Susan Lisa - Boston Scientific Corp. Michael F. Mahoney - Boston Scientific Corp. Daniel J. Brennan - Boston Scientific Corp. Ian Meredith, M.D., Ph.D. - Boston Scientific Corp. Kenneth Stein - Boston Scientific Corp..

David Ryan Lewis - Morgan Stanley & Co. LLC Michael Weinstein - JPMorgan Securities LLC Bob Hopkins - Bank of America Merrill Lynch Rick Wise - Stifel, Nicolaus & Co., Inc. Danielle J. Antalffy - Leerink Partners LLC Chris Pasquale - Guggenheim Securities LLC Vijay Kumar - Evercore Group LLC Ian Mahmud - Barclays Capital, Inc.

Larry Biegelsen - Wells Fargo Securities LLC.

Ladies and gentlemen, thank you for standing by. Welcome to the Boston Scientific Q1 2017 Earnings Call. As a reminder, today's call is being recorded. Your hosting speaker, Susie Lisa. Please go ahead..

anticipate, expect, believe, estimate and other similar words.

They include, among other things, statements about our growth and market share, new product approvals and launches, clinical trials, cost savings and growth opportunities, our cash flow and expected use, our financial performance, including sales, margins, earnings and other Q2 and full-year 2017 guidance, as well as our tax rates, R&D spend and other expenses.

Actual results may differ materially from those discussed in the 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 for his comments..

Thank you, Susie. Good morning, everyone. After an outstanding 2016, Boston Scientific continued its strong momentum and began 2017 with another quarter of strong results.

I'm proud to report that team delivered our sixth straight quarter of 10% or greater operational revenue growth, with first quarter 2017 sales up 10.3% on an organic basis this 9.4% revenue growth represents another quarter of outstanding growth across our various businesses and regions.

At the same time, we continue to invest in meaningful innovation to build out our category leadership across all businesses and drive double-digit adjusted EPS growth over the long term.

Also, we're able to meet our commitments and deliver adjusted EPS of $0.29, which is within our guidance range, despite $0.03 of a one-time EPS hit from inventory charges related to LOTUS field action as well as losses incurred before we discontinued sales of the acquired EndoChoice FUSE System.

Adjusted EPS grew 9% year-over-year, excluding the $0.02 negative impact of FX, which came in as expected. If we were to exclude both the FX and one-time inventory charges, adjusted EPS would have grown 18% versus prior year.

Our strategy of category leadership in key markets and diversification into high-growth adjacencies continues to work, as we are delivering consistent above-market growth. In parallel, we continue to invest in new, innovative platforms via our internal programs, like M&A. The Symetis structural heart acquisition we just announced last month.

We believe Boston Scientific continues to be uniquely positioned to drive shareholder value due to our strong growth profile, significant opportunity to improve operating margins and our track record of consistently delivering double-digit adjusted EPS growth.

We're excited about 2017 and our plans to build upon our global momentum and drive sustainable long-term growth.

We also raised in the low end of our full-year 2017 operational revenue growth guidance from 5% to 7% to 6% to 7%, which includes an approximate 70 basis point contribution from the EndoChoice acquisition, consistent with our expectations coming into the year.

Despite the LOTUS inventory charge and FUSE costs that clipped $0.03 of EPS in Q1, there is no change to our full-year adjusted EPS guidance of $1.22 to $1.26. And this represents 10% to 13% earnings growth and includes an expected $0.08 negative impact, or approximate 700 basis point headwind from foreign exchange.

I'll now provide some quick highlights of first quarter of 2017 results and thoughts on our full-year 2017 outlook. In my remarks, all references to growth are on an organic year-over-year constant-currency basis unless otherwise specified.

Our first quarter revenue growth of 9% was once again broad based across businesses and regions, with strong execution by global teams. Most of our businesses continued to post consistent organic revenue growth that is faster than the market, with MedSurg growing 12%, Cardiovascular 8%, and Rhythm Management 8%.

