Boston Scientific Q4 2021 Earnings Call Transcript

Quartr
Provided by Quartr
February 1, 2022

There are 16 speakers on the call.

Operator

Good morning, and welcome to the Boston Scientific 4th Quarter 2021 Earnings Call. All participants will be in listen only mode. Please note this event is being recorded. Would now like to turn the conference over to Lauren Tangler, Vice President, Investor Relations. Please go ahead.

Speaker 1

Thank you, Andrew. Hello, everyone, and thanks for joining us. 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 Q4 2021 results, which included reconciliations of the non We have posted a copy of that release as well as reconciliations on the non GAAP measures used in today's call to the Investor Relations section of our website under Heading, Financials and Filings. The duration of this morning's call will be approximately 1 hour.

Speaker 1

Mike will focus his comments on Q4 performance as well as future catalysts and the outlook for our business, including Q1 2022 and full year 2022 guidance. Dan will review the financials for the quarter, During today's Q and A session, Mike and Dan will be joined by our Chief Medical Officers, Doctor. Ian Meredith and Doctor. Ken Stein. Before we begin, I'd like to remind everyone that on the call, operational revenue growth Acquisitions for organic growth versus 2020 2019 include Preventis, Feripulse, Luminis, which closed in March, August September of 2021 respectively as well as VerdiFlex and BTG Interventional Medicines, which closed in May mid August 2019 respectively.

Speaker 1

Divestitures include BTG Speck Pharma, which closed March 1, 2021 and the Global Embolic Micro Tavera's portfolio and intrauterine health franchise, which were divested in August 2019 and Q2 of 2020, respectively. Full year baseline prior to COVID. Going forward, 2022 guidance and corresponding results will be compared to 2021 only. 20 This call contains forward looking statements within the meaning of the federal securities laws, which may be identified by words like anticipate, expect, may, believe, estimate and other similar words. They include, among other things, the impact of COVID-nineteen pandemic upon the company's operations and financial results, statements about our growth in include those described in the Risk Factors section of our most recent 10 ks and subsequent 10 Qs filed with the SEC.

Speaker 1

These statements speak only as of Today's date and we disclaim any intention or obligation to update them. At this point, I'll turn it over to Mike for his comments.

Speaker 2

Thanks, Lauren, and thank you everyone for joining us I'm very proud of the agility and winning spirit of our employees and continue to be impressed with the resiliency of hospital systems and their ability to provide patients with the care they need during the pandemic. We're very pleased with the strength of our 4th quarter performance and anticipate that all of our business units either maintained or gained share in the quarter despite the challenges COVID presented. On a full year basis, the global strength of our product diversification and category leadership strategy resulted in all businesses with the exception of CRM and USEP gaining share. We look forward to the year ahead and remain bullish in both the near term and the longer term opportunities we laid out at our Investor Day. In Q4 2021, total company operational sales grew 17% versus 2020, while organic Sales grew 15, achieving the high end of our guidance range of 12 to 16.

Speaker 2

4th quarter 2021 organic sales grew 7% versus 2019. Full year 2021 operational sales grew 19% versus 2020, while organic sales grew 19%, again achieving the high end of our guidance range of 18% to 19%. Full year 2021 organic sales grew 6% versus 2019. G4 adjusted EPS of $0.45 grew 94% versus 2020. It was flat to 2019, achieving high end of the guidance range of $0.43 to $0.45 Full year adjusted EPS of $1.63 grew 69% versus 20% 3% versus 2019, again exceeding the high end of the full year guidance range of $1.60 to 1 $0.62 4th quarter Adjusted operating margin was 26.2 percent, resulting in the second half twenty twenty one run rate of 25 point The full year 2021 adjusted operating margin was 25.3.

Speaker 2

Overall, we're very pleased with our cash flow with full year 2021 free cash flow generation of $1,300,000,000 net adjusted free cash flow of $2,200,000,000 which grew 11% versus 2020. So turning to 2022, while we anticipate less The COVID impact on underlying procedures for the full year 2022 versus 2021. We're providing a wider range account for uncertainty related to COVID waves and staffing shortages. For Q1 of 'twenty two, organic revenue were guidance growth of 5% to 8% and for a full year of 6 to 8%, excluding the Bayless acquisition, which is expected to close in Q1 of 2022. Our Q1 adjusted EPS estimate is $0.40 and we expect our full year adjusted EPS to be $1.73 to $1.79 Despite the near term macroeconomic range.

Speaker 2

Dan will provide more details on both sales and EPS performance and outlook, including more insights on 2022. I'll now provide more highlights in Q4 and full year 'twenty one results along with comments on 'twenty two outlook. Regionally, On an operational basis, the U. S. Grew 20% versus Q4 2020 and full year 21% full year 2021 grew 25%, inclusive of a 300 basis point tailwind from acquisitions and continued strength from new product launches across the portfolio.

Speaker 2

Europe, Middle East, Grew 16% on an operational basis versus both Q4 2020 and full year 2020. We continue to see strong performance in Europe despite the All business units in Europe grew double digits versus the prior year, with the majority of businesses gaining share. We continue to anticipate strong growth from our Europe region given the innovative product pipeline, globalization efforts and integration of the acquisitions. Asia Pac grew 17% operationally versus Q4 2020 and 14% for the full year. Within the quarter, the vast majority of On a full year, Japan grew 7% fueled by new products like Watch and Flex, Polarex and Ranger, as well as innovative launches across coronary therapies portfolio.

