Q2 2023 Boston Scientific Corp Earnings Call
Dave and welcome to the Boston Scientific Q2, 2000, and change Street earnings Conference call.
All participants will being listen only mode should you need assistance, please China law called French specialists like fashion District key followed by zero.
After todays presentation, there will be an opportunity to ask questions to ask a question you May Press Star then one on your touch chalk phone 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 Laura Chandler.
President and Investor Relations. Please go ahead.
Thank you Kyle and 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 Q2 'twenty three results, which included reconciliations of the non-GAAP measures used in the release, we have posted it.
Copy of that release as well as reconciliations on the non-GAAP measures used in today's call to the Investor Relations section of our website under the heading financials and filings the duration of this morning's call will be approximately one hour, Mike and Dan will provide comments on Q2 performance as well as the outlook for our business, including Q3 and full year 'twenty three guidance and then we'll take your <unk>.
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 and divestitures excluded for organic growth are baylis medical which closed on February 14th 2022. The majority stake in Beckman Architects scientific holding Ltd, and Apollo Endo surgery, which closed in February and April of this year respectively.
Divestitures include Endoscopy pathology business, which closed in April of this year. Please note that we have elected to consolidate alphatec results on a one quarter lag, which had an immaterial impact on our Q2 reported and adjusted results.
June 15th 2022, we announced our entry into a definitive agreement to purchase a majority stake in Ni Tech the agreement required global regulatory approvals that we were unable to obtain in some countries. As a result, the original agreement was terminated and in June of this year, we purchased a minority stake in <unk> 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 our organic this call contains forward looking statements within the meaning of federal securities laws, which might 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 opportunities, our cash flow and expected 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 turn out to be incorrect.
Certain risks or uncertainties materialize actual results could vary materially from the expectations and projections used or 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.
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 Mike. Thanks, Lauren and thank you to everyone for joining US today, we're very proud of our second quarter results, which exceeded our expectations and demonstrated the strength of our category leadership strategy.
<unk> clinical evidence and the winning spirit of our global team.
In second quarter 23, total company sales grew 12%, both operationally and organically versus second quarter 'twenty two.
Hitting the high end of our organic guidance range of seven to nine.
We anticipate that most of our businesses units grew in line or faster than their respective markets.
By our innovative portfolio and commercial execution also supported by healthy procedure demand.
Second quarter adjusted EPS of <unk>, 53 grew 21% versus second quarter 'twenty to <unk>.
Exceeding the high end of the guidance range of 48 to 50.
And second quarter adjusted operating margin was 26, 8% also slightly higher than anticipated.
Through the first half of the year, we have grown their business organic sales rate at 13% with broad based durable growth across all of our business units and regions.
Accordingly, we have also grown our adjusted EPS growth, 20% during the first half while balancing our investments to ensure we achieve our short term and long term goals.
Now for our 2023 guidance, we're guiding just third quarter 'twenty three organic revenue growth of 7% to 9% and we expect momentum to continue and are raising our full year organic guidance to 10% to 11%.
Third quarter adjusted EPS estimate is 46 to 48.
And we are increasing our full year adjusted EPS range to $1 96 to $2.
I'll now provide some additional highlights in the second quarter, along with comments on our 'twenty three outlook and Dan will provide more details on the financials.
Regionally and on an operational basis. The U S grew 9% in second quarter with notable strength in our watchman Pi and endoscopy businesses.
Middle East Africa also grew 9% on an operational basis versus second quarter with strong performance in the region was broad based with double digit growth in four out of our five major markets in Europe .
Across the portfolio, we saw strength in new and ongoing product launches, including <unk> accurate Neo two and Lux Dx.
Asia Asia Pacific grew 24% operationally versus second quarter led by strength in China and Japan.
Japan growth is fueled by new products include the agent or drug coated balloon for the coronary arteries and resume our minimally invasive BPH technology with device performance and procedures that leave nothing behind is resonating in the market.
China delivered excellent growth in the second quarter led by our innovative portfolio and commercial execution against the Covid impact second quarter 'twenty two.
We also saw particular strength in our interventional cardiology therapies, watchman, CRM and <unk> business units and we continue to expect double digit growth in China for the full year.
I'll now provide some additional commentary on our businesses starting with urology urology sales grew 8% organically in the second quarter.
<unk> management franchise grew double digits, driven by listen to you an ongoing globalization efforts.
Resume continues to do well globally growing strong double digits in the quarter and most recently in launching in Brazil.
We continue to see ongoing momentum within our prosthetic urology franchise fueled by patient activation efforts designed to bring awareness to a rectal restoration and male incontinence interventions.
And Thats can be sales were excellent growing 12% organically in 14% operationally in the second quarter with notable strength in the U S. Latin America, and Asia Pac with new product momentum and healthy procedure demand.
