Prompt:
Human: Today, I'm joined by Brian Tyler, our chief executive officer; and Britt Vitalone, our chief financial officer.
Brian will lead off, followed by Britt, and then we will move to a question-and-answer session.
Today, we reported third quarter fiscal 2022 results, another quarter with double-digit adjusted operating profit growth in all four segments, reflecting strength in the fundamentals across our businesses.
Our focus and execution against our company priorities positions us to consistently generate strong financial results despite fluidity we continue to see in the macroeconomic environment.
Before I discuss the business performance, I would like to just quickly remind everyone of our company priorities.
We have been sharing with you our strategic transformation to a diversified healthcare services company centered around a set of four enterprise priorities.
We believe the execution against these priorities is critical to our ability to generate long-term sustainable growth, and we want to reiterate our focus and commitment to each one of them.
Our first priority is our people, our teams and our culture.
Through our diversified portfolio of assets and operations, we as a company touch and impact many aspects of health and the healthcare system, including patients.
Embedded in our daily operations is our purpose: advancing health outcomes for all and our mission of building an impact-driven organization.
We have been focused on enabling change in three areas: improving access to healthcare, advancing health equity and protecting our environment.
In the past year, our employees came together and shared countless moments of impact, finding new ways to get involved and to contribute.
In 2021 alone, we completed more than 26,500 volunteer hours and supported nearly 1,500 charities.
I couldn't be more proud of what we have achieved so far, and I'm confident in our ability to build a brighter future that, in fact, offers greater health outcomes for all.
Part of our focus on culture is our continued improvement in diversity and inclusion.
We put a particular focus on hiring, developing and promoting what we call a best talent strategy at McKesson.
Recently, we were recognized as one of the best places to work for LGBTQ equality, the ninth year in a row we've received this honor.
Our commitments to diversity and refreshment includes our board of directors.
Both James and Kathleen have served in multiple senior leadership roles within the healthcare industry.
Currently, Jim serves as an operating partner for the private equity firm, Welsh, Carson, Anderson & Stone.
And prior to that, he held the role of chief executive officer at Baylor Scott & White Health.
And Kathleen most recently held the role of executive vice president and global chief human resource officer at Walgreens Boots Alliance, where she led the human capital strategy, including merger integration and HR transformation through digitization.
Additionally, we announced today that Don Knauss has been elected as the next independent chairman of our board, which will go into effect on April 1, following a planned transition led by our current independent Chair, Edward Mueller.
He brings deep leadership expertise and shares McKesson values, culture, strategy and vision, including his commitment to board diversity.
We look forward to his leadership and stewardship.
Our next priority is to drive sustainable growth in our core pharmaceutical and medical distribution businesses.
We have a vast scale distribution network and deep expertise in global supply chain management, which have been a critical and foundational part of our long history.
We're proud of our operational excellence and our ability to capture efficiency and deliver consistent and high-quality service to our customers while optimizing operating margin.
Building off of this core capability, we've been very successful in expanding into new product categories and new adjacent markets, like our lab solutions and our government partnership strategies.
Our scaled assets and capabilities also enable us to play an integral role in the response to the COVID-19 pandemic.
We're proud to serve as the centralized distributor of vaccines and ancillary supplies for the U.S. government.
We've also been working closely with our partners, suppliers and manufacturers to navigate the complex supply chain system.
These relationships have allowed us to continue to provide stability of supply and low cost for our customers.
And as a result, we've been able to manage through some of the challenges that the market has been seeing.
Our third priority is to streamline the business, which includes initiatives like the split off of Change Healthcare and our strategic intent to fully exit the European region.
We recently announced the sale of our Austrian business, which was completed on January 31, and we have agreements to sell 10 of the 12 countries where we operate.
As a reminder, Norway and Denmark remain the only countries that we have not entered into an agreement to sell.
We continue to work toward the closing of the other pending divestitures.
These transactions are the result of our intentional effort to evaluate and assess our portfolio for strategic alignment.
We believe that by fully exiting the Europe region, we'll be able to better focus our human and financial capital into higher-growth and higher-margin areas, which leads me naturally to our next company priority.
The last company priority is our strategic growth pillars, oncology and biopharma services.
Over the past few years, we set out to accelerate the growth in these two areas and build out what we refer to as ecosystems.
As we shared at our Investor Day in December, these are both large and growing markets that have significant unmet needs and opportunities, and we are tackling some of the most complex problems in the healthcare system with the goal to bring efficiency and benefits to all stakeholders across these ecosystems.
With the reach of over 1,400 physicians, The US Oncology Network treats 15% of all new cancer patients in the U.S. at one of its 500 sites of service.
One of The US Oncology Network's important initiatives is its participation in the oncology care model, which is a five-year experimental payment model with the goal of bringing down the cost of cancer.
Based on the latest results, The US Oncology Network practices participating in the program achieved high marks on quality metrics and provided significant cost savings to Medicare.
By representing approximately one-fourth of all providers participating in the program, The US Oncology Network demonstrated its leadership role in transitioning healthcare to a more value-based approach.
Building upon our deep reach in the community oncology space, we're creating an oncology ecosystem with multifaceted service offerings that are all interconnected.
At the center of this connectivity is Ontada, an oncology, technology and insights business dedicated to help advance cancer research and advance patient care.
We recently highlighted this business at our Investor Day.
Since its launch in December of 2020, the team has made great progress transforming ideas into realities.
Ontada signed two agreements with strategic partners to improve patient outcome and quality of patient care, and it was instrumental in the launch of the MYLUNG Consortium, which through real-world research and study provides critical information to improve the patient's journey.
Within our biopharma ecosystem, we've built a set of differentiated assets and capabilities, including businesses like RelayHealth Pharmacy, CoverMyMeds and RxCrossroads.
They're combined under the Prescription Solutions business with a shared goal to improve access, adherence and affordability of medicines.
One of the key customers of our business is biopharma companies.
Through our scaled and interconnected technology network, we provide biopharma a range of commercialization services and by automating and simplifying the process of prior authorization, we reduced prescription abandonment and provide biopharma access to new patients.
Our unique technology capabilities also generate insights into patients' needs and challenges, enabling greater ability to impact patient actions and get better outcomes.
We support over 650 brands today, covering 94% of the therapeutic areas, and we're connected to all the major insurance companies and most of the regional payers in the United States.
The reach of our network is deep and broad, which is why it's the foundation of our biopharma ecosystem, and we are incredibly excited about the market opportunities it brings.
Our progress with each of the company priorities has been truly outstanding, and we see the strategy is working.
The strong conviction in these priorities will be our North Star as we seek to advance and win in the marketplaces as a diversified healthcare service company and to drive long-term sustainable growth for our shareholders.
Now before I turn to our third quarter results, I want to provide a brief update on the progress made toward the broad resolution of governmental opioid-related claims.
To date, 46 states, all five U.S. territories and Washington, D.C., have joined the proposed settlement.
The sign-on period for political subdivisions in participating states to join the previously announced proposed opioid settlement agreement ended on January 26.
We have now entered into the evaluation period.
The deadline for our decision is February 25, 2022.
We continue to work with all parties to bring meaningful relief to affected communities and toward resolutions, which will allow us to further focus on the strategic priorities of our business.
Now let me get to the results.
We're pleased to report a strong third quarter with total company revenues of $68.6 billion and an adjusted earnings per diluted share of $6.15, ahead of our expectations.
As a result of our performance in the underlying business and the contribution from COVID-19-related items, we are raising our adjusted earnings per diluted share guidance to $23.55 to $23.95.
This is from the previous range of $22.35 to $22.95.
The third quarter was another example of the nonlinear nature of the recovery from the pandemic.
At the beginning of the quarter, volume and utilization trends were recovering as COVID-19 cases continued to decline across the country.
Although we expected a nonlinear recovery trend, the emergence in the spread of the Omicron variant in December was unexpected.
Since then, we've been closely monitoring its impact.
One thing we've learned in the past two years is the resilience of our business and our communities.
Regardless of the trajectory of the pandemic, we're confident about our ability to adjust and adapt to support our customers and their patients in these challenging times.
Let's turn to the U.S. Pharmaceutical segment.
Pharmaceutical segment saw 12% adjusted operating profit growth, which was underpinned by the contribution from COVID-19 vaccine distribution and increased specialty volume.