Speaker 2

I'll now provide some additional comments on our business units. Urology and Pelvic Health sales grew 9% on an organic basis 4th quarter 2020 and on a full year basis grew 19% versus 2020 and 11% versus 2019. Within the quarter, SpaceOAR and Rezum Both grew double digits and we're pleased with the 'twenty two improved reimbursement for the ASC and hospital outpatient setting for Rezum. On a full year basis, we saw strength across the business with double digit growth in LiftView, CoreStone, Resume, Space Ore and Erectile Restoration. As we look forward Towards 2022, we remain excited about our strong leadership position further extended by the acquisition of Luminess in the market leading Moser Laser Turning to endoscopy, sales grew 10% organically versus Q4 2020 with full year growth of 19% 20% 12% versus 2019.

Speaker 2

Over the duration of the year, broad based strength across all regions and franchises resulted in business achieving $2,000,000,000 in 2021. Within the quarter, we launched the Axios Stent in China On a full year basis, grew this product line over 20% globally. We remain excited about the outlook of our innovative offerings within our single use imaging portfolio, including SpyGlass DS, Exalt Model D, Exalt Model B and Spy Discover. Looking at 2022, we continue to anticipate above market growth as the endoscopy The global commercial teams continue to execute at a high level by creating long term partnerships with hospitals given the unique breadth and differentiation of our portfolio. Turning to CRM, organic sales grew 4% versus Q4 2020 and full year sales grew 8% versus 2020 and In December, we enrolled our first patients in the modular ATP trial, our dual track clinical study for a standalone limbless pacemaker, as well as to provide anti tachycardia pacing to Emblem SICD patients.

Speaker 2

Within the diagnostics franchise, our implantable cardiac monitor, LuxDx, continues to perform well and grow share. The Proventis business grew 20% on a full year pro form a basis, enabled by our differentiated portfolio and strong execution. Electrophysiology sales grew 16% versus 4th quarter 2020 basis with full year growth of 23% versus 20 20 7% versus 2019. Importantly, the international EP Sales grew 38% versus prior on a full year operational basis, fueled by our innovative portfolio including Polarex, StablePoint and Feripulse. The early Feripulse launch is going well in Europe with the physicians enthusiastic by the safety and ease of use of this technology.

Speaker 2

We're very excited about the outlook of EP business and look forward to further complementing it with the closing of Bayless in Q1 2022. In Neuromodulation, 4th quarter organic revenue grew 6% versus prior year and full year sales grew 19% versus 20 and we're flat to 2019. Despite the COVID wave impacting procedure volumes, we continue to gain share with Just a few weeks ago, we presented various data sets at NANS, including the 2 year combo RCT data supporting the longevity of our SCS therapy. We continue to roll in the SOLUS trial studying our WaveWriter SCS systems for the treatment of patients with chronic low back and or leg expanding our U. S.

Speaker 2

Versys genus offering in 'twenty two in partnership with Brainlab. In interventional cardiology, organic sales grew 40 versus Q4 2020 and 31% versus full year 2020, which includes a tailwind of approximately 1,000 basis points related to Sales return reserves for the transition to consignment for WATCHMAN in 2020. Full year interventional cardiology sales grew 7% versus 20 In coronary therapies, our complex PCI franchise had strong growth in 2021 with strength across every region further enabled by the recent launch of our AVEGO to guidance system in the U. S. Within drug eluting stents, we continue to differentiate our portfolio through the global launches is a synergy 48 millimeter and Megatron.

Speaker 2

We continue to anticipate being first to U. S. Market in 2024 with our agent drug coated balloon and expect to complete enrollment in the U. S. IDE trial in the first half of twenty twenty two.

Speaker 2

We're extremely pleased with the performance of Watchmen franchise in the 4th quarter as sales surpassed our expectations. Importantly, the 2021 global performance of Watchmen was consistent each quarter with strong double digit growth resulting in full year sales of $830,000,000 growing 68% versus 2019. We continue to be pleased with our ability to deliver the safest and most efficient therapy, increased physician utilization and global while driving greater awareness to this fast growing LAAC market. Clinical evidence generation remains an important focus and we The first readout from the ongoing SURPASS analysis of the NCDR LAO registry at CRT later this month. This analysis will include over 16,000 patients and is the largest data set in WATCHMAN FLYX patients presented to date.

Speaker 2

We continue to expect WATCHMAN to be a significant growth driver for Boston Scientific in 'twenty two and beyond. Across the structural heart franchises, we had the highest quarterly sales results to date for ACURATE neo2, SENTINEL and the SApari Guidewire. ACURATE NEO2 continues to perform well with positive physician feedback on the clinical performance and ease of use of the valve. We're excited for the year with over We have decided to discontinue work in the military program due to the time and financial investment required to commercialize this platform as compared to other near and long term portfolio opportunities across the company. We've made this decision now so that we can focus on execution of the existing and future technologies within the structural arts space and elsewhere within our portfolio.

