Q1 2023 Boston Scientific Corp Earnings Call
Good morning, everyone and welcome to the Boston Scientific first quarter 2023 earnings call. All participants will be in a listen only mode should you need assistance. Please signal our conference specialist by pressing the Star Key then zero on your telephone keypad.
After todays presentation, there will be an opportunity to ask questions.
To ask a question you May press Star and then one on your telephone keypad.
Draw your questions you May press star two.
Please also note today's event is being recorded.
At this time I'd like to turn the floor over to you or in Taylor Vice President Investor Relations. Please go ahead.
Thank you Jamie welcome everyone and thanks for joining US today with me on today's call are Mike Mahoney, Chairman and Chief Executive Officer, and Dan Brennan Executive Vice President and Chief Financial Officer, We issued a press release earlier. This morning announcing our Q1 2023 results, which included reconciliations of the non-GAAP measures used in the release we have.
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 and Dan will provide comments on Q1 performance as well as the outlook for our business, including Q2 and full year 2023 guidance and then we'll take your questions. During today's Q&A session, Mike and Dan will be joined by our Chief Medical Officer, Dr. Ken Stein.
Before we begin I'd like to remind everyone that on the call operational revenue growth excludes the impact of foreign currency fluctuations and organic revenue growth further excludes acquisitions and divestitures for which there are less than a full period of comparable net sales relevant acquisitions excluded for organic growth are baylis medical which closed on February 14th 2002.
22, the majority stake investment and architects scientific holding Ltd, and Apollo Endo surgery, which closed in February and April of this year at respectively.
Please note that we have elected to consolidate architect results of operations on a one quarter lag that's having no impact to our Q1 reported or adjusted results.
<unk> excludes the previously announced agreement to purchase a majority stake in a high tech which has not closed.
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.
Call contains forward looking statements within the meaning of the federal Securities laws, which may be identified by words like anticipate expect may believe estimate and other similar words. They include among other things statements about our growth and market share, new and anticipated product approvals and launches acquisitions clinical trials cost savings and growth.
<unk>, our castle unexpected use our financial performance, including sales margins and earnings as well as our tax rates R&D spend and other expenses.
If our underlying assumptions turned out to be incorrect, our certain risks or uncertainties materialize actual results could vary materially from the expectations and projections expressed or implied by our forward looking statements factors that may cause such differences include those described in the risk factors section of our most recent 10-K and subsequent 10-Qs filed with the SEC. These statements speak only as of.
Today's date, and we disclaim any intention or obligation to update them at this point I'll turn it over to Mike. Thanks, Lauren and thank you to everyone for joining US today, our first quarter performance exceeded our expectations across all business units and regions, which is a testament to the winning spirit of our global team and their relentless focus on innovation and execution.
Also watch more than 70, new products globally in 2022.
In the first quarter 2023 total company operational sales grew 15% for 2022, while organic sales grew 14%.
Exceeding the high end of our guidance range of six to eight we believe that all business units grew faster than their respective markets with differentiated portfolios and our strong commercial execution supported by healthy procedural demand.
First quarter adjusted EPS of <unk> 47 cents grew 19% versus 2022 exceeding the high end of the guidance range of 42 to 44 cents first quarter. Adjusted operating margin was 25, 5%, which is in line with expectations.
Now for our 2023 guidance for second quarter 'twenty, three organic revenue were got into growth of 7% to 9% and full year organic growth of 8% to 10%.
Our second quarter 23, adjusted EPS estimate is 48 to 50 cents and we're guiding to a full year adjusted EPS range of $1 90 to $1 96.
I'll now provide additional highlights on first quarter, along with comments on our 2023 outlook and Dan will provide more details on the financials.
Regionally on an operational basis. The U S grew 13% versus first quarter 'twenty two inclusive of 140 basis point tailwind from the bailiffs acquisition with notable strength with notable organic strength across all our business units.
Europe Middle East and Africa grew 20% on an operational basis versus first quarter 'twenty two with nearly every market growing double digits in the quarter.
Strong above market growth was driven by our diverse portfolio of new launches and commercial execution with healthy underlying market demand.
We remain excited about the year ahead and expect to continue to outpace our peers within the EMEA market.
Asia Pac grew 15% operationally versus first quarter 'twenty, two with broad based strength across all major markets and business units.
Within the quarter. We're pleased to have received health Sciences authority approval for <unk> in Singapore.
Expanding the access of this innovative new technology to more patients.
In Japan first quarter growth was fueled by the launch of agent drug coated balloon.
Differentiated coronary drug coated balloon for instant restenosis and small vessels.
With physicians pleased with ease of use and balloon deliverability.
China also grew double digits in first quarter ahead of our expectations with solid procedural demand as hospitals work through COVID-19 delayed procedures.
Our diverse portfolio in China commercial execution.
And supply chain management within the country supported the strong performance in the quarter.
In February we also closed our majority stake investment in Echo check further expanding our presence in the market and we continue to expect double digit growth in China for the full year.
I'll now provide some comments on our business units urology sales grew 16% organically.
All four franchises grew double digits in the quarter with strength in key products, including <unk> and resume.
In the U S. We received FDA clearance and initiated a limited market release for Lithia view elite, which is a single use flexible ureteroscope, which incorporates an innovative pressure sensing capability that will enable physicians to monitor infrarenal pressure during stone removal procedures.
Endoscopy sales for the quarter grew 11% organically versus first quarter 'twenty, two with broad based strength across all regions and franchises are single use imaging franchise grew double digits. So we're pleased to have recently launched our third generation Exalt D with improved ergonomic design updates to improve the physician experience.
