Boston Scientific Corp

NYSE:BSX

Earnings Call Analysis

Strong Q2 Growth and Raised FY Guidance

In the second quarter, the company achieved a 16% increase in operational sales, surpassing the guidance range. Adjusted EPS grew 15% to $0.62, exceeding expectations. The adjusted operating margin was 27.2%, leading to a revised full-year margin expansion goal of 50-70 basis points. The company now anticipates organic growth of 13-15% for Q3 and has raised full-year organic growth guidance from 10-12% to 13-14%. Projected full-year EPS is $2.38-$2.42. Exceptional growth in the U.S. and Europe was fueled by innovations like FARAPULSE and WATCHMAN. Free cash flow for the quarter was $660 million, and full-year free cash flow is expected to exceed $2 billion.

Robust Sales Growth

The company reported a strong performance in the second quarter of 2024 with consolidated revenue hitting $4.12 billion, representing a growth of 14.5% compared to the previous year. Operational revenue growth, excluding the foreign exchange headwind, was 16.1%. This robust performance was driven by strong sales execution, innovative product offerings, and favorable market conditions.

Exceptional Product Performance

Several product lines exceeded expectations, particularly the FARAPULSE PFA system and WATCHMAN. FARAPULSE demonstrated significant traction in the U.S. and international markets, showing a 125% organic growth rate year-over-year. Meanwhile, WATCHMAN, a key player in the structural heart market, grew 20% organically, supported by the continued rollout of WATCHMAN FLX Pro in both the U.S. and Japan.

Earnings and Margins

Adjusted earnings per share (EPS) for the quarter were $0.62, marking a 15% increase from 2023 and exceeding the guidance range of $0.57 to $0.59. The adjusted operating margin for the quarter was 27.2%, and the company expects to expand this margin by 50 to 70 basis points for the full year. Despite some inventory charges related to the adoption of FARAPULSE, the gross margin is anticipated to improve in the second half due to new product launches and cost improvements.

Strong Regional Performance

Regionally, the U.S. market saw a 17% growth fueled by the success of key products like FARAPULSE and WATCHMAN. Europe also performed strongly with a 16% growth driven by double-digit expansions in almost all business units. Asia Pacific grew by 13%, with solid performances in China and Japan, even amidst pricing actions in these regions.

Future Outlook

Looking ahead, the company has raised its full-year 2024 organic revenue growth guidance to 13-14%, up from 10-12%. For the third quarter, the guidance for organic revenue growth is set between 13-15%. The full-year adjusted EPS guidance is $2.38 to $2.42, representing a growth of 16-18%. The company remains optimistic about sustaining high performance levels, citing both innovative product pipelines and strategic acquisitions.

Cash Flow and Financial Health

The company generated $660 million in free cash flow during the second quarter, and expects to exceed $2 billion in full-year free cash flow. Cash on hand was reported at $2.9 billion, with a gross debt leverage ratio of 2.4x. This financial stability allows the company to remain focused on strategic tuck-in acquisitions and share repurchases.

Product Launches and Clinical Trials

Key upcoming launches, such as the ACURATE Prime valve and new approvals for FARAPULSE in China and Japan, are expected to contribute significantly to growth in 2025. The company also completed enrollment in the NAVIGATE PF study and plans to launch new products in the second half of the year, which will aid in sustaining its market leadership.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, and welcome to the Boston Scientific Second Quarter 2024 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Monson, Senior Vice President, Investor Relations. Please go ahead.

[Jonathan Monson, executive]

Thank you, Drew, 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 results which included reconciliations of the non-GAAP measures used in this release. We have posted a link to 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 1 hour. Mike and Dan will provide comments on Q2 performance as well as the outlook for our business, including Q3 and full year 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 the call, operational revenue excludes the impact of foreign currency fluctuations and organic revenue further excludes acquisitions and divestitures for which there are less than a full period of comparable net sales.

Relevant acquisitions and divestitures excluded organic growth are the majority stake investment in Acotec Scientific Holdings Limited and the acquisitions of Apollo Endosurgery and Relievant Medsystems, which closed in February, April and November 2023, respectively, as well as our acquisition of the endoluminal vacuum therapy portfolio from BBron, which closed in March 2024.

Divestiture include the endoscopy, pathology business, which closed in April 2023. Guidance excludes the previously announced agreements to acquire Axonics and Sicobe Medical both of which are expected to close in the second half of 2024, subject to customary closing conditions. For more information, please refer to the Q2 financial and operational highlights deck, which may be found on the Investor Relations section of our 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 anticipated product approvals and launches, acquisitions, clinical trials, cost savings and growth opportunities, our cash flow and expected use of cash, our financial performance, including sales, margins as well as our tax rates, R&D spend and other expenses.

If our underlying assumptions turn out to be incorrect or 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.

This statement speaks only as of today's date, and we disclaim any intention or obligation to update them, except as required by law. At this point, I'll turn it over to Mike. Mike?

[Michael Mahoney, executive]

Thanks, John, and thank you, everyone, for joining us today. Our second quarter results exceeded our expectations, led by the strength of our differentiated global cardiovascular portfolio, particularly the execution in [ AF ] Solutions and the winning spirit of our global team. In second quarter, total company operational sales grew 16%. Organic sales grew 15%, exceeding the high end of our guidance range of 10% to 12%. Our top-tier growth continues to be fueled by innovation, clinical evidence generation and our strategy of category leadership. Consistent with prior quarters, most of our businesses and regions grew well above market.

