Boston Scientific Corporation

Good morning and welcome to the Boston Scientific Fourth Quarter 2023 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a comfort 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, Drew. 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 Q4 and full year 2023 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 Q4 and full year performance as well as the outlook for the business, including 2024 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 this 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 Bayless Medical, which closed on February 14, 2022, the majority stake investment in Aquatech Scientific Holding Limited, Apollo Endosurgery, and Relievant Medical, which closed in February, April, November 2023, respectively. The vestiges include the Endoscopy Pathology Business, which closed in April 2023. Guidance excludes the previously announced agreement to acquire Exxonix, Inc., which is expected to close in the first half of 2024, subject to customary closing conditions. For more information, please refer to our Financial and Operating Highlights Deck, which may be found on our Investor Relations websites. On this call, all references to sales and revenue, unless otherwise specified, are organic. This call contains forward-looking statements within the meanings 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 in 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 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. 2023 results were excellent, and our global performance represented one of the strongest years in company history, exceeding our financial goals that we set for the year. This performance is fueled by innovation and clinical evidence generation, commercial execution, and the winning spirit of our global teams. In fourth quarter 23, total company operational sales grew 15%, and organic sales grew 14% versus fourth quarter 22, exceeding the high end of our guidance range of 8 to 10. Full year 23 operational sales growth of 13% versus 2022, while organic sales grew 12%, exceeding our guidance of approximately 11% for the full year. Importantly, six of our eight business units grew sales double digit in the fourth quarter and double digits for the full year 2023. And all of our regions also grew double digits in the fourth quarter and double digits full year 2023. This performance is a testament to our category leadership strategy and our focus on innovation bolstered by commercial excellence. Fourth quarter adjusted EPS at 55 cents grew 24% versus 2022, exceeding the high end of our guidance range of 49 to 52 cents. Full year adjusted EPS of $2.05 grew 20% versus 2022, also exceeding the high end of our guidance range of $1.99 to $2.02. Q4 adjusted operating margin was 26.6% and full year 23 was 26.3, which is exciting because it exceeds pre-pandemic levels. We generated a full year cash flow of $1.8 billion and adjusted free cash flow of $2.5 billion in line with our expectations. Now for our 2024 outlook. We expect healthy procedure volumes to continue in our guide into organic growth of 7 to 9 for first quarter 24 and 8 to 9 for the full year 2024. Our Q1 24 adjusted EPS estimate is $0.50 to $0.52 We expect our full year adjusted EPS to be 223 to 227, representing growth of 9 to 11%. This guidance excludes the acquisition of Exxonix, which is expected to close in the first half of 24. Despite pressures on margins in 24 from FX headwinds, as well as investments in manufacturing capacity and selling expenses to fuel our exciting launches, we remain committed to improving operating income margins in 2024 and to our goal of improving the adjusted operating margin by 150 basis points in 24 to 26. Now, Dan will provide more details on those financials for both 2023 and 2024. I'll now provide additional highlights on 23's results, along with comments on our outlook. Regionally, on an operational basis, the U.S. grew 11% versus fourth quarter 22. Full year 2023 grew 10%. with particular strength in our Watchman, EP, Endo, and Euro business units. Europe, Middle East, and Africa grew 12% on the operational basis versus Q4 22, and 13% on a full-year basis. This above-market growth is supported by new and ongoing product launches across the portfolio, price discipline, and strong commercial execution. We're excited about the year ahead with ongoing momentum across the region, particularly with our innovative EP portfolio, and further opportunity in our growth and emerging markets within the EMEA region. Asia Pacific grew 17% operationally versus Q4 in 19 versus the full year 2022, with all major markets growing strong double digits. Japan had a strong year, growing double digits for 22, with ongoing momentum from new products, most notably Agent, DCB, Resume, PolarFit, and Watchman Flex. And on a full year basis, China grew approximately 20% versus 2022. This consistent growth is fueled by the diverse portfolio, focus and innovation, and strong commercial execution. Looking ahead, we expect China to be an accretive mid-teens grower over our 24 to 26 LRP and to achieve over $1 billion in sales in 24, supported by new product launches, supply chain agility, and sustained investments in our talent and capabilities. The team Latin America grew 17% operationally versus both Q4 and full year 22. with seven of eight business units growing double digits on a full year basis. I'll now provide some additional commentary on our BUs. Urology had an excellent quarter, 10% organic growth versus Q4 22, and on a full year basis grew 11% organically. Full year growth was led by our stone management and prosthetic urology globally. And in 2023, we launched our direct to patient campaign, driving therapy awareness for erectile dysfunction, and supporting double-digit growth within our prosthetic urology franchise. We're excited about the opportunities ahead in urology, including our recently announced agreement to acquire Axonix, a medical technology company that offers innovative devices to treat urinary and bowel dysfunction. We look forward to bringing these complementary portfolios together and expanding access to differentiated technologies for physicians and patients. Endoscopy sales were also excellent in the quarter. growing 12% operationally and 11% organically versus fourth quarter, 22, and the full year basis growing 12% operationally and 11% organically. Within the quarter, strong results were led by Axios and SignalU Scopes, both growing double digits. On a full year basis, all regions grew double digits, supported by the broad and deep portfolio, new product innovation, and focus on commercial excellence. Neuromodulation sales grew 7% operationally and 3% organically versus fourth quarter 22. On a full year basis, 7% operationally and 5% organically versus 22. Our brain franchise grew double digits both in the quarter and on a full year basis driven by the precise genus portfolio and our innovative image guided programming, which is designed to improve the precision and efficiency of the deep brain stimulation procedure. In fourth quarter on an organic basis, our pain franchise was