Q1 2021 Boston Scientific Corp Earnings Call
Good morning, and welcome to the Boston Scientific first quarter 2021 financial results conference call.
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I would now like to turn the conference over to Susan Lisa Vice President Investor Relations. Please go ahead.
Thank you Andrew and good morning, 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 Q1 2021 results, which included reconciliations of the non-GAAP measures used in the release.
We have posted a copy of 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 day, approximately one hour Mark will focus his comments on Q1 performance as well as future catalysts and the outlook for our business, including Q2 and fiscal year 2021 guidance, Dan will review the financials for the quarter provide more details regarding our Q2 and fiscal 'twenty one guidance and then we'll take your questions during today's Q&A.
Day session, Mike and Dan will be joined by our Chief Medical officers, Dr. Ian Meredith and 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 fluctuation and organic revenue growth further excludes acquisitions and divestitures for which there are no comparable period net sales relevant acquisitions for organic growth versus 2020 and 20.
19 include preventive, which closed March one 2020, and Verta flex and BTG Interventional medicine, which closed in May and mid August of 2019, respectively.
Best insurers include BTG specialty Pharmaceuticals, which closed March one 2021, and the global Embolic microspheres portfolio and entry uterine health franchise, which were divested in mid August 2019, and second quarter of 2020, respectively.
<unk> excludes the recently announced lumina surgical acquisition and the BTG specialty pharmaceutical businesses, which as I mentioned was divested as of March one 2021, one month earlier than originally anticipated.
For more information please refer to slide nine of our financial and operating 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 finally growth goals of 6% to 8% excluding COVID-19 represent comparisons between time periods in which results are not materially impacted by the COVID-19 pandemic of note. This call contains forward looking statements within the meaning of federal Securities law.
Laws, which may be identified by words like anticipate expect believe estimate and other similar words. They include among other things the impact of the COVID-19 pandemic upon the company's operations and financial results statements about our growth and market share new product approvals and launches clinical trials cost savings and growth opportunities our cash flow unexpected use.
Our financial performance, including sales margins and earnings as well as our tax rates R&D spend and other expenses 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 though at this point I'll turn it over to Mike for his comments, Mike. Thanks, Susie and thank you everyone for joining US today I'm pleased to reported good start to 2021 with a return to growth versus both 20 and 19.
Financial results that exceeded our guidance for both revenue and EPS and multiple significant clinical milestones and continued advancement of our category leadership strategy with new product launches and tuck in M&A, including prevented us from cardiac diagnostics and luminous which is a leader in laser technology for kidney stones.
Total company first quarter operational sales grew five 6% versus 2020 organic sales grew 6% for 23% versus 19.
Using the expectations as the second half for the quarter came in stronger than anticipated procedure recovery and market share gains across many of our businesses and regions.
Many of these gains were fueled by new and ongoing product launches most of that'll be a range or GCB ILUVIEN D. S. Polar Rex catheter Lux Dx implantable cardiac monitor and their precise genus deep brain stimulation platform.
First quarter adjusted EPS of <unk>, 37 cents grew 33% versus 25% versus 19.
The high end of guidance for three.
Primarily due to higher sales performance and spend controls.
Adjusted operating margin of 24, 3% was in line with our expectations and demonstrates solid progress from 2020, we're really pleased with our free cash flow generation of $213 million.
Adjusted free cash flow of $404 million.
We believe these better than expected results are indicative of our ability to regain our pre pandemic six year track record of excellent performance.
Cute against our strategic plan objectives and drive towards ex COVID-19 financial goals for 6% to 8% organic sales growth continued operating margin expansion double digit adjusted EPS growth and importantly, and a proven ability to deploy our healthy free cash flow.
We're encouraged by the outlook of the rest of the year and we are emerging from the headwinds of the pandemic well positioned given our category leadership positions innovative pipeline commercial execution enhanced digital capabilities and ongoing expansion into higher growth markets and we look forward to highlighting these capabilities with you further at our Investor day, this year, which will.
Be held on Wednesday September 22nd.
So looking ahead, we continue to expect a steady recovery from the pandemic with less of an impact from COVID-19 in the second quarter versus first quarter and more normal procedure levels in second half 'twenty one.
Given the first quarter outperformance, we're narrowing the range for both for your organic revenue growth and adjusted EPS.
So compared to 2020 were targeting second quarter 'twenty, one organic revenue growth of 44% to 48% and full year of plus 15 plus 18%.
Compared to 19, and we're targeting a second quarter organic revenue growth of 3% to 6% and for the full year growth of two to five.
Our second quarter adjusted EPS estimate is 36 to 38 cents and we're updating our full year adjusted EPS to revised range of $1 53 to $1 60.
Dan will also give the revenue contribution from prevent us and we continue to expect the second half of 'twenty one closed for luminous.
So now I'll provide some additional highlights in the first quarter 'twenty, one along with some commentary on second quarter and the outlook.
So regionally in first quarter on an operational basis versus 'twenty. The U S grew 9% Asia Pac grew nine Middle East Africa grew 2% in the emerging market sales grew 13%.
Growth in the U S is supported by a procedure recovery, particularly in March along with new product launches across the entire portfolio.