Our Apollo integration is progressing well and earlier this month, we received FDA clearance for Overstitch and X T. The.
Suturing system that enables suture placement during advanced endoscopy procedures.
This next generation device springs ease of use benefits and improved accessibility when using a single channel endoscope.
Neuromodulation sales grew 3% organically in the second quarter.
Spinal cord stimulation sales were flat versus prior year, and we expect SCS sales growth to improve in the second half of the year with strong trialing in the second quarter and supportive clinical evidence.
As presented which was presented this month at Aspen.
Notably six month outcome data were reported from the solace trial, which is a randomized controlled trial for nonsurgical back pain, which demonstrated superior outcomes for SCS against conventional medical management also consistent with primary endpoint results.
Our brain franchise grew double digits in the quarter with continued momentum from new product launches in the U S and procedure recovery in Europe .
Earlier. This month, we received FDA approval for the precise neural navigator five software, which when used with our deep brain stimulation system can help provide clinicians with data for efficient programming in the treatment of Parkinson's disease.
Peripheral interventions sales were very strong growing at 13% organically versus second quarter 'twenty two.
Our arterial franchise grew double digits led by our drug Eluting portfolio and earlier. This month after reviewing all available data and analysis. The FDA provided updated information associated with Paclitaxel coated devices used to treat ph D. <unk>.
Recognizing the safety of these devices and eliminating the requirement for specific warning language within device related labeling.
We're pleased that the FDA determined that the available data do not support an excess mortality risk we remain dedicated to helping physicians to provide the best care possible for their patients.
And Venus U S growth was led by ongoing strength in Vera thenar non thermal treatment for Verrucose phase.
With with international growth driven by a clot management technologies.
Our interventional oncology franchise grew double digits with strength across the entire portfolio.
And last month, we received clearance for them bold soft and packing coils, which along with the bold fiber coil complete are detachable coil system.
We also began our limited market release for Obsidian, which is the only conformable gel embolic material that's indicated for their peripheral vasculature, adding to our robust embolization portfolio.
Cardiology delivered another excellent quarter with organic sales growth of 13% versus second quarter.
Within cardiology, interventional cardiac cardiology therapies business sales grew 12% organically versus second quarter.
Our coronary therapies franchise growth was driven by our innovative imaging technologies as well as the recent launch of our agent drug coated balloon in Japan.
Offsetting ongoing price pressure in drug Eluting stents.
Our structural heart valves franchise grew strong double digits with another quarter of performance from our accurate Neo two in Europe .
Market reception remains very high backed by clinical evidence ease of use benefits and a focus on lifetime patient management.
Continue to expect to bring accurate neo two to the U S. In the second half of 2024.
Watchman sales grew 27% organically versus second quarter also outpacing the market.
U S demand remains strong and international growth was led by China and Japan.
We were pleased to have completed enrollment in our watchman Flex Pro Cte pilot study, which is a single study design using multiple imaging modalities to assess post procedural healing and the next generation of watchman Flex CRO.
We expect continued momentum within the watchman franchise further supported by the anticipated approval of our both watchman flex pro and are suitable sheath called <unk> by the end of 2023.
Cardiac rhythm management sales grew 5% organically in the quarter in core CRM, our high voltage business grew low single digits and our low voltage business grew mid single digits and we believe that performance was in line or slightly below market growth as a replacement tailwind neutralize.
Our diagnostic franchise grew double digits in the quarter on the strength of our broad cardiac diagnostic portfolio and we anticipate momentum will continue supported by the approval of our next generation ICM called Lux two expected later this year.
Electrophysiology sales grew 28% organically in the second quarter.
International growth continues to be fueled by strong performance in both fair pulse and polar <unk> across Europe and Asia Pac.
We continue to make progress toward bringing these innovative technologies to the U S and we expect polar <unk> approval in the third quarter.
In addition, we are looking forward to the data presentation of the advent trial, our U S. IV at the ESC Conference on August 27th.
Recall the advent trial is a first of its kind randomized clinical trial design for a non inferior 12 month primary safety and efficacy endpoints compared to commercially available RF and cryo ablation systems.
It is notable for its design and rigor as it seeks to demonstrate the single procedure effectiveness of an intervention without the use of anti arrhythmic drugs and relations.
We continue to anticipate the approval of <unk> in the U S in 2024.
The access solutions franchise grew strong double digits in second quarter with continued momentum in the U S and Japan with a differentiated versus across transcriptome platform.
We're also proud of the performance of our global teams and are confident in our future. We remain committed to sustainable innovation and our financial goals consists.
Consistently growing sales faster than our underlying markets expanding operating margins and delivered strong double digit adjusted EPS growth.
With a strong adjusted free cash flow generation.
We're looking forward to our September 20th Investor Day, where our leadership team will provide more insight into our innovative pipeline today the opportunities ahead, and our long term financial goals.