We also delivered strong balance growth across geographies, led by 11% revenue growth in the U.S., 8% in EMEA, and 7% in Europe.

Now, while emerging market revenue growth slowed 12% due to several factors, our businesses in China turned in another great quarter of 20% growth and we remain bullish on our emerging markets outlook, both in the near and long term. Turning to MedSurg.

The MedSurg businesses delivered organic growth of 12% in the first quarter of 2017 and 15% including EndoChoice. In Endo, we posted 9% organic growth in first quarter and 14% including EndoChoice. Endo growth is fueled by the strength of our franchise in hemostasis, pathology and imaging, to name a few.

And the EndoChoice acquisition closed late in November of 2016, and we're pleased with the early results. We pursued strategic alternatives for the FUSE business that was acquired with EndoChoice and ultimately decided to discontinue sales of the FUSE System in mid-March.

In other commercial milestones during the quarter, our Frankenman joint venture shipped its first locally sourced endoscopy product for the Chinese market. We began a collaboration with Northgate to jointly commercialize products to treat gallstones in conjunction with our SpyGlass platform.

Our urology and pelvic health business continued the strong performance, growing at 15% in first quarter, led by sales of products for men's health, kidney stones and pelvic floor. Emerging market sales in urology and pelvic health were very strong, and ongoing launch of LithoVue continues to go extremely well.

LithoVue is now in over 700 accounts worldwide and provides single-use digital visualization and navigation capabilities to diagnose and treat stones and other conditions of the kidney ureter, while avoiding the need for repairs or sterilization that can be a challenge for reusable scopes.

We look forward to the presentation of additional clinical and cost effectiveness evidence supporting LithoVue at the AUA Annual Meeting next month. In neuromodulation, revenue grew 17% in first quarter, led by strong growth in the U.S. and the international markets. U.S.

growth rates of the patients trialing our spinal cord stim technology remains solid and European uptake of our Vercise Deep Brain Stimulation System has been very promising. We continue to expect to launch in the U.S. DBS market by year-end 2017.

Our cardiovascular groups grew 8% in the first quarter of 2017 against tough double-digit comps in first quarter of 2016. Peripheral interventions grew 7% in the quarter, led by sales of our stent portfolio, Drug-Eluting Eluvia Stents, WALLSTENTs, and next-gen SFA Innova Stent.

AngioJet Ultra Thrombectomy device used to treat deep vein thrombosis also grew nicely in the quarter. Importantly, in Drug-Eluting technologies, we executed upon two key clinical milestones in the quarter. First, we completed enrollment for the IMPERIAL IDE for our Eluvia Drug-Eluting Stent.

And secondly, we began enrollment in the IDE for our Ranger drug-coated balloon. And just this week on Tuesday, we presented 12-month results for a Ranger DCB first-in-human trial at the Charing Cross Meeting, with a compelling 12-month primary patency rate of 86% and 91% freedom from TLR.

Our Interventional Cardiology business continued its above-market growth trend, delivering 8% growth in the quarter. IC growth was led worldwide by continued strength in Drug-Eluting Stents, PCI Guidance, complex PCI and structural heart.

And despite a 13% year-over-year comparison, Global DES sales grew low-single digits globally in the quarter, led by our differentiated SYNERGY platform. PCI Guidance grew double digits, with particular strength in IVUS, and we're encouraged by customer response to our COMET wire and fractional flow reserve platform.

IC performance was also fueled by our Structural Heart business, which includes the LOTUS aortic valve and WATCHMAN Left Atrial Appendage Closure device. It is expected to contribute approximately $250 million of revenue in 2017.

Importantly, our LOTUS remediation work remains on track, and we are reiterating our guidance for a fourth quarter 2017 return to the European market and submission of our U.S. PMA, as well as an estimated mid-2018 U.S. launch. We look forward to presenting REPRISE III pivotal study results at EuroPCR in just two weeks.

And we will present RESPOND extension data on LOTUS with Depth Guard, which we expect will provide insight into further reducing LOTUS pacemaker rates. We also remain on track to close the Symetis acquisition by the end of this quarter.