Through the third quarter and into January, branded pharmaceutical pricing has tracked in line with our original expectations and consistent with our experience over the past several years.
For generics, we continue to benefit from the success and strength of our sourcing operation with ClarusONE.
We have not only the scale but the procurement expertise to consistently source products at low cost while protecting the integrity and the safety of the supply chain.
We are also proud of our role in supporting the U.S. government's pandemic response effort as the vaccine and booster recommendations for various age groups continues to expand and evolve.
government's international donation mission.
In January, the U.S. government extended the existing COVID-19 vaccine distribution contract through July of 2022, which is roughly in line with the first quarter of our fiscal 2023.
In Prescription Technology Solutions, the segment had excellent momentum and delivered an 11% increase to segment adjusted operating profit in the third quarter.
As I mentioned earlier, we offer a range of commercial services primarily to biopharma companies.
And this quarter, the growth was led by third-party logistics services and our access adherence and affordability solutions, including our access for more patients product.
This segment aligns with our focus on developing the biopharma services ecosystem.
The market that we're focused on presents many exciting opportunities, and we estimate the total addressable market to be around $15 billion with good growth potential and an attractive margin profile.
We are pleased with the financial performance and expect to continue to drive growth and innovation for McKesson.
In Medical-Surgical, we're navigating a dynamic market while growing the business.
With surging demand and a complex supply chain, our employees are working tirelessly to secure and deliver key products, playing an important role in the fight against the pandemic.
The dedicated team in MedSurg is the foundation to our business growth, and we continue to invest to ensure operational continuity and excellence.
As it relates to our International segment, we continue to benefit from COVID-19-related programs in our European operations and Canada.
Through December, we've distributed over 81 million vaccines to administration sites in select markets across our international geographies.
As we look forward to fiscal 2023, I'm most excited about the progress on the four company priorities.
Since the rollout of these multiyear strategic initiatives in our fiscal 2019, we've been very focused on execution, making impact and delivering results.
While the pandemic continues to present unknowns, what is certain is that fiscal 2023 will be another year in which we focused on strong execution and strategic advancement.
Our continued progress toward these four priorities will be a key driver to our sustainable profit growth, strong cash flow and shareholder value creation.
We continue to focus on the things that matter most, most to our customers, to our patients, to our employees and to our shareholders.
In closing, we continue to be excited about our future growth prospects as we meet the opportunity as a diversified healthcare services company.
We have unique and differentiated assets in oncology and biopharma services with unmatched scale and connectivity, and we're strategically positioned to win in these growing markets.
We share a mission to improve healthcare in every setting, and that will be achieved only with the dedication and the commitment from our people.
And for the opportunity to work alongside this amazing team, I continue to be humbled and deeply grateful.
Britt, I'll toss it to you.
I'm pleased to be here today to discuss our fiscal third quarter results, which reflect another quarter of strong performance across the business driven by operational execution against our growth strategies.
In the third quarter, we delivered overall growth compared to the prior year results across each of our segments, including growth over the prior year when excluding COVID-19-related programs.
Let me start with an update on Europe.
We remain committed to fully exit the European region, and the progress of our exit activities are on track.
Today, we announced that the transactions to sell our Austrian business to Quadrifolia Management and the sale of McKesson's remaining share of our German joint ventures to Walgreens Boots Alliance closed on January 31, 2022.
The assets involved in the Austrian transaction contributed approximately $1.5 billion in revenue and $50 million in adjusted operating profit in fiscal 2021.
The earnings related to our German joint venture were immaterial.
Next, pursuant to the satisfaction of customary closing conditions, including receipt of regulatory approvals, we anticipate the pending divestiture to sell McKesson's U.K. retail and distribution businesses will close in the fourth quarter of fiscal 2022, and the transaction to sell certain European assets to the PHOENIX Group will close in the first half of fiscal 2023.
The net assets included in these transactions are classified as held for sale.
Our fiscal 2022 guidance includes approximately $0.49 of adjusted earnings per diluted share accretion related to these pending transactions, which is recorded within our International segment.
This $0.49 of accretion resulting from the held-for-sale accounting will conclude once each transaction is closed.
For fiscal 2023, we currently anticipate approximately $0.10 of adjusted earnings per diluted share accretion related to the held-for-sale accounting based on their current estimated close date for the Phoenix Group transaction.
Norway and Denmark remain the only countries that we have not entered into an agreement to sell.
As previously discussed, we anticipate we will deploy capital to offset dilution resulting from all European divestitures, principally through share repurchases.
Before I provide more details on our third quarter adjusted results, I want to point out one additional item that impacted our GAAP-only results in the quarter.
We reported a GAAP-only after-tax charge of $829 million related to the sale of retail and distribution businesses in the U.K. to account for the remeasurement of the net assets to the lower carrying amount of fair value less cost to sell.
These charges were largely driven by declines in the British pound sterling.
Moving now to our adjusted results for the third quarter, beginning with our consolidated results, which can be found on Slide 7.
As discussed at our Investor Day event in December, we manage the business for the long term, and our financial and strategic framework is focused on shareholder value creation.
Our financial framework combines three key elements to generate sustainable adjusted earnings per share growth: organic growth, operating leverage and capital allocation.
This framework is once again demonstrated by our strong third quarter fiscal 2022 results.
Additionally, our leadership supporting the U.S. government's COVID-19 domestic and international vaccine and kitting efforts continues to contribute to growth and the momentum we have built across the business.
Third quarter adjusted earnings per diluted share was $6.15, an increase of 34% compared to the prior year.
government; COVID-19 tests and fiscal 2021 impairments for personal protective equipment and related products; and a lower share count.
Consolidated revenues of $68.6 billion increased 10% above the prior year, primarily driven by growth in the U.S. Pharmaceutical segment, largely due to higher volumes from our retail national account customers; and branded pharmaceutical price increases, which were in line with our initial guidance partially offset by branded-to-generic conversions.
Adjusted gross profit was $3.4 billion for the quarter, an increase of 8% compared to the prior year, which benefited from the increased contribution from our strong operational performance and previously mentioned COVID-19 programs and related items.
Adjusted operating expenses in the quarter increased 1% year over year.
Excluding the impact of held-for-sale accounting on announced divestitures in the International segment, adjusted operating expenses increased 2% year over year.
Adjusted operating profit was $1.3 billion for the quarter, an increase of 19% compared to the prior year, led by strong operational performance across the segments.
Moving below the line.
Interest expense was $41 million in the quarter, an improvement of 25% compared to the prior year.
Our adjusted tax rate was 19.6% for the quarter.
In wrapping up our consolidated results, third quarter diluted weighted average shares were 153.5 million, a decrease of 5% year over year.
Revenues were $55 billion, an increase of 11% year over year, driven by higher volumes from our retail national account customers and branded pharmaceutical price increases, partially offset by branded-to-generic conversions.
Adjusted operating profit increased 12% to $735 million, driven by the contribution from COVID-19 vaccine distribution and growth in the distribution of specialty products to hospitals and community commissions.
government for the distribution of COVID-19 vaccines provided a benefit of approximately $0.26 per share in the quarter, which was in line with our expectations.
In the Prescription Technology Solutions segment, revenues were $1 billion, an increase of 33%, driven by higher volume growth related to biopharma services, including third-party logistics services and increased technology service revenue, partially resulting from the growth of prescription volumes.
Adjusted operating profit increased 11% to $145 million, driven by growth from access and adherence solutions.
We continue to experience growth across our broad spectrum, higher-margin capabilities and offerings in this segment.
We're pleased with the increased transaction volumes related to our access and adherence solutions and the increasing number of brands that joined our platforms this year.
We also experienced increased volumes in our logistics and hub services due to the continued recovery of prescription volumes.
Moving now to Medical-Surgical Solutions.
Revenues were $3.1 billion, an increase of 1%, driven by growth in the primary care business and the contribution from kitting storage and distribution of ancillary supplies for COVID-19 vaccines, partially offset by lower revenue from COVID-19 tests in our Primary Care and Extended Care businesses as compared to the prior year.
Adjusted operating profit increased 18% to $330 million, driven by the contribution from kitting, storage and distribution of ancillary supplies for the U.S. government's COVID-19 vaccine program, the prior year impact of an inventory impairment charge related to PPE that incurred in the third quarter of fiscal 2021 and growth in the Primary Care business.
