Q2 2022 Boston Scientific Corp Earnings Call
Good morning, and welcome to the Boston Scientific second quarter 2022 earnings call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing Star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions.
To ask a question you May press Star then one on your telephone keypad to withdraw your question. Please press Star then two please note. This event is being recorded.
I would now like to turn the conference over to Lauren St Barth, Vice President Investor Relations. Please go ahead.
Thank you Andrew and welcome everyone and thanks for joining US Tonight 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 Q2 2022 without the gene.
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 will be approximately one hour Mike will focus his comments on Q2 performance as well as future catalysts and the outlook for our business, including Q3 'twenty.
2022, and full year 2022 guidance, Dan will review the financials for the quarter provide more details regarding our Q3 and full year guidance and then we'll take your questions. During today's Q&A session, Mike and Dan will be joined by our Chief Medical officers Doctor, Ian Meredith and Dr. Ken Stein.
Before we begin I'd like to remind everyone that on the call operational revenue excludes the impact of foreign currency fluctuation and organic revenue growth further exclude acquisitions and divestitures.
For which there are less than a full period of comparable net sales relevant acquisition is excluded for the organic growth our preventive surplus alumina surgical which closed in March August and September of 'twenty, 'twenty, one respectively, as well as Baylis medical which closed on February 14th 2022 divestitures include the BTG specialty pharmaceuticals, which closed on March one 2021.
Guidance excludes the recently announced agreement to purchase the majority stake of <unk>, which is expected to close in the second half of 2022 for more information. Please refer to 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 this call contains forward looking statements within the meaning of federal security.
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-19 pandemic upon the Companys operations and financial results statements about our growth and market share, new and anticipated product approvals and launches acquisitions clinical trials cost savings and growth opportunities our cash flow unexpected.
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 them.
At this point I'll turn it over to my first comment. Thanks, Lauren. Thank you everyone for joining US today, we're very pleased with our second quarter performance and our strong outlook for the full year supported by our innovative portfolio commercial execution clinical evidence and strategic tuck in M&A.
In second quarter, 22% total company operational sales grew 10% versus prior year, while organic sales grew 7%. Despite a strong comp of 9% organic growth in the second quarter 'twenty one versus 2019.
Our sales results exceeded the high end of our guidance range of 3% to 6% importantly, we continue to grow faster than our peers and most of our businesses and regions second.
Second quarter adjusted EPS of <unk> 44 cents grew nine 6% versus prior year again exceeding the guidance range of 41% and 43.
Second quarter adjusted operating margin was 25, 2%, which is in line with expectations.
We anticipate more durable and consistent procedural growth for the remainder of the year.
As hospitals continue to manage through staffing challenges and Covid waves.
Our first half revenue performance was eight 1% and we anticipate growth to accelerate in the second half and therefore, we are increasing our full year 'twenty two guidance for operational growth.
From 10, five to 11, 5% and organic growth to plus 8% to 9%.
For third quarter 'twenty to revenue, we're guiding to operational growth of 10% to 12% and organic growth of eight to 10.
We aim to improve operating margins in 2022, however, with the ongoing impact of supply chain challenges. We are updating our adjusted operating margin to 26% to 26, 2% for the full year as a result of FX volatility and additional supply chain related operating margin pressure, we are narrowing our full year 'twenty.
<unk> adjusted EPS guidance to $1 74 to $1 77.
Our third quarter 'twenty, two adjusted EPS estimate is 43% to 45.
And Dan will provide more details on both of these sales and EPS performance and the outlook.
I'll now provide some additional highlights in the quarter along with comments on our 22 outlook.
Regionally the U S delivered operational growth of 7% versus prior year and sales in the quarter included a transient impact from the contrast dye shortage primarily impact on our coronary therapies watchmen MPI business.
In Europe Middle East Africa, our business grew 12% and an operational basis versus prior year, we had excellent broad based growth across the EMEA region with five of eight business units posting double digit growth.
Key products in emerging markets within the region are driving growth across the portfolio with particular strength in electrophysiology watchman in interventional cardiology therapies.
In Asia, we grew 11% operationally versus prior year, we're quite pleased with the overall performance of the region. Despite the impact of Covid and Covid and related public health measures within China.
Notable performance in Japan, India, and ASEAN countries.
We continue to make progress with new products and commenced the first watchman flex cases in China, Korea, Singapore and Malaysia.
The China team executed well in a very tough environment growing 9% and performing in line with our expectations. We remain confident in the team's ability to drive double digit growth for the full year 22 supported by our diversified portfolio.
Commercial execution.
Latin America grew 33% operationally versus prior year and I'll bet, all eight business units. So the vast majority of countries grew double digits in the quarter.
Urology and public health organic sales grew 7% and 16% on an operational basis versus prior year.
Globalization continues to be a focus with 44% growth within emerging markets, driven by new and ongoing product launches such as Lithia view and space or in key countries with momentum continuing with the recent approval of the tree affirm ureteral stent in China.
We continue to be pleased with the luminous integration and execution of the globe.
Turning to endoscopy sales grew 6% organically versus prior year broadly this diverse business continues to perform well with products like our innovative vaxjo stent, Elisa indicated for trans gastric and trans duodenal access.