Speaker 2

In peripheral interventions, organic sales grew 9% versus 4th quarter 2020 with full year sales growth of 14% versus 2020 9% versus 2019. Within the drug ILUVIEN portfolio, we've been pleased with the globalization and ongoing clinical evidence supporting Eluvia and RANGER, resulting in exceeding our sales goal of $150,000,000 for 2021. In Venus, our market leading Vein offering Verathena grew over 40% in 2021 and we see continued runway with this underserved market. In Q4, we closed the DeVoro acquisition and look forward to launching our arterial and venous offerings in the second half of twenty twenty two, complementing the broader portfolio and further In interventional cardiology, TheraSPHERE grew over 20% on a full year basis, supported by ongoing clinical including the EPOCH trial, which is the first positive Phase 3 SIRT trial studying Therasphere as a second line therapy in patients with liver dominant MCRC that have failed first line chemotherapy. Our focus on improving patient health comes with a responsibility to have a positive impact in the world we share.

Speaker 2

Our environmental, social and governance This guide us as we make long term measurable progress, and I'm proud to announce that Boston Scientific received the 2022 Catalyst Award, the premier recognition for organizations' initiatives that advance women in the workplace. Boston Scientific also ranked them in the top 50 of American most just companies for our contributions to creating jobs, providing benefits on work life balance, cultivating a diverse and inclusive workplace and producing sustainable products and building stronger communities. I'm grateful for the passion and commitment of our global team as we continue to live our values and do our part to create a better future, both as a global business and as a global corporate While we have faced challenges over the last few years of COVID, we are stronger for it. We're building new capabilities that will enable us to better serve our patients and customers both today and the future. We are well positioned in 2022 with category leading innovative product positions, continued focus and investment in clinical while continuing to enter high growth adjacent markets.

Speaker 2

We acquired several companies in the past year with innovative products that are I'm very grateful to our employees for their winning spirit. I will now turn things over to Dan to review our financial performance and forward looking expectations.

Speaker 3

Thanks, Mike. 4th quarter consolidated revenue of $3,127,000,000 represents 15.4% reported revenue growth versus Q4 2020 and reflects a $38,000,000 headwind from foreign exchange. On an operational basis, revenue growth was 16.9% in the quarter. Sales from the acquisitions of Preventis, Farapulse and Luminus contributed 3 30 basis points, partially offset by the divestiture of the BTG Specialty Pharmaceuticals business, resulting in 15.1% organic revenue growth towards the high end of our guidance range of 12% 16% growth versus 2020. This 15.1% growth includes a 440 basis point tailwind from the WATCHMAN Sales return reserve recognized in Q4 2020, which was contemplated in our guidance.

Speaker 3

Compared to Q4 2019, revenue growth was 6.7%, nicely above the midpoint of our guidance range of 4% to 8%. This 6.7% growth excludes 67,000,000 In 2019 sales of the divested intrauterine health and BTG Specialty Pharmaceuticals businesses as well as $89,000,000 2021 sales of acquired businesses, including ProVenus, Varapulse and Luminus. Q4 adjusted earnings to $0.45 driven by revenue performance at the higher end of our guidance range and a slightly favorable adjusted tax rate. Full year 2021 consolidated revenue of $11,888,000,000 represents 19.9% reported revenue growth versus the full year 2020 and reflects a $126,000,000 tailwind from foreign exchange. On an operational basis, revenue growth was 18.7% in the quarter versus 2020.

Speaker 3

Sales from the acquisitions of Preventis, Therapulse and Luminus contributed 2 10 basis points, more than offset by sales of the divested interuterine health and BTG Specialty Pharmaceuticals Businesses resulting in 18.9 percent organic revenue growth within our guidance range of 18% Compared to full year 2019, organic growth was 5.7%, again above the midpoint of our guidance range of 5% to 6%. This 5.7% growth excludes $131,000,000 in 20 19 sales of divested businesses as well as $531,000,000 in 2021 sales of acquired businesses, including Vertiflex, BTG Interventional Medicines, Preventis, Therapulse and Luminess and $13,000,000 of specialty pharmaceutical sales prior to divestiture. Full year 2021 adjusted earnings per share of 1 point $0.63 represents 69% growth versus 2020, 3% growth versus 2019 and Exceeded the high end of our guidance range of $1.60 to $1.62 Adjusted gross margin for the 4th quarter was 70.9 percent in line with our expectations of a slight sequential improvement from the 70.6% recorded in Q3. We continue to face macro environment headwinds on gross margin, which included the cost of running plants with COVID specific measures, increased freight costs and price pressures,

Speaker 2

and

Speaker 4

with higher levels of COVID related absenteeism

Speaker 3

in our plants as well as price pressure on direct material costs driving unfavorable manufacturing variances. As a reminder, Manufacturing variances are capitalized on the balance sheet and realized over an approximate 6 month period. As a result, we expect full year 2022 gross margin to improve versus the second half of twenty twenty one. Gross margins in the first half of twenty twenty two are expected to be below the second Half of twenty twenty one, driven by the lagging impact of unfavorable manufacturing grants is capitalized on the balance sheet and typical and cost revaluation. In line with our historical trends, we anticipate that the second half of twenty twenty two gross margins will be improved versus the first half, driven by lower COVID related headwinds and recognition of full 2022 standard cost improvements.

