Yahoo Finance Boston Scientific Corporation (NYSE:BSX) Q1 2024 Earnings Call Transcript
Boston Scientific Corporation (NYSE:BSX) Q1 2024 Earnings Call Transcript April 24, 2024
Boston Scientific Corporation isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to the Boston Scientific First Quarter 2024 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jon Monson, Senior Vice President, Investor Relations. Please go ahead.
Jon Monson: Thank you, Drew, and welcome, everyone, and thanks for joining us today. With me on today's call are Mike Mahoney, Chairman and Chief Executive Officer, and Dan Brennan, Executive Vice President and Chief Financial Officer. We issued a press release earlier this morning announcing our Q1 results, which included reconciliations of the non-GAAP measures used in the release. We have posted a link to that release as well as reconciliations of the non-GAAP measures used in today's call to the Investor Relations section of our website under the heading Financials and Filings. The duration of this morning's call will be approximately one hour. Mike and Dan will provide comments on Q1 performance as well as the outlook for our business, including Q2 and full year 2024 guidance, and then we'll take your questions.
During today's Q&A session, Mike and Dan will be joined by our Chief Medical Officer, Dr. Ken Stein. Before we begin, I'd like to remind everyone that on the call, operational revenue growth excludes the impact of foreign currency fluctuations, and organic revenue growth further excludes acquisitions and divestitures for which there are less than a full period of comparable net sales. Relevant acquisitions and divestitures excluded for organic growth are the majority stake investment in Acotec Scientific Holdings Limited and the acquisitions of Apollo Endosurgery and Relievant Medsystems, which closed in February, April and November 2023, respectively, as well as our acquisition of the Endoluminal Vacuum Therapy portfolio from B. Braun, which closed in March 2024.
Divestitures include the Endoscopy, Pathology business, which closed in April 2023. Guidance excludes the previously-announced agreement to acquire Axonics, Inc., which is expected to close in the second half of 2024, subject to customary closing conditions. For more information, please refer to our Q1 Financial and Operational Highlights deck, which may be found on our Investor Relations website. On this call, all references to sales and revenue, unless otherwise specified, are organic. This call contains forward-looking statements within the meaning of federal securities law, which may be identified by words like anticipate, expect, may, believe, estimate and other similar words. They include, among other things, statements about our growth and market share, new and anticipated product approvals and launches, acquisitions, clinical trials, cost savings and growth opportunities, our cash flow and expected use of cash, our financial performance, including sales, margins and earnings, as well as our tax rates, R&D spend and other expenses.
If our underlying assumptions turn out to be incorrect or if certain risks or uncertainties materialize, actual results could vary materially from the expectations and projections expressed or implied by our forward-looking statements. Factors that may cause such differences include those described in the Risk Factors section of our most recent 10-K and subsequent 10-Qs filed with the SEC. These statements speak only as of today's date and we disclaim any intention or obligation to update them except as required by law. At this point, I'll turn over to Mike. Mike?
Mike Mahoney: Thanks, Jon. Thank you to everyone for joining us today. Our first quarter results surpassed our expectations, fueled by our innovative portfolio, including the nearly 90 new products we launched globally in 2023, the execution of our category leadership strategy and the winning spirit of our global team. In first quarter '24, total company operational sales grew 15% and organic sales grew 13% versus first quarter '23, which exceeds the high end of our guidance range of 7% to 9%. Our strong growth continues to be diversified across businesses and regions. In the quarter, six of our eight business units and all of our regions grew double-digits. We believe that most business units grew faster than their respective markets with differentiated portfolios and strong commercial execution, supported by healthy procedural demand.
First quarter adjusted EPS was $0.56, which grew 21% versus 2023, which exceeds the high end of our guidance range of $0.50 to $0.52. First quarter adjusted operating margin was 26.2%. Turning to our second quarter and full year '24 outlook, we are guiding to organic growth of 10% to 12% for second quarter '24 and raising our full year guidance from 8% to 9% to 10% to 12%, reflecting momentum from our innovative portfolio, healthy procedural volumes and continued execution by our global team. Our second quarter '24 adjusted EPS guidance is $0.57 to $0.59, and we expect our full year adjusted EPS to be $2.29 to $2.34, representing growth of 12% to 14%. Dan will provide more details on our financials, and I'll provide additional highlights on our first quarter, along with comments on our '24 outlook.