The contribution from our contract with the U.S. government related to the kitting, distribution and storage of ancillary supplies for COVID-19 vaccines provided a benefit of approximately $0.31 per share in the quarter, which was above our original expectations.
Next, let me address our international results.
Revenues in the quarter were $9.5 billion, an increase of 2%, driven by new customer growth in our Canadian business and volume increases in the pharmaceutical distribution and retail businesses across the segment, which were partially offset by the contribution of McKesson's German wholesale business to a joint venture with Walgreens Boots Alliance.
On an FX-adjusted basis, adjusted operating profit increased 41% to $223 million, driven by the reduction as compared to the prior year of depreciation and amortization on certain European assets classified as held for sale, the distribution of COVID-19 vaccines and tests in Europe and strong distribution results in our Canadian business.
The held-for-sale accounting in the International segment contributed $0.18 to adjusted earnings in the quarter.
Moving on to corporate.
Adjusted corporate expenses were $159 million, an increase of 1% year over year.
We incurred opioid-related litigation expenses of $33 million for the third quarter, and we anticipate that fiscal 2022 opioid-related litigation expenses will be approximately $135 million.
Let me now turn to our cash position, which can be found on Slide 14.
We ended the quarter with a cash balance of $2.8 billion.
For the first nine months of the fiscal year, we generated free cash flow of $1.2 billion.
Year-to-date, we made $380 million of capital expenditures, which included investments to support our strategic pillars of oncology and biopharma services.
For the first nine months of the fiscal year, we returned $2.2 billion of cash to our shareholders, which included $2 billion of share repurchases and the payment of $206 million in dividends.
At our Investor Day event in December, we announced that our board of directors approved an increase of $4 billion to our existing share repurchase program.
At the end of our third quarter, $4.8 billion remains on our share repurchase authorization.
With this increased authorization, the completed sales of the Austrian business and remaining share in the German joint venture and the anticipated fiscal fourth quarter closure of the sale of the U.K. business, we anticipate executing share repurchases of up to $1.5 billion in the fourth quarter.
As a result, we now anticipate returning approximately $3.5 billion to shareholders through share repurchases in fiscal 2022.
Our strong operating performance, combined with our return of capital to shareholders, reinforces our commitment to driving shareholder value.
Let me transition and speak to our outlook for the remainder of fiscal 2022.
A full list of our fiscal 2022 assumptions can be found on Slide 16 through 18.
We continue to anticipate a full recovery of prescription volumes.
However, the persistence of COVID-19 and its variants such as Omicron is leading to a nonlinear trajectory.
In the U.S. Pharmaceutical segment, we anticipate revenue to increase 8% to 11% and adjusted operating profit to deliver 8% to 10% growth over the prior year.
We continue to see stable fundamentals in our U.S. Pharmaceutical business.
Specifically, our outlook for branded pharmaceutical pricing of mid-single-digit increases in fiscal 2022 remains consistent with both our original guidance and prior year.
And our view of the generics environment remains competitive yet stable.
Our guidance remains aligned to the volume distribution schedule provided by the CDC and U.S. government and includes the contribution related to our role as the centralized distributor for the U.S. government's COVID-19 vaccine distribution program.
We'll continue to update you on the progress and contribution from this program.
When excluding COVID-19 vaccine distribution in this segment, we anticipate approximately 3% to 6% adjusted operating profit growth.
And as a reminder, our investments in our leading and differentiated position in oncology will continue to represent an approximate $0.20 headwind in fiscal 2022.
In our Prescription Technology Solutions segment, we anticipate revenue growth of 32% to 36% and adjusted operating profit growth of 24% to 28%.
This growth reflects the strong momentum in the business as we project increased volumes across new and existing biopharma solutions and customers.
Our outlook assumes 15% to 19% revenue growth and adjusted operating profit growth of 51% to 55% over the prior year.
Our outlook includes $0.85 to $1.05 related to the contribution from the U.S. government's distribution of ancillary supply kits and storage programs and $0.75 to $0.95 related to the net impact of COVID-19 tests and PPE impairments and related products.
When excluding the impacts of these items in this segment, we anticipate 22% to 26% growth over the prior year.
One additional reminder related to our U.S. distribution businesses.
On our earnings call in November, we discussed the highly competitive labor market, which continues to persist.
We also outlined an assumption for a modest labor-related expense impact to ensure support of our talent strategy and continued service continuity through the second half of our fiscal year.
Based on labor market trends experienced in the third quarter and our expectations for the remainder of the fiscal year, we continue to anticipate approximately $0.10 to $0.20 of adjusted operating expense impact in our U.S. distribution businesses in the second half of the year, weighted slightly higher in our medical segment.
Finally, in the International segment, our revenue guidance is 2% decline to 1% growth as compared to the prior year.
And as a reminder, this reflects the impact from the contribution of our German wholesale business to a joint venture with Walgreens Boots Alliance in the third quarter of fiscal 2021.
For adjusted operating profit, our guidance reflects growth in the segment of 43% to 47%.
This includes approximately $0.49 of adjusted earnings accretion in fiscal 2022, resulting from held-for-sale accounting related to our agreement to sell certain European assets.
Turning now to the consolidated view.
Our increased guidance assumes 8% to 11% revenue growth and 24% to 27% adjusted operating profit growth compared to fiscal 2021.
Our full year adjusted effective tax rate guidance of 18% to 19% remains unchanged.
And we anticipate corporate expenses in the range of $570 million to $620 million, an improvement from the previous range of $610 million to $660 million related to our focus on operating leverage, which we highlighted at our recent Investor Day event.
Let me now turn to cash flow and capital deployment.
We expect our businesses to continue to drive strong free cash flows and returns on capital even as we continue reinvesting to support sustainable long-term growth.
This strong free cash flow generation provides the financial flexibility to execute a balanced capital allocation approach, including investing in our strategic growth pillars of oncology and biopharma services, while remaining committed to returning capital to shareholders through our growing dividend and share repurchases.
Our investment-grade credit rating remains a priority, and it underpins our financial flexibility.
For fiscal 2022, we continue to anticipate free cash flow of approximately $3.5 billion to $3.9 billion, which is net of property acquisitions and capitalized software expenses.
As a reminder, historically, we generate a larger portion of our cash flows in the fourth quarter of our fiscal year.
Our working capital metrics and resulting cash flows vary from quarter to quarter, impacted by timing, which could include the timing of planned European divestiture activity.
We also now anticipate diluted weighted shares outstanding to range from 154 million to 155 million for fiscal 2022.
This includes the impact of the anticipated $1.5 billion of fourth quarter share repurchases mentioned earlier.
As a result of our strong year-to-date performance and our outlook for the remainder of the fiscal year, we are raising and narrowing our previous adjusted earnings per share guidance range to $23.55 to $23.95, which is above our previous range of $22.35 to $22.95.
Our updated outlook for adjusted earnings per diluted share reflects 37% to 39% growth compared to the prior year.
Fiscal 2022 adjusted earnings per diluted share guidance also includes $2.99 to $3.59 of contribution attributable to the following items: $0.90 to $1.10 related to the U.S. government's COVID-19 vaccine distribution; $0.85 to $1.05 related to the kitting, storage and distribution of ancillary supplies; $0.75 to $0.95 related to COVID-19 tests; and the fiscal 2021 impairments for PPE and related products, which is an increase from the previous range of $0.50 to $0.75; and approximately $0.49 from gains and losses associated with McKesson Ventures' equity investments, which are within our corporate segment.
Excluding the impacts of these items from both fiscal 2022 guidance and fiscal 2021 results, this indicates 27% to 33% forecasted growth over the prior year.
When you pull it all together, our strong performance and our outlook equates to an adjusted earnings per diluted share guidance increase of $1.10 compared to our previous fiscal 2022 outlook provided at Investor Day.
The $1.10 adjusted earnings per diluted share increased includes the following: approximately $0.45 driven by strong underlying business performance and operating leverage, approximately $0.22 related to COVID-19 tests, approximately $0.22 related to held-for-sale accounting and reduced opioid litigation expenses, and approximately $0.20 related to MCI interest expense and lower weighted average shares outstanding.