Speaker 3

Our long 4th quarter adjusted operating margin was 26.2%, resulting in a second half average of 25.9%. Full year adjusted operating margin was 25.3%. In light of increased gross margin pressures, we felt it was prudent to provide range for 2022 adjusted operating margin and expect the full year to be within a range of 26% to 20 6.4 percent representing a 70 basis point to 110 basis point improvement over the full year of 2021 with the high end representing our long range planned goal of 50 basis points annual improvement versus second half average twenty twenty one. On a GAAP basis, 4th quarter operating margins were 5 0.8% and includes a $197,000,000 intangible asset impairment related to the discontinuation of the Millipede program, as Mike outlined, and a $128,000,000 in litigation related expenses, which I'll provide further details on in a moment. Moving Below the line, adjusted interest and other expense totaled $115,000,000 in Q4 $423,000,000 for the full year 2021, in line with expectations.

Speaker 3

Our 4th quarter tax rate was 5.3% on an adjusted basis. Our full year adjusted tax rate of 7 point ending ended at 1,436,000,000 shares in Q4 and 1,434,000,000 shares for full year 2021. Adjusted free cash flow for the quarter was $425,000,000 and free cash flow was $17,000,000 with $478,000,000 from operating activities, less $261,000,000 of net capital expenditures. For For full year 2021, we delivered adjusted free cash flow of $2,200,000,000 and free cash flow of $1,300,000,000 with 1 point $9,000,000,000 from operating activities less $540,000,000 of net capital expenditures. We exceeded our expectations for full year adjusted free cash flow with growth of 11% versus 2020, driven by lower working capital as we balanced Our inventory position with sales recovery and finished the year with a favorable DSO.

Speaker 3

For 2022, adjusted free cash flow, we aim to be at or above 2021, while we continue to invest in inventory with less COVID related impact on our manufacturing, labor and direct material availability. As of December 31, 2021, we had cash on hand of $1,900,000,000 We continue to expect to close we'll continue to assess opportunities in conjunction with our financial goals. With respect to our legal reserves, we booked $128,000,000 in Q4, which includes There has been no material change to the outlook for the U. S. Mesh claims over the last 3 years.

Speaker 3

Materially, all U. S. Claims $8,000,000 as of December 31, 2021. I'll now walk through guidance for Q1 and the full year 2022. As a reminder, guidance does not include the acquisition of Bayless Medical since it is not yet closed.

Speaker 3

We expect full year 2022 operational Revenue growth to be in a range of 7% to 9% versus 2021, which excludes an approximate 100 basis point headwind from foreign exchange based on current rates and includes 110 basis point contribution from the acquisitions of Preventis, Therapulse and Luminus and $13,000,000 of pre divestiture specialty pharmaceutical sales in 2021. Excluding the impact Closed acquisitions and divestitures, we expect full year 2022 organic revenue growth to be in a range of 6% to 8% versus 2021. We expect Q1 2022 operational revenue growth to be in a range of 7% to 10% versus 2021, which excludes an approximate 200 basis point headwind from foreign exchange based on current rates and includes 2 2022 operational tax rate to be approximately 13% with an adjusted tax rate of 12%, including the benefit from the accounting 17 TCJA that take effect in 2022 related to the treatment of R and D expenditures. We believe there Bipartisan support to reverse these provisions and if such legislation were to be enacted, we would expect our tax rate to revert to its historic range of approximately 11% operational and 10% adjusted. We expect adjusted earnings per share for the full year to be in a range of 1 point $0.73 to $1.79 and for the Q1 to be in a range of $0.38 to $0.40

Speaker 5

A few other Items to

Speaker 3

keep in mind as you look to model 2022. We expect below the line expenses, which include interest payments, dilution from our VC portfolio and Costs associated with our hedging program to be approximately $400,000,000 for the year. Preferred stock dividends will be approximately $5,000,000 for the year and we expect a fully diluted weighted average share count of approximately 1,443,000,000 shares for Q1 2021,004,747,000,000 shares for the full year 2022. Please check our Investor Relations website for Q4 and operational highlights, which outlines more detailed Q4 results. With that, I'll turn it back to Lauren, who will moderate the Q and A.

Speaker 1

Thanks, Dan. Andrew, let's open it up for questions for the next 30 minutes or so. In order for us to take as many questions as possible, please limit yourself to one Andrew, please go ahead.

Operator

Thank you. We will now begin the question and answer The first question comes from Robbie Marcus with JPMorgan. Please go ahead.

Speaker 6

Good morning. Thanks for taking the question. Maybe we can start on operating margins for Dan, just a few weeks ago, you reiterated the comment that you're planning on 50 bps Margin expansion off of the second half run rate from 2021, we ended up with a margin guidance lower than that, It implies just very minimal margin expansion. So maybe walk us through what happened in the past few weeks And are you returning to that 50 bps expansion target for 2023 beyond? Thanks.

Speaker 3

Sure, Ravi. To be clear, the 50 basis points is the goal, has always been the goal and is the high end of our guidance range. So our guidance range is 26 to 26.4 percent. The second half average in 2021 was 25.9%. So the goal is absolutely still to deliver that 50 basis points.

Speaker 3

Just Given the macro environment and the headwinds from inflation and the omicron surge and the global supply chain disruption, which have really intensified over the December, January timeframe, we Over the December, January timeframe, we just thought prudent to provide a range. But rest assured, our goal is still to deliver that 50 basis points. But As we have always done and being thoughtful in providing ranges, we thought prudent to provide that range of outcomes.

