Boston Scientific Corporation

Good morning and welcome to the Boston Scientific Third Quarter 2022 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Lauren Tengler, Vice President, Investor Relations. Please go ahead.

Thank you, Andrew. 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 Q3 2022 results, which included reconciliations of the non-GAAP measures used in the release. We have posted a copy of that release as well as reconciliations of the non-GAAP measures used in today's call to the investor relations section of our website under the heading financials and filings. The duration of this morning's call will be approximately one hour. Mike and Dan will provide comments on Q3 performance as well as the outlook for our business, including Q4 22 and full year 22 guidance. and then we'll take your questions. During today's Q&A session, Mike and Dan will be joined by our chief medical officers, Dr. Ian Meredith and Dr. Ken Stein. Before we begin, I'd like to remind everyone that on the call, operational revenue growth excludes the impact of foreign currency fluctuation, and organic revenue growth further excludes acquisitions and divestitures for which there are less than a full period of comparable net sales. Relevant acquisitions excluded for organic growth are Preventus, Ferripulse, and Lumina Surgical, which closed in March, August, and September of 2021, respectively, as well as Bayless Medical, which closed on February 14th, 2022. Divestitures include the BTG specialty pharmaceuticals, which closed on March 1st, 2021. Guidance excludes the previously announced agreement to purchase the majority stake of MITech, which is expected to close by year-end 2022. For more information, please refer to our financial and operating highlights deck, which may be found on our investor relations website. On this call, all references to sales and revenue, unless otherwise specified, are organic. This call contains forward-looking statements within the meaning of federal 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 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 or if 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 factor section of our most recent 10-K and subsequent 10-Qs filed with the FCC. These statements speak only as of today's date and we disclaim any intention or obligation to update them. At this point, I'll turn it over to Mike for his comments.