We also continue to see strength in our single use imaging franchise.
With exalt D expanding to new accounts and driving utilization.
To further broaden our portfolio, we announced an agreement to purchase a majority stake in M. I attack, which includes the novel <unk>.
Aro stent technology, a family of conformable self expanding metal stance. This agreement is expected to close in the second half of 2022.
In Neuromodulation organic revenue declined 1% versus prior year against a very challenging year over year comp with the U S launches of wave writer Alpha and precise genus along with Covid procedure recovery in second quarter 'twenty one.
And paint sales grew sequentially in the second quarter with physicians excited about our robust and innovative portfolio of offerings for FCS, including wave rider Alpha fast therapy and that cagny their practice optimization suite of solutions.
And brain performance also improved sequentially with a U S launch of the neural navigator software.
With Stim view X T, which is our integrated imaging and programming platform developed in partnership with brain lab.
And cardiology organic sales grew 8% versus prior year and operational sales grew 12%.
Within cardiology, interventional cardiology therapies organic sales grew 6% versus prior year.
Our coronary therapies franchise grew mid single digits led by double digit growth within our imaging business as our V go to guidance system moved into full launch in the U S.
Internationally strong growth continues driven by our innovative and comprehensive portfolio for imaging preparing in treating complex coronary disease.
Physician enthusiasm for accurate Neo two continues supported by ongoing clinical data that further validates the differentiated enhancements enhancements of neo two including the Italian near registry, which demonstrated reduced rates of PD L. Low P. P. I excellent hemodynamics and high device success rate and more than <unk>.
900 patients.
Turning to watchman organic sales grew 17% versus prior year growth accelerated sequentially on a comp adjusted basis with strength across the region.
With a full launch of flex in Japan market share gains in Europe and increased penetration in the U S. As we continue to drive awareness with ongoing clinical evidence and our second generation device.
We remain confident based on our ongoing discussions with FDA that our DAP submission will be approved in the coming months.
And he uses adapt with flex was recently highlighted in real world data with more than 17000 patients with the N C D. Our registry.
This demonstrated no significant difference in rates of major events at 45 days post implant.
Whether patients were discharged from the hospital on adapt the Doe and aspirin or warfarin in Ashburn.
In rhythm management organic sales grew 7% versus prior year.
Core CRM, we anticipate that our growth was at or above the market with our low voltage business growing mid single digits and our high voltage business growing low single digits.
Our S. ICD franchise continues to form well further supported by positive data from the investigator sponsored Atlas trial presented at HRS earlier this year.
The Atlas trial compare to emblem S. ICD to single Chamber Trans venous ICD devices and demonstrated similar protection from sudden death and superiority from Sirius lead related complications at six months.
Our diagnostics business continues to perform well outpacing the market driven by the preventive portfolio and our implantable cardiac Lux Dx.
In electrophysiology sales grew 9% on an organic basis, and 67% on an operational basis versus prior year.
Second quarter performance was led by strength and differentiation of our portfolio in Europe and Japan. We're pleased to have completed enrollment in both the Newton AF trial and the advent trial imports.
The important steps to expand the offering of our stable point for sensing catheter in the U S. In 2023 and fair a pulse in the U S. In 2024.
Physician enthusiasm is very strong for both our polar Rex and fair pulse platforms in Europe , and we're looking forward to increasing our account openings in the second half of this year.
The <unk> team continues to execute well with strong performance in the quarter led by adverse across RF access system.
The integration is on track and we're excited to have launched the balas developed versa Cross connect L. A a C solution to provide safe and more efficient access to left side heart for watchman flex implants.
In peripheral interventions organic sales grew 6% versus prior year.
Within the arterial franchise, we had another very strong quarter of double digit growth in the drug Eluting portfolio is ranger and Ah lunar Olivia solidify their positions in key global markets and.
And Venus the U S clot management business was impacted but in the quarter by the both the transient impact of the contrast shortage as well as by competition.
Largely offset by strength in bare Athena sales as we continue to expand market share with our innovative offering.
Interventional oncology grew low double digits in the quarter fueled by our innovative cancer therapies, there are severe and ice FX.
As well as the robust set of embolization access delivery tools that we offer.
Globalization remains a significant opportunity in this space and notably we have commenced treatment of patients with hepatic malignancies, and the Hainan province of China with their their sphere through a medical a pilot program.
Outside of the Hainan province, they're stroke treatment in China is restricted to the Mandarin clinical trial.
Earlier this quarter, we issued our annual performance report, which showcases our commitment to corporate responsibility and progress toward our longer term goals. In this report we highlight key metrics in support of our efforts include performance against our first human capital scorecard, which tracks companywide goals and as part of the Companys annual bonus plan.
You can access this reported at any time through our Investor Relations website.
We're very pleased with our first half results and the outlook for 'twenty, two and beyond despite the macroeconomic challenges we continue to face our innovative portfolio of category leadership strategy commercial execution and commitment to ongoing clinical evidence.
<unk> is well today and into the future. We look forward to hosting an investor event at TCT. The September will provide more details as they are available.