We're extremely excited to add this highly innovative and complementary valve to LOTUS and provide a broader TAVR portfolio for varying physician and patient needs. We truly believe that our company will be uniquely and ideally positioned to address the needs of both TAVR physicians and patients with this comprehensive portfolio offering.

The WATCHMAN program also had a strong quarter. It continues to build global momentum. We ended 2016 with more than 200 U.S. WATCHMAN centers and expect to close 2017 with approximately 350 centers. We also achieved two important clinical milestones with WATCHMAN.

First, we enrolled our first patients in both ASAP-TOO, the study examining the use of WATCHMAN in warfarin-ineligible patients, and in SALUTE, a trial specifically designed to pursue regulatory approval in Japan. So, overall, we're pleased with our progress in Structural Heart.

And please join us for an update and webcast on our Structural Heart programs at EuroPCR on May 16 at 10:00 AM Eastern. Shifting to Rhythm Management. Global CRM sales grew well above market, at 8%, with Brady up over 20% and Tachy delivering low-single digit global growth.

This strength reflects continued share gains with our ACCOLADE MRI Brady platform, strong global growth in EMBLEM S-ICD and promising early uptake of our new RESONATE platform in Europe.

The RESONATE family of ICDs and CRT-Ds now launching in Europe brings multi-site pacing – multi-point pacing to our CRT products, as well as updated best-in-class longevity labeling via our EnduraLife Batteries across all families of high-voltage devices.

The RESONATE platform also offers compatibility with the first and only validated heart failure predictive diagnostic in HeartLogic.

And while the battery longevity of our competitors' products often limit physician appetite for program multi-point pacing due to the associated battery drain, we have seen strong early European adoption in our RESONATE launch, as patients can benefit from the programming right at implantation given our superior longevity capability.

Turning to Electrophysiology. We grew sales 9% in the quarter, led by improved uptake of our new RHYTHMIA HDx platform. We continue to rollout the HDx platform in Europe and expect to launch in the U.S. late second quarter.

Initially, we're continuing to expand the toolkit that supports RHYTHMIA, providing ablation technologies that match the excellence of our Mapping System, and adding tools that expand the reach and utility of RHYTHMIA in different procedure types.

Finally, I'd also like to point out the significant gross margin drop-through in Rhythm Management from the sales upside, with a 530 basis point year-over-year improvement in adjusted operating margin for the Rhythm Management segment. Also, please join us for an update and webcast on our Rhythm Management programs at HRS on May 11 at 5:00 p.m.

Eastern. And finally, before turning the call over to Dan, I want to thank our employees for their winning spirit and commitment to Advancing Science for Life. Dan will now provide a detailed review of our financials..

Thanks, Mike. First quarter consolidated reported revenue of $2.160 billion represents 10% growth on both an operational and reported basis. The contributions from the EndoChoice acquisition was approximately 90 basis points, which was higher than our guidance of 70 basis points as a result of over-performance of the pathology business.

Even adjusting for this additional contribution from EndoChoice, we nicely exceeded our revenue growth guidance range of 6% to 8%. This strong top line also reflects a $7 million headwind from foreign exchange, which is $13 million, or approximately 65 basis points less than the $20 million headwind expected at the time of guidance.

We delivered Q1 adjusted earnings per share of $0.29, representing 3% year-over-year growth and at the low end of our guidance range of $0.29 to $0.31. Importantly, this includes approximately $0.03 of charges related to our LOTUS Valve System voluntary field action and net operating losses related to the FUSE business.

Excluding these $0.03 of inventory and other charges, we would have otherwise been at or above the high end of our guidance range. And I'll provide more details on the charges shortly.

Adjusted gross margin for the first quarter was 70.6% compared to 72.3% in Q1 last year, and includes a year-over-year negative 140 basis point impact from foreign exchange. As a result of the global voluntary recall of the LOTUS Valve System initiated in February, we recorded inventory-related and other charges in the first quarter.