Regionally, on an operational basis, the US grew 13% versus first quarter, with particular strength in EP fueled by the launch of FARAPULSE midway through the quarter, as well as on our WATCHMAN, ICTX, Urology and Endoscopy business units. Europe, Middle East and Africa grew 13% on an operational basis versus first quarter '23. This above-market growth was led by exceptional performance in EP as well as double-digit growth in our Endoscopy, Urology and PI businesses. We expect to continue to outpace the market, driven by continued broad-based momentum across our business and investment in emerging markets. Asia-Pac grew 26% operationally versus first quarter '23, led by strong double-digit performance in all of our cardiovascular business units.
Japan grew double-digits, driven by AGENT DCB, Rezūm and our Access solutions products. China delivered excellent results, growing strong double-digits with seven of our eight business units growing double digits. I'll now provide some additional commentary on our business units. In Urology, sales grew 10% both operationally and organically versus first quarter '23, with double-digit growth in stone management, as well as prosthetic urology. Rezūm performed well in the quarter, both in the US and internationally, and secured reimbursement status in France. We look forward to closing the previously announced acquisition of Axonics, now expected in the second half of 2024. Endoscopy sales grew 12% operationally and 10% organically versus first quarter '23.
Strong first quarter results were driven by the breadth of our portfolio, underpinned by differentiated anchor products, such as AXIOS and our single-use imaging products. Within the quarter, we also received CE Mark for our MANTIS Clip, and NICE in the UK issued positive guidance for the ESG endoscopic bariatric surgery procedure, both expected to further momentum in our growing endoluminal surgery franchise. Neuromodulation sales grew 10% operationally and declined 1% organically versus first quarter '23. Our brain franchise grew high-single digits in the quarter, with low-double digit US growth driven by our comprehensive directional stimulation offering, enabled by image-guided programming. In the first quarter, our pain franchise grew low-double digits operationally, but declined mid-single digits on an organic basis, with continued pressure in our US SCS business.
In the US, during first quarter, we did receive FDA approval and recently launched the WaveWriter [symptom] (ph) non-surgical back pain indication and our next-generation FAST auto-dose. Importantly, the Relievant business continues to perform very well with steady expansion of payer coverage, and we expect sales from the novel Intracept procedure to grow by 50% in 2024. Peripheral Interventions sales grew 16% operationally and 11% organically versus first quarter '23. Double-digit growth in arterial was bolstered by our drug-eluting portfolio, supported by the strength of clinical evidence and global commercial execution. In Venous, we saw continued above-market growth from Varithena and Clot Management continue to perform well in line with expectations.
Our Interventional Oncology franchise grew strong double digits in first quarter, driven by our broad offering of embolization devices, including the EMBOLD Coil family in cancer therapies. In the quarter, TheraSphere also grew double digits, and data from the real-world study PROACTIF was presented, demonstrating positive outcomes in patients with intermediate and advanced HCC were treated with TheraSphere. Cardiology sales delivered another excellent quarter, with both operational and organic sales growing 18% versus first quarter 2023. Within Cardiology, Interventional Cardiology Therapies sales grew an impressive 13% organically versus first quarter '23. Growth in Coronary Therapies was driven by continued strength in our international regions, led by our imaging portfolio and AGENT DCB in Japan.
In the US, we're also pleased with the ongoing launch of AVVIGO+, which is our AI-guided imaging platform. We also received FDA approval of our AGENT DCB in first quarter, and we expect to initiate a limited launch in second quarter as we ramp supply following the earlier-than-anticipated regulatory approval. Our Structural Heart Valves franchise once again grew mid-teens in first quarter, led by ACURATE neo2, which continues to see growth from both new and existing accounts. We have now submitted for CE Mark for our next-generation ACURATE Prime Valve, which we continue to expect to launch in Europe in 2025. WATCHMAN had another strong quarter, growing 19% organically and maintaining our market-leading share position. In the US, WATCHMAN FLX Pro moved into full launch, and we received FDA clearance for the TruSteer Steerable Sheath, allowing physicians to achieve more optimal device positioning in the widest range of LAA anatomies.