Second quarter adjusted EPS of $0.62 grew 15% versus versus 2023, exceeding the high end of our guidance range of $0.57 to $0.59. Second quarter adjusted operating margin was 27.2%, and as a result of our first half margin performance and revenue upside versus previous expectations, we now expect to expand adjusted operating margin 50 to 70 basis points for the full year.

Turning to the third quarter and full year '24 outlook. We're guiding to organic growth of 13% to 15% for third quarter and raising our full year guidance from 10% to 12% to 13% to 14%, reflecting momentum across our broad portfolio, particularly in our EP business unit. Our third quarter adjusted EPS guidance is $0.57 to $0.59, and we expect our full year adjusted EPS to be $2.38 to $2.42, representing growth of 16% to 18%.

Dan will provide more details on our financials, and I'll provide some additional color on the quarter and the outlook for the second half of '24. Regionally on an operational basis, the U.S. grew 17% in the second quarter with exceptional growth in EP, fueled by the continued success of the FARAPULSE launch as well as WATCHMAN, coronary imaging and strengthen our MedSurg businesses. Europe grew 16% on an operational basis versus second quarter '23. This impressive performance was driven by double-digit growth in 7 of our 8 business units, led by robust growth in [indiscernible] and strength across our growth in emerging markets.

Second quarter was also a record quarter in the region for our structural heart business, following positive data presented on ACURATE NEO 2 at the recent EuroPCR conference. We expect this momentum to continue supported by the launch of the larger size ACURATE Prime valve in late '24. Asia Pac grew 13% operationally versus a difficult comp in second quarter '23 with excellent performance in China, growing high teens and Japan growing double digits.

We also recently received approval in China for FARAPULSE and agent drug-coated balloon and continue to expect approval for FARAPULSE in Japan in the second half of this year. We expect the contribution from these launches will ramp over 2025. Within the quarter, pricing actions in key geographies went into effect with a China VBP on coronary imaging and Japan reimbursement cuts in June. We do expect Asia Pac to grow low double digits in the second half of the year, including the full impact of these pricing actions.

Some additional commentary on the business units. Our urology business grew 9% organically in the quarter with double-digit growth in stone management and prosthetic urology, supported by our direct-to-patient efforts driving patient awareness and early contribution from the limited market release of the Tonacio pump. International growth of 14% was driven by laser therapies and Rezûm. We look forward to closing this previously announced acquisition of Axonics, which we continue to expect in the second half of this year.

Endoscopy sales grew 8%, both operationally and organically in second quarter. Second quarter results were driven by above-market growth in our [indiscernible] franchise led by high-teens growth in Axios and the high teens growth in our endoluminal surgery franchise. We continue to expect Endo sales to grow faster than the market throughout '24, enabled by our innovative portfolio. Neuromodulation sales grew 16% operationally and 4% organically in the quarter. Our brain franchise grew low single digits with some impact from competitive product launches.

We expect this business to strengthen in the second half of the year, driven by our portfolio of differentiated technologies. In second quarter, our pain franchise grew strong double digits operationally and mid-single digits on an organic basis. Our spinal cord stim business saw improved U.S. trialing cadence in the quarter, and we expect that our U.S. SCS franchise will improve in the second half of the year.

The relieving business continues to perform extremely well, with more than 30,000 patients treated with the Intracept system to date. Peripheral Intervention sales grew 12% operationally and 9% organically versus second quarter. High single-digit growth in arterial was driven by continued momentum in our drug-eluting portfolio with double-digit growth in the quarter. Mid-single-digit growth in Venous was driven by momentum of ECO supported by the real PE data set and continued double-digit growth in Varithena.

Our Interventional Oncology franchise grew double digits in the second quarter, driven by our broad offering across embolization and cancer therapies. Looking forward, we continue to expect to close the previously announced acquisition of Silk Road Medical in the second half of this year.

Cardiology. Cardiology delivered another excellent quarter with organic sales growing 22% versus second quarter '23. Within Cardiology, Interventional Cardiology Therapy sales grew 9%. Growth in coronary therapies was driven by continued strength in our global imaging franchise and APAC calcium franchise. Within the quarter, we initiated a limited launch of agent DCB in the U.S., which has received positive initial physician feedback.

Our structural heart valves franchise grew strong double digits in the second quarter, led by ACURATE neo2, which continues to see growth from both new and existing accounts in Europe and Latin America. At the end of the quarter, we also completed a follow-up of the full 1,500 patient cohort in the U.S. ACURATE IDE trial. We now expect to present this data in the first half of 2025 likely at the annual ACC meeting.

WATCHMAN had another excellent quarter, growing 20% organically, with strong contribution from the ongoing launch of WATCHMAN FLX Pro in the U.S. and Japan. The U.S. grew 20% led by further [indiscernible] penetration into the existing indicated patient population enabled by our innovation, clinical evidence and patient awareness efforts. Cardiac Rhythm Management sales grew 3% organically in the quarter.

In the second quarter, our Diagnostics franchise grew double digits. This above-market growth was driven by our broad cardiac diagnostics portfolio. In core CM, a high- and low-voltage business grew low single digits, with strong international growth, partially offset by slightly below market growth in the U.S. At the recent HRS meeting, data was presented from the modular ATP trial of the modular CRM system, which is comprised of the EMPOWER leadless pacemaker and EMBLEM S-ICD, which met all prespecified 6-month endpoints and a high rate of ATP's success with no patient request for deactivation of pacing due to pain or discomfort.