Let me spend just a minute providing some initial thoughts on fiscal 2023.
I want to point out that we are not providing fiscal 2023 guidance at this time.
However, I thought it would be instructive to walk you through some of the items that could impact fiscal 2023 as we sit here today.
First, the COVID-19 pandemic continues to present many unknowns.
We continue to expect a full recovery.
However, it is likely to continue to be nonlinear into fiscal 2023, and it could impact the quarterly cadence.
In the U.S. Pharmaceutical and Medical-Surgical Solutions segments, our contracts with the U.S. government to serve as the centralized distributor of COVID-19 vaccines and to assist with the kitting, storage and distribution of ancillary supplies are scheduled to expire in July of 2022.
Outside of the contract with the U.S. government for COVID-19 vaccine distribution, we anticipate normal customer renewal activity in the U.S. Pharmaceutical segment.
As it relates to COVID-19 tests, we continue to anticipate that demand will be closely associated with the rate of COVID case levels, and impact from variants will moderate from prior year levels.
For the International segment, we anticipate $0.10 of adjusted earnings per diluted share accretion in the first half of fiscal 2023 related to the held-for-sale accounting based on the current estimated close date for the PHOENIX Group transaction.
We will no longer report revenue, adjusted operating profit or held-for-sale accounting benefits related to these transactions once the transactions close.
We anticipate that opioid litigation expenses will remain relatively in line with our fiscal 2022 guidance until we have a completed assessment of government entity participation in the proposed settlement and a final determination regarding that settlement.
We'll continue to update you on the outcome of that determination and remaining opioid litigation expenses.
We anticipate further investment to support the growth of our two key strategies of oncology and biopharma services.
Overall, we continue to see strength and stability in the underlying fundamentals of the business heading into fiscal 2023, and we remain optimistic about future growth opportunities.
We'll share more details with you about our fiscal 2023 outlook in our fourth quarter earnings call in May.
In closing, we are pleased with the results of our fiscal third quarter, and we have a strong financial outlook.
McKesson continues to deliver strong results as we successfully executed against our strategic and financial framework.
We continue to focus on the things that matter most to our customers, patients and shareholders as a diversified healthcare services company.
 Assistant:

Chosen response:
compname reports qtrly total revenues of $68.6 bln, up 10%.
qtrly total revenues of $68.6 billion increased 10%.
qtrly adjusted earnings per diluted share of $6.15.
increased fiscal 2022 adjusted earnings per diluted share guidance range to $23.55 to $23.95.


Prompt:
Human: At this time, all participants are in a listen-only mode.
Please note that this conference is being recorded and will be available for replay.
For information on how to access the replay, please visit our website at mdcholdings.com.
These and other factors that could impact the company's actual performance are set forth in the company's first quarter 2021 Form 10-Q, which is expected to be filed with the SEC today.
It should also be noted that SEC Regulation G requires that certain information accompany the use of non-GAAP financial measures.
MDC Holdings delivered another quarter of strong profitability in the first quarter of 2021 generating net income of $111 million or $1.51 per diluted share.
Our teams did an excellent job executing in their respective markets, leading to double-digit year-over-year increase in closings, orders and quarter-end backlog for our company.
We also expanded our home sales gross margins by 200 basis points and improved our SG&A leverage by 180 basis points.
These results are a testament to the favorable housing fundamentals that exist today as well as the strategic focus of our company, which targets the more affordable segment of the market and adheres to a build-to-order operational model.
We ended the quarter with 7,686 homes in backlog, a 65% increase over the first quarter of 2020.
On a dollar value basis, our backlog stood at $3.9 billion and represents the highest quarter end backlog value in our company's history.
This gives us great visibility into our closings for the remainder of the year and allows us to focus more on our efforts to maximize profitability with our existing sales efforts.
The demand for new homes during the quarter remained strong and continued to be broad-based in nature as we witness positive trends across the number of markets and price points.
Our unit orders increased 34% year-over-year, mainly due to the acceleration in orders per community, which averaged 5.6 per month in the quarter.
This figure could have been even higher were not for our efforts to balance orders and pricing to best manage our backlog.
We continue to see particular strength at our more affordably priced communities as homebuyers from all demographic segments look for alternatives to the lack of availability in the high cost of existing homes in most markets.
This has been a focus for ours for the last several years and the response has been incredible.
Today's homebuyers are looking to get more out of their homes than ever before.
They want something that is tailored to suit their needs, whether it be a home office, a place to exercise or an entertainment venue.
Our home offerings are intended to cater to the desire for personalization and our home galleries provide even more options for our buyers.
We believe this approach leads to a higher customer satisfaction and better results for our company over time.
Another benefit to our build-to-order model is that it's more consistent and stable to run the business.
Building out speculative inventory can be lucrative during periods of heightened demand, but it can also be a result in a glut of completed homes and a lack of pricing power when the market turns.
We feel a more prudent strategy is to start the build process once the contract is in hand.
This is part of our ongoing strategy to be a builder that operates through housing cycles rather than is consistently chasing market then.
Another way in which we operate in housing cycles is by maintaining a strong balance sheet.
Our total availability liquidity at the end of the first quarter was over $1.9 billion, with cash and cash equivalents representing over $750 million of that figure.
Our debt-to-capital ratio was 38.6% and our net debt-to-capital ratio was 22.3%.
Recently, S&P, a global rating, recognized this financial strength as well as our consistent operational performance by upgrading our credit rating to investment-grade.
Having access to low cost capital is a key ingredient for success in our industry.
And the fact that we are one of the few builders with an investment-grade rating is a competitive advantage.
Our strong balance sheet also gives us the ability to pay out an industry-leading quarterly dividend of $0.40 per share, which is up 31% from the first quarter of last year.
Returning capital to shareholders via dividends has been a hallmark for our company for years now and we believe it is a great way to attract and reward long-term shareholders.
We ended the first quarter with the largest backlog on a dollar value basis in our company's history, giving us great visibility into the remainder of the year and supporting our decision to make significant investments in land that will serve as a foundation for the growth in the coming years.
We delivered another quarter of strong profitability generating net income of $111 million or $1.51 per diluted share.
This represented a 201% increase from the first quarter of 2020.
Home sale revenues grew 49% year-over-year to over $1 billion, while homebuilding operating margin improved by 380 basis points from the prior-year quarter.
The growth in home sale revenues and margin expansion resulted in a 129% increase in pre-tax income from our homebuilding operations to $113.5 million.
In addition, our financial services pre-tax income increased to $30.8 million compared to a loss of $1.1 million in the first quarter of 2020.
The increase was driven by our mortgage business, which continues to benefit from the increased volume generated by our homebuilding operations.
Our mortgage business further benefited from a year-over-year improvement in capture rate and profit margin on loans originated.
Additionally, our financial services pre-tax income in the first quarter of 2020 was negatively impacted by $13.9 million of unrealized losses on equity securities, whereas no such loss was incurred in the first quarter of 2021.
Our tax rate decreased from 24.3% to 23.3% for the 2021 first quarter.
The decrease in rate was primarily due to an increase in the estimated amount of energy tax credits to be recognized during the year.
For the remainder of the year, we currently estimate an effective tax rate of 24%, excluding any discrete items and not accounting for any potential changes in tax rates or policy.
Homes delivered increased 41% year-over-year to 2,178, driven by an increase in the number of homes we had in backlog to start the quarter.
This was slightly below our previously estimated range of 2,200 to 2,400 closings.
From a construction standpoint, we completed enough homes to reach the top end of our range.
However, with cycle times extending by about two weeks from the fourth quarter, we had an unusually high volume of closings for the final week of March that caused a delay in the timing of certain pre-closing activities.
As a result, we moved some of our expected first quarter closings into the month of April.
In spite of these minor delays, we remain confident in reaching our full-year target range for closings of between 10,000 and 11,000 units.
For the second quarter, we are anticipating home deliveries to reach between 2,500 and 2,700 units.
We continue to see lower backlog conversions year-over-year as a result of considerable year-over-year increases in net orders and, to a lesser extent, increased cycle times.
We believe that cycle times could increase further due to longer lead times for various building products and high demand for labor required to build homes.
The average selling price of homes delivered during the quarter increased 6% to about $478,000.