While the macroeconomic environment continues to be challenging we remain committed to our long term financial goals continuing to grow sales faster than underlying markets operating margin expansion double digit adjusted EPS growth and strong adjusted free cash flow.
I remain very grateful to our employees for their winning spirit I will now turn things over to Dan to review our financial performance in more detail. Thanks, Mike <unk>.
Second quarter consolidated revenue of $3 billion $244 million represents five 4% reported revenue growth versus second quarter of 2021 and reflects a $130 million headwind from foreign exchange higher than our expectations due to the strengthened U S. Dollar. Excluding this 420 basis point headwind from foreign exchange opera.
<unk> revenue growth was nine 6% in the quarter quarterly.
Quarterly sales from the acquisitions of Ferro pulse luminous and balas contributed 300 basis points, resulting in a six 6% organic revenue growth exceeding the high end of our guidance range of 3% to 6% growth versus 2021.
Strong top line results, primarily drove Q2 adjusted earnings per share of 44.
Representing nine 6% growth versus 2021 and exceeding the high end of our guidance range of 41% to 43%.
Adjusted gross margin for the second quarter was 74% in line with our expectations. Although we've seen some stabilization in the cost of freight we do anticipate incremental second half headwinds of approximately $75 million versus pre COVID-19 levels, resulting from inefficiencies in our manufacturing plants do.
The availability of direct materials and the cost to procure them. This incremental $75 million brings the total headwind versus 2000 $19 million to $375 million recall. This headwind is primarily driven by inflationary pressures on direct materials freight and labor costs as well as inefficiencies in our manufacturing plants due to material.
Availability.
We now expect our full year adjusted gross margin to be slightly below the second half of 2021 adjusted gross margin of 78%, we anticipate a slight improvement to adjusted gross margin in the second half due to the full realization of standard cost improvements consistent with historical trends as well as an FX tailwind from the stronger U S dollar.
<unk>.
Second quarter adjusted operating margin was 25, 2%, resulting in a first half adjusted operating margin of 25, 5% as a result of the increased macro economic pressures on gross margin. We now anticipate our full year adjusted operating margin to be within a range of 26 to 26, 2%.
Despite these macroeconomic headwinds we're focused on margin improvement versus the second half 2021 average of 25, 9% without range, representing 10 to 30 basis points of operating margin expansion on a GAAP basis second quarter operating margin was 13%, including a charge related to ongoing IP litigation moving.
Below the line adjusted interest and other expense totaled $74 million in the quarter lower than our expectations driven in part by a one time FX gains from certain unhedged currencies.
Our tax rate for the second quarter was 12, 8% on an adjusted basis, including discrete tax items and the benefit from stock compensation accounting. Excluding these items our operational tax rate was 14, 3% in line with our expectations.
We ended Q2 with $1 438 million fully diluted weighted average shares outstanding.
Adjusted free cash flow for the quarter was $593 million and free cash flow $204 million with $307 million from operating activities less $103 million net capital expenditures for full year 2021, adjusted free cash flow, we continue to aim to be at or.
<unk> 2021, adjusted free cash flow of $2 2 billion.
As of June 30 of 2022, we had cash on hand of $276 million and we continue to expect to close the purchase of the majority stake of <unk> in the second half of 2022 funded with cash on hand, our top priority for capital allocation remains high quality tuck in M&A, and we will continue to assess opportunities.
In conjunction with our financial goals, we continue to expect leverage of two five times by year end 2022, and as of June 30, our leverage was two six times.
I'll now walk through guidance for Q3 and for the full year 2022.
We expect full year 2022 operational revenue growth to be in a range of 10, five to 11, 5% versus 2021, which excludes an approximate 400 basis point headwind from foreign exchange based on current rates 200 basis points higher than our previous expectations and includes a 250 basis points.
Contribution from the acquisitions of preventive therapies, luminous and balas and $13 million of pre divestiture specialty pharmaceutical sales in 2021 as.
As a result of our strong Q2 performance and confidence in durable and consistent procedural growth. We are raising our full year 2022 organic revenue growth range to 8% to 9% versus 2021, excluding the impact of closed acquisitions and divestitures.
We expect third quarter 2022 operational revenue growth to be in a range of 10% to 12% versus 2021, which excludes an approximate 400 basis point headwind from foreign exchange based on current rates and includes a 200 basis point contribution from the acquisitions of Ferro pulse luminous and bayliss, excluding the <unk>.
Pact of closed acquisitions, we expect third quarter 2022 organic revenue growth to be in a range of 8% to 10%.
We now expect our full year 2022, adjusted below the line expenses to be approximately $350 million, reflecting the FX gain recognized in Q2.
We continue to expect our full year 2022 operational tax rate to be 14% with an adjusted tax rate of approximately 13%, including the benefit of the accounting standard for stock compensation and discrete tax items recognized in the first half of the year as a reminder, our tax rate reflects current legislation including.
A provision on the treatment of R&D expenditures, we continue to believe there is bipartisan support to reverse this provision and if such legislation were to be enacted we would expect our full year tax rate to revert to its historic range of approximately 11% operational and 10% adjusted resulting in a 6% earnings per share benefit.
We expect a fully diluted weighted average share count of approximately $1 billion 442 million shares for Q3, and $1 441 million shares for the full year 2022.
