The Boston Scientific Q2 2023 Earnings Conference Call began with a welcome from Lauren Tengler, the Vice President of Investor Relations. Mike Mahoney, Chairman and Chief Executive Officer, and Dan Brennan, Executive Vice President and Chief Financial Officer, were also present. The duration of the call was approximately one hour and Mike and Dan provided comments on Q1 performance and the outlook for the business. During the Q&A session, they were joined by the Chief Medical Officer, Dr. Ken Stein. Operational revenue growth excludes the impact of foreign currency fluctuations and organic revenue growth further excludes acquisitions and divestitures. Relevant acquisitions and divestitures excluded for organic growth were Baylis Medical, Acotec Scientific Holdings Limited, and Apollo Endosurgery, while the divestiture was the endoscopy pathology business.

Acotec results are consolidated on a one quarter lag and had an immaterial impact on Q2 results. In June 2022, an agreement to purchase a majority stake in M.I. Tech was terminated and a minority stake was purchased instead. This call contains forward-looking statements about market share, product approvals, acquisitions, clinical trials, financial performance, cost savings, and growth opportunities. These statements speak only as of the date of the call and any changes may be described in the Risk Factors section of the 10-K and 10-Qs filed with the SEC. Mike Mahoney then takes the call.

In the second quarter of '23, the company exceeded expectations with a 12% growth in total sales, both organically and operationally, and a 21% growth in adjusted EPS. Regionally, the U.S. saw a 9% growth, with notable strength in their WATCHMAN, PI and Endoscopy businesses. For the third quarter, they are guiding organic revenue growth of 7-9%, and adjusted EPS of $0.46-0.48. They are also increasing their full year organic guidance to 10-11% and full year adjusted EPS range to $1.96-2.00.

In the second quarter, Europe, Middle East and Africa saw double-digit growth in four of the five major markets, while Asia Pacific saw 24% growth. Urology sales grew 8% organically, with strong growth in stone management, Rezum, and prosthetic urology. Endoscopy sales grew 12% organically and 14% operationally, with notable strength in the U.S., Latin America, and Asia-Pac. New product momentum and healthy procedure demand contributed to the growth.

The Apollo integration is progressing well and FDA clearance was received for OverStitch NXT, a suturing system. Neuromodulation sales grew 3% organically and spinal cord stimulation sales were flat. The brain franchise grew double-digits and FDA approval was received for the Vercise Neural Navigator 5 software. Peripheral Interventions sales grew 13% organically and arterial franchise grew double-digits. The FDA determined that the available data do not support an excess mortality risk for paclitaxel-coated devices used to treat PAD.

Venous US saw growth driven by Varithena, a non-thermal treatment for varicose veins, and clot management technologies. Interventional Oncology grew double-digits, with the EMBOLD and Obsidio devices recently cleared and released. Cardiology grew 13% organically, driven by imaging technologies and the launch of a drug-coated balloon in Japan. Structural heart valves grew double-digits, with ACURATE neo2 expected to launch in the US in the second half of 2024. WATCHMAN sales grew 27%, with strong US demand and growth in China and Japan. The WATCHMAN FLX Pro CT pilot study was completed to assess post-procedure healing in the next generation of WATCHMAN FLX Pro.

In the second quarter of 2021, Cardiac Rhythm Management sales grew 5%, while the Diagnostic and Electrophysiology franchises grew double-digits. The WATCHMAN franchise is expected to see further momentum due to the anticipated approval of WATCHMAN FLX Pro and Trusteer by the end of 2023. The Access Solutions franchise also saw strong growth, particularly in the U.S. and Japan, thanks to the VersaCross Transseptal platform. The ADVENT trial is a randomized clinical trial designed to show the effectiveness of an intervention without the use of antiarrhythmic drugs and reablations, and the results will be presented at the ESC Conference on August 27. The approval of FARAPULSE in the U.S. is expected in 2024. The company is confident in its future performance.

Mike announced changes in Boston Scientific's business unit leadership team and thanked Maulik Nanavaty for his contributions. Dan then reported that the company's second quarter 2023 consolidated revenue of $3.599 billion represented 11% reported revenue growth with a 100 basis point headwind from foreign exchange and 11.6% organic revenue growth.

Q2 2023 saw an adjusted earnings per share of $0.53, a 20.7% increase from 2022, exceeding the high end of the guidance range. Gross margin was 72% and operating margin was 26.8%, with a goal of 26.4% for the full year. Interest and other expenses totaled $93 million and the tax rate was 9.8%. Free cash flow was $514 million and adjusted free cash flow was $730 million. The weighted average shares outstanding ended at 1,456 million.

The company expects full year 2023 operational revenue growth to be between 11-12%, with organic growth of 10-11%. They are expecting a fully diluted weighted average share count of 1.475 billion for Q3 and 1.464 billion for the full year. They anticipate adjusted earnings per share to be between $1.96 and $2, and a neutral impact from FX on their full year 2023 adjusted earnings per share. They expect third quarter adjusted earnings per share to be between $0.46 and $0.48. They also expect full year 2023 adjusted free cash flow to be in excess of $2.3 billion.

Mike Mahoney is asked about the company's strong financial performance in Q2 2023, which was driven by top tier organic revenue growth of 13%, an adjusted operating margin of 26.2%, and adjusted earnings per share growth of 20%. He is asked to provide insight into the underlying demand, one-time upside, and differences between inpatient, outpatient, cardio, and non-cardio in different regions.