So before I pass along to Dan I want to announce that we also have some movement within our business unit leadership team now.
And after nearly 20 years at Boston Scientific Moloch, None, Nevada has announced his plans to retire in August .
Jim Cassidy will now lead the Neuromodulation business.
Where he previously spent eight years prior before moving over to lead the watchman franchise five years ago.
Lastly, Angelo Derosa will now lead our watchman business. Angelo has spent the last 10 years with Boston scientific in Europe , Most recently, leading the European CRM and EP business.
Congratulations to Jim and Angelo and we appreciate moloch for his many contributions to Neuromodulation and Boston scientific throughout his career.
With that I'll pass it over to Dan to provide more details on the financials. Thanks, Mike.
Second quarter 2023, consolidated revenue of $3 $599 million represents 11% reported revenue growth versus the second quarter of 2022 and reflects a 100 basis point headwind from foreign exchange in line with expectations. Excluding this $33 million headwind from foreign exchange.
Operational revenue growth was 12% in the quarter sales from acquisitions and divestitures contributed 30 basis points, resulting in 11, 6% organic revenue growth exceeding our guidance range of 7% to 9%.
Q2, 2023 adjusted earnings per share of 53.
<unk> grew 27% versus 2022 exceeding the high end of our guidance range of 48 to 50.
Driven by strong sales performance and a favorable effective tax rate in the quarter.
Adjusted gross margin for the second quarter was 72% slightly ahead of our expectations, resulting in an adjusted gross margin of 71, 2% for the first half of 2023, we continue to expect second half gross margin to be lower than the first half of 2023 and in line with the second half of 2022.
Largely due to timing of foreign exchange movements in 2022.
Second quarter adjusted operating margin was 26, 8% slightly ahead of expectations predominantly driven by strong top line performance and partially offset by slightly higher SG&A spend we continue to focus on adjusted operating margin expansion and are maintaining our full year 2023 goal of approximately $26.
4% adjusted operating margin, which would represent 80 basis points of improvement versus the full year 2022 on.
On a GAAP basis, the second quarter operating margin was 14, 3%.
Moving to below the line second quarter adjusted interest and other expenses totaled $93 million slightly higher than expectations, driven by FX volatility in certain unhedged currencies on an adjusted basis, our tax rate for the second quarter was nine 8% slightly below expectations due to certain discrete.
Tax items, and a lower than anticipated operational tax rate of 13, 2% driven by our geographic mix of earnings in the quarter.
Fully diluted.
Weighted average shares outstanding ended at $1 billion 456 million shares in Q2, which includes the issuance of $23 $98 million.
Common shares upon the conversion of our mandatory convertible.
Preferred stock on June <unk> of this year.
Free cash flow for the quarter was $514 million with $658 million from operating activities less $143 million net capital expenditures, excluding special items adjusted free cash flow was $730 million, we continue to target full year 2023 adjusted.
Free cash flow in excess of $2 3 billion.
As of June 32023, we had cash on hand of $426 million and our leverage was two four times in line with our expectations.
I'll now walk through guidance for Q3, and the full year.
We expect full year 2023 operational revenue growth to be in a range of 11% to 12%, which excludes an approximate 50 basis point headwind from foreign exchange, excluding the impact of closed acquisitions and divestitures. We expect full year 2023 organic revenue growth to be in a range of <unk>.
10% to 11% versus 2022.
We expect third quarter 2023 operational revenue growth to be in a range of 8% to 10% versus Q3 2022, excluding an approximate 50 basis point tailwind from foreign exchange based on current rates, excluding the contribution from closed acquisitions and divestitures, we expect third.
<unk> 2023 organic revenue growth to be in a range of 7% to 9%.
We continue to 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% under current legislation and forecasted geographic mix of sales. We now expect an adjusted tax rate of approximately.
Emily 12, 5%, reflecting.
Favorable tax discrete recognized in the second quarter.
We expect a fully diluted weighted average share count of approximately $1 billion 475 million shares for Q3, 2023, and $1 464 million shares for full year 2023.
We expect full year adjusted earnings per share to be in a range of $1 96 to.
To $2 representing.
Representing 15% to 17% growth versus 2022, which we believe delivers top tier financial performance.
We continue to anticipate a neutral impact from FX on our full year 2023 adjusted earnings per share and we expect third quarter adjusted earnings per share to be in a range of 46 to 48.
For more information please check our Investor Relations website for Q2, 2023 financial and operational highlights, which outlines more details on Q2 results and 2023 guidance in closing I'm very proud of our first half financial performance with top tier organic revenue growth of 13% adjusted operating.
<unk> of 26, 2% and adjusted earnings per share growth of 20% all contributing towards our top tier financial goals I look forward to continued momentum in the second half of 2023 and with that I'll turn it back to Lauren who will moderate the Q&A.