As a result of continued uncertainty within the macroeconomic environment as well as FX volatility we are narrowing our full year adjusted earnings per share range to $1 74.
To $1 77.
And for the third quarter expect to be in a range of 43 to 45.
These check our Investor Relations website for Q2, 2022 financial and operational highlights, which outlines more detailed Q2 results.
In closing I am proud of the first half results, we achieved with projected second half momentum supporting our organic revenue guidance increase of a 100 basis points at the midpoint, despite a challenging macroeconomic or economic environment. We remain focused on operating margin expansion and expect to see sequential improvement in the second half of this year and with that I'll turn it back to Laura who will moderate the Q&A.
Thanks, Dan Andrew Let's open it up to questions for the next 35 minutes or so in order for us to take as many questions as possible. Please limit yourself to one question Andrew. Please go ahead.
We will now begin the question and answer session to ask a question you May Press Star then one on your telephone keypad, if youre using a speakerphone please limit yourself.
Please pick.
Pick up your handset before pressing the keys if at any time. Your question has been addressed and.
You'd like to withdraw your question. Please press Star then two.
Thank you <unk>.
Please limit yourself to one question.
At this time, we will pause momentarily to assemble our roster.
First question comes from Joanne Wuensch with Citi. Please go ahead.
Good morning, and thank you for taking the question.
May I say, congratulations I wanted to spend just a little bit of time on the organic growth rate because when you entered the year, we were looking for 68%, which is right on the first quarter call that six to eight 5% and now to 8% to 9% organic what is happening in your core businesses or in your particular franchise.
Maybe that's helping you buck the trend and actually be raising your organic growth rate each quarter.
Good morning, Joanne Dan deck supplement as well.
Yeah just.
Dan mentioned in his script and I did was I would just overall, we're very pleased with the execution of our global team, we had tremendous growth in each region.
Europe with a pretty mature market.
As you saw grew double digits and we've made significant investments in the gem region over the last few years and the team. There has really done a nice job of building up our scale, that's driving outsized growth for us in Europe , and we're taking share in the mature markets in.
In Asia Pac, we've seen a rebound of strength in Japan, given the portfolio that we have.
Led by polar X, which is our cryo offering any P. As.
As well as our watchman and the China team.
Did a really nice job of delivering in a tough environment in the U S. We continue to do quite well as well and you'll see.
The impact of those acquisitions going more organic a bit a bit benefited in the second half of the year and also in 2023, So I think.
The team has executed quite well, we think we've gained share.
And most all of our business as I said in the script.
And we continue to try to position ourselves and do into faster growth markets consistently quarter over quarter.
So I'm just.
I think its portfolio the clinical evidence we are driving in very strong commercial execution.
The next question Oh go ahead.
Yeah, that's fine thank you.
Thank you.
Next question comes from Robbie Marcus with Jpmorgan. Please go ahead.
Oh, great. Thanks for taking the question I'll add my congratulations on a good quarter.
Thanks Ravi.
I was wondering it sounds like you're absorbing about 300 basis points of headwinds versus <unk>.
2019, but on track to generate flat operating margins, which is really impressive given given all the headwinds maybe just walk through.
Youre seeing those pressures and.
How you're offsetting it in the base business and then if there is anything we should be focused on that carries over into 2023 and the models from some of these offsets or pressures.
Sure.
Thanks, Ravi and maybe helpful to just give a couple of final points on the numbers. So in 2019, we were 26, 1% adjusted operating margin. We were 72, 4% gross margin. So if you just look at the bottom line operating margin the midpoint of our guidance in 2022 is back at that 26, 1% and as you said we're absorbing.
The $375 million headwind, the majority of which hits in 2022 that some of that that will go to 'twenty three to your question of of 2023. So there's some from a gross margin standpoint that will still be on the balance sheet in 'twenty three but the majority of that 375 will hit in 2022 and hits gross margin.
So when you look at the P&L all line items of the P&L, we've had activities in place too to offset that over the last two plus years.
Whether it's.
Looking at standard cost value improvement programs pricing discipline, a bit of a favorable product mix.
All the other opportunities to leverage SG&A and R&D in a smart and thoughtful way and so the entire $3 75 has been offset through the whole P&L you see gross margin, obviously gross margins lower we talked about being a little bit lower than last year's second half average of that 78%. So we're not we haven't been able.
To offset the full $3 75 in gross margin, but that's what the rest of the P&L looks for right whether it's SG&A.
R&D even areas like royalties, we were very focused too.
To offset that so I am very pleased to look at a $26 one midpoint guidance for this year against that 2019 and look forward to 'twenty three and beyond a little early to get specific about 23, obviously relative to <unk>.
What we see we've been clear that we don't see the macroeconomic headwinds abating in 'twenty two but we are hopeful for 'twenty three and beyond that we'll see some relief there.
Great appreciate the thoughts.
The next question comes from Larry <unk> with Wells Fargo. Please go ahead.
Good morning, Thanks for taking the questions and congrats on a nice quarter.
Heard you mention that.
That you are having an analyst meeting at TCT. So.
Are you expecting to present any significant data there. So for example, this fall.