Turning to EP. EP sales grew an impressive 125% organically versus second quarter '23 driven by the rapid and sustained adoption of the transformative FARAPULSE PFA system. Second quarter sales were driven by outstanding commercial execution, robust supply and positive real-world outcomes as well as increased AF ablation volumes, supported by the efficiency of the FARAPULSE workflow. Our Baylis Access Solutions business also continues to see strong double-digit growth in the U.S., with utilization of approximately 80% of PFA procedures and approximately 85% of WATCHMAN procedures. Internationally, we saw continued fair pulse account openings and robust utilization in Europe and launched APAC markets.

Importantly, evidence of more than 20,000 patients treated with FARAPULSE has been published or presented at medical conferences, demonstrating the safety, efficacy and reproducibility of the system. And within the quarter, we completed enrollment in the NAVIGATE PF study of the Fairview software module and Fair wave Nav-enabled catheter, both of which are expected to launch in the U.S. during the second half of the year.

At the recent HRS meeting, outcomes from a sub-analysis of the ADVENT trial were presented. This is the very first randomized data for a PFA system demonstrating superior efficacy versus thermal modalities. With significantly more patients having achieved an arterial arrhythmic burden of less than 0.1% with FARAPULSE compared to RF and cryo. We plan to continue a steady cadence of clinical evidence generation to maintain our PFA leadership including ReMatch AF, a planned trial designed to study the FairPoint and [indiscernible] catheter in patients who need to redo ablation, which we expect to begin enrolling early in '25.

In closing, I'm very grateful to our global team for their commitment and winning spirit enable us to deliver life-changing technologies to millions of patients. One of the most exciting chapters as a company with a track record of executing or exceeding our financial goals while delivering meaningful innovation. With that, I'll hand it over to Dan.

[Daniel Brennan, executive]

Thanks, Mike. Second quarter 2024 consolidated revenue of $4.120 billion represents 14.5% reported growth versus second quarter 2023 and includes a 160 basis point headwind from foreign exchange, which was slightly unfavorable versus our expectations. Excluding this $57 million foreign exchange headwind, operational revenue growth was 16.1% in the quarter.

The sales impact from closed acquisitions was 140 basis points, resulting in 14.7% organic revenue growth, exceeding our second quarter guidance range of 10% to 12%. Q2 2024 adjusted earnings per share of $0.62, grew 15.4% versus 2023, exceeding the high end of our guidance range of $0.57 to $0.59 primarily driven by our strong sales performance.

Adjusted gross margin for the second quarter was 70.4%, contracting 160 basis points versus the prior year period, driven by higher-than-expected inventory charges related to the Polar x cryoablation system PAUSE given the strong commercial adoption of FARAPULSE in the U.S. as well as increased levels of capital placements in the quarter.

We continue to expect second half adjusted gross margin to be higher than the first half driven by the mix benefit from key product launches and full recognition of our annual standard cost improvements. We expect full year adjusted gross margin to be slightly below our 2023 rate. Second quarter adjusted operating margin was 27.2%, which expanded 40 basis points versus the prior year period. Given our strong first half operating margin and our expectations for the second half, we are raising our full year 2024 adjusted operating margin expansion goal to 50 to 70 basis points from 30 to 50 basis points compared to 2023.

We believe this strikes a nice balance of delivering incremental margin from our sales upside and continuing to invest appropriately to drive strong top line performance. On a GAAP basis, second quarter operating margin was 12.6%, which included intangible asset impairment charges related to the acquisitions of Cryterion Medical and Devora Medical. The Cryterion impairment charges were related to the high conversion rates of cryoablation to FARAPULSE for ablation procedures in the U.S.

The Devora impairment charges were related to the decision to discontinue work advancing the Wolf thrombectomy platform. Moving to below the line, second quarter adjusted interest and other expenses totaled $68 million, which was favorable to our expectations. On an adjusted basis, our tax rate for the second quarter was 13.1%, which includes favorable discrete tax items. Our operational tax rate for the quarter was 13.6%.

Fully diluted weighted average shares outstanding ended at 1,484 million shares in the second quarter. Free cash flow for the second quarter was $660 million, with $814 million from operating activities, less $155 million in net capital expenditures, which includes payments of $200 million related to acquisitions, restructuring, litigation and other special items. In 2024, we continue to expect full year free cash flow to exceed $2 billion which includes approximately $700 million of expected payments related to special items.

As of June 30, 2024, we had cash on hand of $2.9 billion, and our gross debt leverage ratio was 2.4x. Our top capital allocation priority remains strategic tuck-in M&A, followed by annual share repurchases to offset dilution from employee stock grants. In alignment with our acquisition strategy, in Q2, we announced our agreement to acquire Silk Road Medical and closed the acquisition of [indiscernible], a pre-revenue privately held medical technology company PAUSE developing an intracardiac echocardiography product, complementing our existing electrophysiology portfolio.

Our legal reserve was $251 million as of June 30, a decrease of $32 million versus Q1 2024. $54 million of this reserve is already funded through our qualified settlement funds. I will now walk through guidance for Q3 and full year 2024. We expect full year 2024 reported revenue growth to be in a range of 13.5% to 14.5% versus 2023. Excluding an approximate 100 basis point headwind from foreign exchange based on current rates, we expect full year 2024 operational revenue growth to be 14.5% to 15.5%. Excluding a 150 basis point contribution from closed acquisitions, we expect full year 2024 organic revenue growth to be in a range of 13% to 14% versus 2023.

We expect third quarter 2024 reported revenue growth to be in a range of 13% to 15% versus third quarter 2023, excluding an approximate 100 basis point headwind from foreign exchange based on current rates. We expect the third quarter 2024 operational revenue growth to be 14% to 16%, excluding a 100 basis point contribution from closed acquisitions.