Europe Middle East Africa was driven by new product innovations with thick with particular strength in P. I E P and endo as the majority of markets grew in first quarter versus first COVID-19.
Even as some countries experienced lockdowns and related procedural impacts.
And Asia every market grew in the first quarter versus first quarter 'twenty.
And going forward in Japan, Despite COVID-19 uncertainties.
We expect full year growth versus 2019 day to the diversified portfolio and new product launches such as range or GCB stable point watchman flex and listen to you which is expected later in the year.
China sales grew 20% versus 2020 and were flat versus 19, which reflects the negative impact of tender pricing for drug Eluting stents and balloons.
Most of the China portfolio saw strong double digit growth in first quarter versus 19, with particularly notable momentum behind both complex PCI and imaging products as well as Endo Euro N. P. I, we continue to expect full year 'twenty, one double digit growth for China versus both 2020 and 2019.
And I'll provide some additional commentary on the business units.
Urology and pelvic health continued to expand market share and sales grew organically 9% versus 2020.
First quarter growth was balanced regionally with strength in stone and prostate health.
Highlights include continued momentum with space for review hydrogel, which drove double digit growth overall for the space of our business.
Resume also grew double digits fueled in part by the publication of the compelling five year results demonstrating resume is durability with a low for 4% re intervention rates for BPH patients.
And looking ahead, we're excited to continue to build out our stone portfolio and extend our global footprint with the acquisition of the surgical businesses luminous and it's leaving the laser fiber technology the deals expected to close in the second half of the year.
For Endoscopy sales grew organically, 10% versus 2020, and Endo continues to grow market share globally with double digit growth in all regions versus 19.
Led by strength in key franchises, such as pancreatic biliary hemostasis and infection prevention and thanks to recent launches and our differentiated technologies such as spyglass.
Discover and access.
Exalt D momentum is gradually improving as we've started to see capacity for hospitals to establish new protocols Hospital access has increased and the Medicare outpatient pass through payment.
We also continue to target launch of our single use bronchoscope in the second half 'twenty, one and remain bullish on the long term opportunity for single use scopes broadly.
In cardiac rhythm management sales were up 1% organically versus 2020, and we believe that our CRM performance was slightly below the overall market.
For the full year 'twenty, one we forecast a slight tailwind from the replacement cycle and anticipate beginning enrollment midyear and modular ATP, which is our dual track clinical study for a standalone <unk> pacemaker as well as to provide pacing and anti tachycardia pacing to emblem S ICD patients.
Our Lux Dx implantable cardiac monitor launches gaining U S share given its high quality ECG signals arrhythmia algorithm performance and streamlined backend monitoring.
We closed the prevent US acquisition as of March 1st and are pleased with the Ventas portfolio, which grew mid 20% on a pro forma basis for the full quarter.
And despite recent reimbursement challenges in one segment of testing long term ECG, we expect plus 20% pro forma growth for prevent us from 'twenty, one given its ability to offer all for testing modalities with body Guardian, many excellent detection algorithms.
We're excited to have such a unique position in the field of cardiac diagnostics and the ability to offer all diagnostic modalities.
Modalities, including ambulatory ECG, Lux, Dx, ICM and heart logic detection alert for heart failure.
Electrophysiology sales were up 8% versus 2020, and polarized, which is our second generation single shot cryo.
Oh catheter is off to a strong start in Europe, and taking share given its effectiveness and ease of use.
Stable point, our force sensing therapeutic catheter with direct sense is also enjoying a good start in both Japan and Europe and has begun enrollment in our U S. IDE trial called Newton a F.
In Neuromodulation organic revenue grew 2% versus 2020 in the first quarter result is an improvement sequentially. Despite the challenges of higher rates for spinal cord stim patient cancellations in December that also seeped into January and February due to the COVID-19 surge.
As patient reticence waned in March trends improved significantly and also helped by the ongoing launch of our Nexgen way brighter Alpha SCS system.
Alpha has driven excitement due to its fast and contour paresthesia free waveforms with MRI compatibility, which is also supported by our Cagny EDA software solutions that enhance the physician's ability to identify manage and maintained SCS patients.
And deep brain stimulation, our precise genus platform expands our MRI capabilities in both the rechargeable and non rechargeable segments with Bluetooth communication capabilities.
And interventional cardiology organic sales grew 7% versus 2020, and every structural heart franchise watchman accurate neo two and Sentinel delivered strong growth.
To watchman franchise accelerating its recovery growing over 30% versus 2020 with extremely positive physician feedback on flex device performance and safety and supported by the Pinnacle Flex IDE study that was published in circulation during the quarter.
Importantly, we completed the conversion to a consignment based model last quarter and accounts in the U S are now over 90% converted to flex.
We've also seen a step up in implants per center per week versus pre COVID-19 levels as more physicians planters adopt the flex technology.
And we continue to push for indication expansion as we enrolled the champion study and target enrollment completion of the option trial by the end of the year.
And <unk> are accurate neo two launch continues to do quite well in Europe, and we're pleased to announce that we've expanded our risk indication and are accurate neo two I D trial. The IV trial non look through it's all risk categories, including low risk type of patients.
We continue to target U S approval for all risk indications and market entry in 2024.