In April we closed the Apollo and the surgery acquisition, which furthers furthers our category leadership strategy within the important area of Endo luminal surgery.
With differentiated technologies like Overstitch, and ex Tac, along with an entry into the adjacent Endo bariatric market.
Neuromodulation sales grew 14% organically versus first quarter 'twenty two.
Our pain business grew high single digits in the quarter with strong SCS performance driven by our innovative alpha portfolio with fast therapy, and our Cagny. This suite of digital tools supporting patient activation.
Our brand fans drives grew double digits in the quarter, driven by new product launches, including guide ex tea, which was developed in collaboration with brain lap. This revolutionary software provides implanting and managing clinicians the ability to model the effect of a patient's stimulation ahead of actual programming, which will improve procedural efficiency.
In the quarter peripheral interventions also grew 12% organically versus first quarter 'twenty two.
Our arterial franchise grew double digits led by a drug eluting portfolio, establishing clear leadership in SFA drug elution further supported by our differentiated Luby's long length D E S.
Our venous franchise growth was driven by ongoing above market performance in various you know.
And within the quarter, we launched ethos plus in the U S, which provides more ultrasound power to resolve clot burden more quickly and completely.
Our interventional oncology franchise grew double digits with strength across the strength across the entire portfolio.
We look forward to initiating our limited market release in the second quarter for obsidian, the first conformable embolic indication for their peripheral vasculature.
Cardiology delivered another excellent quarter with operational sales growing 17% and organic sales growing 15 versus first quarter 'twenty two.
Within cardiology, interventional cardiology therapies sales grew 13%.
Our coronary therapies franchise grew low double digits in first quarter led by strong performance within our imaging portfolio with particular strength in the U S. With the ongoing launch of the V go to guidance system.
Our structural heart valves franchise continues to grow strong double digits and we're pleased to have completed enrollment on our accurate I D. E trial and continue to expect to launch accurate neo two than the U S. In the second half of 2024.
Watchman sales grew 29% organically versus first quarter 'twenty to <unk>.
Demand remains very strong for watchman flex and we now have treated more than 300000 patients globally since launch.
We are proud of our performance to date and we continue to invest for the future through product innovation solutions and clinical evidence.
Last week, the population Health Research Institute announced the I D approval of allows for which is a collaborative research study with Boston scientific there will continue to expand our L. D C clinical evidence.
This trial is expected to start in mid 2023.
It will complement the existing champion AF and option trials.
Cardiac rhythm management sales grew 8% organically versus first quarter 'twenty to our diagnostics franchise grew strong double digits in the quarter with continued momentum across the portfolio.
Of course, CRM, both our high voltage and low voltage businesses grew mid single digits and we believe that all major markets were in line or slightly above market growth we.
We do expect our core C&I growth to taper closer to market growth for the remainder of 'twenty three as replacement tailwind neutralize.
Electrophysiology sales grew 54% operationally and 31% organically versus first quarter 'twenty two.
Our international E&P business grew 40% and importantly, the EMEA region grew our EP business, 57% driven by strong adoption of fair pulse and polar acts.
We continue to invest in the expansion of our portfolio and received approval in Japan, Canada, and Europe for poor fit which is an expandable balloon catheter Cape.
Capable of creating 28, and 31 millimeter sizes, providing procedural adaptability and efficiency.
And just last week, one year outcomes data from the manifest P. F registry were presented as a late breaker at EHR. A this is the first large real world data set on a novel ablation technology, which demonstrated a real world safety efficacy and efficiency of the Faro pulse PFA system there.
The data also reinforced the minimal learning curve and reproducibility of the favorable workflow and everyday commercial use.
We continue to advance our clinical evidence within this space and initiated enrollment in our advantage AF trial, which is studying the use of fur upholstery or patients with persistent atrial fibrillation.
We also look forward to the readout of our advert U S. I D randomized controlled trial in the second half of this year and continue to expect the approval in the U S and 24.
We're also very pleased with the performance of our access solutions franchise, which grew strong double digits. The first quarter driven by further penetration into transcept float crossing procedures.
Last week, we released our 'twenty two performance report outlining our environmental social and governance results.
We are pleased with the progress our global teams have made to advance sustainable innovation.
Contributing to a healthier planet.
Addressing in equities and supporting communities around the world.
We have much more to do and our values based culture will serve us well as we continue to transform lives and hold ourselves accountable to our commitments.
We are confident the year ahead will bring many more exciting milestones across each of our business units and we remain committed to our financial goals of consistently growing faster than our underlying markets and our peer group expanding operating margins and delivering double digit adjusted EPS growth with strong free cash flow generation.
We also look forward to hosting our hybrid Investor day event on September 20th.
With that I'll pass it off to Dan to provide more details on the financials. Thanks, Mike first quarter consolidated revenue of $3 billion $389 million represents 12% reported revenue growth versus first quarter 2022, and reflects an $88 million headwind from foreign exchange slightly favorable to our expectations.
With continued volatility in foreign exchange rates throughout the quarter. Excluding this 290 basis point headwind from foreign exchange operational revenue growth was 14, 9% in the quarter sales from the acquisition of Balas through mid February contributed 90 basis points, resulting in a 14% organic revenue grew.
<unk> nicely exceeding our guidance range of 6% to 8% strong revenue performance resulted in Q1 adjusted earnings per share of 47.
<unk> exceeding the high end of our guidance range of 42 to 44.
And representing growth of 19, 2% versus 2022.