In addition, while we pursued strategic alternatives for the FUSE business acquired with the EndoChoice acquisition, we incurred net operating losses associated with FUSE until we chose to discontinue all FUSE System sales in mid-March. These two items negatively impacted the gross margin line by approximately 180 basis points in the first quarter.

Absent these charges, gross margin would have been nearly at the midpoint of our guidance range, despite the higher than expected FX headwind. We continue to implement the identified solution to fix the manufacturing process related to the LOTUS Valve deployment pin, which includes a combination of minor process and specification changes.

We believe we are on track to re-enter the European market and submit our U.S. PMA in the fourth quarter of this year.

As you would expect, the field action will create negative absorption headwinds in our gross margin, but we plan to offset the impact going forward and now expect our full-year gross margin to be in the range of 72% to 72.5% as a result of the LOTUS and FUSE drags this quarter.

This guidance range now assumes a negative FX impact of 90 basis points for the full year. Adjusted SG&A expenses were $780 million or 36.1% of sales in Q1, up 60 basis points year-over-year.

Recall that in Q1 of 2016, our SG&A rate of 35.5% of sales was lower than the remainder of 2016, as the medical device excise tax was suspended and we had not yet begun to reinvest it fully in Q1. Although we spent the entire amount of the benefit in 2016, the majority of that reinvestment took place in Q2 through Q4.

As a result, the low Q1 2016 SG&A rate reflected essentially a timing benefit of delayed reinvestment spend and operating margin rates thus benefited. In the quarter, our SG&A includes additional commissions as a result of the strong sales performance, accelerated levels of investment for the U.S.

DBS launch planned for the end of the year, investments in our Structural Heart commercial capabilities and slightly higher than planned litigation charges, among other factors.

Though we're not pleased with our SG&A rate of 36.1% for the quarter, we expect the rate to decline over the course of the year as we continue to realize the benefit of our targeted initiatives focused on reducing SG&A and make progress on our margin expansion targets.

As a result, we continue to expect our full-year 2017 adjusted SG&A rate to be in a range of 35% to 36%, which at the midpoint would represent a decrease of 60 basis points versus the full year 2016. Adjusted research and development expenses were $232 million in the first quarter or 10.8% of sales, which is roughly flat year-over-year.

We now expect full-year adjusted R&D in a range of 10% to 11%. Royalty expense was 0.8% of sales in Q1, down slightly from 1% in the first quarter of last year. We expect our royalty rate to remain at approximately 1% of sales for 2017.

Q1 2017 adjusted operating margin of 23% decreased 210 basis points year-over-year and was below our guidance range of 25% to 26% due primarily to the 190 basis points of charges recorded in connection with the LOTUS Valve System voluntary field action and FUSE business, as well the pattern of medical device excise tax reinvestment in 2016 that I mentioned.

We do not expect any additional charges related to the LOTUS field action, and the losses incurred in Q1 2017 for the FUSE business will not recur going forward. Excluding these charges, operating margin would have been 24.9%.

And if we had delivered at the mid-point of our SG&A guidance range, adjusted operating margin would have been at the mid-point of our guidance range. Now turning to segment operating margin results. The Rhythm Management team delivered an adjusted operating margin of 18.8% for Q1.

This represents a very strong year-over-year adjusted operating margin increase of 530 basis points. Note, this comparison is to restated segment margins due to changes in our constant currency reporting.

To give you more detail on this restatement, we use an internally derived standard currency exchange rate for our constant currency sales and reporting segment results. This standard FX approach is designed to give a more consistent long-term view of results.

Given the recent periods of volatile exchange rate fluctuations, we've seen larger differences between these internal standard FX rates and the actual foreign exchange rates. As a result, we updated our internally derived standard currency exchange rates beginning on January 1, 2017 to align more closely with current actual rates.

While this update obviously does not impact total company margins, it does impact our segment margins results, as the process basically reallocates FX impacts away from our corporate expenses and currency exchange line and into the operating income allocated to the reportable segments.