Mike Mahoney and Kenneth Stein discuss the positive trend of the Boston Scientific portfolio being geared towards an outpatient setting and the strong performance in regions such as Japan, China, and Europe. They also mention the U.S. having a higher proportion of outpatient procedures, and a steady supply of patients for their procedures. Finally, they address the upcoming ESC and analyst meeting, suggesting that they will provide more information then.

At ESC, the release of data from the IDE trial of FARAPULSE in the US will be the highlight. The trial is a randomized one comparing Pulsed Field Ablation with FARAPULSE system against thermal ablation with RS and Cryo. There has been increased utilization in Europe due to GMED approval for manufacturing in Minnesota, and there will be more new centers opening in the fourth quarter. At the upcoming Investor Day on September 20, the team will provide an outlook of their financial goals over the next three years.

In Q2, MedSurg and Cardiovascular operating margins increased by 410 and 240 basis points respectively. Dan Brennan explains that the goal is to achieve overall operating margin goals and that all areas of the P&L contribute to the bottom line. The company was able to accelerate key SG&A investments to ensure the success of upcoming launches. The Q2 adjusted operating margin was 160 basis points better than the previous year.

Dan Brennan discussed expectations for the second half of the year, which includes a lower gross margin due to foreign exchange movements, but a higher operating margin to reach the goal of 26.4%. Larry Biegelsen asked about the differences between the success rates of FARAPULSE and the success rates of RF and Cryo in previous studies, and how this could impact adoption of FARAPULSE. Kenneth Stein answered that there are a lot of factors to consider in this comparison.

The definition of success in the ADVENT trial is more rigorous than other trials and includes a rigorous screening for asymptomatic arrhythmias and three days of periodic Holter monitoring. The study was designed to achieve a 65% success rate in both the thermal and FARAPULSE arms and was powered for non-inferiority. Travis Steed's question is about how to frame the commercial opportunity for FARAPULSE based on the potential outcomes of the ADVENT trial.

Mike Mahoney is very bullish on the commercial opportunity for FARAPULSE, which has seen a successful product launch. They have been investing in manufacturing capabilities to meet the demand in Europe and Asia-Pac, and have seen an increase in utilization. They have a strong clinical trial cadence with their persistent trial advantage and ongoing portfolio enhancements. They believe they have many advantages in the competitive market and have the commercial infrastructure to exploit the opportunity. They are looking forward to the ADVENT release.

Dan Brennan explains that the company's 10-11% organic revenue growth guidance for the full year is appropriate and prudent. The second half of the year will be slightly more difficult due to higher comps, but the guidance of 7-9% in the third and fourth quarters should result in the full year goal being met, coupled with 80 basis points of margin expansion and 15-17% adjusted EPS growth.

Dan Brennan explains that there is still a long runway of margin expansion beyond the 26.4% adjusted operating margin goal for the company, and that 30% plus is a very reasonable target. He also states that inflation has been a headwind in terms of gross margin, and that there is unlikely to be any abatement in this area in the coming year.

Mike Mahoney discusses the company's goal to return to a 71% gross margin and how they are focused on efficiency in all areas of the P&L. He is excited about the potential for margin expansion going forward and believes that the results in the first half of the year have been broad-based across the company and regions.

Boston Scientific had an excellent quarter with growth in the Asia Pacific and Japan, China, Europe, and the United States. Its WATCHMAN performance was very strong, growing well over 20%, and they are looking forward to the launch of distributable sheets, next-gen WATCHMAN FLX Pro, and Cryo and FARAPULSE in the third quarter. The coronary business and PI and endo had strong growth, but there was some softness in the Neuromod business. They will be discussing these potential growth drivers further at their Investor Day.

Dan Brennan discussed the company's strong free cash flow in Q2 and their focus on improving their cash flow conversion ratio, which they will discuss further at their Investor Day. He also talked about their capital allocation strategy which is focused on high-quality tuck-in M&A and they have closed two deals so far this year.

Mike Mahoney discussed the success of POLARx, a Cryo catheter, in Europe and Japan, and the anticipation of approval in the U.S. in the third quarter. He noted that the Cryo market in the U.S. is quite substantial and that doctors are interested in FARAPULSE, but may be looking for longer-term data. He also highlighted that POLARx offers differentiating features and that the demand is there to support it.

Mike Mahoney discussed the Endo business which is one of the company's best businesses and saw a 12% growth in the quarter. He mentioned that procedure volume was quite high and there was a waitlist for the business in the US and Europe. The Apollo acquisition is exciting as it adds endoluminal suturing capability and the opportunity to expand into the endobariatric market, which is high growth in Asia and the US.

Mike Mahoney discussed the strong comps for the 2023 fiscal year and the potential for even more growth in the next three-year period due to the launches of differentiated products, margin improvement opportunities, and the increasing strength of the balance sheet. He also mentioned that customers enjoy broad-based contracts with the company's Endo business.

Mike Mahoney states that the markets they compete in are healthy and they are proud of their double digit growth in the second quarter, even though they had tougher comps than some of the others. He also states that they will further define what they think the markets are growing in the future.

Boston Scientific is seeing a healthy market with strong procedure volume and continued demand from customers, with only a slight slowdown in vacation months. They anticipate this demand to stay strong in the coming years. The recording of the presentation will be available for replay for one hour by dialing 1-877-344-7529 or 1-412-317-0088 using the replay code 4830236.

This summary was generated with AI and may contain some inaccuracies.