The PK data and if so kind of what should we be looking for in your confidence you can overcome the issues of previous devices.
And just maybe on <unk> any color on the launch there and how you see that fitting into the treatment armamentarium. Thanks for taking the question.
Thanks, Larry how much it can make a couple comments on tomorrow and maybe Dr. Meredith Meredith can answer.
Heading up at TCT so on.
The broad based Pi business you saw the performance in that.
And my report three.
Sizes arterial franchise, which grew double digit very strong our second biggest one interventional oncology again grew double digit.
<unk>.
Really terrific performance and new clinical indications, we're going after and our smaller businesses, our venous business and the gap that we have as you mentioned is the <unk> product that we acquired and so we will be in our first patients in the second half of this year.
And hopefully those will go quite well and will hopefully.
Absent a approval in 2023 to launch <unk> in 2023, so all things going well youll see some impact.
As the year progresses in 2023 to fill that portfolio gap that we have in venous so more to come and we'll we'll have.
Good clinical data by year end.
Yeah.
Deanna are Dr. Meredith are you on the line.
Thank you.
So the formal announcements.
It's going to be presented at TCT.
Come out yet so I don't want to comment on that.
Absolutely a lot of it.
<unk> will be in Boston this year.
It's a.
Great opportunity to highlight.
The strength of that kind of basketball business.
But no formal announcements yet.
As the program hasn't been finalized.
Thank you.
Thanks.
The next question comes from Vijay Kumar with Evercore. Please go ahead.
Hey, guys. Congrats on the approach here and thanks for taking my question I had a two part question.
<unk>.
Just on the guidance here first half versus second half.
High end implies low doubles in the second half versus 8% in first half.
And the.
The pre pandemic got comps.
First half second half 'twenty, one versus 19.
<unk> seen comparable there was no first half second half so I'm curious, what's driving the second half acceleration.
Yes, we're close to China.
<unk> done a contrast media impact into Q, perhaps because that's what's giving you the confidence looking at the underlying trends for the second half.
Dan on the gross margin to 75 million of cost.
You know what what dollar amount of diverse capitalized on the balance sheet. Thank you.
So the.
The cost on the balance sheet also I'll take that one first yes.
Yes, I do know what it is and it's a it'll be a minimal headwind for early 2023, because as I said the 375 that is incremental this year is not are not all going to hit the P&L. This year, but the lion's share of it does hit in 'twenty two so a small headwind for 'twenty three but hopefully it should be manageable relative to your question. Let me just put it.
Final point on the numbers and I can turn it to Mike for some of the color. So our first half actual in 2022 in terms of our organic revenue growth rate was eight 1% if I take the midpoint of the full year guidance. So eight 5% that implies around 9% for the second half so a nice acceleration to your point too.
At 9% the comps again in 'twenty, one versus 'twenty those are a little bit crazy comps, obviously with the COVID-19.
Comps so the 21 versus <unk> 19, I think it's a good basis to use for comps. That's what we did all last year. The first half comp was five 9%. The second half comp is five 4%. So basically the second half comps 50 basis points easier, but our revenue at the midpoint is call it 90 basis points of acceleration.
It's outstripping.
Outstripping the comps and it's real apples to apples acceleration first half the second half which is which.
Which is great to see I'll.
I'll take the China piece.
Just say that.
Relative to what we had for expectations in Q2.
Diana was basically in line with that.
Scenario that we put in for guidance, that's pretty much what transpired as part of China looking forward to seeing the second half returned to more normal growth rates in double digits for the full year I don't know, Mike if you'd add anything relative to <unk>.
We do have about a 50 basis point easier comp second half versus first half so that that helps a little bit.
We in the first half as you know we did have some impact from the contract shortage. So that's been essentially resolved. So we think we'll see smoother sailing there.
We had a tougher second quarter, despite the 9% growth in China, and we expect that business to.
Strengthen despite being quite strong in the first half.
We continue to be excited about our EP business the growth in Japan and in Europe is tremendous and we expect to open up more accounts with fair Paulson cryo in those markets.
I won't go through a long list neuromodulators super difficult comp in second quarter. So we expect double digit growth at a neuroma in the second half.
So we just really have strong performance across the board in our business units slightly easier comp, but not significant and good momentum as a company on the top line.
Helpful commentary, Congrats again, Mike.
Thank you.
The next question comes from Rick Wise with Stifel. Please go ahead.
Hi, Good morning, Mike Hi, Dan.
Maybe you could give us a little more color on two key products.
Watchman and variables.
Watchman.
You did face a difficult comp.
Comp.
Excellent quarter, maybe talk about where we are in the flexible rollout and what's driving that.
Growth and how sustainable you see it through what what sustains that this kind of impressive growth.
Going ahead and unfair pulse.
We recently checked in.
With some early fair pulse adopters in Europe .
They love the technology, but were concerned about price.
And then sort of limiting their their utilization.
Maybe you can sort of.
Talk about that how you're addressing that issue.
Any color on where you are with the number of accounts.
Our goals are.
In terms of account opening in Europe , any extra color would be great. Thank you so much.
Thanks, Rick.
And watchman Dr. Stein can further comments.