Adjusted gross margin for the quarter was 74%. We continue to expect full year 2023 gross margin to include a similar level of macroeconomic and supply chain headwinds as 2022 and expect a sequential improvement in Q2, resulting in a first half 2023 gross margin that is higher than the second half.
Of 2023, largely due to the timing of foreign exchange movements in 2022.
First quarter adjusted operating margin was 25, 5%, we continue to prioritize operating margin expansion and are maintaining our full year 2023 goal of approximately 26, 4% adjusted operating margin, representing 80 basis points of improvement versus the full year of 2022.
On a GAAP basis, the first quarter operating margin was 16, 3% moving to below the line first quarter adjusted interest and other expense totaled $78 million slightly favorable to expectations due to gains on certain unhedged currencies on an adjusted basis, our tax rate for the first quarter was 12, 8%.
Including the street discrete tax items and the benefit from stock compensation accounting.
Lightly higher than expectations due to the timing of certain discrete tax items, our operational tax rate was 13, 8% for the first quarter in line with our full year expectations of approximately 14%.
Fully diluted weighted average shares outstanding ended at $1 billion of 446 million shares in Q1.
Free cash flow for the quarter was $83 million with $190 million from operating activities less $108 million net capital expenditures, excluding payments related to acquisitions restructuring and other special items adjusted free cash flow was $229 million.
We continue to aim for full year 2023, adjusted free cash flow in excess of $2 3 billion.
As of March 31, 2023, we had cash on hand of $570 million, which in accordance with accounting standards for less in wholly owned subsidiaries includes the cash balance from <unk> of approximately $140 million. Following the completion of our majority stake investment.
As of March 31, our leverage was two five times in line with our expectations.
I'll now walk through guidance for Q2, and the full year 2023.
We expect full year 2023 operational revenue growth to be in a range of 9% to 11%, which excludes an approximate 50 basis point headwind from foreign exchange, excluding the impact of closed acquisitions and the recently closed divestiture of our pass allergy business, which had approximately $24 million revenue in 'twenty.
'twenty two we expect full year 2023 organic revenue growth to be in a range of 8% to 10% versus 2022, we expect second quarter 2023 operational revenue growth to be in a range of seven and a half to nine 5% versus Q2 2022, excluding.
An approximate 100 basis point headwind from foreign exchange based on current rates, excluding the contribution from closed acquisitions and divestitures, we expect second quarter 2023 organic revenue growth to be in a range of 7% to 9%.
We expect our full year 2023, adjusted below the line expenses to be approximately $340 million. We continue to expect our full year 2023 operational tax rate to be approximately 14% with an adjusted tax rate of approximately 13% under current legislation and forecasted geographic mix.
Of sales.
We expect a fully diluted weighted average share count of approximately $1 billion 458 million shares for Q2, 2023, and $1 464 million shares for full year 2023, which includes the $23 98 million shares we expect to issue based on our current stock price on <unk>.
June <unk> 2023 upon the conversion of our mandatory convertible preferred stock we expect the impact to adjusted earnings per share to be neutral with the approximately $14 million quarterly preferred stock dividend ending at the time of conversion.
We expect full year adjusted earnings per share to be in a range of $1 90.
To $1 96, representing.
Representing 11% to 15% growth versus 2022, which we believe delivers top tier financial performance we continue.
To anticipate a neutral impact from FX on full year 2023 adjusted earnings per share.
We expect second quarter adjusted earnings per share to be in a range of 48 to.
To 50.
For more information please check our Investor Relations website for Q1, 2023 financial and operational highlights, which outlines more details on Q1 results in 2023 guidance before I turn the call over for a few upcoming events to note we will be hosting our annual shareholder meeting on may 4th at eight a M.
Eastern and our Q2 2023 earnings call on Thursday July 27th at 730, a M eastern with that I'll turn it back to Lawrence who will moderate the Q&A.
Yeah.
Two questions for the next 35 minutes.
Sure.
Yes.
Please go ahead.
Jamie Please go ahead.
Yeah.
Ladies and gentlemen at this time, we will begin the question and answer session to ask a question you May Press Star and then one on your telephone keypad you are using a speaker phone. We do ask you. Please pick up the handset prior is depressing the keys to ensure the best sound quality.
If at any time your question has been addressed.
I'd like to withdraw your question you May press Star two.
Again that is star then one.
Ask a question.
Our first question today comes from Robbie Marcus from JP Morgan. Please go ahead with your question.
Great Good morning, and congrats on a great quarter here.
Thanks Robyn.
Oh.
Let me start with.
And I'll just ask one.
Two part question here.
Great Great performance in the first quarter, particularly on the topline.
We all know this is probably the last day easy comp from Covid trends in first quarter last year.
Would love to get a sense of.
What are you seeing globally, how sustainable is this.
You guided to a slight deceleration second quarter anything to note there other than conservatism and then second.
There have been some news reports lately about M&A on the behalf of Boston Scientific would love to just get a refresh on your M&A strategy, we've seen a lot more smaller tuck in type deals historically.
Is that still the goal and any thoughts there. Thanks a lot.
Sure Robert Thanks for the question.
It's easier for me then I'll do the first one on the second one on M&A as you know we've been consistent over the years as a matter of practice, we never comment on rumors or speculation in the marketplace.
On the first question you know really proud of the global performance.
Across the board if you look at on the regional side as I mentioned in the script there.
Through <unk> I think it's really important to note that Europe grew 20.
And Asia Pac grew 15, so it wasn't a one one region or one business. It really was across the board performance and it's encouraging in Europe in particular, where we have an <unk>.
