has mobilized its global resources to support patients and physicians in this time of need, including a rapid expansion in the production and distribution of critical products in the fight against COVID-19. Third, Medtronic is partnering with key government agencies and providing direct support to communities around the world.
 
“I am incredibly proud of the response of our 90,000 global employees. Our resolve to alleviate pain, restore health, and extend life, as outlined in our mission, has never been greater,” said Omar Ishrak, Medtronic chairman and CEO. “I want to recognize and thank our customers, partners, and the healthcare community at large, for their efforts to combat this pandemic. Individually, and collectively, we will persevere.”
 
Employees
Medtronic employees continue to work during this pandemic, making critical, lifesaving products to treat both COVID-19 and non-COVID-19 conditions. The company’s manufacturing and distribution facilities are routinely cleaned and sanitized, employees are utilizing personal protective equipment (PPE) and social distancing, including staggered breaks to reduce crowds in common areas, and additional screening and access protocols have been implemented. Field employees who continue to work in clinical settings are provided access to PPE. Importantly, Medtronic has also developed and rolled out to its US employees, and their family members, a free virtual COVID-19 evaluation and monitoring tool through its Care Management Services business.

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Impact on Business
The impact of COVID-19 on Medtronic’s businesses remains fluid, and the company continues to actively monitor the dynamic situation. Medtronic expects COVID-19 to negatively affect its fiscal fourth quarter financial results, which ends on April 24, 2020. Given the progression of COVID-19 around the world and the timing of the company’s fiscal quarter, Medtronic’s fourth quarter financial results will reflect an additional month of impact compared to many other companies who operate on a calendar-based fiscal year.
 
Hospital resources have been diverted to fight the pandemic, and many government agencies in conjunction with healthcare systems have made decisions to defer many elective and semi-elective procedures that use the company’s products. In addition, some people are avoiding seeking treatment for non-COVID-19 emergency procedures, resulting in an impact to those emergent product lines. Capital equipment purchases, outside of ventilators and patient monitoring equipment, are also being deferred by hospitals in the current environment.
 
The following table lists Medtronic’s businesses and therapies that might be considered more urgent, moderately elective, and more elective during the current pandemic:
 

	More Urgent	Moderately Elective	More Elective
Cardiac and Vascular Group	Pacing Aortic Coronary Cardiac Surgery	ICDs/CRT-Ds TAVR/Structural Heart Peripheral	AF Solutions EndoVenous Diagnostics
Minimally Invasive Therapies Group	Surgical Innovations: appendectomy, bowel obstruction, trauma  Respiratory and Patient Monitoring  Renal Care	Surgical Innovations: CABG, oncology	Surgical Innovations: bariatric, hysterectomy, hernia GI
Restorative Therapies Group	Spine: Trauma Neurovascular: ischemic stroke	Brain Modulation Neurovascular: hemorrhagic stroke	Spine Pain Therapies Pelvic Health ENT
Diabetes Group	Diabetes supplies		New insulin pump starts

While the vast majority of Medtronic’s businesses have experienced declines as a result of COVID-19, product lines in the cardiac and vascular, minimally invasive therapies, and diabetes groups are in high demand as a result of COVID-19.
 
Medtronic also provided insight into the impact of COVID-19 on its business in major geographies, highlighting declines of similar magnitude to those discussed by other medical device companies in the month of February in China and Asia Pacific, in March in Western Europe and the United States, and in forward-looking comments on calendar second quarters of April through June.
 
In China, which represented approximately 7% of total company revenue pre-COVID-19, the company expects to experience the impact of COVID-19 to its revenue for the entire fiscal fourth quarter. On average, weekly revenue declined approximately 50% year-over-year through the week of March 9. Since that time, the company’s weekly revenue has declined on average approximately 20% to 40% year-over-year, as the market is experiencing a slow recovery.
 
In Western Europe, which represented approximately 20% of total company revenue pre-COVID-19, the company began to see an impact to revenue from COVID-19 the week of March 23. Over the last few weeks, the company’s weekly revenue has declined approximately 20% to 30% year-over-year on average, excluding any impact from customer bulk purchases.
 
In the United States, which represented approximately 53% of total company revenue pre-COVID-19, the company began to see an impact to revenue from COVID-19 the week of March 16. Over the last few weeks, the company’s U.S. weekly revenue has declined approximately 60% year-over-year on average, excluding any impact from customer bulk purchases.
 
In the rest of the world, which represents the remaining 20 percent of total company revenue, Medtronic saw varying degrees of impact, with the last few weeks declining on average approximately 40% to 50% year-over-year.
 
In addition to the impact to its revenue from procedure volume declines, the company expects an incremental negative impact to revenue from a decline in typical large, end of Medtronic fiscal year customer orders as customers prioritize preservation of cash and reduce their holdings of purchased product inventories, especially in more elective procedure categories, as well as purchases of certain capital equipment.
 
In general, the company continues to make progress with its pipeline and continues to work with regulatory agencies on timelines that do not appear to be currently affected by the pandemic. Clinical trials that are currently enrolling patients, however, have generally been placed on temporary pause to allow hospital clinical resources to focus on fighting COVID-19.
 
Financial Position
Medtronic says it is positioned well for times such as these. The company currently has ample liquidity, with approximately $11 billion in cash and investments as of the most recent quarter, and an undrawn $3.5 billion credit facility. The company has no public debt maturing until March 2021.
 
Given its strong financial position, Medtronic is continuing to focus on making capital allocation decisions to drive its long-term strategies, including investing in its employees and its pipeline, as well as actively looking for tuck-in acquisition opportunities and paying a strong dividend to its shareholders.
 
“While the expected short-term impact to our financial results is significant, it is consistent with the impact discussion broadly across the medical device industry,” said Geoff Martha, Medtronic president. “Importantly, we are starting to enter the early stages of a global recovery. As hospitals begin to resume broader treatment of non-COVID-19 patients around the world, we expect our business to begin to recover as well. In addition, given the financial strength of the company, we are executing strategies to come out of this pandemic even stronger, attracting and retaining top talent and increasing and innovating the products and services that we offer physicians, patients, and healthcare systems to win in the evolving marketplace.”