Thanks, Dan Pio, let's open it up for questions in the next 35 minutes or so in order for us to take as many questions as possible. Please limit yourself to one question. Kyle. Please go ahead.
Thank you Lauren.
No.
<unk> and answer session to ask a question you May Press Star then one on your telephone keypad.
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Just first question comes from Robbie Marcus with Jpmorgan. Please go ahead.
Good morning, and congrats on a really nice quarter.
Thanks Robert.
Maybe it was my one question.
It looks like you guys beat pretty much across the board with the exception of neurology.
Neuro modulation it looks like it was a really strong geographically as well split across the regions. We've heard from some public statements from managed care companies that outpatient Si.
Kind of a bolus and utilization, but it looks like it was global as well so I'd love to get to.
The read from you on what Youre seeing what's underlying demand what is may be one time upside and what youre seeing in the different regions around the world and if there's any difference in patient outpatient cardio versus non cardio. Thanks a lot.
Sure Good morning, Ravi, Yes, so as you know our portfolio.
As with the interventional procedures that we offer are very geared toward an outpatient setting in which we think is very positive trend and strategy for the long term outlook for Boston scientific.
That's where the market's moving towards so just as a quick snapshot around the world, Japan had a very strong quarter.
Just.
Really that's primarily portfolio related.
China had an excellent quarter, there was an easier comp in second quarter last year due to COVID-19 impact, but I'd take vessel outpatient dynamic doesn't really play as significantly.
As much in Asia Pac there, but really it's more portfolio related for Japan, Some COVID-19 benefit the great performance in China, and I think what's impressive about Europe, it's really across the board across all the regions and the emerging markets. Some slowness in Russia, but were lightly exposed to Russia at less than 1% in U S grew 9%.
That as well.
You've seen a bit high.
Here proportion of outpatient procedures in the U S. They do some others other regions, but we continue to see just very strong patient demand.
There is still a typically a very common waitlist for most of our procedures for physicians. So it's a very steady supply and we have a terrific portfolio to meet the market.
Thanks, a lot.
Thank you.
Our next question comes from Joanne Wuensch with CD. Please go ahead.
Good morning, and thank you for asking all for taking the question, let me ask one.
I have shared with you print this very good quarter I'm going to get 15 questions about <unk>.
More about what you expect for Esa and for the analyst meeting. So maybe you can sort of set a level set what you have factor or how we should think about putting those two events.
And then the right framework.
Sure maybe Dr Stein comment and I'll see if I need to comment further afterwards.
Yeah, Thanks, Mike Thanks Joanne.
Obviously, our big highlight at ESC is going to be the release of the data from advent.
Which I think is there.
Otherwise aware at this point.
Our.
E trial to seek approval of fair policy in the United States, We're really proud of the rigor of that trial is the first randomized trial in this space comparing pulsed field ablation with Sarah pulse system against thermal ablation with RF and cryo.
It's an incredibly rigorous design in terms of the endpoints and the monitoring.
And we look forward to sharing those results in public.
Yes, absolutely additional comment on Ferro pulse in the quarter really pleased to see the increased utilization in Europe .
We still have been supply chain constrained with our councils in Europe . So the demand for the platform far exceeds our ability to supply, thus far which we've reported out for <unk>.
<unk> quarters in a row, but what's exciting we just recently received <unk> approval for our manufacturing approval to actually manufacture. This in Minnesota, where we are here and so we do anticipate with the capabilities of the European team and the materials work by the supply chain that we expect a significant increase and.
Availability of new accounts in the fourth quarter of 2023 and that continuing on in 2024, well in advance of the launch in the U S. So really proud of the supply chain team in this environment to build this capability internally.
To meet the demand and you should expect a number of new centers opening in the fourth quarter, but the utilization what surprised me that the.
The utilization growth within the service centers in Europe continues to be impressive which speaks to the performance of the platform.
And then specific to Investor day, Joanne, which is coming up here on September 20th for US I would expect to see what <unk> seen in past Investor days Youll see the the team give us a sense of what we think we can do.
With our financial goals over the next three years. So it's a formula that's worked pretty well for us in our past investor days and I would look for us to do the same here.
In September .
Thank you very much.
Our next question comes from Rick Wise with Stifel. Please go ahead.
Hi, Good morning, Mike Hi, Dan.
Maybe focusing on.
Excellent margin performance.
Operating margins were particular standouts.
The divisional performance I mean, med surge up 410 basis points cardiovascular up 240 basis points help.
Help us understand maybe a little more detail.
The drivers is it volume is it mix.
And to what extent.
Play a role.
Not quite sure I am understanding.
Your commentary about second half margins as well thanks, so much.
Sure, let me try and put a finer point on that Rick So for the first half we ended at 26, 2% operating margin with a real strong 26 eight in the second quarter.