This increase was the result of price increases implemented across the majority of our communities over the past 12 months as well as a shift in the mix of homes closed from Arizona and Florida to Southern California and the Mid-Atlantic.
We expect the average selling price for our 2021 second quarter unit deliveries to approximate $500,000.
Gross margin from home sales improved by 200 basis points year-over-year to 21.9%.
We experienced improved gross margin from home sales across each of our segments on build-to-order and spec home deliveries, driven by price increases implemented across nearly all of our communities over the past 12 months.
Gross margin from home sales also benefited from a 40-basis-point improvement in our capitalized interest in cost of sales as a percentage of the home sale revenues, which is a great example of how our business continues to benefit from increasing scale.
We continue to closely monitor building costs, which have increased as a result of the pandemic.
However, we have been successful to this point in offsetting most of these increased costs through home price increases.
Gross margin from home sales for the 2021 second quarter is expected to be approximately 22.5%, assuming no impairments or warranty adjustments.
We continued to benefit from improved operating leverage during the first quarter as our SG&A expense as a percentage of home sale revenues decreased 180 basis points year-over-year to 11%.
General and administrative expenses increased $12.1 million due to increases in compensation-related expenses, including higher average headcount during the quarter.
For each of the remaining quarters of 2021, we currently estimate that our general and administrative expense to be at or above the $57 million we just recognized during the first quarter.
Marketing expenses increased $4.3 million due to variable marketing costs such as deferred selling amortization and master marketing fees as well as increased online advertising costs.
Our commission expenses as a percentage of home sale revenues decreased 20 basis points as we have taken steps to control these costs during this period of strong demand for new housing.
As previously mentioned, our homebuilding operating margin, defined as gross margin from home sales, minus our SG&A rate, grew by 380 basis points year-over-year to 10.9%.
On the strength of this improvement, as well as the success of our mortgage operations, our last 12 months pre-tax return on equity increased by more than 1,000 basis points year-over-year to 27.6%.
Let's look at our net new home order information for the quarter on Slide 9.
The dollar value of our net orders increased 50% year-over-year to $1.64 billion and unit net orders increased by 34%, driven by a 30% increase in our monthly absorption rate to 5.6.
As David mentioned, demand continued to be broad based in nature with particular strength at our more affordably priced communities.
Also, as previously noted, our net new home orders for the first quarter could have been even higher were it not for our efforts to balance orders and pricing to best manage our backlog.
The average selling price of our net orders increased by 12% year-over-year, driven by price increases implemented over the past 12 months as well as decreased sales incentives.
We ended the quarter with 186 active subdivisions and expect this number to remain relatively consistent throughout the second quarter before seeing growth in our active subdivision count during the second half of the year.
The average selling price of homes in backlog increased 9% due to price increases implemented over the past 12 months, decreased incentives and a shift in mix to California.
These factors were slightly offset by a shift in mix to lower-priced communities, consistent with our ongoing strategy of offering more affordable home plans.
I will turn now to land activity on Slide 11.
We approved 4,347 lots for acquisition during the quarter, a 108% increase from the prior-year, reflecting our confidence in market conditions and our focus on continued growth.
We acquired 3,231 lots during the quarter across 60 subdivisions, which is a 90% increase from the prior year.
This included the acquisition of our first lots within our newly formed division in the Boise market.
Land acquisition and development spend for the quarter totaled $358.7 million.
As a result of our recent land acquisition and lot approval activity, our total lot supply to end the quarter exceeded 32,000 lots, representing an 18% increase from the prior-year.
We believe that this lot supply, combined with continued lot approval and acquisition activity, provides us with a solid platform to meet our growth targets.
In summary, we are pleased with our start to 2021 and believe that housing backdrop remains favorable as we look forward to the rest of the year.
We are mindful that there are many risks to achieving our goals for 2021.
With that said, we are confident that our talented employees across the country will continue to be successful in mitigating these risks as we work to execute our strategic plan.
With respect to the pandemic, we are encouraged by the increase in vaccinations occurring in the United States and other parts of the world.
However, we are keenly aware that much uncertainty remains.
As such, we remain firmly committed to ongoing safety protocols that keep our customers, subcontractors and employees safe.
 Assistant:

Chosen response:
q1 earnings per share $1.51.
qtrly home sale revenues grew 49% year-over-year on a 41% increase in closings and 6% rise in average selling prices.
qtrly home sale revenues increased 49% to $1.04 billion from $697.1 million.
sees home deliveries for 2021 q2 between 2,500 and 2,700.
sees average selling price for 2021 q2 unit deliveries of approximately $500,000.
sees full year 2021 home deliveries between 10,000 and 11,000.


Prompt:
Human: [Operator Instructions] For information on how to access the replay, please visit our website at mdcholdings.com.
These and other factors that could impact the company's actual performance are set forth in the company's second quarter 2020 Form 10-Q, which is expected to be filed with the SEC today.
It should also be noted that SEC Regulation G requires that certain information accompany the use of non-GAAP financial measures.
The combination of low interest rates, constrained existing home supply and a heightened interest in single-family home ownership has resulted in a very favorable environment for our industry.
Following a steep decline, marked by slower traffic and increased cancellations at the outset of the pandemic, we began to see order activity return to pre-COVID levels in May.
This momentum continued into June, with net orders eclipsing last year's June totals by 53%.
For the quarter, net orders were up 5%, given the uncertainties and sales obstacles we faced at the end of the first quarter.
The strong demand trends we experienced in the quarter were broad based, both from a buyer segment and a geographic standpoint.
The strongest part of the market continues to be at the more affordable price points, which has been a strategic focus of ours for some time now.
We're seeing an increased number of millennials who are entering their prime home-buying years, and this trend has only been accelerated by the pandemic.
The new home industry is also benefiting from market share gains versus the existing home market, as the combination of low existing supply and the increased preference for new construction has served as tailwinds.
Another driver of our order success has been our continued focus on a build-to-order model.
Even with a heightened sense of urgency to own a home, many homebuyers continue to prefer the flexibility of personalization that comes in a home built with their preferred finishes and selections.
We believe this is especially true for our core buyer demographic, who are looking not only for value but also a home that fits their needs.
The benefits of this strategy for MDC are that it allows for higher-margin revenues from our home galleries, reduced volatility in our results and proves a competitive advantage relative to spec-focused builders.
Our build-to-order operating model is also limits the need to use price discounts or heavy incentives.
In fact, in most markets, we have been actively raising prices and scaling back incentives due to the strong demand we've experienced.
Our homebuilding gross margin in the quarter increased to 20%, reflecting this pricing discipline.
In addition to maintaining price discipline, with respect to our homes, we also exercised cost discipline across our organization during the quarter, leading to a 90 basis points year-over-year improvement in our SG&A ratio.
This improvement can be attributed to the higher revenue we generated in the quarter, as well as certain cost reduction measures taken during this period of uncertainty.
In summary, I'm very pleased with our results this quarter, particularly in light of all that has transpired over the last four months.
Order activity improved as the quarter progressed, and we posted significant increases to both revenues and profits relative to last year.
Given these favorable market conditions, we are now targeting 8,000 home deliveries for the 2020 full year.
In addition, we ended the current quarter in great financial shape, giving us the financial flexibility to continue to invest in our business and pay the industry-leading dividend.
The current pandemic has far-reaching impact on how we live and work.
And I could not be more impressed on how our team members have adopted to and excelled in this new environment.
I am truly appreciative of all of their efforts.
Now I'd like to turn over to Bob Martin for more detail on the results of this quarter.
As you can tell from Larry's comments, we were pleased with our performance during the second quarter as the initial shock of the pandemic in March and April gave way to a renewed consumer interest in homeownership in May and June.
The combination of our diverse selection of affordable homes, combined with our increasingly distinct build-to-order business model, has proven to resonate with homebuyers.
Before getting into more detail on current market conditions and order trends experienced during the quarter, I would like to provide some commentary on what was ultimately a very resilient second quarter.
Net income increased 55% to $84.4 million or $1.31 per diluted share for the second quarter of 2020.
Both our homebuilding and financial services businesses contributed to these year-over-year improvements as pre-tax income from our homebuilding operations increased $23.3 million or 38%, and our financial services pre-tax income increased $14 million or 110%.
The increase in homebuilding pre-tax income was the result of a 21% increase in home sale revenues and a 160 basis point improvement to our homebuilding operating margins.