<unk> product line.
E T portfolio and then our tabby portfolio, that's not launched yet in the U S, which I think is a good signal for the future.
You'll hear about more in Investor day, as well as in Japan, where we have our polar X product.
Proved in Japan, but not approved in the U S. So the fact that the U S put up a double digit number, albeit on some softer comps as you said given that the COVID-19 impact the European and Asia Pac performance was really impressive and Latam and those products. Many of those products are not yet approved in the U S. So overall really pleased you saw you know most every.
Business unit.
Grew double digits, but I think more importantly, and not all of our competitors have reported yet but we'd.
You'd be surprised if we didn't exceed the peer group across each one of our businesses.
So the execution of the team.
Is quite strong and also I would say the.
Clearly some underlying market improvement in first quarter, you saw the highest public hospitals report good patient volume, particularly good outpatient volume, which is a good indicator for Boston scientific given our portfolio.
Nursing shortage is still a challenge for sure, but it has improved and the.
Hospitals being very efficient so the underlying backdrop for procedure volume demand has improved and the strong and our portfolio really meets the moment around the world. So we're really pleased with the overall performance and then specific to Q2, Ravi just to double click a bit on that as Mike said relative to CRM.
That grew 8% in the quarter, but we had talked about at the beginning of the year that kind of growing at market lower single digits.
Replacement trends that start to get a little bit more challenging so that 8% probably a bit outsized for what we're expecting there and then neuroma as you as you look at that that's a business that over the last many quarters has been kind of in that low single digit range and to pop a 14, thats, great and in the quarter, but I think a little early to call the ball on that market in <unk>.
That it's fully recovered so just the seven to nine I think is appropriately prudent for second quarter guidance.
Great. Thanks for the thoughts.
Youre welcome. Our next question comes from Joanne Wuensch from Citi. Please go ahead with your question.
Good morning, Andy I reiterate our repeat quarter, one of the things I'm trying to figure out. This particular quarter is how much of what we're seeing is.
Easy comps pent up demand or something else and I know you cant, particularly take that apart on that's kind of delivery.
If it is pent up demand is there any way to quantify how many quarters or what kind of tailwind that is and I'll throw my second question Kim.
There seems to be doing quite well outside the United States.
A lot of questions on the timing of it in the United States and what that May look like if there's any color or some level setting of expectations that would be appreciated. Thank you.
Sure on the first one Joanne I wish we could give you a perfect scientific response to your question on the overall market I would say, it's a healthy market for all the factors that you just indicated there are some easier comps Dara.
For Q1 was what.
But it was 80 797, but that was up based on Covid impacted.
2021, so that maybe the comps are a little bit easier, but clearly the procedure volume is stronger as I mentioned with the the hospitals that have reported the outpatient momentum is quite strong which fits our portfolio and we've got a very strong portfolio of cadence across the world right now so I think it is.
Really all of those things that contribute to a very strong first quarter and the increase in the guide that we gave for the full year.
We typically I've said that previously that the markets that we serve grow kind of plus 6% in that range clearly the market grew faster than that in the first quarter, but we're not quite ready to call. You know this exceptionally strong market growth for the full year, we think that would be premature to do that and not responsible.
So that's why we gave the guidance that we did of the eight to 10 full year, because we do see strong underlying market demand, but it may not be quite as strong as we saw in first quarter and we'll see as the year goes on.
Unfair pulse.
That EHR meeting in Europe , just last week and the enthusiasm fair pulse is a very unique I would say the manifest data was excellent.
Dr. Stein is here can you remind us when the when do we expect the trial to read out so our U S. IDE trial. Joanne is has advanced its the most rigorous trial that anyone has done in this space, it's a double blind randomized trial against conventional thermal ablation.
Continue to expect to present that data second half of this year submit to the FDA at the same time.
So again continue to anticipate U S approval in 'twenty four.
What do you expect it to ramp similarly to what you are seeing outside the United States.
So I didn't hear the question she asked what else ramp similar.
Similar in the U S as well for pulse yeah, Yeah. So a fair pulse we broke out the number for you in Europe , which is which was 57% I believe organically all EEP and that includes a poll of Rex, which makes it very strong contribution and we expect approval for polar X in the U S. The second half of this year, we do expect colorectal.
Would be a nice part of our portfolio globally for many many years. So that's having a nice contribution and for pulse is having an outweighed contribution despite some still limitations in supply.
So customer demand is outpacing supply I would say still at this moment.
But clearly there is a lot of enthusiasm you saw that manifest trial data in terms of the safety the efficacy and the and the.
The procedure or the productivity.
It's clearly been differentiated so will.
We will continue to report our progress in E P. But the momentum in Europe is quite strong and that's why we called that number out for you.
Thank you so much.
Our next question comes from Rick Wise from Stifel. Please go ahead with your question.
Good morning to you both.
Good morning to everybody.
Mike just looking ahead to the September 20th Analyst day.
Yes.
Boston is an excellent CFO recently spoken public I think March 1st of my friend <unk>.
<unk> said that he is excited for the next chapter for the company for 'twenty, three and then for 'twenty four five and six.
And I think he said.
Boston has the opportunity to have a special chapter for the company.
I was just wondering what do you think than men.
Yeah.
What is the special chapter and does that possibly suggest.
But more willingness given that everything is happening fundamentally and with a product portfolio to commit to a sustained higher growth rate.
<unk> for the next MRP.
Yeah.
Well, Dan as a smart Guy and you wouldn't have said that unless you meant it and so I certainly support that and we'll lay it out more at Investor day, but just overall you see the strength of our businesses.