Operationally, the Rhythm Management team continues to make strong progress on gross margin, focus on expense control and leverage the improved top-line performance of the global business, as evidenced by the more than 500 basis point improvement year-over-year this quarter.

The rate of improvement for Rhythm Management for the full year 2017 remains unchanged, as we continue to look to add over 200 basis points to the segment's adjusted operating margin with a restated full-year adjusted operating margin target of 18%.

Operational improvements in the Cardiovascular segment adjusted operating margin were more than offset by the LOTUS-related charges in the first quarter, for a net decrease of 340 basis points year-over-year.

For MedSurg, the adjusted operating margin decreased over prior year by 90 basis points, driven by the FUSE net operating losses and forward investments as we prepare for our expected U.S. deep brain stimulation launch at the end of the year. Now I'll move on to other income and expense.

Interest expense for the quarter was $57 million, roughly flat to Q1 of last year. Our average interest expense rate was 4% in Q1 of this year compared to 3.9% in Q1 of last year. In January, we used our existing credit facilities to refinance the $250 million of our senior notes due in January 2017, and we have no remaining debt obligations for 2017.

Other expense was $2 million in the first quarter. Our tax rate for the first quarter was 4.9% on a reported basis and 9.2% on an adjusted basis.

In the quarter, we recorded an income tax benefit of $28 million related to the adoption of the new stock compensation accounting standard, which was a greater benefit than previously anticipated due to the upward movement of our stock price.

We expect this benefit represents the majority of excess tax benefit in 2017 due to the annual vesting of our awards during the first quarter. We're now expecting a 175 basis point benefit to our full-year effective tax rate from the change in stock compensation accounting, which is 50 basis points greater than previously anticipated.

Excluding this benefit, we still expect our operational tax rate to be approximately 14%, but given the 50 basis point favorability from the change in stock compensation accounting, we now expect the full-year adjusted tax rate to be in the range of 12.5% to 13%.

Finally, Q1 2017 adjusted earnings per share of $0.29 includes approximately $0.02 of unfavorable foreign exchange and represents 3% year-over-year growth, or 9% growth excluding the impact of foreign exchange.

This $0.29 also includes the approximate $0.03 of charges related to our LOTUS Valve System voluntary field action and FUSE net operating losses. On a reported GAAP basis, which includes net charges and amortization expense totaling $107 million after tax, Q1 2017 EPS was $0.21.

Adjusted free cash flow for the quarter was $171 million compared to $250 million in Q1 last year. In the quarter, we used cash primarily to fund previously agreed upon legal settlements as well as business development activities. And as of March 31, 2017, we had cash on hand of $156 million.

Capital expenditures for the first quarter totaled $112 million, as we execute on our plans to make additional investments in SYNERGY manufacturing equipment due to higher volumes as well as campus consolidation and plant network optimization activities. We continue to expect capital expenditures for the full year to be approximately $300 million.

In addition, during the quarter, we continued working through the mesh litigation-related settlement evaluation process and have reached conditional, final or near-final settlement now on over 37,000 of our approximately 43,000 known claims.

Having now settled or reached agreement in principle with over three quarters of all outstanding claims, we continue to reduce the risk on our balance sheet and are targeting a resolution of the majority of our remaining mesh claims in 2018. Our total legal reserve, of which mesh is included, was $1.751 billion as of March 31, 2017.

We ended Q1 with 1.390 billion fully diluted weighted average shares outstanding and we expect a fully diluted weighted average share count of approximately 1.390 billion for Q2 and 1.392 billion for the full year 2017. I'll now walk through the guidance for Q2 and the full year 2017.

For the full year, we now expect consolidated revenue to be in the range of $8.800 billion to $8.900 billion, which represents year-over-year growth of 6% to 7% on an operational basis, including an approximately 70 basis point contribution from EndoChoice, and 5% to 6% on a reported basis.

We expect foreign exchange to be a headwind of approximately $85 million for the full year 2017. We continue to expect full-year 2017 adjusted earnings per share to be in a range of $1.22 to $1.26, representing 10% to 13% adjusted earnings growth and continue to assume the full-year negative impact of FX will be approximately $0.08.