Which which puts us in a good spot for our full year.
Target, which is the 26, 4% specific to Q2 and the $26 eight.
For us it's always about.
Achieving the overall operating margin goals and I think history would show that we manage all lines of the P&L pretty well to accomplish that.
That objective so in any given period you may see one area of the P&L might contribute more or less but the ultimate goal is obviously to get to that that bottom line and then really specific to Q2.
Im really happy that we got to that 26, 8% adjusted operating margin to 160 basis points better than last year, and we were also able to accelerate some key SG&A investments to ensure the success of some of those upcoming transformational launches that we have starting here hopefully this year with with our cryo launch so.
For us it's always about all areas of the P&L can contribute to the overall operating margin story.
Relative to first half second half the gross margin, which was a little north of 71% for the first half should be lower in the second half should be more in line with where we were in the second half of last year kind of in that 75%.
Our range for the second half, but the operating margin for the full year for the second half, we will get us will be higher than it was in the first half and obviously get us to that that 26, 4%.
Our goal for the year.
Even for the gross margin being lower in the second half as we've said is the FX movements in 2022. So as you go forward think lower gross margin in the second half, but higher operating margin in the second half to get to that 26, four and one little slight quarterly nuance is I would expect to see a step down in Q3 relative to that 26 eight that we post.
In Q2, and then a step up in Q4 to get to the overall number to get the 26 four for the year. So hopefully that gives you a little bit of flavor of how we were thinking about it in Q2 and what the second half would bring to get us to that $26 four for the year.
I appreciate that Dan.
Sure.
Next question comes from Larry.
<unk> with Wells Fargo. Please go ahead.
Good morning, Thanks for taking the question.
Reiterate my congratulations on another strong quarter here.
Dr Stein.
I would add Ben just using the same definition of success at Abbott as manifest I think the success rate was 74%. So what differences do we need to consider between the two studies and how much do you think those differences could impact the results for fera Paulson and separately what is the success rates been with RF and cryo in previous studies.
We're using the same criteria as admin and sorry for the long question. Just lastly, if farah pulses is numerically lower on success or efficacy versus our RF and cryo.
How do you think it will impact adoption. Thanks for taking the question.
Yes sure there is a lot there let me let me start right again reinforced to everyone. At the definition of quote unquote success is very different across a lot of the trials.
<unk> and advent I think has.
Most rigorous definition of what constitutes success frankly compared to any trial thats ever been done in this space, whether it's psa or or whether it's.
Thermal ablation.
And so specifically right adjuvant is a randomized trial.
It requires patients to have success to have no arrhythmia recurrence cannot continue taking antiarrhythmic drugs, even at doses that had previously failed and cannot be re ablate. It during the so called three months blanking period.
After the index ablation.
So it includes.
A very rigorous.
Screening for asymptomatic arrhythmias, including three days of periodic holter monitoring.
Throughout the <unk>.
Of course, the one year follow up in the study I think because of that there's really no way to make apples to apples comparison across the trials.
And.
The other thing I do in terms of expectation refer everyone back to the design manuscript for the advanced study, which is now published online in heart rhythm.
And this study was designed around.
<unk>.
Achieve optimal power around and assumed success rate using this definition of 65% in both the thermal and the.
Fair a pulse on arms.
And again to remind everyone. The studies, we're powered for non inferiority for our standpoint than success would constitute a demonstration of non inferiority, both for safety and for efficacy.
Alright, thank you so much.
Our next question comes from Travis Steed with Bank of America. Please go ahead.
Congrats on a good quarter, just maybe following up the <unk> question.
How would you frame up a commercial opportunity for repair parts for the market growth and share kind of based on the various potential outcomes.
I think you said, it's the most exciting product launch and your career, but just curious how you think the commercial opportunity plays out based on.
Adam comes out and then I'm curious if you've seen the data yet or are you still blinded to the data. Thanks.
Yes, we're obviously very bullish watchman has been a pretty amazing product launch as well.
Sometimes it gets drowned out in some of these with the continued momentum in that category and the growth of that market.
But fair pulse is very exciting for us we've been investing.
For quite a while post acquisition to build up manufacturing capabilities, which is the most important thing we can do to meet the demand that we're seeing in Europe and in certain countries in Asia Pac. So we're very pleased with that milestone and as I commented we expect to.
Drive a number of new installs in the fourth quarter I also mentioned.
The ongoing increase in utilization so the physicians who are using that in Europe in selected markets in Asia.
Continued to drive more usage of it which really is a terrific sign very similar to what we saw with watchman.
Throughout that progress we all.
Also have a very strong.
Clinical trial cadence with a persistent trial advantage, which is enrolling very quickly in other trials that we announced as well as ongoing enhancements to the portfolio. So we have the R&D.
To continue to strengthen the portfolio.