Really across the board and the portfolio mix continues to help us it's what we purposely designed and executed on for many many quarters in a row, our businesses and the slower growth markets continue to get smaller and smaller as a percent of our sales and we continue to layer on.
Faster growth markets and better innovation that also helps us with pricing.
And you're very aware of many of our key products that are launched outside the U S that are not in the U S debt.
And that we can make very that we can make a very nice gross margins and have high customer demand. So we look forward to bringing those to the U S. And we're also tell you about some other products or capabilities that may lie outside of our three year L. R. P. But we'll share all of that at Investor day, but we're very excited about the future of the company.
Let's sneak in one quick follow up on <unk> I know that you've been supply constrained on surplus generators is that situation improving would be resolved by the time, you hopefully get U S approval any update on that situation. Thank you.
Yes, we do expect that to dramatically improve prior to having U S approval, primarily because we will bringing we have really important strategic contractors that we have very long term contracts in place with we're very much part of our solution, but we're also in parallel have internally.
The abilities that were ramping up.
So both of those things will continue to happen for many many years, but we.
We do expect particularly in the second half of 'twenty two.
Twenty-three I'm, sorry to have enhanced counsel supply to meet the demand and we expect by the time the U S approval that we will have significantly more capabilities in this area. So.
I guess for that reason was the only reason why we were happy about the type of life and a slight delay in the U S.
The trial is to ramp up production, but we expect to be able to meet that demand in the U S. When we get approval.
Thanks, so much.
Yes.
Our next question comes from Larry Nicholson from Wells Fargo. Please go ahead with your question.
Good morning, Congrats on a great start to the year here guys. So one for Dr. Stein one for Mike.
So Dr. Stein <unk> single shot technology with PSA energy.
The companies are developing large focal catheters and dual energy sources. How are you thinking about the evolution of variables beyond its current geometry, and energy source and Mike you know we are completely understand you won't comment on rumors, but there arent interesting assets in med Tech.
No push you to over four five times leverage or require the use of equity. So relatively large deals are those options on the table and just remind us how you think about ROIC. Thank you.
Yes, Thanks, Larry the second one.
This is a matter of practice, we don't comment on rumors or speculation.
You know I will comment on that we did comment on the closing of Apollo in the quarter, which is really going to be a nice asset for us endoscopy.
Expand our end aluminum presence and a nice continued focus on category leadership.
Yeah, we have ever venture portfolio, we've signed the Echo tech or close the <unk> deal. This year, we had closed the Apollo deal, but like we always said any future deals speculation as a matter of practice, we don't comment on.
Okay.
And then Larry on sort of the evolution of <unk> pulse.
We certainly are looking at alternative.
Has it or form factors.
And as sort of as you mentioned I think there are a lot of different things that you can do with pulse field energy and with our wave platform or I'm, sorry, our pulse platform.
I do think its important though as you think through that to think through the different use cases.
And so for atrial fibrillation.
Whether it's paroxysmal atrial fibrillation.
Really the goal of therapy is just pulmonary vein isolation or whether it's persistent atrial fibrillation, where you may very well need to go beyond that do pulmonary vein isolation plus post Jerry a wall isolation, which we're investigating right now in our advantage trial and is as Mike noted.
In his prepared remarks, we've already begun enrollment in that trial and really our R. R.
Beyond please at the excitement at the rate at which we're enrolling in that trial.
Do you think about both of those use cases right. It's our belief and in fact, the data that you've seen from things like manifest supports that belief that the fairway of catheter itself is uniquely well suited among all the competing technologies for achieving those goals. So again when you think about.
S ablation right, we think that the fairways catheter is is the best of the catheter form factors out there and then when you couple that with the wave form that we deliver when you couple that with the dosing protocol that we've optimized over the many years of preclinical and clinical.
Research that Sarah pulse data and that we've continued since the acquisition.
We are really satisfied with that as you know the.
The catheter that's gonna be preferred for Afib ablation, and then it's adding on some of these other form factors that you talk about as we think about some of the smaller use cases beyond the afib market.
Alright, Thank you very much.
Our next question comes from Travis Steed from Bank of America. Please go ahead with your question.
Hey, Thanks for taking the question I guess high level, maybe you can just refresh us on your overall capital allocation priorities.
And start there and then a quick question on the guidance.
Revenue growth, obviously moved up quite a bit but earnings didn't move up quite as much. So just want to make sure I'm not missing something on the EPS side, given that margins are or staying the same.
Sure Travis I think I can probably take both of those capital allocation priorities remain unchanged. It's been equation, that's worked well for us for many years here relative to our capital allocation. So first priority is high quality tuck in adjacent high growth M&A.
Mike just gave you a couple of examples of those that we've closed this year and then we fill in on the back with any excess cash for share repurchase and as you know obviously you don't pay a dividend at this time. So I think that's that's clear with.
With respect to the drop through in the quarter.
I look at it we kind of beat the midpoint of the range and the consensus by $200 million you drop that through at our at our overall margin percentage and you get to about two to three of.
Of additional adjusted.
Adjusted EPS you would have expected we delivered three and a half I think that's that's kind of in that range.
We were at 25, 5% adjusted operating margin I think that puts us right in place to achieve that 26 four for the year, So I think oh as well relative to the.
The margin profile in the 26 four again it would be 80 basis points on top of a <unk> of last year, which I think gives us.
A bit of a differentiated expansion versus our peer set.
Okay, great. Thanks, a lot.