The increase in financial services pre-tax income was due to our mortgage business, which experienced higher interest rate lock volume, an increased capture rate and increased net interest income on loans originated during the quarter.
Our tax rate decreased from 26.6% to 24.4% for the 2020 second quarter.
The decrease in rate was primarily the result of a windfall benefit on equity awards as well as energy tax credits related to homes closed during the quarter.
For the third and fourth quarters, we currently estimate a 25% tax rate, excluding any discrete items.
Homes delivered increased 25% year-over-year to 1,900, driven by an increase in the number of homes we had in backlog to start the quarter.
The increase was slightly offset by a decrease in our backlog conversion rates due to construction delays in certain markets as a result of the pandemic.
The increase in units delivered was slightly offset by a 4% decrease in our average selling price to about $467,000.
This decrease was in line with our strategic focus on affordability as a percentage of our deliveries for more affordable product collections rose to 54% for the second quarter of 2020 versus 44% for the same period a year ago.
We are anticipating home deliveries for the third quarter of 2020 to be between 1,902 and 2,100.
Backlog conversion for the third quarter may be slightly lower than the third quarter of 2019 as a result of the significant increase in June orders compared to the prior year, which we are unlikely to deliver in the third quarter.
For the full year, we are estimating to deliver between 7,700 and 8,000 homes.
As previously mentioned, our gross margin from home sales improved by 70 basis points year-over-year to 20.2%.
Gross margins increased on both build-to-order and speculative home deliveries, driven by price increases implemented across the majority of our communities over the past 12 months.
It should be noted that during the second quarter of both 2020 and 2019, we recorded decreases to our warranty accrual, which positively impacted gross margins by 20 basis points in each period.
Gross margin from home sales for the 2020 third quarter is expected to again approximate 20%, excluding impairments and warranty adjustments, consistent with the 2020 second quarter.
We demonstrated solid operating leverage for the quarter as our SG&A expense as a percentage of home sale revenues decreased 90 basis points year-over-year to 10.4%.
Our total dollar SG&A expense for the 2020 second quarter was up $9.6 million year-over-year, mostly due to variable selling and marketing expenses that increased in line with the 21% increase in home sale revenues during the period.
Our general and administrative expense was up only modestly for the second quarter as increases in stock-based compensation and bonus expense, driven by strong operating results during the quarter, were partially offset by cost reduction measures implemented at the outset of the pandemic.
For the third and fourth quarter of 2020, we may see a significant increase to our general and administrative expense relative to the $40.4 million expense we just recognized in the second quarter.
This would be, in large part, related to an increase in stock-based compensation expense for performance share units, if market conditions and our performance remain strong.
We saw this type of increase in 2019 from the second to the third quarter based upon a significant acceleration in net order activity.
We may also see salaries and other compensation-related expenses rise based on additional headcount that may be necessary to facilitate growth.
The dollar value of our net orders increased 8% year-over-year to $1 billion.
Unit net orders increased by 5%, driven by a 2% increase in our monthly absorption rate to 4.2%, and a 2% year-over-year increase in average active subdivisions.
The average selling price of our net orders increased by 3% year-over-year, driven by price increases implemented over the past 12 months as well as a shift in mix to California, which has our highest average price.
On the next slide, we've provided some detailed information on the monthly pace of sales and cancellations during the second quarter.
As Larry noted earlier, we experienced a sharp rebound in order activity during the latter part of the second quarter, culminating with June net new home orders increasing 53% year-over-year.
We also saw the rate of cancellations decrease as the quarter progressed.
Some of the improvement is likely the result of pent-up demand after stay-at-home orders kept many buyers away from our communities.
However, other favorable demand drivers, such as low interest rates and constrained existing home supply, have played an equally important role.
We believe that these factors, combined with the recent migration away from expensive high-density urban areas, will continue to provide a tailwind for demand as we head into the second half of the year.
To that end, our third quarter sales have already started strong.
Based on the activity we've seen to date, we expect our July 2020 net orders to exceed our July 2019 orders by at least 50%.
We ended the quarter with an estimated sales value for our homes in backlog of $2.4 billion, which was up 23% year-over-year.
The average selling price of homes in backlog increased 3% due to price increases implemented over the past 12 months, decreased incentives and a shift in mix to California.
These factors were slightly offset by a shift in mix to lower-priced communities, consistent with our ongoing strategy of offering more affordable home plans.
With the uncertainty created by COVID-19, especially during the first half of the quarter, we approved only 1,244 lots for purchase during the second quarter of 2020.
This was a significant drop from each of the past four quarters.
However, even with the drop in lot approvals, our lot supply to end the quarter was 6% higher than at the same point in 2019.
Additionally, given the strong demand that we have seen in recent months, we have significantly accelerated our lot approval activity to start the third quarter.
We recognize that there are many uncertainties with regard to the pandemic and its ultimate impact on the U.S. economy, which have the potential to cause future disruption to our industry.
However, we believe that our strong balance sheet is built to counter such disruptions, if they do occur.
That said, we believe that MDC is well positioned for strong results in the second half of 2020, given an improved backlog, favorable industry trends and a strong strategic positioning.
Our build-to-order business model will remain a key fixture for our value proposition, providing a competitive advantage with homebuyers looking for a quality home, personalized to their unique preferences.
Most importantly, we remain committed to the safety of our employees, customers and subcontractors as we work to provide much-needed housing supply to families in the markets we serve.
 Assistant:

Chosen response:
compname announces q2 earnings per share $1.31.
q2 earnings per share $1.31.
qtrly home sale revenues increased 21% to $886.8 million.
qtrly average selling price of deliveries down 4% to $466,700.
qtrly dollar value of net new orders increased 8% to $1.04 billion.
sees home deliveries for 2020 q3 between 1,900 and 2,100.
sees full year 2020 home deliveries between 7,700 and 8,000.
qtrly dollar value of ending backlog up 23% to $2.37 billion.


Prompt:
Human: I'm Ryan Weispfenning, Vice President and Head of Medtronic Investor Relations.
Joining me are Geoff Martha, Medtronic's, Chairman and Chief Executive Officer; and Karen Parkhill, Medtronic's Chief Financial Officer.
Geoff and Karen will provide comments on the results of our second quarter, which ended on October 29th, 2021, and our outlook for the remainder of the fiscal year.
Today's event should last about an hour.
Unless we say otherwise, all comparisons are on a year-over-year basis and revenue comparisons are made on an organic basis.
Second quarter organic revenue comparisons adjust only for foreign currency, as there were no acquisitions or divestitures made in the last four quarters that had a significant impact on total Company or individual segment quarterly revenue growth.
References to sequential revenue changes compared to the first quarter of fiscal '22 and are made on an as reported basis.
And all references to share gains or losses refer to revenue share in the third calendar quarter of 2021 compared to the third calendar quarter of 2020 unless otherwise stated.
And finally, our earnings per share guidance does not include any charges or gains that would be reported as non-GAAP adjustments to earnings during the fiscal year.
With that, let's head into the studio and get started.
Obviously, our end markets were impacted by the COVID-19 resurgence and the healthcare system staffing shortages, particularly in the US, which affected our quarterly revenue growth.
Procedure volumes were lighter than expected in markets, where our technology is used in more deferrable procedures like our spine business or those that require ICU bed capacity like TAVR.
Yet in markets, where procedures are less deferrable like pacing, we experienced stronger growth.
While the US market was a headwind, many of our international markets were much stronger.
We delivered 6% revenue growth outside the US, including mid teens growth in emerging markets.
And our emerging market growth is up 9% versus pre-pandemic levels in Q2 fiscal '20.
In the midst of these market headwinds, we focused on managing what was in our control and executed to advance our pipeline, launched new products and win share.
And when you look at our sequential revenue performance, our 2% decline was slightly better than most of our large cap medtech competitors.
While the pace of the recovery from pandemic headwinds is hard to predict, our markets will recover, and as that happens, Medtronic is one of the best-positioned companies in healthcare.
The underlying health of our business is strong,and it's getting stronger.
We have an expansive pipeline of leading technology, a robust balance sheet and an expanding roster of proven top talent.
Coupled with our revitalized operating model and new competitive mindset, we remain poised to accelerate and sustain growth.
