Boston Scientific Corporation

Good morning and welcome to the Boston Scientific second quarter 2026 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 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Lauren Tangler, Vice President, Investor Relations. Please go ahead.

Thank you, Drew, and thanks to everyone for joining us. With me on today's call are Mike Mahoney, Chairman and Chief Executive Officer, and John Monson, Executive Vice President and Chief Financial Officer. During the Q&A session, Mike and John will be joined by our Chief Medical Officer, Dr. Ken Stein. We issued a press release earlier this morning announcing our Q2 2026 results, which included reconciliations of the non-GAAP measures used in this release. The release as well as the reconciliations of non-GAAP measures used in today's call can be found on the investor relations section of our website. Please note that on the call, operational revenue Excludes the impact of foreign currency fluctuations and organic revenue further excludes certain acquisitions and investitures for which there is less than a full period of comparable net sales. Guidance excludes the previously announced agreement to acquire Penumbra, which is expected to close in the second half of 2026, subject to customary closing conditions. For more information, please refer to the Q2 financial and operating highlights deck, which may be found on the investor relations section of our website. On this call, all references to sales and revenue Our organic and relative growth is compared to the same quarter of prior year unless otherwise specified. This call contains forward-looking statements regarding, among other things, our financial performance, business plans, market expectations, and product performance and development. These statements are based on our current beliefs using information available to us as of today's date and are not intended to be guarantees of future events or performance. If our underlying assumptions turn out to be incorrect or certain risks or uncertainties materialize, actual results could vary materially from those projected by forward-looking statements. Factors that may cause such differences are discussed in our periodic reports and other filings with the SEC, including the risk factors section of our most recent annual report on Form 10-K. Boston Scientific disclaims any intention or obligation to update these forward-looking statements except as required by law. In addition, this call does not constitute an offer to sell or the solicitation of any offer to buy any securities or solicitation of any vote or approval in connection with the proposed transaction with Penumbra. Boston Scientific has filed the SEC registration statement on form S4 containing a proxy statement of Penumbra and a prospectus of Boston Scientific that contains important information about Penumbra, Boston Scientific, the proposed transaction, and related matters. At this point, I'll turn it over to Mike.