Speaker 6

And for 2023, it's still the should we be thinking of this as the midpoint of ranges going forward Or is it somewhere in the range? I think it's just a bit of semantics and how we think about it.

Speaker 2

Yes, I would just hey, good morning, Robbie. I would say, as Dan said, our goal is to deliver that in 2022, but we provided the range given the macroeconomic Headwinds, we do believe that the second half of twenty twenty two should ease some of the supply chain and some of the macroeconomic headwinds See, as COVID continues to wane and supply chain gets more in order. So our goal for 2022, just to reiterate, is to deliver that, but we provided that range. As you look 23 and beyond, it's tough to call that, but we do think assuming that there's less COVID impact in 2023 and as most people predict the So our overall Investor Day goal of improving 50 basis points over the 3 year period per year, 100 and And our goal is to still deliver that number in 2022 despite the challenges.

Speaker 7

Great. Thanks a lot. Yes.

Operator

The next question comes from Larry Biegelsen with Wells Fargo. Please go ahead.

Speaker 7

Good morning. Thanks for taking the question and congrats on a nice finish to the year. Just on WATCHMAN, yes, of course, Just on WATCHMAN, just what you've seen so far with AMULATE, Boston I mean, I'm sorry, Habit claims they had about 10% share in the U. S. In December.

Speaker 7

What are you assuming in the guidance for WATCHMAN growth in 2022? And how confident are you, you'll get the label in the first half of this year? Thanks for taking the question.

Speaker 2

Sure. Good morning, Larry. In Watchmen, we had a fabulous year and a fabulous quarter. And quite frankly, the results in Q4 exceeded our expectations. And I think the big thing you're seeing that's maybe Difficult for the competition to see is the size of the market growth.

Speaker 2

It continues to Performed very well, with increased utilization, by current doctors, opening new accounts, referring physicians, confidence in the WATCHMAN Flex product and also helped by the international market. So I think, we're very confident, growing into 2022. We think the share Position that the competitor talked about is quite a bit elevated. And I think it's quite frankly a result of not understanding the size of the market and the market growth that Because Q4 2021 results in terms of growth rate were really in line with what we saw in previous quarters. So we didn't see Any hiccups in 4th quarter growth rate due to the size of the market.

Speaker 2

So in 2022, we're going to lose some share, but We are very confident in the performance of the WATCHMAN FLX platform, the momentum that we have, the infrastructure that we have. We've got our super exciting clinical data set coming at CRT that Ian or Ken can comment on. So we're Very bullish on WATCHMAN going forward here and maybe you want to talk about the DAP label?

Speaker 8

Yes. I think that we're very confident, Larry, that we'll get that DAP In the first half of the year, we want the capability of being able to give patients the choice of DAPT or NOAC therapy. So we've We feel pretty confident we've got that position. As you know, we already have that approval in Europe and great Results in patients in Europe are on DAP label. So we don't foreshadow any further problems in Cheating that label.

Speaker 7

Thanks so much.

Operator

The next question comes from Joanne Wuensch with Citibank, please go ahead.

Speaker 9

Good morning and thank you for the questions. Briefly, I'm curious about 2 things. The first one is your view towards M and A for this year. And then I'll just throw the second one out there. Did I hear Correctly that the Millipede program has been stopped and if so, what does that mean for a mitral program?

Speaker 9

Thank you.

Speaker 2

Sure. I'll take on the Millipede one, we made that decision really with the context of looking at Across our portfolio at Boston Scientific and areas we can invest in, whether it be in structural heart watchman, As well as understanding the venture portfolio that we have and the near term opportunities that we see coming over the next 12 months to 18 months. And quite frankly, when we look at the composite of opportunities across the company On pipeline products and our venture portfolio, as you know, we I think about half the deals that we've done in the last 2 years came from our venture portfolio. We feel that That's a richer opportunity set to invest our money in versus the Millipede program. Importantly, the Millipede program was making We've had some clinical success.

Speaker 2

It's a safe product. But when we look at the overall financial investment versus the market opportunity, We see better choices across our portfolio. And that really was the basis of it. In terms of our structural portfolio overall, Clearly, WATCHMAN is our biggest platform where we have multi generational enhancements coming to that Starting even in 2023 in clinical indications, the ACURATE NEEO-two trial is enrolling extremely well in the U. S.

Speaker 2

We're anxious to get that fully enrolled hopefully by the year end here. And we're seeing really nice success in growing share and growth in Europe. In terms of other mitral opportunities, we do have multiple venture investments in that area. But importantly, we have a lot of investments We're not going to detail through here in the heart in the emerging heart failure space that we like a lot in circulatory support, some organic programs And also in lithoplasty. So within the cardiology segment alone, there's a number of new opportunities that we see that we like.

Speaker 2

And Obviously, across our full business, we have others as well. So that was a decision we made and we think it was the best financial return on investment Looking at the portfolio broadly.

Speaker 3

And then with respect to the first question on M and A, Joanne, suffice to say the landscape and the pipeline is rich across The entire business, you heard me talk about it. We've been very consistent that our number one priority in capital allocation is high quality tuck in M and A And the list is long and we have a lot of interest in various properties across All seven of our business units. So likely not to see the level of activity that you saw in 2021, but you should certainly look for a handful of tuck in deals for us in full of tuck in deals for us in 2022.