Thanks, Lauren. Thank you to everyone for joining us here today. We're very proud of our performance in third quarter, particularly in light of the ongoing macroeconomic and supply chain headwinds. Our performance continues to be supported by the strength and diversification of our innovative portfolio and the winning spirit of our global team. Third quarter 22 total company operational sales grew 14% versus prior year, and organic sales grew 11.5%, which does exceed the high end of our guidance range of 8% to 10%. This performance is a testament to our category leadership strategy and focus on innovation with strong commercial execution. Six of our business units grew double digits organically, and we believe that nearly all of our businesses and regions grew faster than their respective markets. Third quarter adjusted EPS of 43 cents grew 6.3% versus prior year, at the low end of our guidance range of 43 to 45 cents, attributable to increased FX headwinds and slightly higher spend within the quarter. We have grown 9.2% organically year to date through third quarter. And in light of this performance, we are increasing our full year 22 guidance for operational growth to approximately 11.5% and organic growth to approximately 9%. For fourth quarter 22 revenue, we're guiding to operational growth of 8.5% to 10.5% and organic growth of 7% to 9%. We're also updating our full year 22 adjusted EPS guidance to $1.71 to $1.74, primarily related to the ongoing headwind from foreign exchange. Our fourth quarter 22 adjusted EPS estimate is 45 to 48 cents. Throughout 2022, we have maintained our goal to improve operating margins, While a goal remains, we feel it's prudent to provide an updated adjusted operating margin target of approximately 26% considering the continued macroeconomic pressures. On a full year basis, this does represent approximately 70 basis points of margin expansion versus our 2021 rate of 25.3%. I'll now provide additional third quarter highlights along with some comments on future outlook. Regionally, the U.S. delivered operational growth of 12% for its prior year, Strong growth was realized across most all of our business units, particularly cardiovascular and endoscopy, and included an approximate 300 basis point tailwind from acquisitions. Europe, Middle East, and Africa grew 15% on an operational basis first prior year. We continue to see excellent execution fueled by our innovative portfolio with seven of the eight business units growing double digits. Sales growth accelerated within our growth emerging market countries within Europe, with notable strength across cardiology and peripheral interventions. In Asia-Pac, we grew 15% operationally with strong growth in China, India, and ASEAN countries. While our Japan results saw some impact from COVID within the quarter, we continue to see strength driven by new products including PolarX, Watchman, Flex, and Resume. Our team in China delivered excellent results in third quarter with growth of 36%. Growth is primarily driven by our ICTX business within cardiovascular, PI, and our CRM business units, supported by new and ongoing product launches across the portfolio. Turning to Latin America, the team executed another exceptional quarter, growing 29% operationally. All business units in major markets grew double digits in third quarter, and across the portfolio, more than 10 new products were launched, enabled by remote training and support. I'll now provide some thoughts on our business units. starting with urology and public health, which grew organic sales 13% and 16% on an operational basis. The stone management, prosthetic urology, and prostate health franchises all grew double digits in third quarter, with balanced performance across the regions. We continue to focus on global expansion and are pleased to have received approval and commenced the launches of SpaceOar in both Korea, Mexico, and Resume in Japan. Our luminous acquisition did turn organic in September, and we remain excited about the global opportunity ahead with the MOSES laser technology, lithovue single-use flexible ureteroscopes, and our broad portfolio of stone management products. In endoscopy, sales grew 10% organically. This category-leading business continues to focus on product innovations enhanced by best-in-class physician education and training. Growth within the quarter was driven by our billary and single-use imaging franchises, with ongoing market development activities enabling increased utilization of Exalt-D and other key products. In neuromodulation, organic revenue grew 3%. Our pain franchise sales were flat year-over-year, below our expectations, with ongoing reimbursement challenges impacting U.S. procedures for both VertiFlex and spinal cord stimulation. In SCS, while international growth was very strong with broad demand for Waveride or Alpha, our US SCS sales were impacted by pre-authorization denials despite strong patient demand and ongoing physician interest in our fast therapy. We have a team in place focused on supporting the pre-authorization documentation requirements. However, we do anticipate that challenges will continue to persist in the fourth quarter. In deep brain stimulation, the U.S., EMEA, and LATAM regions grew double digits in third quarter. Globally, we're seeing stable underlying DBS procedure growth, and we continue to see momentum in the U.S. as we moved into full launch of our StimView XT integrated imaging and programming platforms. Cardiology delivered another excellent quarter with organic sales growing 13% and operational sales growing 16%. Within cardiology, interventional cardiology therapies, organic sales grew 11%. This coronary therapies franchise performed well in third quarter, driven by strong performance in our international regions, particularly with our differentiated imaging franchise. Importantly, we recently completed an enrollment in our agent IDE trial. This is the very first US trial for a coronary drug-coated balloon to treat instant re-stenosis. And we expect to launch in Japan in 23 and the U.S. in 2024. Our structural heart valves franchise did grow double digits in third quarter again with continued strength in Europe with our AccurateNeo2 TAVR platform. Additionally, results from the protected TAVR trial were presented as a late breaker at TCT. Recall the protected TAVR trial studied our cerebral embolic protection device, Sentinel, with TAVR versus unprotected TAVR. With a reduction in the primary endpoint of overall stroke, while the reduction in the primary endpoint of overall stroke did not reach statistical significance, a secondary analysis demonstrated a clinically meaningful 63% relative risk reduction in severe disabling stroke. Turning to Watchman, organic sales grew 26% in third quarter. Global growth continues to be very strong, further supported by the U.S. FDA approval of an expanded label to include DAPT. giving physicians and patients choice of DAPT or OAC in the first 45 days post-implant. We continue to focus on innovation in this space with a True Steer, which is our new steerable sheath, and we also highlight our next generation Flex device, Watchman Flex Pro, at our TCT investor event in September. We expect Flex Pro to build on our second generation Flex with additional sizes and a device coating designed to enhance healing. In cardiac rhythm management, organic sales grew 7% versus prior year. We had another strong quarter performance as we continued to focus on lifetime patient management from diagnostics to implant with our broad portfolio. Within core CRM, our low-voltage franchise grew mid-single digits and high-voltage grew low-single digits. Our diagnostics franchise continues to perform very well. We're pleased to have received CE mark for our implantable cardiac monitor, LUX-DX. and we have commenced our commercial launch. Electrophysiology sales grew 26% on an organic basis and 83% on an operational basis. We continue to see strength in our comprehensive international portfolio, which grew 45% organically, and this includes two months of contribution from FerriPulse. Physician demand for Polarex in Japan and FerriPulse and Polarex in Europe remains very strong, and we continue to see increased utilization at existing centers while we are expanding into new accounts. In addition, we're pleased to have launched Farrah Pulse in Australia and Singapore under special access and we anticipate approval in 23. The Bayless integration continues to go well with the differentiated transeptal access portfolio growing double digits in the quarter and remains on track to achieve our full year expectations. In peripheral interventions, organic sales grew 12% with broad growth across all major franchises and regions. In arterial, our differentiated drug-eluting portfolio grew double digits in the quarter, and we received FDA approval for a line extension of Alluvia and commenced launch of the longest-length drug-eluting stent for peripheral arterial disease in the U.S. The interventional oncology business had another very strong quarter with great growth and continued strength in our cancer therapies, ICX, and Theraspher. We're pleased to have closed on the acquisition of Obsidio and the gel-embolic material technology. Obsidio is the first gel-embolic with an indication for the peripheral vasculature and a complementary addition to our portfolio. We look forward to launching this technology within the U.S. in 2023. In alignment with our overall commitment to progress our environment, social, and governance efforts, the PI Division announced collaboration with a healthcare data platform, Truvita. aiming to provide insights to help better address healthcare disparities within various PI disease states. We remain committed to driving sustainable innovation at Boston Scientific, and despite the persistent macroeconomic pressures, we continue to invest for the long-term in R&D, execute strategic tech in M&A, with a focus on improving patient outcomes today and into the future. We're also excited about the opportunities ahead and remain focused on our long-term financial goals continuing to grow sales faster than the markets, operating margin expansion, double-digit adjusted EPS growth, and strong adjusted free cash flow generation. Before I turn it over to Dan, I do want to take a moment to share that our Chief Medical Officer, Dr. Ian Meredith, will be retiring in April of 2023. We're extremely grateful for his strong contributions, particularly his dedication to patients, clinical science, and meaningful innovation, and his great sense of humor. With that, I'll turn things over to Dan to review our financial performance in more detail.