During the quarter as Sentinel, which is our cerebral embolic protection device reached a milestone of treating and 50000 patients cumulative cumulatively.
<unk> continues to enroll as protected <unk> randomized trial.
Coronary therapies grew low single digits versus 2020 with global strength in complex PCI and imaging.
This helped offset drug eluting stent price weakness in the U S and China and we continue to launch new products for complex PCI and are on track to begin enrollment in second quarter for the agent drug coated balloon study, which is a first in the U S for coronary in stent restenosis and we're pleased that agent has been designated a breakthrough device.
Peripheral interventions delivered strong performance continues to gain market share, where the Gannett sales up 8% versus first quarter 'twenty and interventional oncology grew high single digits versus first quarter 'twenty driven by the achievement of several important milestones for their sphere.
These include the recent PMA approval and hepatic cell carcinoma as the positive target study outcomes for featured as a late breaker at the society for an eventual radiology.
In addition, we were granted breakthrough device designation for the study of their sphere in patients suffering from Glioblastoma and aggressive form of brain cancer.
Performance in our venous franchise was led by mid teens growth in east coast versus 2020 and in arterial drug Eluting technologies also had a strong quarter as growth accelerated sequentially. Thanks to our category leadership strategy to offer both a differentiated D S and ECB as one of those sectors continuing recovery on multiple data.
That's proving the safety and effectiveness of these therapies for.
ILUVIEN EES inpatient add on payment and the ongoing U S launch of our range of GCB are helping us to drive share gains.
I'd also like to highlight two important sustainability accomplishments this quarter for.
The first is the publication of our performance report and as detailed addendum referencing the global reporting initiative guidelines and secondly place an eight on the Forbes list of America's Best employers employers for diversity in 2020 one we.
We remain as committed as ever to global sustainable economic environmental and social practices.
And overall, we're pleased with our early performance for the year and optimistic on the outlook, we continue to drive towards ex COVID-19 financial goals of 6% to 8% organic growth margin expansion driving strong cash flow and double digit adjusted EPS growth, while living our values with enduring commitment to sustainable business practices vary.
Very grateful for our employees for their winning spirit, and then I'll turn things over to debt.
Thanks, Mike.
First quarter consolidated revenue of $2 $752 million represents eight 2% reported revenue growth and reflects a $67 million tailwind from foreign exchange on an operational basis revenue growth was five 6% in the quarter sales from the prevent us acquisition, which closed March one contributor.
70 basis points more than offset by the divestiture of specialty pharmaceuticals, and our entry uterine health franchise, resulting in five 9% organic revenue growth above our guidance range of down 3% to up 3% versus 2020 compared to the first quarter of 2019 organic growth was.
3% above our guidance range of down 6% to flat this 3% growth excludes $15 million in 2019 sales of divested intrauterine health and embolic beads businesses as well as $160 million in 2021 sales of acquired businesses, which consists of one month.
For Ventas two months of specialty pharmaceuticals, and a full quarter of BTG interventional medicine, and Proto Flex topline results drove Q1 adjusted earnings per share of 37.
Representing 33% growth versus 2025% growth versus 2019, and exceeding our guidance range of 28 to 34.
Adjusted gross margin for the first quarter was 68, 9% slightly below our expectations driven by inventory charges and lower sales within higher margin businesses as expected the COVID-19 driven negative manufacturing variances capitalized on the balance sheet in 2020 should be substantially recognized in the P&L by the end of the second.
Quarter, enabling higher gross margins in the second half of the year.
First quarter adjusted operating margin was 24, 3% slightly above our expectations driven by strong sales and spend control as SG&A and R&D remained slightly below historical levels as a percentage of sales.
Moving to below the line adjusted interest and other expense totaled $97 million in line with our expectations our tax rate for the first quarter was five 9% on an adjusted basis and includes 240 basis points of benefit from discrete tax items within the quarter as well as a 190 basis point benefit from stock compensation.
<unk> accounting higher than previously expected.
Adjusted free cash flow for the quarter was $404 million and free cash flow was $213 million with $284 million from operating activities less $71 million of net capital expenditures.
Our goal is to deliver adjusted free cash flow in line with 2020, despite increased working capital headwinds in inventory and accounts receivable as we returned to more normalized volumes during the remainder of 2021.
As of March 2021, we had cash on hand of $2 billion, our top priority for capital deployment remains tuck in M&A.
We have capacity to pursue additional business development opportunities, while continuing to remain active with our venture capital portfolio and consider opportunistic share repurchase. We ended Q1 with 1 billion for 431 million fully diluted weighted average shares outstanding.
And now I'll walk through the guidance for the second quarter and full year 2021 for the full year. We expect 2021 operational revenue growth to be in a range of 14% to 17%, which includes an approximate net 100 basis point headwind from the divestiture of our entry either in health franchise and specialty pharmaceuticals.
Partially offset by the acquisition of prevent us.
Excluding the impact of acquisitions and divestitures, we expect organic revenue growth to be in the range of 15% to 18% versus 2020, and two 5% versus 2019 for the organic comparison to 2019 full year 2019 sales exclude $50 million and sales of our <unk>.
Embolic beads portfolio and intrauterine health franchise.
As well as $81 million in specialty pharmaceutical sales.