Speaker 9

Terrific. Thank you so much.

Operator

The next question comes from Vijay Kumar with Evercore ISI. Please go ahead.

Speaker 10

Hey guys, thanks for taking my question. Dan, I just have one on the guidance here. If I just look at the EPS guide at the high end, it's about $0.08 below sheet numbers, right. If I correctly understand, right, if we have the moving parts here, the guide does not have Bayless and I think Street numbers had Bayless, probably that's some of the delta. Your comments on supply chain, Omicron, I mean, these were things that were known back in Jan, right, late December, early Jan.

Speaker 10

So It doesn't feel incremental, given your comments about gross margins being up. And it looks like a lot of this seems to be below the line in the tax and share count. So maybe if you could just walk us through that $0.18 delta versus REIT on EPS. Is that the right way to think about the EPS delta, this is all below the line versus operating margins for a top line issue?

Speaker 3

Sure, Vijay. I think I can probably be helpful in this regard. So from what I see, there's probably 3 key areas that would cause that difference. And I think you hit on a couple of them. First is the all in tax rate, which we've guided to 12% with that TCJA provision that I outlined, that's versus our historical 10%.

Speaker 3

So with each 100 basis points in tax Being worth a couple of pennies, that's a $0.04 difference to what folks might have expected. And you mentioned this, When I look at some street models, I think there's just some housekeeping and some modeling updates that need to happen with respect to those below the line We're very clearly today said those should be $400,000,000 for 2022. That's from what I see that's worth some pennies Well, depending on what folks have modeled. And frankly, the rest of the delta is that street revenue and operating margins is at the high end of our guidance range. And relative to that, believe our guidance range is appropriate to start the year given the lingering uncertainty on COVID and the staffing fronts as well as the macro environment.

Speaker 3

It's a long year. So we've got plenty of time left. And as we start the year, we wanted to make sure that we had a prudent range as we head into 2022. So that's the rest of the differences. If you look at that, the Street is just at the high end of our guidance range.

Speaker 8

So I think if

Speaker 3

you take those three factors, That does a pretty good job of reconciling the difference.

Speaker 10

That's helpful, Dan. Thank you, guys.

Speaker 7

Sure.

Operator

The next question comes from Daniel Antosin.

Speaker 2

I'm sorry, Balos maybe comment on that as well.

Speaker 3

Yes. And on Balos, as when we put out press release for that announcement of the deal, we said that was $0.01 accretive in 2022 and we were very clear that's not in our numbers today. So if that were to be in people's numbers, that Shouldn't be and when it closes, we'll add that penny back.

Speaker 2

Yes, I think just on all this margin EPS questions, we are Our goal is to improve margins and our goal is to get to 50%, but we want to provide a range given the environment and we'll stretch to and we'll push to do The tax rate is elevated given the what Dan's comments, the share count, the Bayless piece shouldn't be So in terms of operating the business, the goal will be to continue to improve margins like we've done consistently. And some of those below the line Matters on tax and share count,

Speaker 8

Dan laid that out. Yes.

Speaker 2

Sorry, go ahead, Andrew.

Operator

Not at all. Thank you. And the next question comes from Danielle Antalffy with SVB Leerink. Please go ahead.

Speaker 11

Hey, good morning, everyone. Thank you so much for taking the question. Not to I have one broad question and one WATCHMAN specific But not to harp on this guidance issue, but it seems like people came away from your comments a few weeks ago, A little bit more bullish about how to think about 2022. Dan, I just want to make sure that we have the messaging correctly that the wider range It's really reflecting more conservatism than anything that's materially changed versus a few weeks ago. That's my first I just have one quick watchmen follow-up.

Speaker 3

Sure. I think, I mean, some things have changed. Obviously, the tax rate Has changed as we've gotten into January. So that's we guide. We hadn't given tax guidance.

Speaker 3

We guide at the time of what the tax laws that are enacted at the time. And that's the 200 basis points. Relative to the macro environment headwinds, we actually have seen some things get a little bit worse in January, the COVID TISM in our manufacturing plants, we now have closed the books for Q4. We know what manufacturing variances are on the balance sheet as of the end of last year. And you've seen some of the data, recent data on inflation and the global supply chain disruption.

Speaker 3

So again, I wouldn't call it necessarily conservatism. I would just say we think it's an appropriate range and to state what Mike and I have said all through, 50 basis points is the goal. The 26.4 what

Speaker 4

we're going

Speaker 3

to work hard to deliver as a team. But given the macro environment, we just thought it was prudent to provide that range.

Speaker 11

Got it. Yes, understand. And then just a follow-up on WATCHMAN, given the competitive entry, I was just curious about what you guys are seeing from or expecting maybe is a better way to talk about it from a growth market growth Historically, cardiology markets, when they go from a monopoly to a duopoly, expand pretty meaningfully. Just it's very early days, I appreciate that, but sort of how you're thinking about the market expansion potential with the 2nd player now in the market? Thank you so much.