On a GAAP basis, we expect earnings per share to be in a range of $0.81 to $0.86. Now turning to Q2 2017. We expect consolidated revenue to be in a range of $2.185 billion to $2.215 billion. This represents year-over-year growth in a range of 5% to 6% operationally, including the approximate 70 basis point contribution from EndoChoice.

We expect the foreign exchange impact on Q2 revenue to be a $35 million headwind. For the second quarter, adjusted earnings per share is expected to be in a range of $0.30 to $0.32 per share, representing 11% to 18% adjusted earnings growth. GAAP earnings per share for the second quarter is expected to be in a range of $0.18 to $0.21 per share.

Please check our Investor Relations website for Q1 2017 financial and operational highlights, which outlines Q1 results, as well as Q2 and full-year 2017 guidance, including P&L line item guidance. So, with that, I'll turn it back to Susie, who will moderate the Q&A..

Thanks, Dan. Kevin, let's open it up for the next 30 minutes or so. Please go ahead..

Thank you. First question. David Lewis, Morgan Stanley, please go ahead..

Good morning. Good morning. Congrats on, again, great revenue performance. Mike, just a quick question for you and then a follow-up for Dan. So, Mike, just wondered if you could focus this morning on the two businesses which saw the greatest acceleration from our model, and those basically were U.S. Interventional and Endoscopy.

Why don't you just talk about the factors underpinning that performance and the sustainability across the balance of the year? And then, Dan, for you, I think you did a great job talking about these factors impacting first quarter margins.

But could you talk just about second quarter gross margin trends, just to give people some confidence that the margin plan is back on track here as we get to the second quarter and beyond post-LOTUS? Thanks so much. Nice quarter..

Thanks, Dave. Good morning. Just broadly on interventional cardiology and then I'll touch on endo. We've discussed at a few different Investor Days, and Kevin Ballinger, just our overall goal of continuing to diversify and strengthen in the faster growth markets in the Interventional Cardiology business.

We've already seen the benefit of that with our DES business continuing to grow faster than market despite very difficult comps, the broadening and further impact of our complex coronary IVUS and FFR business.

And then the third leg of the stool there in cardiology is our Structural Heart, where we remain on track to deliver the $250 million this year, really fueled by WATCHMAN, given the impact of the LOTUS recall. And we look forward to getting that product back in the market.

So really that stronger balance of businesses within that Cardiology business are leading us to markets that we view in a combined basis are quite healthy, and we're growing faster than the market across those areas.

So we do have some tough comps coming up with DES for the remainder of the year, but we continue to believe the competitive positioning in DES is really a strength of us, given some of the challenges we're seeing with others in the marketplace.

And we expect to continue to grow there while growing WATCHMAN, our complex bag as well as getting LOTUS back on the market. And we're excited to close the Symetis deal hopefully in June. On Endo, that business continues to really deliver excellent performance.

You'll be excited to see at the Investor Day the strategy to broaden that business out into exciting new adjacencies going forward. But, again, a strong growth market. We're taking share, led by SpyGlass. The EndoChoice acquisition is working well, moving us into pathology. Strong growth in the emerging markets.

And really again just a strong cadence of products with our Resolution hemostasis capabilities, as well as our EUS Endoscopic Ultrasound. So the portfolio and expansion into global markets continues to fuel our Endo business..

Sure. David. And on your Q2 gross margin question, it's really pretty straight forward. Q1 gross margin was 70.6%. And at the midpoint of Q2 guidance, we'd be at 72.5%. The delta there is 190 basis points. And really the elimination of the LOTUS and FUSE charges of 180 basis points gets you right to the midpoint of where we should be in Q2.

So, saw good operational improvements in Q1 that those should continue in Q2 and feel good about the guidance for Q2 in gross margin..

All right. Thanks, guys. Great quarter..

Thanks, David..

All right. Next question is from the line of Michael Weinstein, JPMorgan. Please go ahead..