International growth was driven by ongoing momentum within the quarter, and we received approval and launched WATCHMAN FLX Pro in Japan and Canada, which will support continued growth in these markets. Cardiac Rhythm Management sales grew 5% organically in first quarter '23. In the first quarter, our Diagnostics franchise also grew double digits, led by strong market adoption of our second-generation LUX-Dx ICM device. In Core CRM, our low-voltage business grew mid-single digits and our high-voltage business grew low-single digits. Our EMBLEM S-ICD continues to maintain a strong share position. We've seen very limited impact in Europe or the US from a recent competitor's launch. We expect to remain the clear market leader in this space and look forward to the upcoming data presentation at HRS of MODULAR ATP, which is a pivotal trial studying the use of the EMBLEM S-ICD in conjunction with our EMPOWER Leadless Pacemaker to function as a single-chamber pacemaker, as well as to provide anti-tachycardia pacing when needed.
We anticipate FDA approval of the MODULAR CRM system and standalone EMPOWER Leadless Pacemaker in '25. Electrophysiology sales grew 72% both operationally and organically versus first quarter '23, driven by the adoption of the transformative FARAPULSE platform. International first quarter sales grew 59% with continued FARAPULSE account openings and robust utilization in Europe. US first quarter sales grew 85% organically, propelled by the mid-first quarter launch of FARAPULSE, where we've already made good progress entering to high-volume accounts, supported by compelling clinical evidence, commercial execution and investment in our supply chain. Early feedback on FARAPULSE has been extremely positive, with rapid adoption from both RF and cryo users.
Electrophysiologists appreciate FARAPULSE's unique safety profile, ease of use, effectiveness, and efficiency of the procedure. We expect our broad EP portfolio, coupled with our other AF solutions, to drive significant global growth in '24 and beyond. We also intend to extend our leadership in PFA by investing in innovation, clinical evidence, and global capabilities. Within the quarter, we commenced enrollment of the NAVIGATE-PF clinical trial, studying integrated cardiac mapping with a FARAVIEW Software and FARAWAVE non-enabled catheter, both of which are expected to launch in the US during the second half of the year. We also completed enrollment of Phase 2 in the ADVANTAGE AF clinical trial, studying our FARAPOINT device for CTI ablations, which is expected to launch in the US in 2025.
And we also anticipate data from Phase 1 of the ADVANTAGE trial for persistent AF to be presented in fourth quarter 2024. We also look forward to our clinical late breakers at the upcoming HRS meeting in May, which aims to highlight the unique capabilities of FARAPULSE. Also of note, this week we released our 2023 performance report, highlighting the company's actions to improve patient outcomes while prioritizing our environmental, social, and governance goals. We continue to make progress in all three key areas, innovating care to meet patient needs, empowering people and shaping a healthier planet, while performing with integrity. While we always have more to do, I know that our values-driven culture and the commitment of our global teams to the challenge -- to this challenge was possible.
We'll continue to raise the bar. In closing, I'm very grateful to our global employees who work every day to advance science for life. We remain committed to investing for the long term while delivering top-tier financial performance in 2024 and beyond. And with that, I'll hand it over to Dan to provide more details on the financials.
Dan Brennan: Thanks, Mike. First quarter 2024 consolidated revenue of $3.856 billion represents 13.8% reported growth versus first quarter 2023 and includes a 120 basis point headwind from foreign exchange in line with our expectations. Excluding this $40 million headwind from foreign exchange, operational revenue growth was 15% in the quarter. Sales from the closed acquisitions and divestitures contributed 190 basis points, resulting in 13.1% organic revenue growth, exceeding our first quarter guidance range of 7% to 9%. Q1 2024 adjusted earnings per share of $0.56 grew 20.6% versus 2023, exceeding the high end of our guidance range of $0.50 to $0.52, primarily driven by our strong sales performance. Adjusted gross margin for the first quarter was 69.8%, which includes an approximate 30 basis point year-over-year headwind from foreign exchange.