Speaker 2

Yes. They're a strong company and they're running good clinical trials just like we are, which are potentially could expand the Over time and it's an exciting market. We called at Investor Day a 30% growth market and we're clearly seeing that type of Market growth have not slightly more given what we saw in Q4. So the market is growing very well. I think the additional data that we'll continue to lay out with WatchmenFlex will continue to differentiate our platform in terms of its safety profile and ease of use.

Speaker 2

And we've got a very Strong global infrastructure in place. So there's just a lot of momentum there. And so we're quite confident. We're going to lose some share Given the 2nd player in our strong position here, but this will be a meaningful driver for us in 2022, just It's

Speaker 4

like it wasn't 'twenty one.

Speaker 11

Thank you, guys.

Speaker 2

Thank you.

Operator

The next question comes from Matt Miksic with Credit Suisse. Please go ahead.

Speaker 12

Hi, good morning. Thanks for taking the question. So I had One follow-up on some of the portfolio and investment and strategic Comments that you made regarding Millipede and so the other options that are out there. If you could talk maybe a little bit about one of the areas I don't think you mentioned was tricuspid and other sort of structural heart opportunities and as well as digital and any understanding HeartLogic is a big part of your CRM strategy. Maybe if you could comment on further investments there or to what degree you view either one of those And I have one follow-up if I could.

Speaker 2

Ken, you want to start with the HeartLogic stuff and then maybe Doctor. Meredith on the structure?

Speaker 13

Yes. Thanks, Matt. Again, we baseline everyone. Right HeartLogic is our proprietary diagnostic Compensation, and as we've discussed previously at Investors Day, right, our goal is to take that same technology and enable it on our Luxe DX implantable cardiac monitor platform broadening its applicability beyond just the heart failure patients who are eligible for ICDs, CRTD TD devices are really to broaden the entire population of patients with heart failure and we are currently engaged in a clinical Trial our LUX Dx trend study, that gets to exactly what the modifications are we need to make to the algorithm in order to bring it Onto that platform, but we do have a high degree of confidence that we will eventually be able to do that. And we have been granted breakthrough

Speaker 4

designation by the FDA

Speaker 13

in that effort. Nation by the FDA in that effort.

Speaker 2

Yes. And touch on the other areas

Speaker 8

in structural. Yes. Thanks, Mike. Thanks, Ken. With respect to Tricuspid, we see this as a very important field and a growing field, particularly with the aging population and increasing Burden of heart failure.

Speaker 8

As Mike said, the decision with respect to Millipede wasn't a decision to get out Mike Marshall and Tricusp, but it was simply a decision to focus on the execution of existing and future technologies we have both in the structural space and across the portfolio, we have continued interest in that tricuspid space and investments that we I'd outline here, but this shouldn't be taken as a decision to move away from The module and tricuspid space.

Speaker 12

Okay, great. And then just one follow-up. You have obviously a lot of Strong growth drivers contributing currently in Q4, but importantly throughout 2022, you have this cadence New acquisitions that are kind of rolling in, you mentioned the 200 basis points contribution to reported and not organic in Q1. Can you maybe just give us a thumbnail sketch of how the quarter to quarter, what those

Speaker 1

Matt, I can take that offline with you. We do talk about as they phase in PREVENTIS' first on March 1 and then the next one is really, Therapulse in August and then Luminess in But we can talk about that offline.

Speaker 12

Great. Thanks so much.

Speaker 2

Yes. I think the short story in that, there'll be obviously some benefit in 2022, primarily Preventis and some from Feripulse and a lot more benefit in 'twenty three as you anniversary the 1 year again our operational number. So there'll be some nice impact in 2022, but more limited and stronger in 2023. I think that was a question. I think What I'm really proud of in terms of as we finish the year is the share performance across the businesses.

Speaker 2

And I mentioned that in the script. Now beyond the acquisitions, which we're excited about that we did in 2021 and we'll do likely do a few more in 2022, just the overall strength of the portfolio and the strength regionally, Each region performed extremely well and Q4 is probably our best quarter for the year in terms of our share position across the company, where we feel like we We gained share or held share in every single business. And for the full year, the only really soft spot was some CRM, but 4th quarter had a nice quarter in CRM as well. So the trend exiting the year was quite good. We did provide appropriate guidance given the environment, The momentum that the business has regionally and across each BU, something we're quite proud of as we enter 'twenty two here.

Operator

The next question comes from Matt Taylor with UBS. Please go ahead.

Speaker 14

Hi, guys. Thank you for taking the question. I just wanted to ask you one about your assumptions for recovery. I didn't hear a lot of color that you gave on recent What's imputed into your range, the high end and the low end for recovery through the year?

Speaker 3

So to be clear, our assumption is that the macro environment factors of inflation and supply chain that they're present for all of 2022, but they wane throughout the year, right? Just as you look at the global supply chain disruption, as supplies continue to get more normalized, you would expect that that would We see that, but I don't think we're the only ones. We see that moderating as we go through 2022 As well with COVID, we're obviously, omicron has had impact in December and in the first part here of Q1. But as we look at the rest of the year, the goal is and the belief is that there'll be less impact in 2022 than there was in 2021. So we See a brighter future, particularly as you get to that second half as the macro environment gets a little bit better, COVID waned even more than it had in 2021 And that gives us reason for optimism as we go through the year.