We expect third quarter 2024 organic revenue growth to be in a range of 13% to 15% versus 2023. We now expect full year 2024 adjusted below-the-line expenses to be approximately $300 million. Given discrete items recognized in the first half of 2024, we now expect a full year 2024 operational tax rate of approximately 13.5% and an adjusted tax rate of approximately 12.5%, which contemplates current legislation, including enacted laws and issued guidance under OECD Pillar 2 rules. We expect full year adjusted earnings per share to be in a range of $2.38 to $2.42 representing growth of 16% to 18% versus 2023 including an approximate $0.04 headwind from foreign exchange, which is unchanged from our previous expectations.

We expect third quarter adjusted earnings per share to be in a range of $0.57 to $0.59. For more information, please check our Investor Relations website for Q2 2024 financial and operational highlights, which outlines more details on Q2 results and 2024 guidance. And with that, I'll turn it back to John, who will moderate the Q&A.

[Jonathan Monson, executive]

Thanks, Dan. Drew, let's open it up for questions for the next 40 minutes or so in order for us to take as many questions as possible, please limit yourself to 1 question. Drew, please go ahead.

[Operator]

[Operator Instructions] The first question comes from Robbie Marcus with JPMorgan.

[Robert Marcus, analyst]

And congratulations on another fantastic quarter here. With my one question, I want to ask about guidance and the sustainability. This is a -- it was a big quarter. You had a big first quarter PSA is clearly outperforming. WATCHMAN had a great quarter. A lot of the rest of the business continues to fire on all cylinders. So I'm seeing about 14% organic for the back half of the year, which is really healthy rate. And I guess, really the question is, how do you feel about continuing through '24 and really into '25. Is this a pull forward of the revenues expected in the long-range plan? Or do you think there's better demand, better market adoption, better volumes, underlying pricing that could keep maybe not 14%, but something elevated for the foreseeable future?

[Michael Mahoney, executive]

Sure, Rob. I'll take a shot at. We're not going to give '25 guidance here. But at our Investor Day, we said our goal was to be the highest performing med tech company in terms of sales and EPS growth, which we believe we did in '23, our aim is to do that in '24 and aims to do that for many years to come. And I think one is the primary drivers of you've seen the decade-long portfolio shift into faster-growth markets for the company, where weighted average market growth rate is probably closer to 7% to 8% versus what it used to be kind of flat. So one, we enjoy because of our portfolio choices, faster growing markets.

Secondly, we have strong growth across the world. You're seeing Europe double digits, Asia Pac double digits where FARAPULSE is not yet launched. And obviously, the U.S. doing quite well as well. And then I think you just have to look at the durability of other businesses. We'll likely talk about FARAPULSE and WATCHMAN a lot on the call, but you see continued strong growth, 8% to 9-ish percent through the first half within our MedSurg businesses. So that kind of gets diminished because of the strength of some other areas, but that's pretty good.

And then the cardiovascular portfolio is just getting stronger and stronger. With our EP franchise, Baylis, what we're doing with coronary with drug-coated balloon, you saw the results with ACURATE in Europe, and also potentially some benefits with concomitant reimbursement in the future. And who knows, maybe these procedures may move over time to an ASC center and EP, which also, we think, would benefit Boston Scientific given our solution.

So we had a tough comp in '23 with a 12%. Our guidance for the full year is now 13% to 14%. We won't give '25 guidance, but our goal is to be really distinguish ourselves from the peer group in terms of revenue growth and EPS, and we have the portfolio and the team to do it.

[Operator]

The next question comes from Joanne Wuensch with Citibank.

[Joanne Wuensch, analyst]

I echo a very nice quarter. Can we unpack just a little bit and you may not like this question, but I get a lot, what's next? And how do we think about -- to your point, we're going to talk about FARAPULSE and Watchman a lot, but people are now sort of looking forward at how does this continue to roll out to deliver this kind of growth.

[Michael Mahoney, executive]

Yes. I think it's -- thanks, Joanne. I think it's similar to some of the themes I just highlighted. We have -- we're in a higher weighted average market growth rate markets to start. We see consistent procedure volume around the world. We are in a pricing environment where we used to be a price giver, pretty significantly. Now it's getting closer to negative 1 to 0. We also expect on the margin front, we took our margin goals up for the year. We expect gross margin to improve over time. Right now, we're getting more margin benefit from SG&A primarily, which is good leverage. We would expect to get more gross margin upside over the LRP period. And we just have a very strong product cadence in very fast-growing markets.

Through the best markets in all of medtech, obviously, our EP and WATCHMAN. WATCHMAN, as you know, to significantly increase the TAM of that market where it'll rival the TAVI market, PAUSE 3 to 5 years from now. So the clinical evidence that we have and fast-growing market is different in the portfolio, and we continue to make in place strong M&A bets with Axonics and Silk and our venture portfolio, which we'll continue to leverage. So the playbook hasn't changed, but it's the execution of the team of continually putting this in better markets and out-executing the competition.

[Operator]

The next question comes from Larry Biegelsen with Wells Fargo.

[Larry Biegelsen, analyst]

Congrats on a really nice quarter here. Mike, maybe just to drill down on EP and FARAPULSE. I guess it's a similar question, but just the sustainability here of the growth and the share. By our math, it looks like you've captured about 15% of the U.S. EP market in the second quarter, excluding Baylis. Help us understand how durable your EP share and growth is, can EP continue to be a growth driver for Boston Scientific for years to come. And what's driving your confidence you can compete effectively with [indiscernible] and VeraPulse when they launched?