Similar comments to previous quarters. It always starts with do you get excellent clinical outcomes and that's what watchman flex continues to prove with the safety profile and ease of use which drives increasing comfort level from physicians and referring physicians and.
And increasing utilization and more doctors using it per site. So.
It relates to those clinical outcomes and the safety profile and ease of use and then in terms of the market as you know where.
We're very underpenetrated still.
About 8% or 8% or so in the market that we see likely around $2 billion.
In the coming years here and as you know, we're we're doing those clinical trials with <unk>.
With champion.
And option, which have enrolled or not completed enrollment but are enrolling far ahead of schedule.
So we think this market can continue to grow 25%, 30% for many for multiple years and importantly.
We have a really nice cadence of additional platforms coming for watchman to continue to improve it.
And that <unk> acquisition.
We're going to make a safe procedure even more.
Even more productive in terms of turnaround time with the integration of the Bayliss our platform with our watchman.
To help improve productivity further.
To drive more procedure volume and utilization and you're also getting some global expansion in Japan.
In China to launch their first watchman flex cases.
I don't know Dr. Stein any other comments on watchman no not much right again, it's safety and ease of use with flex. It's continued growth into the currently indicated patient populations. It is looking forward to the data. So our option trial completed enrollment and actually enrolled way ahead of schedule in spite of the Covid challenges.
For data from champion and then I just want to read on what Mike said really excited about Baylor springing to diverse across solution. So we've commenced that launch in the U S and again, it's just part of this whole portfolio around all of our therapies to make procedures safer make them more efficient.
And I do think that that's what you see driving all the growth.
Yeah in furrow pulse.
We're not going to provide some of the information you are asking about how many accounts.
Many account openings all those all those things, we obviously track that it is.
Super important platform for us.
We think for for many years here.
And I would say overall.
We've had some supply chain issues that we continue to manage which is tampered a bit of the new account openings. Nevertheless, the team.
Open up many more accounts in second quarter than in first quarter, and we expect quite a few more incremental new account openings in third quarter versus second quarter. So we're increasing the pace of our account openings the utilization of the of the platform is quite high for physicians.
It is priced at a bit of a premium.
Because it's a premium product and.
We think that's the right appropriate pricing and that's something that we can always take a look at for the future, but we think it delivers a unique value.
Got it.
It's not massively available in terms of some of the supply chain constraints. So it's important for us to continue to improve on that which we will in the second half of the year.
Thanks, So much doctor sign any other comments there okay.
Thanks, Rick Thank you.
The next question comes from Cecilia furlong with Morgan Stanley . Please go ahead.
Hey, good morning, and thank you for taking the question I wanted to ask on watchman.
Contract supply if you could just talk to the headwind.
In the quarter and then Robert can you speak to what.
From a residual.
Its impact across the hospital system at this point we.
We are in recovery and how much further recovery is incorporated in your outlook for the back half of the year and thank you for taking the questions.
Sure. There are certainly was an impact with the contract orders with watchman some of our interventional cardiology procedures and some of our peripheral procedures.
Second quarter, so potentially sales could have been a bit better absent that but we havent quantified that and it's a bit difficult we did see.
Kind of mid quarter, some watchman procedures that were deferred.
Due to the contract shortage hopefully.
Hopefully that helps us a bit more in third quarter and second half to make up for some of that but it's.
We are able to quantify that for you in terms of what the incremental impact was but there was some impact into Q with watchman on the staffing.
Shortage.
Hospitals do heroic work in continuing to.
Support their communities and it's still a it's still a big issue and so is it better maybe incrementally slightly better.
But it's still a challenge for hospitals.
And thus things like procedural productivity.
And doing it watch them a procedure.
Jim day in less time, and doing a fair pulse procedure in Europe significantly faster with great results becomes more and more important and I think that's the focus of our portfolio is driving great clinical outcomes, but also assisting their productivity and throughput of the hospital and the patient satisfaction I think.
Many of our key products do that and so the staffing shortage will continue to be with us it's likely to be an overnight fix.
And hopefully over time it continues to improve.
But that staffing to shorting shortage rebound is not baked in assumption is not baked into our second half guidance, we assume that the staffing shortage will be with us for a while.
Thank you for taking my questions and congrats on the quarter.
Thanks, Thank you.
The next question comes from Travis Steed with Bank of America. Please go ahead.
Hi, good morning, Congrats on a good quarter.
You talked about the gross margin pressure is being offset in the P&L. Just curious how sustainable that is as you move into 'twenty three and some of that Opex how come backwards can you keep opex at this level until our gross margin pressures ease and then a quick follow up on China up 9% much better than your peers, if they're still down I'm, just curious, what's driving the strength and youre trying to business versus peers. Thank you.
Sure I can take the gross margin and Mike can take the China.
I think the management of the overall P&L is how I would answer that right. So we look as I as we said to Robbie's question.
Effectively been able to offset the $375 million headwind from 2019 at the midpoint of our adjusted operating margin guidance for this year and it really is managing all lines of the P&L. So through the rest of 'twenty two and into 'twenty three we're going to monitor the macroeconomic situation. All the elements that we talked about we will see if that means we need to continue to folk.
On a on the spending that we have in place or whether we can let a little air out of the balloon on some of those items in and invest some more.