Thank you, Lauren. Thank you, everyone, for joining us today. Second quarter represented a solid quarter for Boston Scientific while we continued to navigate a dynamic environment. Total company organic sales grew 7% versus our guide of 5 to 7. driven by our interventional cardiology, endoscopy, and neuromodulation business. Q2 adjusted EPS of 86 cents grew 15% and exceeded the high end of guidance range of 82 to 84, driven primarily by some favorable tax results. Second quarter adjusted operating margin was 28.4%. Turning to our outlook, we now expect the second half to be more pressured than we originally anticipated. To that end, we are updating our full year 2026 guidance for organic revenue of 5% to 6% with our full year adjusted EPS now 328 to 332, representing growth of 7% to 8%. For third quarter, we're guiding to organic revenue growth of 3% to 5% and adjusted EPS of 80 to 82 cents. We update our guidance in Q1 with a goal of establishing the right baseline for the year. This update today is not the outcome we planned or what you've come to expect from us. Boston Scientific has had a strong record of growing above our weighted average market growth rates while delivering double-digit adjusted EPS growth. However, market conditions have evolved quickly and has been challenged to forecast effectively. Our guidance reduction is concentrated in two areas. First, Watchman, where the US market has slowed sharply and unexpectedly, primarily driven by compounding clinical evidence which has impacted referral patterns. In second EP, where we did not anticipate the degree of competitive share movement, we're now seeing in the US market. While we are sharpening our forecasting processes and taking action to address controllable headwinds, our underlying assumptions are that these dynamics continue in 27, resulting in revenue growth below our WAMGR and limited adjusted EPS growth. We expect our revenue and EPS growth Thank you for joining us today. This program will enable us to drive sustainable cost efficiencies while strategically reinvesting in our business to support a return to a strong adjusted EPS growth in 28 and beyond. So before I provide more information in regards to our second quarter performance and full year outlook, I want to reiterate my confidence in the future of Boston Scientific. While EP and Watchman have been tremendous growth drivers for the company, our other business units, which represent roughly 75% of our revenue, are expected to grow approximately 6% in the second half of the year, consistent with our historical performance over many quarters. Turning to our regional performance, the U.S. grew 6% on an operational basis driven by ICBT, interventional oncology, and neuromodulation. Europe, Middle East, Africa grew 4% on an operational basis driven by EP, vascular, and neuromod. And Asia-Pac grew 11% operationally, led by double-digit growth in Japan, China, and Korea. Across the region, performance was driven by our interventional cardiology, EP, and watchman businesses. Now some additional color on our business units. Neuromodulation sales grew 12% with double digit growth in both pain and brain. Within pain, growth was strong across the portfolio, including a full quarter of contribution from NALU, which performed well in second quarter with integration progressing nicely. In brain, we saw strong growth across the globe enabled by differentiated products, including our Cartesial leads, Illuminal programming, and DBS patient controller. Urology grew 1% this quarter, falling short of our expectations, driven by sickle neuromodulation, with the recovery in that business taking longer than we had anticipated. In stone management, we continue to see pressure in the market with key portfolio gaps that we aim to fill over the next three quarters. We now expect our full year urology growth to be flat to low single digits. Endoscopy sales grew 7% with strong results across our business, another quarter of better than anticipated performance from Axios. Within the quarter, we received FDA clearance for Revos, a first of its kind single device designed to consolidate multiple exchanges, enable physicians to streamline procedural steps while performing endoscopic ultrasound biliary drainage with positive feedback received on initial cases. Turning to cardiovascular, cardiovascular sales grew 8% in the quarter. Interventional cardiology and vascular therapies grew 12%. Our interventional cardiology business had another excellent quarter, growing 15% driven by double-digit growth in our coronary therapies with continuous strength in DCB, imaging, and complex PCI. In May, data from the fracture trial was presented as a late breaker at EuroPCR, achieving all endpoints with a seismic force coronary IVL catheter. demonstrating high rates of freedom from major adverse cardiac events of 30 days, as well as procedural success in patients with severely calcified coronary artery disease. We look forward to bringing Seismic Force to market in the first half of 27. Earlier this quarter, we announced our intent to potentially reenter the TAVR market through an investment in Mirus and their differentiated Siegel TAVR valve. The Siegel valve is currently enrolling in the STAR clinical trial and upon achievement of certain clinical and reg milestones, Boston Scientific has the option to acquire 100% of the TAVR assets. This valve has been built on years of research and proprietary technology. We believe that the distinctive design and impressive early clinical results of the Segal valve may set it apart from currently available technologies. We're making great progress in our Thrive trial enrollment and valued in the Tyvus Ultrasound System for renal deterioration and the treatment of hypertension and continue to anticipate bringing our technology to market in 28. As we look ahead, we believe that our IC business and ICBT broadly will be our strongest growth driver for Boston Scientific as we enter a number of high growth adjacent markets over the coming years. Our vascular therapies business grew 8% driven by broader adoption of Varathena in our drug looting portfolio. We're pleased with the performance of our seismic IVL launch with strong reception for the clinical differentiation of the device We continue to ramp supply. We remain excited about the opportunity to add the Penumbra team in a highly differentiated and complementary portfolio to Boston Scientific. We anticipate the deal will close in the second half of 26, subject to the receipt of the remaining regulatory clearances. Our interventional oncology and embolization business grew 12% driven by strong global growth with our broad offering of innovative technologies. Earlier this month, results from the PROACTIVE, which is a large prospective real-world study evaluating therosphere and the treatment of liver malignancies were published. The study demonstrated meaningful survival outcomes across all stages of disease, including patients with larger or more advanced tumors, further supporting the use of therosphere in these populations. Additionally, we received FDA clearance for TruSelect, which is a microcatheter that combines precise navigation, and Efficient Embolic Delivery. Cardiac rhythm management sales declined 2% in quarter. In core CRM, our low voltage business declined high single digits and our high voltage business declined mid single digits. Across our CM franchise, we are seeing competitive pressure with some portfolio gaps and we expect to make progress against these portfolio gaps with precedent with a new DFID platform to be launched in second half 2027. In Q2, our diagnostics franchise grew low double digits with continuous strength across our broad diagnostic portfolio. Overall, we anticipate that our CM growth will be flat on a full year basis with slight improvement in the second half of the year with contribution from Ellu Pro, which is now in full launch. Turning to Watchman, our goal here is to provide you with more details on the LAC market dynamics, the impact, and the expectations going forward. In second quarter, Watchman grew 4% with international growth of 18% and U.S. growth of 3%. The adoption of concomitant has been swift, and we now estimate that one-third of Watchman procedures in the U.S. are done concomitantly. In second quarter, concomitant procedures grew over 60% with sequential growth of 11% for the first quarter of 2026. For the remaining two-thirds of the procedures that are standalone, we saw low teens declines versus second quarter 2025. We believe the overall LAC market slowdown is driven by two main factors. First, there has been a significant amount of clinical evidence regarding the stroke risk in AF patients published over the last nine months and integrating this evidence into practice takes time, which is impacting patient identification and referral patterns.