[Michael Mahoney, executive]

So I'll start and then Dr. [indiscernible] can maybe talk about how we're really leading the field in our clinical evidence and some of the physician comment. We're competing with those companies today in Europe. With J&J, with all the companies that have PFA platforms. And you've heard us talk on many calls now on the differentiation of FARAPULSE in terms of its safety profile, the clinical data and the -- really, the usage of physicians who never considered using Boston Scientific prior, many of them have completely converted to using FARAPULSE for their A. fibrillation procedures.

But we're still relatively early in our launch in the U.S. It's less than 6 months of launching in the U.S. and we have yet to launch in China, and we've yet to launch in Japan, and we have a lot more to do in Europe and we have additional indications coming and additional portfolio coming. So we think the short story is the FARAPULSE platform, combined with Baylis,combined with our clinical will be a differentiated growth driver for Boston for many years to come.

Now will it grow as it continues to scale up over 100% a quarter, unlikely, but we expect this to be maybe the biggest business of Boston Scientific in the years to come here..

[Unknown Executive]

And Larry, maybe just to sort of add on Mike [indiscernible], just -- I mean, AF is the most common sustained arrhythmia in the world. Ablation therapy for AF today is still dramatically underpenetrated, right? I mean ablation, high single-digit penetration for persistent Afib, low double-digit penetration for paroxysmal afib and the safety advantages, the efficacy advantages, the efficiency advantages and just the overall simplicity of the FARAPULSE system, I think are just going to continue to drive the size of that market and penetration into that market.

In terms of the competition, right, again, we do expect to see competitors bring out their first-generation products late this year, early next year, they're already approved in Europe. And frankly, as Mike said earlier, right, we have not seen that materially impact the rapid sustained adoption of FARAPULSE in Europe. And FARAPULSE is a transformative technology with really important differentiated advantages against these competitors. As Mike said, right, treated over 70,000 patients to date, published clinical trial data on over 20,000 patients to date, which really testifies to the safety, to the simplicity to the efficiency and again, Mike referred to the data we presented at [indiscernible] Society, right? It's the only system right now with any data testifying actually superiority in an efficacy measure against traditional ablation.

[Operator]

The next question comes from Rick Wise with Stifel.

[Frederick Wise, analyst]

I was hoping also to talk about PFA from another perspective. In my recent dock checks, I've heard a great deal of encouraging interest in RHYTHMIA. And obviously, in many cases, are being mapped now with other companies' systems. Just maybe give us some more color on when you launch your mapping integrated catheter in the second half, I assume that's still the target. How do we think about the implications for RHYTHMIA adoption for the percentage of cases that could be mapped on the RHYTHMIA system and the impact on your growth outlook as a result?

[Ken Stein, executive]

Yes. Thanks, Rick. I appreciate the question. Again, we still are projecting approval of both our NAV-enabled Fara wave catheter and a completely new software suite on RHYTHMIA that we're calling Faraview to help support that. And we certainly do expect that to help drive more adoption of the use of Rhythmia and FARAVIEW with accompany FARAWAVE.

Now I want to begin, though, by say, FARAPULSE will remain an open system. We want to support workflows that don't involve any use of mapping or navigation, support workflows that involve these competitive systems, but also we'll expect with FARAVIEW and FARAWAVE NAV to provide some major advantages in terms of workflow. I think important for me [indiscernible] I may emphasize that existing mapping and navigation systems don't understand PFA at all. They were built around an RF ablation paradigm. And so FARAVIEW is going to be the first software and a mapping system that fundamentally understands what we do with PSA and with FARAPULSE.

There are some important features, dynamic visualization of the catheter as it changes shape from basket flower, configuration, field tagging, specific to PFA energy. And I think when you put all of that together has the potential to minimize the use of fluoroscopy during these procedures, minimize catheter exchanges and really continue what we've tried to do and I think have accomplished with FARAPULSE to begin, right, which is to create a procedure that is safer, that is at least as effective and that is far more simple and efficient compared to what people have been doing with legacy systems.

[Michael Mahoney, executive]

And on the financial side, as you know, you've seen some of the competitive reports. Mapping is a sizable chunk of the overall EP procedure. And when FARAPULSE is being used, you're seeing increased procedure volume based on the efficiency. So some competitors are benefiting from that productivity gain of FARAPULSE. So in addition to strong utilization rates and opening new centers, more broadly impacted in '25, we do expect a number of physicians to adopt this Fairview platform that Ken said which is additional revenue that you're not seeing today in the FARAPULSE EP procedure.

[Operator]

The next question comes from Vijay Kumar with Evercore ISI.

[Vijay Kumar, analyst]

My congratulations on the experience here. I had 1 question on USPF, the 220% growth. Can you parse what was capital contribution versus catheter contribution in the U.S. number. And I think you mentioned a PPT for -- in the U.S., in the outpatient setting, any update on -- has Boston submitted its [indiscernible].

[Michael Mahoney, executive]

Yes. So thanks for the question. Unfortunately, we're not going to break out for you the capital and disposable. Disposable is obviously more sizable than the capital, but that's probably the color we'll provide on that. And on the overall pricing, as you do know, the pricing is a bit of a premium. But based on the clinical benefits and efficacy and efficiency that physicians and customers are adjoining that seemed to be the proper price point. And on TPT, Ken, do you have any comments on that?

[Ken Stein, executive]

Yes, Vijay. So we have submitted for TPT. Again, I think important to recognize there are some very strict criteria for eligibility for TPT. And I think just to reiterate what Mike said, which is, right now, we are not seeing pricing as a barrier to the rapid and sustained adoption of FARAPULSE.

[Operator]

Next question comes from David Roman with Goldman Sachs.