A key point being that all of the decisions that we make relative to.
Spending on our with our long term revenue growth pipeline in mind too.
Try not to make decisions that are impacting our long term revenue growth.
We are we look at areas that don't don't have an impact there so.
But that's what we do we manage the P&L top to bottom and we will continue to do that through the rest of 'twenty, two and 'twenty three and beyond.
China, China, China grew about 9% in the quarter, which is.
Quite a bit less than what they typically grow so there was an impact for sure.
In the quarter on the Lockdowns, we saw mid quarter very very weak growth.
And then maybe the last three four weeks of the quarter improvements.
And then we anticipate a more consistent strong performance in the second half.
It's difficult to point to one thing because like like Boston scientific across the board their portfolio is much more diversified.
The business that continues to really drive there is our complex coronary.
Capabilities with our imaging.
Wolverine cutting balloon all things related to treating complex coronary disease, which is so significant in China and then our peripheral interventions business is also one of our larger businesses there and so it's a diverse portfolio.
That obviously it hits a lot of patient demand and we have a strong team there and they.
They were impacted by the Lockdowns quite a bit.
But did a great job in improving results the second.
End of the second quarter I would say.
No that's helpful. Thank you.
The next question comes from Peter Chickering with Deutsche Bank.
Please go ahead.
Hey, good morning, guys taking.
Kicking my questions here, two quick ease from a capital allocation perspective, I understand M&A will always be a priority for you guys, but as you look at your free cash flow generation, what are the reasons to not get more aggressive with share repo is to keep driving EPS growth and also can you give us any details on the vortex heart pumps, such as the size of the pump.
Seeing data from that thanks, so much.
Sure I can take the share repurchase one yeah, our capital allocation strategy I think is crystal clear.
With the available free cash flow we have.
High quality.
High growth tuck in M&A is the first priority and we use our excess cash to fill in on the back for for share repurchase.
If you look over the history of the last few years, we've we've done a lot of great deals and I'm Super proud of the class of 2021. The five deals we did there so that that utilize the available cash that we had and didn't leave any any room for share repurchase. So it's it's M&A first and then if if room with excess cash share repurchase and it's been unclear and I think it would continue to.
To be that going forward.
Go ahead Ron.
<unk> bought holistic do you want me to take that.
Go ahead, yes. Thanks.
So.
With respect to <unk> the product.
<unk> is an internally developed.
Acute mechanical support to boss.
Just.
Undertaken first in human study.
Uh huh.
That's it's very early times, yes.
<unk>.
There's not really much more to actually report at this stage very pleased with the progress.
First in human study.
And James to give us the size of the pumps.
No.
Yes, it's just too early.
Yeah, I think I'll just commented Dr. Meredith we completed the early feasibility study, we're very bullish on the platform.
We're going to continue to drive clinical evidence that we need but it's far too early to be sharing.
Details about the platform.
Great. Thanks, so much.
The next question comes from Josh Jennings with Cowen. Please go ahead.
Hi, good morning, Thanks for taking the questions just wanted to focus on watchman and just with that label update.
Do you expect that to cause any change.
Physician decision, making.
On device selection I mean, it seems like it's not impacting growth.
And then there's some off label utilization going on out there already with data that's been put into the public domain and then just the second part is just like I heard you say.
Cause the next generation watchman device, Susan So presentation released we can leave that coding enhancements that could increase hemo compatibility potentially reduce the device with the carrabba's right.
Wanted to.
Seems like there is some tension in the animal data out there already but any update you can give us on.
On this coding enhancement project internally would be great to hear thanks for taking the questions.
Yes, its Ken Thanks, Thanks, Josh Let me take first just the.
Question about that again.
Probably pretty sure Youre, referring to data we presented at TCT from adapt Flex study right and as Mike said in his script that was a real world evidence study of 17000 patients.
Showing as you said already great variability in the post implant regimen that people are using out there in the real world and certainly supporting the safety.
And efficacy of using data post implant no difference in deaths no difference in stroke no difference in bleeding no difference in device related thrombus, whether or not patients were treated with the on label regimen of warfarin aspirin aspirin or if they were treated with that post implant and that's why again, we have a high degree of confidence.
Is that the data will support a label change within the coming months from FDA.
Whether that change is going to have a material impact on what people are doing in the real world.
It's certainly.
It.
It takes us to the point, where flex clearly superior to the competition out there in terms of safety and ease of use and post implant leak takes away what may have been the only real differentiated feature of the competition was using.
But I think most people recognize already.
Whatever regimen to use post implant youre going to get a great result with flex.
I think in terms of next generation flex device.
I don't think were prepared to go into any just just just as my excitement vortex, although we're a lot closer to the goal line on this one really not prepared to go into any detail. This moment on the benefits that we see of the new device.
Understood. Thanks, Thanks, a lot for the answers.
The next question comes from Richard <unk> with <unk>. Please go ahead.
Hi, Thanks for taking the questions and congrats on the quarter.
Is it just.
Some competitors out there that are calling out pricing strategies, particularly as they head into 2023 anything you'd call out there.
Potentially of a lever.
To offset.