And at the midpoint of guidance 2021 sales exclude approximately $480 million in sales from recent acquisitions, including <unk> through may.
BTG interventional medicine through mid August.
Preventive as of March as well as $13 million of specialty pharmaceutical sales prior to divestiture.
For Q2, 2021, we expect operational revenue growth to be in a range of 42% to 46%, which includes an approximate net 200 basis point headwind from the divestiture of specialty pharmaceutical partially offset by the acquisition of preventive excluding the impact of acquisitions and divestitures we.
Expect organic revenue growth to be in a range of 44% to 48% versus 2020, and 3% to 6% growth versus 2019 for the organic comparison to 2019 2019 sales exclude $15 million and sales of our embolic beads portfolio, an entry into an health franchise.
And at the midpoint of guidance 2021 sales exclude approximately $175 million in sales from the acquisitions of vertical ex BTG interventional medicine and prevent us.
For adjusted operating margin, while we aimed for sequential improvement. We expect Q2 Q2 to be similar to Q1, as we remain flexible with investment opportunities and given strong Q1 performance.
Our goal is to average 26% adjusted operating margin in the back half of the year setting us up to exit 2021 at a higher level than full year 2019.
We continue to forecast our full year 2021 operational tax rate to be approximately 11% and now expect an adjusted tax rate of approximately 10% due to the Q1 discrete tax benefits and more stock compensation favorability than previously anticipated. We continue to expect adjusted below the line expenses, which.
Include interest payments dilution from our VC portfolio and costs associated with our hedging program to be approximately $400 million to $425 million for the year.
We expect fully diluted weighted average share count of approximately $1 435 million shares for Q2, 2021, and $1 billion and $436 million for full year 2021.
We are now raising the low end of our full year 2021, adjusted earnings per share guidance to $1 53 and.
And maintaining the high end of $1 60 in line with our update to sales guidance and Q1 results have removed some uncertainty from our previously wider range for the second quarter. Adjusted EPS is expected to be in a range of 36 to 38 cents.
Check our Investor Relations website for Q1, 2021 financial and operational highlights, which outlines more detailed Q1 results with that I'll turn it back to Susie who will moderate for Q&A.
Thanks, Dan Andrew Let's open it up for questions for the next 30 35 minutes or so as Andrew mentioned in it in order to and to enable us to take as many questions as possible. Please limit yourself to one question and one related follow up Andrew. Please go ahead.
Thank you we will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad.
If you are using a speakerphone please pick up your handset before pressing the keys.
If at any time. Your question has been addressed and you would like to withdraw. Your question. Please press Star then two again, please limit yourself to one question and one related follow up at this time, we will pause momentarily to assemble our roster.
The first question comes from Bob Hopkins with Bank of America. Please.
Go ahead.
No. Thank you and good morning, and congrats on a good start for the year.
First question I'd Love to ask is just on your <unk> 2021 revenue guidance.
I realize there's a lot of numbers flying around here, but to keep it simple I think you said your organic sales growth in the first quarter of 2021 over the first quarter of 2019 was 3% you expect an improvement on that same basis to 3% to 6% in Q2 and 2% to 5% for the full year. My question is that suggests you know kind of very little.
For incremental growth in the back half versus the first half so is that simply conservatism or is there something going on in the back half that we should be aware of.
Thanks, Bob.
I'll take that one I don't think theres anything going on in the back half I mean, we believe the guidance as is appropriate and I think you are correct. I mean, that's the best way to look at it it's probably versus 2019 to eliminate the COVID-19 impact in the base year and so the way I think of it as you look at Q1 and that was 3% right you look at Q2 and at the midpoint.
That's for 5%. So that's a nice acceleration you heard Mike talk about the recovery.
And we look for that recovery to continue in Q2. So the midpoint is that for 5% and then if you look at the full year range of two to five and you take the high end of five that implies that we're north of 6% in both Q3 and Q4 and so that's a nice acceleration from where we would be in Q2 at the midpoint and also it's worth noting.
<unk> that the comps versus 19 or 200 basis points higher in the second half. So are our comps for 19 were $6 six in the first half Q1 and Q2. So obviously an average of six and then in the back half day with 9% and seven for an average of eight so if you look at the high end of the five and you say.
You know that that implies that we're north of fixed that's in the range of that six to eight that we always talk about ex COVID-19 for our expectations. So we feel like as we look at the two to five full.
<unk> full year and then also the Q2 to three years to fix it we think it's appropriate.
That's super helpful. And then one quick question for Mike on just a geographic question Mark I was wondering if you could just comment really quickly on kind of what youre seeing in Europe, and Japan from a COVID-19 and surgical procedure recovery perspective.
Sure.
Bob in Europe.
Overall very pleased with the team's performance grew 2% in the quarter versus 23% versus 19, that's really despite some of the <unk>.
Lockdowns that you've seen so.
Some markets like the U K.
The business has been stronger.
<unk> picked up in Germany, some countries like Italy, and Spain that had been a bit softer. So we do anticipate those markets to get better as we as we expand over the second quarter given the improvements in vaccination like we've seen in the U S, but I would say.
The COVID-19 impact in Europe has been more choppy given the.
Slightly slower pace of vaccine rollout and some of the locked out for some of the countries, but nevertheless, the team did deliver positive growth versus 20 in 19.