[David Roman, analyst]

And I want to keep going a little bit on the EP side. But also, could you talk a little bit more about both the technology and commercial strategy and as you think about the technology side, right now, the bulk of your business right now sits in the ablation side. You talked a little bit about the importance of mapping and access. But how should we think about the portfolio evolving and how that unlocks new opportunities for you, whether that's in the non-AF side of the ablation market, be it with FairPoint or some of the other products?

And then on the commercial side, where are the opportunities for pull-through here? So for example, are you training your mappers on generator replacements and ICDs? And how should we think about the overall benefit to the portfolio?

[Michael Mahoney, executive]

Again, I guess Ken and I will try to tag team this. Thank you for the question. It's maybe the best market in med tech. It's about a $10 billion market. The chunk that we're doing well in now is the $6 billion AFib market that we continue to strengthen, and we'll get approval, as you know, and Asia impact in 2025. There are a number of other areas that we're trying to move into the mapping segment based on the previous commentary is one. We do have an organic ICE program, which we hopefully will -- which is a 510(k) product, hopefully, we'll be competitive with the new ICE platform during this LRP period, which is another large slice of it.

And Ken can probably detail out a bit more the clinical studies that we're doing to widen the indication for FARAPULSE beyond what is used today.

[Ken Stein, executive]

Yes. Thanks, Mike. So David, let me start with the clinical strategy and then maybe say a little more about where we're going from a technology standpoint as well because I think it's important, right, that all the other stuff we're doing doesn't just get lost and the excitement around FARAPULSE as exciting as FARAPULSE is a clinical trial standpoint, to begin with our ADVANTAGE clinical trial, which is aimed to get labeling for FARAPULSE persistent Afib has completed enrollment.

We expect to present those results late this year, early next year. We are well underway in a trial called [indiscernible], which is aimed to prove that FARAPULSE used as first-line therapy for patients with persistent atrial fibrillation. We've announced the intent to run a trial called ReMatch, which will look at FARAPULSE for redo ablations.

From a technology standpoint, we've already talked about the FARAWAVE NAV catheter. In addition to that, we have a point catheter, FARAPOINT that's through its clinical trial. And then down the road, I think more sophisticated catheters for both mapping and ablation catheter called FARAFLEX. And I think as you can imagine, we are interested in the use of this many arrhythmias beyond atrial fibrillation, atrial tachycardias and [indiscernible] tachycardia, that pretty much you name it. But I don't want some of the other technology innovations to get lost.

And so right, the EP performance was not only a FARAPULSE story, fantastic performance from our access solutions portfolio. And in terms of pull-through, right, see very good synergy between FARAPULSE and the Access solution products, likewise, in really good synergy between the WATCHMAN and the Access solution products. Again, I think in terms of the pull-through question, with the most obvious opportunity, as Mike mentioned, is the opportunity now to have [indiscernible] reimbursement in the U.S. for concomitant FARAPULSE ablation and WATCHMAN procedures, which we expect will be a growth driver and hope to see that finalized before the end of this year by CMS.

Again, Dan mentioned our acquisition of [indiscernible] an ICE product to support EP procedures and potentially also WATCHMAN procedures, probably just a very long-winded way of saying we love FARAPULSE, but it is far from the only story.

[Operator]

The next question comes from Patrick Wood with Morgan Stanley.

[Patrick Wood, analyst]

And on that note, I might flip the script if that's right with everybody. And maybe [indiscernible] something a little different. Obviously, you guys announced Silk and appreciate that hasn't closed yet, but I'd love if you could unpack what was so exciting for you guys in TCAR and that asset overall? And the ability to flip [indiscernible] into the package and how meaningful that is relative to just the capacity to plug it into Boston overall and drive sales? Anything around that would be great.

[Michael Mahoney, executive]

Sure. Silk is really a terrific asset we've looked at for a long time. Hopefully, that we aim to close that in the second half this year. As a stand-alone business, they were really kind of leading the rejuvenation of that field through their clinical evidence and their performance over many years in the U.S. And it came to a point where we felt it was mature enough in terms of its sales ramp and for us to acquire it at the right price.

So I guess, first of all, it always starts with clinical indications. We're really pleased with the data and the long-term durability of this procedure. So as a stand-alone company, they're growing certainly accretive to Boston Scientific faster, but clearly not there on the margin front. So now in Boston Scientific sands, we feel like we can grow the company faster in the U.S. given the category leadership portfolio we have and a common call point with a vascular surgeon. We also have the ability to take it outside the U.S. to appropriate countries. And we also aim to improve the margin profile of the business by integrating the company as appropriately within our operations supply chain team like we've done for many other acquisitions in the past.

So it's an accretive asset that we think will be stronger and more profitable in the hands of Boston and make us more important for the vascular surgeon, which is an area that is a needs improvement for us, I would say, within that business unit. So now we have the lever -- not the leverage, but the capabilities to present to vascular surgeons our broader PI portfolio, given the relationships that the Silk Road team has with the vascular surgeon.

[Operator]

The next question comes from Travis Steed with Bank of America.

[Travis Steed, analyst]

I wanted to ask, given the strong margin guide raise and EPS guide raise here, where you're at kind of on the FARAPULSE getting those to full margins and the scale there. Halfway there, kind of more or less and your willingness to kind of continue to let that flow through. And I also wanted to ask about TAVR. It felt like a little bit of a time change and tone change on TAVR. So I just wanted to make sure we didn't miss anything on the TAVR update.