Clinical science studies to continue to advance it and it's the fastest growing one of the fastest growing fields, along with watchman in med Tech, where we have a very low share we know its very competitive market, but we feel we have.
Many advantages with Vera pulse and are really driving the clinical data in this field and we also have the commercial infrastructure to to exploit the opportunity. So we're very bullish on it and we're looking forward to the advent release.
Our next question comes from Danielle <unk> with UBS. Please go ahead.
Good morning, everyone. Thanks, so much for taking the question and congrats to you. It's always a pleasure to work with and you can pass along my best ahead I'd appreciate it.
Yes.
Thank you so much and my question is really around just thinking about the back half of the year top line growth guidance. It does organically move higher.
Just want to make sure I understand all the puts and takes there obviously back half of the year does get a little bit tougher from a comp perspective on an organic basis and it does reflect some deceleration.
I understand how much of this is just prudent conservatism on your part with you guys tend to do.
First is some real.
And that's driven our business driven things, we need to consider when looking at the back half. Thanks, so much.
Sure Danielle I think I can take that one.
If you look at the second half to take take the full year of 10% to 11%, which I am Super excited about I mean to have a fully double digit.
Our range for the for the full year for organic revenue growth is as.
It is exciting and I'm proud of that and when you look at the second half.
The guidance, we've given for the third quarter of 7% to 9% so 8% at the midpoint and then the implied is seven to nine for the fourth quarter to get to that coupled with the first half performance.
That's what gets you to that 10% to 11% full year result, and I think thats appropriate and prudent guidance with where we are the comps that are a little harder in the second half because that 100 basis points harder in the second half than they are in the first half, but overall I think that 7% to 9% is appropriate prudent for the second half and if it gets us to that 10% to 11% for the full year.
I think that'll be a really successful year, coupled with 80 80 basis points of margin expansion and EPS growth of 15% to 17% adjusted EPS for the year I'd call that a pretty good year for the company.
Okay, great. Thanks, so much Dan.
Sure.
Our next question comes from Matt Taylor with Jefferies. Please go ahead.
Yeah.
Hi, good morning, and thanks for taking the question Dan I had one more conceptually on margins I guess I wanted to understand.
He puts and takes for margin expansion going forward and specifically I think a lot of investors are focused on.
Inflation.
Abating in the potential for you to get savings on things like freight and lower component costs. Do you think that we could see any of that be good guys for margins in 'twenty, four and beyond and maybe just speak to the high level factors there.
Sure I'll start at the kind of the overall operating margin levels. So if you say that we achieved a 26, 4%.
Adjusted operating margin goal for this year. The good news is there's still a long runway of margin expansion journey for us well beyond that 26, 4% we've said.
Publicly many times that we believe that <unk>.
30% plus is a very reasonable target for the company, there's nothing structurally that prevents us from getting there and to the extent that you have a durably consistently growing top line. It just gives you a number of leverage opportunities to continue to grow that so you have that kind of as a backdrop.
Specific to areas of the P&L I think the inflation piece is largely hitting gross margin.
Said that we had the $375 million impact in 'twenty two versus 2019 are in gross margin in the in this year. It's basically stayed relatively consistent so it's not a headwind or tailwind versus last year, but obviously.
A headwind versus that 72, 4% margin that we were in 2019, so specific to your question.
Question around what happens going forward I don't think we'll see a lot of inflationary abatement in 'twenty three I think the guidance that we've given assumes where kind of where we are where we are for the year, but as we look forward to 'twenty four and beyond yes, I mean this year. The full year gross margin is it will be kind of approaching.
71% for the year, so that's what.
A GAAP to where we used to be and our goal.
Maniacally focused on getting back to that level.
We do need some macro helping that as you mentioned so some of the elements of it you know freight we do see that getting a little better.
The inflationary impact of the cost of the inputs into our manufacturing process.
We'd see that abating over time, and then the consistency of the supply of the materials into our manufacturing process has improved I mean, frankly, that's improved but it's not back to where it used to be so we still it is choppy here than we'd like to see it and that does impact your ability to really run a really efficient manufacturing process. So I think 23.
Kind of as I said, we are where we are when you get to 'twenty four and beyond I think there is an opportunity for gross margin to continue to contribute frankly, I think all areas of the P&L can contribute both both areas in Opex SG&A and R&D, we can be more efficient in R&D, we certainly can be more efficient overall in SG&A and if gross margin can move north of that approaching 71 that we have.
For for this year I am excited about the opportunity for margin expansion going forward.
Great. Thanks, I'll leave it there thanks, Dan Thanks.
Thanks, Matt.
Our next question comes from Matt O'brien with Piper Sandler. Please go ahead.
Hi, This is Sam on for Matt Congrats on a great quarter and for taking our question.