And in Japan, really a similar story.
Vaccination rates are.
Lower there, but nevertheless, the team to grow versus 19, 1%, which is encouraging and we expect that business to the strength and as the year moves on and that supported by a number of product launches in Japan.
Primarily the DCP and <unk>.
The the stable point platform as well as some additional launches in urology. So the U S was the strongest market overall, China performed very well and some choppiness in Europe with some of the Lockdowns, but the team delivered nice growth there.
Great. Thank you very much thanks.
Thanks, Bob.
The next question comes from Robbie Marcus with Jpmorgan. Please go ahead.
Oh, great and I'll add my congrats on a really strong first quarter here.
You know I wanted to touch on I know a lot of your procedures from like two thirds are outside of the.
The hospital and the ASC setting and a lot of these are you know as we learned last year deferrable procedures.
To get a sense of how youre thinking about the potential for a backlog of patients to come through later this year and into next year and how sizable an opportunity that might be.
Yes, good morning, Ravi, it's a bit difficult to quantify we obviously tried to frame it with our guidance for second quarter, which we anticipate acceleration of our first quarter. Just if you take the midpoint and so that obviously implies improvement in that strength into the business.
And overall you saw our most susceptible businesses to COVID-19 all of them were susceptible, but the most sensitive where urology and neuromodulation.
And we saw quite a bit of softness.
In the first half of the quarter really through most of February, particularly in FCS and then we saw significant improvement in March and so we're quite bullish on that business, particularly in the U S where the bulk of that businesses in the U S and FCS and second quarter and second half and so we think that'll be.
Quite a bit stronger than it was in 2019 is stronger than it was in the first half of first quarter and urology you saw that urology numbers were quite strong.
In the first quarter. So I think to answer your question is a bit difficult.
With the COVID-19 improvement we anticipate.
Continued momentum based on the guidance that we gave but it's difficult to predict additional bolus is on top of that.
Yeah.
Got it yeah, I imagine it's tough for everyone to guess, how it'll play out maybe a quick follow up on structural heart.
Two things here, one you had again really really strong.
Watchman flex numbers and I saw it in the slides you mentioned that the accurate Neo two trial is now going after all risk patients.
So just thinking about the outlook for structural heart here and any color you could give us on how you see 2021, playing out and how the updated trial protocol might help you down the road. Thanks.
Yeah Watchman is doing excellent we got in the script. There we talked about we've had over 90, 90% conversion or ready to flex.
Youre seeing.
Same center utilization increase which is probably the most important metric.
Given the safety profile and the effectiveness of the device and the enthusiasm of electrophysiology.
The allergist and cardiologists to implanted and the growing acceptance of this from the referring for.
Physician community, so a lot of momentum behind watchman and.
And we think the consignment move with flex was a smart move for us. So that's all good news and Dr.
Dr. Meredith can kind of maybe comment a little bit on the accurate neo too.
E trial, if you'd like to thanks, Mike Thanks Robby.
<unk>.
Extinction of the trial the FDA approval. This week of the extension of the trial to all risk patient categories extreme high and intermediate and now low risk.
Certainly a significant step forward, we will have to increase the number of patients with non.
Do you expect the timeline for the trial to actually change.
Come approval to have the.
The approval for all patient risks will certainly increase the opportunity.
Yes.
Thanks Ravi.
The next question comes from Larry <unk> Olsen with Wells Fargo. Please go ahead.
Good morning, Thanks for taking the questions and congrats on a really nice quarter here.
One on the recovery one on Unwatched men. When you reported Q4 results I think January was still declining year over year.
February didn't seem like it was a great month with the weather and all so it looks like you must have seen a pretty significant acceleration in March can you talk about the trends through the quarter.
And what are you seeing in April apologies for the short term question, but obviously you know for.
For a lot of interest in that and I had one follow up sure I can take that one Larry Yeah, I think it's probably pretty consistent with what you've heard from other companies that are in our sector January looked a lot like December right a lot of COVID-19 impact globally.
And then February was a bit of a tale of two halves. So the first half was weaker in the second half we saw some recovery both from the anticipation of the weather some increase vaccination rates and just the.
The strength of the overall procedure volume and then March.
To recover beyond that so was it largely in line with what others have said and I think what.
What you would probably expect I'm not going to get into specifics on April but I think you heard my comment that our guidance includes a continued recovery in Q2 and into the second half. So I think that's that's.
That's what we will say on that.
That's very helpful. And then on watchman nice acceleration here to 30, 34% growth over about 18% in Q4, just looking ahead you know.
Just wanted to give you guys an opportunity to comment on new competition in the U S.
Two things one the streets.
The consensus is about 30% share for them to take and my question is can you still grow watchman in 2022 with new competition any high level thoughts on those type of metrics, if you're willing to comment would be helpful. Thank you for taking the question.
For sure our expectations that will grow in 2022, the watchman business.
It has a lot of momentum now a lot of acceptance of the flex device and as I've mentioned utilizations are growing.
A number of clinical trials that are also in process and we also have a robust pipeline for watchman in the future so theres more and more to come from watchman beyond behind flex.
Also just the therapies as you know it's so early.