[Daniel Brennan, executive]

Sure. I can start on the gross margin and then Mike can take the TAVR one. So where are we on the journey? As Mike said, we're early in the journey in the United States relative to the FARAPULSE launch. That corresponds pretty well with the gross margin story. So if you think of where we are, the standard margin for FARAPULSE is absolutely accretive relative to the catheter. So that's a great accretive gross margin growth driver. The things that in the initial stages are a little bit dilutive are obviously, you heard me talk about the inventory charges with respect to POLARx. So we don't want to take inventory charges, but when it's -- when you're taking them as a result of the success of FARAPULSE, that's -- it should be temporary and should not be something that continues. So those should get better over time.

The manufacturing brands, so we have built our manufacturing capacity and our operations and supply chain team to be the leaders in this space. So we have significant capacity. So as we're making the product today, it's a little under absorbed relative to that. So that will get better, obviously, as we make more and that's obviously our plan. And then the capital placements are dilutive. Again, it's not a huge number relative to the overall gross margin for the company, but it does at the edges, kind of take that down a bit. So overall, I would say FARAPULSE, every quarter, FARAPULSE will be a better contributor to margin. And I think as you get into '25 and '26, it will be a significantly accretive growth driver for gross margin for the company.

[Michael Mahoney, executive]

On [indiscernible], the European team has done really a outstanding quarter and outstanding quarters back to back with ACURATE neo2, over 20% growth. Importantly, we expect to launch in fourth quarter or maybe first quarter 2025 Prime, which is our next-generation ACURATE neo2 that has all risk indications and the full-size matrix, which has been the challenge for us to date with an optimized delivery in the valve frame.

On the -- just to reiterate on the U.S. timing, we did complete enrollment of the 1,500 patient cohort. And we do expect to present the data in the first half of '25 likely at the ACC meeting. I think it's important to note that this is the largest randomized trial that's been done in [indiscernible] really based on the timing of the last patient follow-up and the size of the trial and the multiple risk and mixed control groups that we have in it. It's an extensive trial and we believe that the first half '25 and likely at ACC is the appropriate timing.

[Daniel Brennan, executive]

And then just as a quick follow-up to the gross margin question, Travis. None of that is a surprise relative to gross margin. So we've been saying all along the gross margin is not likely to help the margin improvement story in 2024. But lo and behold, we're able to increase the overall operating margin from 30 to 50 to 50 to 70. So I think all is well on the margin expansion front. Really proud of that 50 to 70 relative to the guidance for this year. And as you look at 2025 and beyond, I think gross margin, I think all lines of the P&L can contribute to the margin expansion journey and gross margin will be one of those.

[Operator]

The next question comes from Josh Jennings with TD Cowen.

[Joshua Jennings, analyst]

Congrats on the stellar results. Wanted to just follow up on Travis' 2 questions. I guess, first on TAVR, could we see top line data before the ACC presentation next year and could Boston file before that presentation? And then just the other follow-up is just on the profitability you guys you're seeing in a lot of profitability flow through on the outperformance on the top line. I wanted to just get a sense of taking some of that profitability and reinvesting that? Where could we see where from those dollars going and just some high-level commentary on that reinvestment driving -- supporting this sustainability of top-tier revenue growth in the med tech space.

[Ken Stein, executive]

Yes, Josh, maybe I'll take the TAVR question first and then with Dan and Mike take the others. Just [indiscernible] what Mike said, right? Last patient follow-up in the trial was just in this quarter, it's a very large, very complex trial. And just honestly, based on the timing of getting the data cleaned and getting the readouts from all of the various [indiscernible] that are engaged in getting us the analysis for the trial, we are going to miss the abstract deadlines for all of the major fall meetings. So those deadlines literally come up within a couple of weeks.

And again, these data are so important and pivotal, right? We want to present this at a major meeting. And so right, the first major cardiology meeting, where we'll be able to meet an abstract deadline is going to be the ACC. Would not expect you to see any data released ahead of that.

[Daniel Brennan, executive]

And the second part of your question relative to the balance between reinvesting the sales upside and dropping some through. I think you're seeing the evidence of that here in our guidance raise for the 50 to 70. So I think we've struck a really good balance on that. So we've had sales upside during the year and the realization that we closed the first half a little bit ahead of expectations. So we're giving some of that back. So we're taking the 30 to 50 to the 50 to 70. So that's great.

At the same time, we are reinvesting in the business, primarily in the commercial facing functions. We're leveraging the back office and the administrative areas, which makes sense. We don't need to grow those when you're growing the revenue at the rate that we're at. So we've got significant leverage opportunities there. And then as Mike said, this isn't just reinvesting in FARAPULSE. This is reinvesting across the whole portfolio, the broad portfolio that we have. So we picked the right spots to reinvest to be able to continue to deliver that top line performance for the long term. And I think we're striking a nice balance there.

[Operator]

The next question comes from Daniel Antalffy with UBS.

[Danielle Antalffy, analyst]

And I'll be a broken record here. Congrats on the really awesome quarter. Mike, I wanted to go in a different direction here away from PFA for a second and talk about how we should think, just on this theme of sustainability of growth into 2025, appreciating we'll give guidance here. But if we think about agent DCB launching back half of this year and modular in the back half or, I guess, is that launching this year as well. So how do we think about those contributing maybe elevating CRM growth above the market in next year as well as the Interventional Cardiology portfolio.

[Michael Mahoney, executive]

Thank you for pointing that out because I was getting hammered by tax from our agent team and our CRM team for not mentioning those in the prior question. So I think if you were to continue to add on that discussion, which is how do we maintain and sustain high performance, that's highly differentiated from the peer group for the -- for many years to come. It's all the things we talked about before with PFA and WATCHMAN indication expansion. And as you said, with the agent, kudos to that team, they're really transforming that portfolio.