We would like to touch on the guidance again, and maybe could you talk a little bit about where you're most excited heading into the second half of the year and where we get it seems like that.
Yes. Thank you it's I'm.
Trying to be vague its as you saw in the first half results. The results are really broad based across the company and across each region.
Excellent growth in Asia, Pac and Japan, and China continued share taking in Europe and excellent performance in the U S. So it's really not one region driving it which should give investors a lot of confidence and just the momentum of durable growth of the company.
The standouts there are a number of them.
Continuing to see watchman performance very strong.
That market continues to grow well in excess of 20%.
We continue to take a little bit of share.
In that category.
And we're very excited in the future about the launches of the.
<unk> in the Nextgen watchman flex probe.
And the potential of these market expanding trials, which will read out in a couple of years here. So that platform continues to do very well.
Our coronary business did excellent we're seeing nice results of agents in the U S. We'll be launching that in 2024, which really reverses any declining trend in drug eluting stents and that complex coronary business continues to do well you saw strong growth in Pi in Endo.
Euro we had some softness in our Neuromodulation Enos, we anticipate that to get better in the second half.
So it really it's a continued momentum.
And what will highlight in Investor day as some of the questions we received today.
Some potential very big growth drivers with ongoing watchman momentum.
Our entire EP business with the launch of Cryo, which we anticipate in the third quarter of this year.
Fair pulse, which has been discussed at great length. So.
Just good momentum in extremely exciting launches coming that will detail out at Investor day.
Thanks, so much.
Our next question comes from Matt <unk>.
Please please go ahead.
Hey, thanks, so much for taking the questions and congrats on.
Super strong quarter so.
Thanks, Ben breaking into double digits Youre very welcome.
Dan I wanted to just follow up on.
Cash flows cash flow conversion.
And sort of what the puts and takes there in the first half what are your expectations on the back half and your and your intermediate long term goals there.
At the analyst meeting, but.
Anything you can share now and then also just on cash.
You have so many things going on in the portfolio and in your clinical programs, but.
Love to get your sort of posture on the business development front.
And your reference to to find and invest in additional technology and assets.
Sure so on free cash flow.
Really happy with Q2 strong free cash flow quarter, both sequentially and year over year.
To your point conversion, it's an area of focus for us an area of opportunity.
That has our attention.
And one we're looking to improve on as we go forward as I've said in the past Theres a couple of key reasons, one of which is our GAAP operating income is lower than some of our peers were doing a pretty good job of closing that gap over time and that that'll be a key contributor.
And then the acquisitive nature of what we do is it can be a bit of a hamstring there but.
I would look for as you said at Investor Day, I'd look for us to give some pretty concrete goals relative to what we what we think we can do over that.
Period in the next three years to improve the conversion.
Ratio that we have and again it.
It is a it's a focus area for us and something that.
We will look to improve on going forward and I think your second question was was on cash and M&A.
Yes, yes, exactly yeah, yeah, so I mean, our our capital allocation strategy has been remarkably consistent right. So it's all about the number one priority being high quality tuck in M&A, It's still our number one priority. We continue to look at opportunities in conjunction with our financial goals. We have closed two deals this year.
The acquisition of Paulo closed in April and then our own.
The acquisition of a stake in <unk> the Chinese company.
It closed in February so we've closed a couple this year have continued to look to be active in the M&A space and that remains our number one capital allocation priority.
Thanks and congrats.
Thanks, Matt.
Our next question comes from Larry Chipmos.
Please go ahead.
Hi, good morning, nice quarter and thanks for taking the question I wanted to ask here on polar asks the cryo catheter you have come into the U S. In second half of this year I know it has had pretty great success in Europe , but given some of the.
Ah nice market for cry out.
In the coming years, and that's in an area that really hasn't seen any innovation in nearly a decade and so we're excited about what polar X delivers in terms of differentiating features physicians are anxious to try it and new platform and we had the demand to support it.
So it's we're we're blessed to have both Farah pulse coming in the U S and cry out.
As well as our mapping system to really meet the demands of the electric physiologist or excited about launching trial.
Okay very good thanks, so much.
Thanks for me.
Our next question comes from.
Wood with Morgan Stanley . Please go ahead.
Amazing. Thank you very much for taking the question I'd love a little bit more detail you could on the end of business, obviously did very well in the quota.
Obviously, a lot happening in that business overall, but maybe just giving us a sense of patient volumes relative to share pricing like any details you can give around that single use endoscopy that kind of thing I'd love any more details so good. Thanks.
Oh, Thanks for the Endo question, you know just one of our very best businesses. The company very global business, a strong contributor to accretive margin and grew 12% of the quarter.
And you know consistent with other quarters on the portfolio, it's quite broad based we did see strong procedure volume.
In the quarter.
Which is positive and so I would say the procedure volume overall is quite quite high in that arena, but still as mentioned earlier oftentimes waitlists.