Awareness for the referring physicians, whether it be cardiologist Gi doctors neurologists continues to expand.
<unk> seen great outcomes for their patients. So I think the acceptance level of watchman continues to grow and the market opportunity, it's a multibillion dollar market and.
In the future.
So we think the market will continue to grow at very very healthy.
These positive outcomes are driving more and more momentum our expectation certainly to grow in 2022.
Thank you Mike.
The next question comes from Vijay Kumar with Evercore ISI. Please go ahead.
Hey, guys congrats on the nice breaks here.
Mike maybe.
One on cardio.
I think this with some noise from S. ICD, we called for in.
In the context of <unk>.
<unk> Luxe ICM share gains.
No.
Now, perhaps coming in slightly better.
Let me pause there was more than enough for the opposite I guess.
For the CRM headwinds.
Thank you.
Dr. Stein will comment a little bit of S. ICD in a minute I think you really captured the.
The full portfolio picture here and so we did see a little bit of softness in CRM in the quarter.
We think we may have lost a little bit of share at sequential quarter over quarter growth.
Versus 'twenty.
Its very minimal share loss.
It's typically it's been common in the in the leave the pacemaker market were weak although the share loss I would say it has reduced or more stabilized as we think that that segment.
Is approaching full penetration in terms of that the single chamber. So although we lost share there I would say that elements declining and we had a little bit of softness and in defib with the S. ICD.
Actions, but that business is beginning to rebound.
A rebound and Dr. Stein can comment on it.
Importantly, as you said.
Our full diagnostic portfolio with prevented us and luxe and the acceptance of luxe will be a nice tailwind for us in 'twenty, one and 'twenty, two and our <unk> business was quite strong in Europe.
<unk> in the U S, where we don't have some of these product approvals. So net debt as you said the diagnostics business will help offset some of the.
Softness in CRM and EP in Europe, and Japan in particular.
Offset some of the U S. So those are certainly additive and beneficial to the CRM growth profile and maybe Dr. Stein, if you want to comment on S. ICD.
Right.
Yeah.
It looks like cancer, Dr. Stein is not available.
It may come off mute sorry, yes.
Yeah. Thanks, Thanks, Mike and as Mike said, we did have a softer quarter with S. ICD related to the advisor is we fully expect that to recover.
The message is penetrated to physicians that the overall performance for the yesterday C D system and Esa C. D lead in particular is at least as good as the best transient suites on the market.
Having said that we do have an enhanced lead in development that debt should help resolve any residual concerns and very excited as Mike said in his prepared remarks to beginning our empower trial, which is the trial of a <unk> pacemaker designed to work in concert with the S. ICD.
Thereby preserving all of the unique benefits for the S. ICD in terms of reduced procedure complications reduced risk of infection, while bringing the capability to proof of identity check acordia pacing and greater clarity of pacing reliably to patients who need it.
That's helpful and then Dan one quick guidance questions for you I think.
The updated EPS guidance.
One just remind us.
That does not include Luminesce correct, I think people were expecting a couple of hundred milanov revenue and some EPS accretion in gross margin step up second half.
Was the impact from the manufacturing variances in Q1, and any sense on what the step up for being back half. Thank you.
Sure. So the luminous acquisition is excluded from guidance that has not closed so that you are correct that excluded and the way.
We obviously think of operating margin at the at the bottom line with all the individual components of.
Gross margin and SG&A and R&D.
But it's specific to gross margin, we wanted to be approaching 70% in Q1, we ended up as I said slightly short of that because of some inventory charges and some lower sales in some of the higher margin businesses. Obviously, you look at neuroma has one of the best gross margins.
All of our businesses and that was the most impacted by COVID-19. So.
Confident that as we go into Q2, we will get back to that approaching 70, and then as you get into the second half, we're not going to we're not going to get back to the 2019 levels of 72 for but we should see improvement.
Because of the COVID-19.
Inefficiencies in some of the things that are specific to COVID-19 should start to dissipate, but also that's normally what happens in a year, where we have the first half margins from a gross margin perspective are almost always lower than the second half because we have the inventory revaluation that happens in the first half and if you look back.
Over the last for a five year second half gross margin is always better than the first half. So we could we believe that trend will will continue. So if you think of our second quarter approaching 70% and then better than that in the second half and that gets back to the overall adjusted operating margin commentary that says we want to get back to averaging 26 in the back half of 2012.
The one which is in.
In line with the overall full year 2019 levels, which should set us up well for for 'twenty two and beyond.
Thanks, guys sure. Thanks for your team.
The next question comes from Kyle.
Room with true as Securities. Please go ahead.
Hi, guys. Thanks for taking our questions. So first would love to just hear how they prevent as integration is going and how our exit strategy with that business has changed at all just given the reimbursement updates in the extended wear ECG markets a few weeks back.
Just to be curious you know what will you still be able to service all categories of patients or do you plan to and any thoughts on that would be super helpful.
Sure. Yeah, we are quite pleased with that that closed I guess from Mark standard right and.
And I just met with the team last week in Minnesota, So the business performed quite well and.
The first quarter.
And we're quite bullish on that business going forward, you've heard the strategy before.
We think we're differentiated we're the only company that can offer for full range of diagnostic.