Speaker 3

And just frankly, just relative to operating margin and gross margin, That should lead to higher gross margin and higher operating margin as we progress through the year. That's a historical trend that we've had in the past, but it also should be true in 2022 that it should get better as it goes through 2022 and that's underlying in the guidance that we gave. Yes, we've become pretty good at Seeing what happens with our business when there's COVID peaks and that's why you

Speaker 2

see wider ranges and you see how strong the business is when COVID wanes. So I'm not the expert on this anymore, that's for sure. But we do believe it will be a better full year COVID impact in terms of less impact in 2022 versus 2021 and you're starting to see some improving trends recently. So, it points to a Hopefully, this kind of what we saw December, January, February is the hopefully the toughest part in terms of COVID impact and Staffing shortages, and we expect that to get better as the year goes on.

Speaker 14

That's really helpful. Could I ask one quick follow-up? I mean, I guess, in this immediate period post Omicron, do you expect more of a quick snapback or more gradual recovery in terms of given what you're seeing so far and informed by prior periods?

Speaker 2

Well, I just look at this time last year, Dan will have all the numbers, but we saw a slower Q1 2021 and we saw a fantastic second quarter and then we saw a little slowdown in the 3rd quarter as another wave came and we had improved 4th quarter. So The business snaps business is quite good anyway. So it's not like it needs to snap back, but if the business is quite good And we see when COVID wanes, the business responds quite well, especially divisions like urology, neuromodulation and others who are more So we've seen a couple of year trend now, what happens during COVID waves and we've learned how to manage through that well, While improving margins by the way, and we also know when it wanes, the business is quite strong.

Speaker 14

Thanks, Mike. Thanks, Dan.

Speaker 3

Thanks, Matt.

Operator

The next question comes from Cecilia Furlong with Morgan Stanley.

Speaker 15

Great. Thank you for taking the questions. I wanted to ask just on your EP business specifically, can you talk about what you're Seeing in Europe, just in terms of early feripulse versus cryo versus RF trends? And then just beyond that as well, can you provide an update On your VERIPULSE U. S.

Speaker 15

Trial, where enrollment stands there as well as what you're seeing in Japan, specifically around Polarex? Thank you.

Speaker 2

Hey, Doctor. Stein, you want to answer that one?

Speaker 13

Yes. Thanks, Mike. Thanks, Cecilia. That's a lot there to unpack. Let me just start again With Europe and as Mike laid out in the script, we're really extremely pleased with the growth of the business in Europe and That growth really has been broad based.

Speaker 13

I mean, it's all three of the technologies that you mentioned, right? StablePoint, our unique catheter that combines force sensing Same with our proprietary DirectSense technology, PolarX, our differentiated cryo balloon We continue opening new accounts. In terms of our progress of the ADVENT trial in the United Again, we are very pleased with the pace of enrollment in the trial. As I think I've said in other settings, it's an adaptive trial design. So we can't tell you exactly How many patients we're going to need before we close it, but we continue to be on pace with what our expectation was When we closed deal and what we've said at, previously at things like Investors Day, and are very

Operator

Okay. And the next question will come from Pito Chickering with Deutsche Bank. Please go ahead.

Speaker 5

Good morning, guys. Thanks for squeezing me in here. If you drill into neuromodulation For the Q4, there was some COVID impact, which makes sense due to the durability of the procedures. But can you give us any color on backlog as to the staffing? And any color on geographic growth within that division, specifically Europe versus the U.

Speaker 5

S? And on the product side, any color on DBS growth as

Speaker 2

Sure. I'll do my best to try to answer some of that. Similar to our urology business, the neuromodulation business, And we've seen this kind of across the board with some elective procedures, kind of down quite a bit as COVID waves with cancellations And rescheduling and a bit of a frustrating process there, but you can't control the market all the time. And we've seen how quickly it snaps Back if you look at Q2, 2021 and what our results were Neuromod. But I think encouragingly despite the difficult market, full year it grew 90% versus 20% and flat versus 2019, 4th quarter grew 6% versus 20% and minus 7%.

Speaker 2

So that's actually faster than what our some of our competitors have outlined for the Q4. So we're pleased with the overall performance of the group. You can't ask them to do much more than Gain share and continue to invest in capabilities for the future and the market will improve. So I think that's a good signal for as you look at 2022 and beyond. And a lot of that's Being driven by just the innovation we have in that business and our commercial teams, this fast algorithm that we have with SCS and the data that was presented at NANS supports the share gains that we're seeing.

Speaker 2

And these clinical indications, there's certainly something that we're interested in. We are Enrolling in our, virgin back trial in 2022 and we have plans for DPN as well. So those will continue to expand the marketplace, but The market primarily in 2022 will be all about spinal cord stimulation and treatment of pain, which we're doing quite well in. DBS, It's a great story for us. We continue to invest in that business that has been impacted by COVID and that's another area that kind of snaps COVID wanes, but nonetheless has become a sizable business for us.

Speaker 2

We have a significant share position in Europe and the U. S. And we expect that to be again a nice growth driver for us

Speaker 7

in 2022. Great. Thanks so much.

Operator

This concludes our

Speaker 2

3,447,529

Operator

or 1-four twelve-three seventeen-eighty eight using replay code 30,993,127 until February 9, 2022 at 11:59 pm Eastern Time. The conference has now concluded.

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Earnings Conference Call
Boston Scientific Q4 2021
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