flat year over year, which was in line with our expectations. We expect our performance to improve in 2024 with the recent launch of our U.S. Waverider Alpha DPN indication and the strong real-world data on FAST recently presented at NANS. Furthermore, with the completion of our Relievant MedSystems acquisition in fourth quarter, we're excited about our ability to offer an expanded pain portfolio that supports a comprehensive treatment algorithm. Now, including the novel intra-step system for the treatment of chronic low back pain. Peripheral intervention cells were excellent, also growing 12% operationally and 10% organically versus Q4, and a full year basis growing 13% operationally and 11% organically versus 22. Arterial growth was led by the performance of our drug-eluting portfolio, both in Q4 and in a full year. This market remains under-penetrated, with more than half the procedures still being used with bare metal devices, underscoring the importance of our ongoing commitment to innovation and clinical evidence. In Venus, Q4 experience growth was led by Verithena, our market-leading varicose vein technology. Additionally, in fourth quarter, ECOS growth was supported by RealPE, the largest real-world and near real-time data set evaluating advanced therapies for pulmonary embolism patients. Our interventional oncology franchise performed extremely well in fourth quarter and in 2023, growing low double digits with strength across our portfolio of robust embolization technologies and cancer therapies. We continue to look to expand our clinical evidence and are pleased to have commenced enrollment in the Rowan trial, which will assess the safety and efficacy of using TheraSphere in combination with immunotherapy to treat HCC, the most common type of primary liver cancer. Cardiology delivered a tremendous fourth quarter and year, with both operational and organic sales growing 14% versus fourth quarter and for the full year 2022. Within cardiology, interventional cardiology therapy sales grew 10% for the quarter and its full year. On a full year basis, the coronary therapy's franchise growth was driven by strong performance in our international regions and our imaging franchise globally. Agent drug-coated balloon continues to form very well in Japan, and we now expect approval of agent in the U.S. in the first half of 2024. Agent DCB will be the first coronary drug-eluting balloon in the U.S., indicated for instant restenosis, providing physicians and their patients a solution for this unmet clinical need. Our structural hard valves franchise grew double digits in both fourth quarter and in a full year basis, led by the performance of Accurate Neo2 in Europe, and we now have treated more than 70,000 patients to date with our Accurate technology globally. As we look ahead, we anticipate approval of Accurate Prime in Europe in 2025. However, after reviewing a planned interim analysis of the U.S. Accurate IDE data, we will now wait for the full one-year data from the RCT cohort of 1,500 patients to determine our regulatory strategy. Therefore, we no longer anticipate the approval of ACR-Prime in the U.S. in 2024. Additionally, in alignment with the FDA, we are suspending enrollment in the single-arm continued access study while continuing to enroll in the randomized extended durability cohort. We expect to have more information in the second half of 2024 following the full data review. Watchman sales grew 23% organically versus fourth quarter 22 and 25% on a full year basis. Q4 finished with record sales and strong utilization in all major markets. We have now treated over 400,000 patients globally with the Watchman technology. US Q4 growth of 23% was supported by the breadth of the portfolio and the initial launch of Watchman Flex Pro, which we expect to move into full launch in the first quarter. We continue to expand the breadth of clinical evidence supporting this technology and are pleased with the pace of enrollment within our post-market HEAL LAA trial, including our newly added cohort, which is studying Watchman FlexPro in underrepresented patient populations. We also look forward to initiating our monotherapy trial, simplified trial, later this year, which will study Watchman FlexPro with a simplified post-implant drug regimen. Cardiac rhythm management sales grew 5% organically versus Q4 22, and on a full year basis grew 6% organically versus 22. On a full year basis, our diagnostics franchise grew double digits, outpacing market growth, driven by broad portfolio and ongoing investments in innovation. In core CRM in both fourth quarter and a full year basis, our high voltage business grew low single digits, and our low voltage business grew mid single digits. 2023 performance was driven by our differentiated high voltage portfolio and shock polarity options. As we look ahead, we expect our core CRM growth to be in line with the market performance in 24. Turning to electrophysiology, sales grew 43% both operationally and organically versus fourth quarter 22. And the full year basis grew 37% operationally and 33% organically versus 22. U.S. fourth quarter sales grew 40% organically, driven by our PolarX launch and ongoing momentum with our Access Solutions portfolio. Our international EP growth accelerated into fourth quarter, growing 46% organically, fueled by improved FerriPulse console supply, and we now have treated over 40,000 patients globally with the FerriPulse technology to date. And with the news this morning that we received FDA approval for FerriPulse, we are thrilled to enter the U.S. market immediately. We continue to invest in clinical evidence to study new indications and support access to our FerroPulse technology. Late last year, we initiated the Avant-Garde trial to evaluate the safety and efficacy of the system as a first-line treatment for PISCIS and AF compared to antiarrhythmic drug therapy. Additionally, real-world data was presented to AHA from more than 17,000 patients treated with FerroPulse, from the Manifest 17K registry, which reinforced the real-world safety profile of the FerriPulse platform with no reports of permanent phrenic nerve palsy or pulmonary vein stenosis or esophageal injury and an overall major adverse event rate of less than 1%. We're excited to bring this innovative technology to more markets and expect approval of FerriPulse in Japan, China and Japan, likely in the second half of this year. In closing, I'm very proud of our global team, what we are able to accomplish in 23, resulting in fully organic sales growth of 12% and adjusted EPS growth of 20%. We're excited about the year ahead and remain focused on our talent and sustaining a culture that's motivated to drive differentiated performance and achieve our long-range plan goals. Those goals, as a reminder, are sales on average of 8% to 10% over the three-year period, while expanding adjusted operating margin by 150 basis points, including double-digit adjusted EPS growth and improvement of our free cash flow conversion to approximately 70% in 2026. With all of that, I'll pass over to Dan to provide more details on the financials.