Modalities for different ones within that prevent us our portfolio and they combine that with the the ICM business that we have in heart logic on our at our at our Icd's. So we think that provides a differentiated suite of diagnostic tools for for physicians and the beauty of that prevent us platform as they're able to toggle.
Between different diagnostic modalities within the same device.
And so they are quite sophisticated algorithms that can all be done remotely and so others. Although there is some pressure as you mentioned in the extended holter in terms of reimbursement.
The other parts of that business continued to grow and due to the inherent flexibility of the platform you're able to.
<unk> patients into these different modalities dependent on what the patient need maybe or maybe the reimbursement circumstance. So I think that capability provides us a lot of flexibility and you tie it together with our Lux loop recorder, which is doing quite well it gives us a strong portfolio. So we're very bullish on the business and.
Excited for the rest of the year.
Great and then just I mean, what would prevent is locked in and Illumina is expected to close in the second part of this year, how should we think about just the appetite for M&A going forward. Thank you.
Well the good news is as I said, we have $2 billion of cash on the balance sheet today.
And our our.
Number one priority remains high quality high growth tuck in M&A.
Really pleased with our with the preventive and aluminum for acquisitions, obviously preventive having closed luminous clothing. Hopefully later. This later this year.
So we have the appetite and we have the the balance sheet in place to continue to do that and that feels like maybe one or two more of those tuck in acquisitions that we could get done here in 2021.
Great. Thank you sure.
Yeah.
The next question comes from Cecilia furlong with Morgan Stanley.
Please go ahead.
Thanks for taking our question I guess I wanted to start off with the EP business and your comments around polarized, but really what you're seeing early days of adoption of polar X in Europe as well as just overall portfolio performance.
Dr. Stein you want to take that one if you have it on polar X in Europe.
I am happy to take that one day.
Very pleased with the commercial uptake of polar mix in Europe to date again Likewise on track right now with her IDE clinical trial.
In the United States, which is called <unk>.
The frozen a yes.
It's been interesting launching a new product into a pandemic, but in spite of everything with COVID-19.
I think it's become clear to physicians using it that there are really quite a few competitive advantages. This has versus the first generation cryo system. That's it's out there and we're pleased with the safety results and very pleased with the efficacy and ease of use that we're seeing in Europe.
Great. Thank you and if I could ask also just on structural heart and what you've seen with Sentinel and protect it hover post Lotus removal from the market and then just any update on millipede in the U S S. Steve talked about thank.
Thank you.
Dr. Mark do you want to take these subtle pushing it. Thanks Mark. Thanks for the question as simple as continues to do well we are operating in more than 800 accounts for over 800 accounts Bulls volume to them.
The protected Teva.
Teva trial is recruiting very well to spot COVID-19.
And as you know Thats a 3000 patients.
<unk> randomized trial.
James.
Standard of care, so we feel that the results of that trial.
Should provide.
Good evidence for a long term Houston standard of care for cerebral Embolic protection.
So the trial is recruiting very well at the present.
There was a question on the millipede early feasibility trial, yes. So the amendment. Thank you Sean the millipede early feasibility study is underway we received the.
FDA approval too for the apex study for the U S.
We currently have for Fox thoughts.
Screening and recruiting.
Trying to identify appropriate patients for that.
For that Philly feasibility study so we expect to have patients recruited.
From the first half of this year over the next couple of months.
Okay. Thank you.
The next question comes from Rick Wise with Stifel. Please go ahead.
Hi, Good morning, My Acquaint Dan.
One Big picture question is on a product question.
When I look at the regions the organic growth obviously.
U S Asia Pac our emerging market strong.
Clearly the library.
That's not shocking or surprising, but how are you thinking about the recovery in those regions.
What are you how are you thinking about it.
Offering up your guidance now.
Second half recovery or it takes a year if any.
Any incremental thoughts there.
Yes, I would say just maybe a couple of other insights there our middle East North Africa business, which.
Which historically had been.
Not prioritize enough in terms of capabilities, we've really invested in that business, Eric <unk> and the team.
Past few years, and you're seeing that business begin to scale up.
And that actually did quite well in first quarter. So we expect continued momentum from that mid East North Africa region, but and more that the general European business, We do expect improvement in that business throughout 'twenty one.
It had a softer.
Business as Dan mentioned more broadly in January February some countries or are more normalized not quite normal, but more normalized based on vaccine rates and some as you know, Italy and others have been more locked down, but we do anticipate those region strengthening throughout the year. So overall I'm.
Quite bullish if you look at the European business versus our peer set you've.
We've done quite well in terms of share taking and most of our businesses and despite the lockdowns. They did put up positive growth in the quarter and we do anticipate that improving throughout 'twenty one.
Great.
And on the product from my God, you, you mentioned debt exalt people medicine.
I think your words were gradually improving.
Maybe you could help us understand before you at the end of March we spoke to.
Nine or 10 gastro neurologist.
They all highlighted for you.
Yes, Chris.
So indicated.
Debt there.
If you have questions about reimbursement.
First gen technological limitations, the lack understandable lack of its early clinical data.
How should we think about those concerns how you're addressing that Ben and we're from here with exalt D. Thanks, so much.
Yeah. So this is a long term investment for US as you know it started off with a list of view and spyglass that had some similar commentary.