Sure Travis.
Our next question comes from Vijay Kumar from Evercore. Please go ahead with your question.
Hey, guys. Congrats on the print and thanks for taking my question I had a coupon of one product and one that capital allocation on the product side PFA, Mike did I hear you correctly on.
On the prior question on <unk>.
Polls are Kenny good point by point ablation at this point I thought it was a single shot.
Cat's fur.
But I would be curious to know if you have.
If it can go point by point ablation and <unk>.
Are you gaining share in the RF side as well in the current market.
And then on the capital allocation side.
I know youre not going to comment on market speculation. So this is not related to market speculation, but can you just remind us in current interest rate environment, what kind of leverage levels with Boston be comfortable with.
If if Boston deemed to deal a strategic would you be okay doing an earnings dilutive deal.
Yeah.
P. J, it's Canada, let me start with a question.
About Ferro Paulson fair wave and really answered in two parts right. So the first part.
So the current catheter that we have approved in in CE, Mark countries and as Mike said in Singapore.
And that we are evaluating the U S and the advent trial is a quote unquote single shot catheter. So it's not a point by point ablation catheter and as I said to Larry It's a catheter form factor that really is uniquely well suited for pulmonary vein isolation and for post <unk>.
Our solution and again, we firmly believe that this is the best form factor out there yet for tackling the vast majority of patients are undergoing atrial fibrillation.
Ablation now now, having said that and I think sort of the.
The proof behind that is when you look at our commercial release in Europe , we are taking share.
Both from centers that were quote unquote single shot centers. So the cryo users, but also taking share from folks who were very well known in the field for their 0.5 point RF ablation.
I'd say, we've really been getting impressed and pleased at the way, we're converting folks who were a point by point users into PSA and Thats based on the safety based on the efficacy and also frankly based on the efficiency of ablation with fairways.
And then relative to your specific.
A question on leverage.
It's been a it's been a focused and intentional journey for us to get back to Triple B plus with all three rating agencies that rate the radar and very comfortable there, obviously, you're committed to investment grade and comfortable that that triple B plus rating.
Sorry on earnings dilution, Dan would you be concerned earnings dilutive deal.
If boston beams that are strategic.
I wouldn't comment on specific dilution and this and that I think are.
From our perspective.
Relative to the.
M&A environment, we were committed to looking at deals that are a high growth and tuck in acquisitions as we've done so.
Thanks, guys.
Uh huh.
And our next question comes from Danielle.
And to losses from UBS. Please go ahead with your question.
Thanks, So much good morning, everyone and congrats on a really strong quarter.
Just a question on Tara Paul sorry, there's so much focus on just one product in the call, but I'm curious about how you guys are thinking about the evolution of the market broadly I mean, this has been a market that.
Have a place in a market that's been a double digit grower for the last decade plus.
But is it right to think about their pulse and just the advent of wholesale deflation overall potentially accelerating market growth and a meaningfully.
Dana.
Okay.
Because of the safety profile of the device or how are you thinking about and what are you seeing I guess in Europe about market growth overall.
And I have one follow up on watchman.
Yes, sure Danielle I guess, I guess I'll take that first one and what well see on the follow up.
Yeah.
The easy answer to what your question was is yes, we do see Sarah pulse accelerating adoption of AF ablation F. Right is the most common sustained arrhythmia that that's that's seen.
But globally in fact.
Oblations today for current indications is still very much underpenetrated.
It's underpenetrated for a couple of reasons right and one is safety concerns around the procedure.
One is just the.
Skill level and the relative inefficiency of AF ablation today using thermal energy. So I think you know first of all.
With the Sarah pulse system with fairway and again the safety the efficacy and the procedural efficiency I think it's going to pull more people in who are currently indicated.
And then also believe that there's a real opportunity to drive further use of this patients with persistent atrial fibrillation, where frankly conventional thermal ablation results are are marginal at best and.
And it's one of the reasons. We're so excited about the advantage trial that we recently began enrollment in the United States, which is aimed at getting approval and indication for fairway for persistent atrial fibrillation as well as paroxysmal atrial fibrillation.
Okay. Thanks for that and then my question on Watchman is just really around what he says.
On a similar vein sort of what we're seeing from a market growth perspective there.
There because that really strong number it's hard to parse out what's backlog, what what's underlying growth, but it's been growing quite healthily for a while with a competitor launching in the U S. Just curious what you're seeing from a market growth.
The acceleration perspective on watchman. Thanks, so much.
Sure I would say you'll recall the market, 25% ish growth so very very strong as it continues to get more and more scale.
I think it's important to note that we believe our share.
Is maintained at least flat if not actually increased over the past six months.
So our teams are in the U S has done a very very excellent job commercially.
With the <unk>.
The flex products. So we continue to see this be the plus 20%, 25% market grower for a number of years here.
And then we have these are very.
Groundbreaking trials with option with a champion and we just highlighted allows for that which will follow those so we're very committed to the market development of this category and expanding the indication over time to these clinical trials, assuming that they're positive and I think just as importantly.
We look to continue that momentum with a product cadence, we either differentiate is terrible sheets that will be approved.
In the coming nine months, and then our third generation watchman product, which will be launching kind of around this time next year.
First quarter next year so.
The portfolio and the and the clinical work to continue to expand the market and the team's doing an excellent job globally.
Yeah.
Thank you.
Yep.
Our next question comes from Cecilia furlong from Morgan Stanley . Please go ahead with your question.
Hey, good morning, and thanks for taking my question and also echoing my congrats on the quarter.