Margin headwind to sustain and then also if you could just comment a little bit more on the double digit growth comment in the backpack that youre expecting under your neuro Mod business any specific regions driving that.
I'm, assuming that doesn't assume a major pick up in SCS, but other product categories, but please correct that if that's wrong.
Yeah on the pricing one similar to some previous comments we've made for us.
It's all about our portfolio mix and consistently diversifying the portfolio into more innovative faster growing areas, where we.
We deliver great clinical benefit and mark et cetera, potentially less price sensitive and as.
Many of you as you are aware.
We've reduced down dramatically for example, the concentration of drug Eluting stents.
So quite a small percentage of the company. So as a result of all that our pricing impact has improved year over year.
Still slightly negative.
For 2022, but it's improved versus 2021 versus each year and hopefully in the near future will be a kind of breakeven and maybe even one day and upside of being positive price, but right now it's still slightly negative.
Like any good company and you heard earlier that our prices are too high in some areas, but like any good company, we try to where we have differentiated value and economic proof.
And it's helped us.
Appropriately profitable for hospitals, we tried to take appropriate price increases.
Difficult to do in some parts of our portfolio some of our hospitals are under a longer term contracts, but.
We do the best job, we can when it makes sense for us and it warrants it with the customer but overall we're seeing.
No not at neutral or positive price, yet, but improving consistent.
Price performance.
And on the Neuro My question I can take that one it's two fold one is less COVID-19 impact across those businesses in the second half and then another is just simple math on the comps the comps are minus one and minus 7% for 2021 in the second half versus 19. So that's helpful. As well. So that's the reason for the commentary around double digits on neuro Mod for the second half.
Thank you the minus one for third quarter, yes, yes.
The next question comes from Jason Bedford with Raymond James. Please go ahead.
Good morning, just two.
<unk> related questions.
Tough for me to get are you do you have an organic growth number in the international markets.
Once I guess.
And then just secondly on the femoral pulse rollout you mentioned supply chain challenges when do you expect to fully launch the product in Europe .
Yeah.
Yes, maybe Dan you can help me with the.
Fair pulse in terms of organic comp and cryo there were no sales prior to us buying the companies. So cryo had no sales and neither deferrable. So there are countries startups and now youre getting some sales.
For both.
So Dan maybe you can comment any further on that one in terms of the supply chain for Ferro pulse like many companies that deal with capital equipment and.
And ships and so forth, there's some challenges there on the catheter side, we really arent.
As we are supply constrained, which is great news. So the team's done a great job on the catheter side on the capital equipment, it's a bit tougher, but it's a it's improving quarter over quarter and dip.
Difficult to say when it would be.
Unconstrained, but we.
We continue to increase the number of new installations, each month and each quarter.
Jason just on the on the EP numbers.
International grew mid teens. The total grew 9% so the U S grew less than nine.
Okay.
No no.
Thanks, Laura I understand there's time for one more question there.
Yes, that's right Andrew.
Thank you just one moment please.
Yeah.
Our next question comes from Doug <unk> with RBC. Please go ahead with your question.
Thank you so much for taking the question I was wondering if you can provide a little bit color on 2023, you did call out durable growth in the back half of this year does that generally should we expect that to continue into next year, just given your higher acuity exposure and despite a potential economic slowdown what are the key catalysts.
We should look out for next year, and then you talked about some macroeconomic headwinds continuing into 2023, but the majority will impact a majority of the impact is going to come. This year does that mean, we can expect <unk> to plus 50 basis points of operating margin goal in 2022 and beyond Thank you for taking the question.
Yes, let me take the second part first so just to be clear on that on my commentary. The commentary is there is $375 million of incremental impact in 2022 versus our pre Covid 2019, the majority of that hits the P&L in 2022 its balance.
Sheet. It comes through the P&L in 2022, the commentary is not that that all goes away for 2023 that the commentary is relative to the macroeconomic $3 75. The majority of that 375 will hit the P&L in 2022, we fully believe that macroeconomic headwinds will persist into 2023 at what level. We don't know, we'll obviously be more.
We'll see more over the second half and I think just overall a bit early to be commenting specifically on 2023. We are we do see a very helpful backdrop from a revenue perspective, you see that in our first half performance. This year you see it in the guidance raise we had on the organic revenue for the second half.
Durable consistent revenue growth is a big piece of our strategy you heard Mike talk about.
Operating margin expansion and growing at the high end of our peer set for revenue those are all long term tenants of the company.
That will look to continue you know 23 and beyond but specific numbers for 'twenty three I think it's just a bit early.
Great got it thanks guys.
Gaslog.
Oh I'm sorry.
On the top line for 'twenty two.
Yeah.
So yes.
It's really a no one thing about the company you follow us.
<unk>.
We will launch a bunch of new products in 2023.
And especially in the U S. Besides just talking about EP.
Hopefully it would be a bit more on constrained there and hopefully we'll launch our cryo platform potentially in second half 'twenty three we have many product launches each year and it's really the strength of the diversity of the portfolio across the board.
So we'll touch on a bit more but it's.
Our portfolio doesn't change overnight. So its so much of our current products and new enhancements that will continue to layer on top.
Thanks, Mike.
Thanks, Craig.
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