To Exalt D.
That had similar commentary three or four years ago. If you if you recall and so we're quite committed to this segment, we've seen that benefit will look for viewing spyglass.
And we expect similar results over time with Exalt D and we're really just kind of a chunk in these out and making enhancements all the time, you've seen improve reimbursement in the outpatient setting.
There's been some news recently just last night on the untapped.
For <unk> that just happen I think it was just published yesterday or early this morning, which will help with reimbursement in the inpatient center.
So you're seeing stronger improved reimbursement capabilities in general for.
For the Exalt D with the GPT and now the <unk> tap, which is exciting news and on the debt. The device itself. It's a five 10-K device and so with that the team will continue to make enhancements to that platform like we've done with lots of you inspire too so you'll see some additional enhancements to the product.
In the second half of 2021.
And the other piece as you mentioned is impacted by COVID-19 and so now we are seeing some improvement in there, we're placing more capital and you're seeing some some.
The stronger uptake.
In March than we had earlier.
So we're bullish on it it's not going to be a.
We expect a steady.
Improvement in the steady growth cadence of this rather than a hockey stick, but they improve reimbursement.
COVID-19 subsiding overtime will certainly help the dynamics of this business and throughout 'twenty one.
That's great. Thanks, so much.
The next question comes from Matt mixing with credit Suisse. Please go ahead.
Okay.
Mr. <unk> your line is open.
Next question Adrian.
We'll go to the next question. Thank you that will come from Josh Jennings with Cowen. Please go ahead.
Good morning, Thanks for thanks for taking the questions I had a follow up on the millipede question I just wanted to.
She is Mike for Dr. <unk> be willing to just give us an update on your views of the Transcanada Little catheter mitral opportunity just Mark do you believe it's a it's a multibillion dollar opportunity and then any updates on Boston strategy for many here more in the September Investor day, but you know millipede here internally.
<unk> zone.
And they're in place.
What is the strategy from here.
Boston.
Transcatheter mitral.
Okay. Thanks fair enough. So the question first.
Much of a valve disease, particularly mitral regurgitation is at least three times more prevalent than Iowa, So notices and with an aging population and increasing burden of heart failure and heart failure being a driver to mitral regurgitation.
This is a huge global opportunity and indeed, a multibillion dollar opportunity. So I think the prevalence and the globally.
Demography really point to this being a significant opportunity there.
The mitral valves in the aortic valve are very different.
Mitral valve as you well know is a complex structure. So there's no one single device that will actually serve to treat module valve disease.
As we often say of young the similarity between the aortic and mitral valve is the wood valve.
The rest are in here.
It's completely different so Marshall requires a toolbox approach if you like in order to treat that so.
The foundation or the most important foundation for trading Nacho valve disease, particularly functional mitral regurgitation is an annuloplasty device and that's why we have focused on a trends venous trans septal module Annuloplasty device. This is a permissive to technology that allows you to add in.
Whatever other appropriate strategy is needed to tailor the solution for the module Pompe disease. So we have a thoughtful strategy as to how we can build out the toolbox approach. However.
To effectively trade what is the largest single valve condition on the planet.
One final question. Please.
Thank you and that will come from Danielle and healthy with us the SBB Leerink. Please go ahead.
Hey, good morning, everyone. Thanks, so much for taking the question congrats on a really strong start to the year and I just have one high level question and it's around you've heard a lot of your large competitors talk about COVID-19 sort of putting them in a stronger competitive position than they were pre COVID-19 and I suspect some of that has to do with you know.
Stronger relationships with your hospital customers purchasing.
Or for breadth across the portfolio and R&D productivity like I'd be curious to hear about how you think Boston competitive positioning has changed with some of the shifting trends as it relates to COVID-19. If it's changed at all thanks, so much.
Sure.
COVID-19.
Come in the script, we had grown faster than most of our peers not all of them, but most of them for six to eight years and obviously our portfolio with it COVID-19. So now that the it's waning we anticipate we'll get back to that above peer group growth.
Supported by our <unk>.
<unk> positions in many of our markets and this quarter, we gained share in many segments not everyone, but most of our segments, we gained share and our pipeline of launches from really leftover from 2020, which the team did a nice job, which we can launch in 'twenty, one and beyond and future pipeline is quite strong and it does.
Like many companies we've really.
Beefed up our digital capabilities over the past 12 months, that's been a benefit of COVID-19 everything from physician training to Procter into our internal training and efficiencies that we have there. So we've made a pretty significant investment in our all things digital over the past 12 months, which will service well.
And.
You've seen also the continuing besides the.
Expectation to grow faster than peers supported by the pipeline.
Ongoing adjacent markets that we're moving into their faster growing you saw great results.
Our results out of their sphere in the Y 90, and the BTG acquisition overall, and they're very consistent results there and now recently supported new acquisitions with prevent us and and luminous so.
Our core business not every single business, but the majority of our businesses. We are quite confident we'll grow faster than the peer grouping faster and gained share and we continue to expand into faster growth markets and also expand our capabilities in China, and middle East and North Africa.
Thank you.
Yes.
This concludes our question and answer session I would like to turn the conference back over to Susan Lisa for any closing remarks.
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