I wanted to ask specifically just your comments on pain and Ses really what you saw in the quarter, especially as it pertains to recent headwinds play out.
And then just your outlook in terms of underlying market growth did we see some recapture in <unk> was that part of the strength in and how youre thinking about underlying market growth going forward.
Sure.
First quarter, we did see an improvement out of that global business.
You know the overall business grew 14% led by a.
Deep brain stimulation business had a terrific quarter.
And spinal cord stim decline about 9% so in the quarter there definitely was some improvement in staffing.
Which likely help the entire market and the neuroma.
And as we said there are there are some a slightly favorable comps as well in the quarter compared to the 21 that COVID-19 year, but overall, we expect that business and the pain size to grow above market and the brain side DBS significantly above market and we're very excited about this new stim view capability.
One challenge with a deep bench stimulation, it's an excellent procedure, but it's.
It takes quite a bit of time and a lot of coordination between neurologists implanting physicians. The patient. We believe this software enhancement will continue to improve the productivity and cycle time for patients.
So overall I think it's too early to call. What we think the market will be for spinal cord stem for the full year, we still would say maybe mid single digits.
Kind of five 6% is where we would land if you forced us to give you a number now.
And if I could just quickly follow up on China and some of your comments what you saw in the quarter coming in ahead of expectations. How should we think about it really just the the rest of the 'twenty three in terms of pent up demand backlog procedures and then also what you've seen to date with watchman in the region and thanks for taking the.
<unk>.
Yeah, China catches up to everything quickly. So there wasn't an impact early in the quarter with COVID-19 procedures and they clawed that back very quickly the second half of the quarter. So we do expect double digit growth in China. Despite some of the pricing pressure.
Consistent with previous years.
Really based on the strength of the overall portfolio, there and continuing to expand our capabilities. We're excited about this <unk>.
Agreements, where we own 60% of Atco Tech, which is a local China company. That's the leader in drug coated balloons in the region.
As well as many other peripheral potentially cardiology procedures. So we think that strategic alliance will also help us and help them.
And.
We continue to expect double digit growth in China and watchman.
I have the exact numbers do we find in China.
And we can provide more details in the future, but at flex is approved I believe yesterday.
Okay.
Yeah.
Thanks for taking the questions.
Youre welcome. Our next our next question comes from Matt Taylor from Jefferies. Please go ahead with your question.
Hey, good morning, Thanks for taking the question.
So great result, I guess what I'm.
I'm struggling to understand it.
Obviously, you saw strong demand in the quarter.
And I think we're seeing a lot of macro things improving like staffing et cetera.
I mean couldn't actually theoretically get better sequentially or you are why are we so conservatively do you think that the direction of travel it could be positive negative or neutral and what are some of the background Bob.
But you wouldn't base that on.
Well I would say.
Again, we were super proud of the quarter, we exceeded we believe the peer group and did well across every region won't go through everyone. We do think there are despite it being a.
You know a nine seven comp again, it's off of a lighter 'twenty. One. So we do think there is some comp benefit there. Despite its showing a 9.7 if you look at the number.
But that doesn't take away from the excellent performance in the quarter overall as you compare to our peers.
So I just think it would be.
It's not prudent for us to assume the same market growth for the remainder of the year. When traditionally this has been a call. It six 5% our markets that we serve it and over time, you're going to see that served market growth continue to expand like we have every every couple of years based on our portfolio.
So to say that the market has kind of jumped from 6% to 10%.
Over the last six months, probably isn't isn't feasible. So we think that the markets are healthy we still think the market's growth with kind of six to seven where we serve.
Those will hopefully increase over time as our strategy continues to play out.
But it's too soon to call.
First quarter performance for the market.
Laughing at every quarter.
And then Mike just to follow up on that I mean thinking ahead to once a week 24.
If we do have some let's call it supernormal growth this year of some catch up or whatever.
Do you still think that you can grow.
Kind of a L. RP range in 2024 over what could be a tough comp in 2023, if things play out well.
I would attend our Investor day, we'll give you a sense of that and what we think the RP is for 24, five and six well see how this year plays.
Plays out over the next few quarters, but I would imagine as we have at prior Investor days, we'll give you a good sense there, but what we think the next three years look like.
Thanks, Dan.
Alright, Thanks, Matt.
And our next question comes from Matt <unk> from Barclays. Please go ahead with your question.
Great. Thanks, so much.
A question for Dan and then just a couple of follow ups on some of the product lines here, we haven't we haven't yet talked about so much on the call. So Dan.
Free cash flow conversion could you talk maybe a little bit about where your where you're at now where you want to be and what some of the challenges are currently.
<unk> gene or whatever else has been more challenging and how you're kind of cycling those and as I mentioned just now.
One other follow up.
Sure I think I would say I'm, not where I want to be yet on a free cash flow conversion.
It's a key focus item for us some things are structural and some are probably a bit more transient and and focused on on working capital. The the foundational ones are as an acquisitive company and we're going to continue obviously overtime to a to a to be oh.
<unk> companies, we're gonna have integration costs, so that's a cost that.
As a kind of gets in the way of free cash flow conversion. We have had in the past we've had litigation challenges I think those are waning.
Overtime here, that's a good thing so that's one less thing that'll get in the way of that.
We have restructuring as well so have restructuring charges I think a good good hygiene of a company to continue to to drive out.
Continuous improvement and drive out unnecessary costs. So I think those are still going to be there. So from a foundational perspective, those are a bit challenging relative to <unk>.