As I've done in prior quarters, let's start with a look at our market share performance.
Year-over-year market share is an important metric that our teams are evaluated against in their annual incentive plans, along with revenue growth, profit and free cash flow.
And right now, the majority of our businesses are winning share, driven by our innovation and increased competitiveness.
And this is exactly the sort of market share performance that gives us confidence in the deep strength of our businesses.
And to avoid any confusion about how we're performing when we talk about our share dynamics, we'll refer to revenue share in the third calendar quarter to keep it directly comparable to our competition.
Share momentum in our three largest businesses continued.
In the Cardiac Rhythm Management business, we extended category leadership, adding over a point of share year-over-year, driven by our differentiated Micra family of pacemakers, Cobalt and Crome high power devices and our TYRX antibacterial envelopes.
In surgical innovations, we outperform competition with strong performances in endo stapling and sutures, and our Signia powered stapling system, and Tri-Staple technology continues to see great market adoption.
In Cranial & Spinal Technologies, we're winning share and launching new spine implants that enhance the overall value of our ecosystem of preoperative planning software, imaging, navigation and robotic systems, and powered surgical instruments, which is transforming care in spine surgery.
Our new implants also go directly at the competition.
Starting this past quarter with our Catalyft expandable interbodies to specifically attract Globus users.
In addition to our three largest, a broad array of our other businesses have increased their competitiveness, are launching new products and winning share in their end markets.
So for example in patient monitoring, we're winning share with our Nellcor pulse oximetry sensors and our monitors.
In respiratory interventions, we picked up four points of share in premium ventilation, due to our ability to respond quickly to spikes in demand from COVID resurgence.
And in neuromodulation, we won share across our product lines, including pain stim and DBS, as we continue to launch new products.
In pain stim despite the sequential slowdown in the market, we're gaining share with our Intellis with DTM technology and our Vanta recharge-free system.
In DBS, we had a very strong quarter, winning over six points of share.
We're executing on the launch of our Percept neurostimulator with brain sense technology paired with our SenSight Directional Lead, and we continue to be the only company with sensing capabilities.
Since launching SenSight in the US earlier this fiscal year, we surged ahead of the competition in new implant share.
Sensing has redefined what it takes to compete in DBS.
Our competitors don't have it, and as a result, we're expecting a long runway of share gains, as we build upon our category leadership.
Now, while the majority of our businesses are winning share, we do have a few businesses that are flat or losing share, and we're focusing our efforts and our investments to grow above the market.
In cardiac diagnostics, we're focused on improving supply to reverse share declines, and we're investing in new indications and novel AI detection algorithms to expand the market and drive growth.
In cardiac ablation solutions, we expect to win share, as we expand the rollout of our DiamondTemp RF Ablation System and drive awareness and adoption of our Arctic Front Advance Pro cryoablation, as a first line treatment for paroxysmal AF.
In diabetes, while we lost share again this quarter, we remain pleased with the momentum we're building outside the US, not only with the 780G insulin pumps, but also with the positive customers' feedback we've heard on our extended infusion set and fingerstick free Guardian Sensor 4.
And we expect our US results to turnaround, as we launch these new products.
Next, let's turn to our product pipeline.
I've already talked about the impact, our strong flow of new products is having in the market.
We've launched over 180 products in the US, Western Europe, Japan, and China in the last 12 months.
At the same time, we continue to advance new technologies that are in development.
We're heavily investing in this pipeline with a targeted R&D spend of over $2.7 billion this fiscal year, which is an increase of over 10%, the largest dollar increase in our history.
We're expecting these investments to create new markets, disrupt existing ones and accelerate the growth profile of Medtronic.
Let's start with our Symplicity Renal Denervation procedure for hypertension.
While we weren't able to end our ON MED study early, we remain confident in our program, in our ability to serve the millions of patients, who make up this multi-billion dollar opportunity.
As a reminder, our previous three sham-controlled simplicity studies, all reached statistical significance, including the pivotal OFF MED study.
And the ON MED study remains powered to detect a statistically significant and clinically relevant benefit at the final analysis.
We expect that ON MED follow-up will complete in the second half of next calendar year, and then, we'll submit the PMA to the US FDA for approval.
When we think about renal denervation, let's start with the patients, who have indicated that they want options like the simplicity blood pressure-lowering procedure to treat their hypertension, as confirmed by our patient preference study presented earlier this month at TCT.
We believe demand will be high and we continue to expect this to be a massive opportunity that we will lead.
Another opportunity for Medtronic is surgical robotics, where we are entering the soft tissue robotics market, as a second meaningful player.
We achieved a major milestone when we received CE Mark for Hugo last month, and we also completed our first procedures with Hugo in our Asia-Pacific region at Apollo Hospitals in India.
The first surgeons to use Hugo in the clinical setting have told us they believe Hugo addresses the cost and utilization barriers that have held back the growth of robotic surgery.
Look, demand is high, and we're building a long list of hospitals that want to join our partners and possibility program and be among the first in the world to use Hugo and participate in our global registry, which will collect clinical data to support regulatory submissions around the world.
Our robotic program is making progress toward a broader launch, and we remain well-positioned in this critical field relative to every other potential new entrant.
As we prepare for this broader launch, we're working hard to ensure an outstanding customer experience.
We're also focused on optimizing our supply chain, manufacturing and logistics to prepare for scaling this business.
We're making steady progress on these activities, but not at the pace that we had originally planned.
And as a result sales this fiscal year are likely to come in below our $50 million to $100 million target.
Now, that said, we still expect double digit millions in sales this fiscal year, and we continue to expect a strong ramp in FY '23.
We're off schedule, but we're not off track.
And while we're disappointed in the revenue push out for this important program, we're confident that we have line of sight to the solutions we need to be successful and to optimize the customer experience.
Demand remains high, surgeons continue to do cases, our order pipeline continues to build, and we're looking forward to starting our US IDE soon.
We remain confident in the success of this program, and we believe that we're poised to meaningfully expand the soft tissue robotic market and drive growth for years to come.
In Cardiac Rhythm, we just launched our Micra AV leadless pacemaker in Japan earlier this month.
We also completed the US pivotal study enrollment for our EV ICD, which follows our CE Mark submission in Q1.
Just as we disrupted the pacing market with Micra, we intend to do the same in the implantable defibrillator space with our EV ICD.
Our device can both pace and shock without any leads inside the heart and veins, and it does this in a single device that is the same size, as a traditional ICD.
In structural heart, we're starting the limited US launch of our next-gen TAVR system, the Evolut FX this month with a full market launch planned for fiscal Q4.
Evolut FX enhances ease of use with improvements and deliverability, implant visibility and deployment stability.
We're also making progress on our transcatheter mitral program.
At TCT earlier this month, we presented very encouraging early data of our transfemoral delivery system for our intrepid mitral valve, and we will be rolling that system into our APOLLO pivotal trial.
In diabetes, our MiniMed 780G insulin pump combined with our Guardian 4 sensor continue to be under active review with the FDA.
When approved and launched in the US, we expect the 780G system to drive growth, as it will be highly differentiated and further address the burden of daily diabetes management.
And for the first time ever, is helping hard to manage pediatric and adolescent patients achieve outcomes mirroring well-controlled adults.
The user experience has also improved markedly, and these outstanding results were achieved with our 780G paired with our Guardian 3 sensor.
So we expect the experience will be even stronger with Guardian 4.
And the value of our offering will be further enhanced when we bring our Synergy sensor, which is now called Simplera [Phonetic] to market.
It's easier to apply and half the size of Guardian 4, and we expect to submit it to FDA later this fiscal year.
In pelvic health, we're awaiting FDA approval for our next-gen InterStim recharge-free device, which we expect in the first half of next calendar year.
With its best-in-class battery, constant current, and full-body MRI compatibility at both 1.5 and 3 Tesla, we expect this device will extend our category leadership in this space.
In neuromodulation, we recently submitted our ECAPs closed-loop spinal cord stimulator to the FDA.
We're calling this device Inceptiv SCS, and we expect it to revolutionize SCS with closed-loop therapy to optimize pain relief for patients.
We also continue to make progress on expanding indications for SCS into non-surgical refractory back pain, painful diabetic neuropathy and upper limb and neck chronic pain.