Drug-eluting stents next year will probably be 2% of overall Boston Scientific. And you're seeing tremendous growth in our imaging business with our IVUS imaging platform. And now we're the first one to have approval for agents, and that TPT decision will be made soon and apply and hopefully, in January. And that is a market that we plan to drive where we have a multiyear advantage where we have superiority data for what is at least 10% of the market with restenosis and appropriate price points. That's going to accelerate the growth of that division and significantly improve the margin profile over time.

Why we continue to invest in clinical science and our structural heart portfolio. And also, we have a very vast VC portfolio. And oftentimes, those VC investments come with dilution, which our team is able to manage consistently while investing for the future while improving margins at the same time. So I think that's a big part of it. As you do know, the CRM business is a bit of a lag for us. International business did quite well. U.S. lagged a little bit and the modular ATP, proud of the team for that. That was a long study, a very difficult project. But you saw the results of that S-ICD with the modular platform and we're excited to launch that in 2025. So there are 2 other areas that I didn't mention before that you pointed out.

And also, what's not being mentioned here today is just the tremendous growth in our Endo and Uro businesses. Our Uro business is near double digits for the first half. Our Endo business is near double digit for the first half. Those are all accretive margin companies for us. We're very excited about the Axonics acquisition, which will have operational benefit in 2025 and organic in 2026 primarily. But it just makes those divisions even stronger. So there's many things to be excited about for the future of the company to continue on with a goal of differentiated performance.

[Operator]

The next question comes from Matthew O'Brien with Piper Scientific.

[Matthew O'Brien, analyst]

Great. Just maybe on just sticking with kind of where news going outside of [indiscernible]. Just on the WATCHMAN business, 20% growth is a little bit of a tick up versus Q1. Your competitor said they grew 45% in the quarter. So are you losing a little bit of share to those guys? Or is the market starting to accelerate for some reason. I don't know if it's in front of this concomitant reimbursement. Just maybe talk a little bit about that? And then maybe for Dr. Stein specifically, if you get this concomitant reimbursement, can you just talk about the workflow for the clinician in terms of doing a PFA case plus a WATCHMAN case at the same time. I mean how much more challenging is that you have to bring in an [indiscernible] sometimes and other times not bringing [indiscernible] to do the watching part of the case. Just maybe talk a little bit about that opportunity going forward.

[Michael Mahoney, executive]

Yes, I'll just touch on the growth, 20% is excellent. We're in the midst of launching our WATCHMAN Flex Pro and maybe as importantly, this new steerable sheet, which is early in its launch. And so I think to clinical data and the extremely high market share of WATCHMAN speaks for itself and the ongoing R&D platforms that we're driving for WATCHMAN and clinical science. So we are extremely comfortable that we're nearly 90% share in the U.S. and there may be some extremely price-sensitive accounts that will occasionally lose business to. But it's very, very small margin. Very, very small numbers. And if you look at the size of the WATCHMAN business and our share and our technology lead, we're very comfortable with the position we're in.

[Ken Stein, executive]

Yes. And then in terms of just workflow and concomitant, this is one of the areas where I think in between, right, the safety and efficiency advantages of WATCHMAN Flex and Flex Pro combined with the efficiency and safety advantages of FARAPULSE could create a real advantage for us as a unified ecosystem. The beauty of doing these 2 procedures together, right, is they both involve transseptal access into the left atrium.

They both involve the catheter manipulation inside the left atrium. So there's a huge benefit to patients to be able to have it all done at 1 sitting as opposed to having to have 1 procedure and then go through many of the same risks of the first procedure go and have done as a second procedure. And just to reiterate, when you think of doing it as a concomitant procedure what you want our technologies that enable you to do it safely and we do it reproducibly and enable you to do it efficiently. So you're spending as little time as possible, right, mucking about inside someone's [indiscernible] atrium. And FARAPULSE and WATCHMAN FLEX PRO together are unmatched in giving you those advantages.

[Jonathan Monson, executive]

And I understand there is time for 1 last question.

[Richard Newitter, analyst]

Okay. That last question will come from Matt Taylor with Jefferies.

[Matthew Taylor, analyst]

Congrats on great quarter. I did want to ask a follow-up question on FARAPULSE. Is to help with thinking about the modeling and the opportunity there. Could you give us any kind of update or parameters on how many centers you're in? How many boxes you've placed? And maybe talk about whether the early experience has changed your views on how the market could evolve like you laid out at the Analyst Day several months ago.

[Michael Mahoney, executive]

Yes, I think the only piece of that we'll provide color on is the last part of it. We don't want to break out catheter usage, capital usage. How many sites, I would say the utilization rates of sites once they use FARAPULSE is very quick and sustainable. So we're not seeing hospitals turn it on and turn it off and go in and out of it, like you see in many med tech products. So the sustainability and usage of FARAPULSE is very high once customers start using it. And obviously, we have a chance to sell more consoles to larger centers in the existing accounts besides opening new accounts. And the second part was what at [indiscernible] moment.

I ended it with a [indiscernible]. Sorry, Matt.

[Jonathan Monson, executive]

Well, thanks, everyone, for joining us today. As always, we appreciate your interest in Boston Scientific. If we were unable to get to your question or have any follow-ups, please don't hesitate to reach out to the Investor Relations team. And before you disconnect, Drew will give you all the pertinent details for the replay. Thanks so much.

[Operator]

Thank you. Please note a recording will be available in 1 hour by dialing either 1 [phone] or 1 [phone], using replay code 2312308 until July 31, 2024 at 11:59 p.m. Eastern Time. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.