The difference between operating cash flow and adjusted cash flow on a on the working capital side. The things that we really focus on their relative to receivables and payables and inventory have a real maniacal focus inside the company to continue to make those continue to be in our favor. So.
Some things are structural relative to how.
The the differences between operational and adjusted free cash flow others.
Have our focus but the takeaway is we are probably not where I want to be but our focus on improving that over time.
Great. Thanks, and then maybe just a follow up for Mike.
So interventional oncology.
We talk to clinicians that business just seems to be.
It's growing at very healthy kind of rates in these centers. So just any quick color comment on would've studio could mean to that business and then similarly stone management very strong.
Maybe if you could talk a little bit about.
Now the the luminous.
Acquisition kind of Dovetailing, there and what the impact of this.
New single use scope could be the liberty deal really.
Yeah, Matt. Thank you first of all for bringing up these other businesses that are you know.
Over $2 billion, and growing very fast and accretive to our margin profile overall.
Ferro pulse, we love, but its sometimes it rounds out everything else, we're doing as a company on PR interventional oncology is so pleased with overall that BTG acquisition you don't after we.
It's been integrated very well, Jeff Mervis, Peter pass the team do a really nice job with that.
We continue to take core share with Y 90.
Cryo product that we have it's been a surprise for us does extremely well globally.
This obsidian.
Should be a again, another differentiator product to round out that portfolio even further.
Our category leadership focus that we have as a company. So we're very well positioned from a portfolio standpoint, you know the team is also.
Pushing.
Four new clinical indications, it's very early they won't be impacted in the L. R. P. But we think why 90.
Other therapies can be used outside their current indications and we hope to prove that through our clinical science over the coming five years. So we want to invest long term there. So we see a bright future overall for interventional oncology and we're positioned well and the same goes for the similar words, although be it different products for urology, we're the clear global leader here.
The team has taken Lithia view, the single use scope and pioneered that and really want to continue to pioneer that industry and tie in our our pressure sensor other AI algorithms and fluid management to create a smarter more efficient system, that's more productive for the doctor and the staff.
And have better outcomes for patients.
So we call that stone smart and Thats, a multi year journey that the team continues to execute well on so I think that that differentiated product as well as the other key components of that urology business.
Make Boston.
Really a preferred partners for most customers and we have to earn that every day with our clinical people in our smart contracting, but we have a very robust portfolio to serve that call point.
Thanks for that.
And our final question today comes from Chris Pasquale from Nephron. Please go ahead with your question.
Thanks for fitting me in sorry, Mike, but I'm going to go back to sort of a pulse real quick here to finish up just to start I wanted to ask a couple of follow ups on the manifest study first.
First do you think 80% of what you see in paroxysmal patients as a realistic goal for advent or should we keep in mind any important differences in endpoints or trial design.
And then second I was struck by the relatively low use of mapping in Europe . Today, how important you think Whitney of integration is to the long term outlook of their pulse on how you're thinking about the regulatory pathway and timing to achieve that.
Yeah, Chris.
Take manifest first in and then.
Say, a few words about where we think we need to be in terms of.
Mapping.
And so I mean as you guys said in the question there were some very important differences in trial design between our advance study and what you saw in manifest.
And some towards the positive some towards the negative there there are differences actual definition of endpoints.
In in manifest Ah.
That 80% number that you cite allowed for patients to still be on a previously ineffective antiarrhythmic drug over the course of the year that that would not count as a success in advent.
And the actual just the monitoring strategy and having a lot more intensive.
That it wasn't a registry like manifest on the other hand to that is that manifest as you know the first broad rollout in real world commercial experience as opposed to just go into some highly.
Highly selected clinical trial sites I think what I'd urge on advent really important is the comparison in a randomized trial against thermal ablation.
Techniques.
Trial is designed as a non inferiority trial, we would've had to design a much larger trial to be able to use superiority as a primary endpoint. Although if we if we hit non inferiority, we're allowed to test for.
The superiority, but really the goal and advent is again to get regulatory approval based on non inferiority versus thermal techniques and then you know lets look in real world use let's see if we can duplicate results like the manifest results in the United States.
On mapping.
You know I think we anticipate in the United States, we will see more use of mapping than we've seen Europe pretty for the obvious economic reasons.
Having said that right for paroxysmal, Afib, where you're just doing pulmonary vein isolation.
It's pretty clear that you don't have to map to have a successful procedure with Sarah pulse in the manifest results speak for themselves in that regard and I would expect things to split out pretty much the same way they do with cryo ablation. When you go beyond that so.
There will be more of a tendency to want to map those cases, and so we will have a second generation fairway of catheter that will be integrated with the <unk> system, but we're never going to force people to use with yeah, we're always going to maintain it as an open system you can map with whatever system you want.
We believe with some of the enhancements, we're going to bring out.
It's going to drive a lot of folks to want to use <unk> when they want them at a fair wife's case.
Thank you Dr nine and thank you for it.
Thank you for joining us today, we appreciate your interest in Boston scientific if we are unable to get to your question or if you have any follow ups. Please don't hesitate to reach out to the Investor Relations team before you disconnect. Jamie will give you all the pertinent details for the replay.
And ladies and gentlemen that will conclude today's conference call and presentation.
<unk> joined the replay we do we will have it up within the next two hours.
The conference I'd would be 274.
Two three.
One one again that is 274.
2311, the dial in numbers would be 818 hundred 70 7344.
Seven five to nine or 1412.
<unk> 700 E.
Replay will be available until May three 2023 at 11 59 P M Eastern time.
Once again today's conference has concluded. Thank you for attending you may now disconnect.