Adjusted gross margin was slightly lower than anticipated, primarily driven by inventory charges and less favorable product mix due to increased levels of capital placements in the quarter. Despite a lower Q1, we continue to expect full year adjusted gross margin to be at or slightly below our 2023 full year rate, driven by increasing mixed benefit from our new launches, lower inventory charges, and the full recognition of our annual standard manufacturing cost improvements in the second half of the year. First quarter adjusted operating margin was 26.2%. We remain committed to expanding adjusted operating margin by 30 basis points to 50 basis points in 2024 as we balance progress towards our long-range plan goal of 150 basis points of improvement from 2024 to 2026, with the flexibility to make critical investments to support key launches.
On a GAAP basis, first quarter operating margin was 17.5%. Moving to below-the-line, first quarter adjusted interest and other expenses totaled $80 million. On an adjusted basis, our tax rate for the first quarter was 10.7%, which includes favorable discrete tax items and the benefit from stock compensation accounting. Our operational tax rate was 13.7% for the quarter. Fully diluted weighted average shares outstanding ended at 1.482 billion shares in the first quarter. Free cash flow for the first quarter was a negative $15 million, with $164 million from operating activities, less $179 million in net capital expenditures, which includes payments of $251 million related to acquisitions, restructuring, litigation, and other special items. In 2024, we continue to expect full year free cash flow to exceed $2 billion, which includes approximately $800 million of expected payments related to special items.
As of March 31, 2024, we had cash on hand of $2.3 billion, inclusive of the €2 billion denominated senior note offering completed on February 27, which we intend to use to partially fund the Axonics acquisition. During the first quarter, we repaid approximately $500 million of senior notes upon maturity, and our gross debt leverage was 2.5 times as of March 31. Our top capital allocation priority remains strategic tuck-in M&A, followed by annual share purchases to offset dilution from employee stock grants. In alignment with our acquisition strategy, we recently closed the acquisition of the Endoluminal Vacuum Therapy portfolio from B. Braun, which complements our existing endoscopy portfolio and is expected to be immaterial to earnings per share in 2024.
Our legal reserve was $283 million as of March 31, a decrease of $94 million versus Q4 2023, and $71 million of this reserve is already funded through our qualified settlement funds. I'll now walk through guidance for Q2 and the full year 2024. We expect full year 2024 reported revenue growth to be in a range of 11% to 13% versus 2023. Excluding an approximate 50 basis point headwind from foreign exchange based on current rates, we expect full year 2024 operational revenue growth to be 11.5% to 13.5%. Excluding a 150 basis point contribution from closed acquisitions, we expect full year 2024 organic revenue growth to be in a range of 10% to 12% versus 2023. We expect second quarter 2024 reported revenue growth to be in a range of 10.5% to 12.5% versus second quarter 2023.
Excluding an approximate 100 basis point headwind from foreign exchange based on current rates, we expect second quarter 2024 operational revenue growth to be 11.5% to 13.5%. And excluding a 150 basis point contribution from closed acquisitions, we expect second quarter 2024 organic revenue growth to be in a range of 10% to 12% versus 2023. We now expect full year 2024 adjusted below-the-line expense to be approximately $315 million. Under current legislation, including enacted laws and issued guidance under OECD Pillar Two rules, we continue to forecast of full year 2024 operational tax rate of approximately 14% and an adjusted tax rate of approximately 13%. We expect full year adjusted earnings per share to be in a range of $2.29 to $2.34, representing 12% to 14% growth versus 2023, including an approximate $0.04 headwind from foreign exchange, which is unchanged from our previous expectations.
We expect second quarter adjusted earnings per share to be in a range of $0.57 to $0.59. For more information, please check our Investor Relations website for Q1 2024 financial and operational highlights, which outlines more details on Q1 results and our 2024 guidance. And with that, I'll turn it back to Jon, who will moderate the Q&A.
Jon Monson: Thanks, Dan. Drew, let's open it up for questions for the next 40 minutes or so. In order for us to take as many questions as possible, please limit yourself to one question. Drew, please go ahead.
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