Shortly in the U S and in Europe for that business, but so we expect ongoing strong demand there you know the.
The Apollo acquisition, we're very excited about you know the strategy for with an endo as we have such a broad based portfolio with so many skews that we are clear category leader in that area and.
And we also as you know offer a very differentiated technologies within that portfolio like Spyglass, <unk> and now a Paolo and also big assault D platform. So Paulo also add this you know endoluminal structuring capability.
Opportunity to expand into the Endo Barry at trick market, which we believe will be a high growth area. Certainly it is in Asia today in Japan and in the U S. As a patient seek a less invasive form to have that bariatrics, a procedure and that couples nicely with the entire portfolio. So are are cut.
Tumors enjoy doing broad based contracts with our endo business in the portfolio that we offer supported by strong procedure volume. So we'll continue to innovate in that business and you know the scopes continued to contribute growth as well so it's really broad based across that portfolio.
Really appreciate it thanks for the details.
Sure.
Our next question comes from D J.
Ever four please go ahead.
Hey, guys. Thanks for taking my question.
Maybe my first one here you know you look at 2023 W. Organic that that's a pretty big number should we worry about comps you know when you look it up the outlook here can you just remind us the pluses and minuses from a product perspective, what could be tailwinds headwinds and physically.
24.
Yeah. So we.
It's good for us to create tough comps, we didn't have an easy kind of going into this year. It was about a 9% a cop thrown into 23 is that's a pretty healthy comp and you indicated with the guidance is.
Repeat up too many of the other comments broadbase momentum, so growing and that guidance range versus 9% composite is a strong year and and we'll give guidance obviously in January for for 2024, and Dan and give some insights.
Two or three you're L. R P at an Investor day.
And we're we're really bullish about this this next three year period based on these differentiated lunches that based on the current momentum that we have in the business.
The product cycle that we have and the opportunity to potentially take it up to another level over a three year period with these lunches many of which would have been discussed in the call today many of them coming out of the cardio business and also the the benefits of the the margin improvement opportunity that Dan outlines, which we think is a multi year.
Margin improvement opportunity for us.
And the increasing the strength of the balance sheet. So I think all of those areas are pointing to the momentum of the company, but we're excited about really the next chapter of the company given the cadence of launches that it really had been a bit more D rest I would say versus a year ago.
Understood. That's helpful commentary Dan on on the Martin question any one offs. We you know would that we should be aware of when we think of February 24 anything on F X.
E D T.
Anything that's outside the normal.
You know operating leverage that Boston, Delaware, but we should be thinking about.
Yeah, obviously would that fax, we'll we'll see where that is when we when we snapped a line when we give guidance so hard to comment on that now and then.
There's always things that happen Chuck D. A V b PS and other things that happened in every year. So our goal will be to hit that twenty-six for for this year and continuing to move that north over the L. R. P period and again, it's Mike said look look for us to Ah Ah be pretty prescript. There is what we think we can do at our Investor day upcoming in September .
Mmm, Thanks, guys come back from the printer.
Thanks.
Our last question comes from Jason.
Raymond James Please go ahead.
Good morning, and thanks for putting me in just touching on an earlier question and trying to break out what's normalised market growth versus say a temporary catch up here.
No you've grown revenue in the double digits in three of the last four quarters here. So I guess my question is what do you think and market growth is right now in the markets in which you can be.
Mmm.
You know you've seen others report so the markets are healthy there's no we had a bit tougher comps and some of the others in the second quarter. So we're proud of the growth we had in the second quarter.
And maybe a bit less easier comp.
So the you know what what what further redefine what we think the markets are growing you know the future. We we call it may be the.
Yeah, we would've said, 6% to 7% ish range for our served market growth and maybe that's a bit higher this year, but we still believe that most of our business units were growing faster than our peer group.
Which is what we're we're paid to do so it's a healthy market and whenever.
We've been very close pulse with our customers in.
The hospitals that have a big hospital systems, who have already announced earnings they're very healthy demand, but we see an ongoing.
Yep patient backlog for lack of the Doctor patient wait time, so we don't see the current demand abating oftentimes, you'll see a bit of a slowdown and some of the vacation months in August and so forth, which is very routine, but we do anticipate continued <unk>.
Support from strong procedure volume you know in the coming years, we don't see that really abating.
Okay. Thank you.
Thank you for joining us today and we appreciate your interest and Doctor. Thank attack. If we were unable to get to your question or if you have any final that please don't hesitate to reach out to the Investor Relations team before you disconnect. Kyle they'll give you all of the parent Yankee counts spend a replay.
Lauren.
No to everyone.
And will be available.
Or by dialing eating or 18773447529 or one.
<unk>.
123170088, using replay code 483.
She rose.
Three shakes.
August 3rd.
23 at 11 59 P M E T.
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