Finally in DBS, we continue to enroll patients in our ADAPT-PD trial studying our closed-loop adaptive DBS therapy in patients with Parkinson's.
We're expecting enrollment in the trial to complete later this fiscal year.
Medtronic is advancing a pipeline of meaningful innovation that we believe will not only enhance our competitiveness, but will accelerate our total Company growth going forward.
Our second quarter organic revenue increased 2%, reflecting the market impact of COVID and health system staffing shortages on procedure volumes, primarily in the United States.
Despite the softer end markets, our team executed to deliver strong margin improvement and earnings growth.
In fact, our adjusted earnings per share increased 29% significant growth, reflecting the pandemic impact last year, and our adjusted earnings per share was $0.03 better than consensus with $0.02 from stronger operating profit and a penny [Phonetic] from a lower than expected tax rate.
Our second quarter revenue growth came in lower than we were expecting back in August.
We did see improving trends in our average daily sales each month of the quarter, as COVID hospitalizations declined.
That said, the bounce back in the US wasn't as fast as we had expected or had seen in prior waves.
We've recognized many of our customers are dealing with staffing shortages on top of increased COVID patients, and we believe that had an increasing effect on procedure volume.
Looking down our P&L, we had strong year-over-year improvement in our margins, 360 basis points on gross margin, as we continue to recover from the significant impacts from COVID last year and 470 basis points on operating margin, given savings from our simplification program tied to our operating model.
Converting our earnings into strong free cash flow continues to be a priority.
Our year-to-date free cash flow was $2.4 billion, up 58% from last year, and we continue to target a full year conversion of 80% or greater.
Turning to capital allocation, we continue to allocate significant capital to organic R&D, and we continue to seek attractive tuck-in acquisitions to enhance our businesses.
For example, Intersect ENT, we announced our intent to acquire back in August.
Intersect's assets complement our own and are accretive to our WAMGR, plus, we believe we can accelerate their growth around the globe.
We're also returning capital back to our shareholders with a commitment to return greater than 50% of our free cash flow, primarily through our dividend.
Year-to-date, we paid $1.7 billion in dividends.
And as a dividend aristocrat, our attractive and growing dividend is an important component of our total shareholder return.
Looking ahead, although, the environment remains fluid, we are seeing some improvement in procedures and our average daily sales in the first few weeks of November.
So we're encouraged that the negative impact of the pandemic and healthcare system staffing shortages on our markets could be moderating.
And while our operations team has done a terrific job managing our supply chain to-date like other companies, we are dealing with an elevated risk of raw material supply shortages.
As a result of these potential headwinds and given we're only mid way through our fiscal year, we believe it is prudent to update our fiscal '22 organic revenue growth guidance to 7% to 8% from the prior 9%.
If recent exchange rates hold, foreign currency would have a positive impact on full year revenue of $0 million to $50 million, down from the prior $100 million to $200 million I gave last quarter.
By segment, we expect Neurosciences to now grow 9% to 10%, Cardiovascular and Medical Surgical to grow 7.5% to 8.5%, and Diabetes to be down low single digits, all on an organic basis.
Despite the headwinds, we face on revenue, we will manage well what we can control, which includes expenses not directly tied to our future growth.
We will continue to invest heavily in R&D and market development.
And on the bottom line, we reiterate our non-GAAP diluted earnings per share guidance range of $5.65 to $5.75.
This continues to include a currency benefit of $0.05 to $0.10 at recent rates.
For the third quarter, we're expecting organic revenue growth of 3% to 4% year-over-year.
This assumes no real pickup in organic comp adjusted growth versus pre-pandemic levels from what we saw in the second quarter despite the improving trends we saw in September and October.
While we are encouraged by those trends and by what we're seeing in November, we wanted to err on the side of caution with near term guidance given the dynamic macro environment.
At recent rates, we're expecting a currency headwind on third quarter revenue of $80 million to $120 million.
By segment, we expect Cardiovascular to grow 5% to 6%, Neuroscience 4% to 5%, Medical Surgical 2% to 3%, and Diabetes to be down mid single digits, all on an organic basis.
We expect earnings per share between $1.37 and $1.39, with a currency tailwind of $0.02 to $0.04 at recent rates.
While we expect our markets will continue to be affected by the pandemic in the back half of our fiscal year, we remain focused on delivering solid revenue growth, strong earnings growth, and investing in our pipeline to fuel our future.
We also remain confident about the underlying strength and competitiveness of our business and our ability to accelerate revenue growth ahead.
I also want to recognize a new member of our team, who many of you know.
We couldn't be more excited to have Bob Hopkins, the top rated medtech analyst over the past three years join our team, as Head of Strategy.
And we look forward to a strong contribution and influence in the years ahead.
Back to you, Geoff.
And yes, it is great to have Bob here at Medtronic.
For the last few quarters, I've been closing by commenting on the progress the Company is making in various areas of ESG, our environmental social and governance impacts.
Part of the S in ESG is our focus on inclusion, diversity and equity and high employee engagement, which I discussed last quarter, and this makes Medtronic, an attractive destination for top talent.
In the release we issued last week, you read about how Bob Hopkins and other highly sought-after world-class leaders chose to join Medtronic and drive our transformation to become the undisputed global leader in healthcare technology.
It's very important for our culture that we're bringing in new ideas and diverse perspectives to add to those of our talented leadership and employees across the Company.
On the E front of ESG, as you know, we set an aggressive goal last year to be carbon-neutral in our operations by the end of the decade.
And two weeks ago, we upped our game announcing our ambition to achieve net-zero carbon emissions by FY '45 across our value chain.
This ambition outlined in our FY '45 decarbonization roadmap will focus on operational carbon neutrality, supply chain greenhouse gas emissions reductions and ongoing logistics improvements.
To support our progress, as well as progress across our entire industry, we joined the International Leadership Committee for a net-zero NHS in the UK, and we're taking a leadership role with the US National Academy of Medicine action collaborative to decarbonize the US healthcare sector.
Our ESG efforts are gaining recognition, as last week, Medtronic was elevated from being a constituent of the Dow Jones Sustainability North America Index to joining a select group of companies in the Dow Jones Sustainability World Index.
Look, we are really proud of this achievement.
In addition, I hope, many of you were able to watch our inaugural ESG Investor Briefing last month, and if you haven't, I encourage that you watch the replay on our Investor Relations website.
Now, let me close on this note, the lingering effects of the pandemic combined with healthcare system staffing shortages impacted our Q2 revenue more than we originally anticipated.
We have both puts and takes on the timing of our pipeline and the supply chain dynamics pose near term challenges, but our challenges will be manageable.
Our pipeline is delivering, and we're poised to deliver more innovation over the coming quarters and the next several years.
We have to show you that we can deliver, but robotics is coming, RDN is coming, closed-loop SCS is coming and our diabetes turnaround is coming and Evolut FX and mitral and EV ICD, and the pending acquisition of Intersect ENT, these are all coming.
We're ready to execute and capitalize on these opportunities.
We're in good markets, and we're focused on innovating, winning share and maintaining and/or achieving true category leadership across our businesses.
I know we have more to prove, but I'm confident that our organization, our talented and dedicated 90,000 plus global employees are up for the challenge.
We're focused, we're hungry and ultimately we're going to deliver on these opportunities to accelerate our growth.
And as always, we remain deeply committed to creating value for you, our shareholders.
And with that, let's now move to Q&A.
Now, we're going to try to get as many analysts as possible, so we ask that you limit yourself to just one question.
And if you have additional questions, you can reach out to Ryan and the Investor Relations team after the call.
With that, Wynne, [Phonetic], can you please give the instructions for asking a question.
 Assistant:

Chosen response:
reaffirms fy non-gaap earnings per share view $5.65 to $5.75 including items.
market procedure volumes impacted by covid-19 resurgence.
q2 revenue results reflect unfavorable market impact of covid-19 and health system labor shortages on medical device procedure volumes.
qtrly revenue of $7.8 billion increased 3% reported.
qtrly cardiovascular revenue of $2.827 billion increased 4% as reported and 3% organic.
expect markets to continue to be affected by pandemic in second half of our fiscal year.
excluding impact of ventilator sales declines, qtrly medical surgical revenue increased 6% organic.
qtrly neuroscience revenue of $2.136 billion increased 4% as reported and 3% organic.