Thank you. And good morning. So let me just start on a couple of the (30:14) businesses. Endoscopy and Urology both had fantastic quarters. In both cases, the comps get harder from here.

So can you just give us your view on sustainability of growth rates? So we're not necessarily talking about what you put up this quarter, but above-market growth rates we got used to in 2016. Thanks..

Yeah. Good morning, Mike. Yeah, so we've taken up the full-year sales revenue guidance, as you know, 6% to 7%. So we pulled up the lower end there based on the strength of second quarter. Broadly across the company, we face 10% growth comp headwinds really for the next four quarters coming up, second quarter through first quarter 2018.

But despite that, especially in Endo and Uro and across the board, one, first of all, these are strong markets, Endo and Uro, that are healthy. We have an excellent cadence of product launches, global expansion and acquisitions that are working quite well. When you look at our Urology business, the acquisition of AMS has gone extremely well.

We're ahead of our synergy plan. The standalone AMS business legacy business is growing about 8%, so much faster than it was as a standalone basis. And really what's really disruptive in our Urology business is our disposable scope platform. So we're seeing strong uptake with that.

We're continuing to launch that globally and it pulls through our stone business. Another big key growth driver for us in Urology is we've been underweight in the international markets historically. So we've been disproportionally investing in those markets. And that's really bearing lot of fruit. So we see continued momentum with our Uro business.

We do have some tougher comps, but we expect to continue to grow faster than market. And it's kind of the same story rewound in Endo. Good growth market. We do have some difficult comps, but our portfolio cadence is a quite strong. And, again, this business we're investing quite a bit in the emerging markets and it's paying off for us.

So despite the tough comps, we expect to continue to grow faster than market in both those divisions..

Perfect. Let me ask this one question related to LOTUS. And that is, when LOTUS re-launches later this year, you're going to have a challenge of bringing that product back to market that's been off the market for six months.

Can you just give us your thoughts on where you think the balance between the two settles out for you as you go to 2018? What do you think the respective positions are of those two products in Europe?.

Yeah, so I'll make a comment and then I'll let Ian jump in. So the good news for us is our team in Europe – our TAVR team isn't on their hands in terms of the commercial team. They're helping out with WATCHMAN, they're helping out Cardiology.

And hopefully if we close early second quarter here for Symetis, they'll begin selling that platform potentially in June, or June or July. So, we'll be back in the market in TAVR valves in Europe and then we'll follow that on with LOTUS starting in the fourth quarter. So pretty soon we'll be back in the game in TAVR.

And I think, Ian, I'll turn it over to you in terms of what you see as the mix there..

Thanks, Mike. And good morning, Michael. I think that we'll see that the dedicated LOTUS users will quickly take up using LOTUS once again when it's available back in Europe because of its complete repositionability and safety. So, I suspect that the mix will vary from site to site depending on the patient populations and physician preferences.

But it is likely that it'll be a 50/50 mix, but it will vary from site to site..

Okay. Next question is from the line of Bob Hopkins, Bank of America. Please go ahead..

Thank you.

Can you hear me okay?.

Yep. Can hear you fine, Bob..

Great. Hey, good morning. And congrats on such strong results again. First of all, just a quick one for Dan and then a bigger picture question.

For Dan, and I'm sorry if I missed this, but for the full year 2017, can you give us the sense as to what the earnings and margin impact will be for the LOTUS recall?.

Sure. So on operating margin in Q1, it's 190 basis points for the LOTUS and FUSE charges. And then you just basically divide that by four for the full year, so it's 45 basis points on the full year..

Okay. And then from a bigger picture perspective, when we think about the upcoming data release here in a couple of weeks, I was wondering if, Ian, I could just get you to comment on a couple of things because there's been some discussion on previous calls on setting expectations for this trial, especially as it relates to stroke rates.

So if you could just sort of set the stage for us for REPRISE III and any issues that you think you should point out in terms of comparability or what we've seen in previously trials and, therefore, how should we putting these results in perspective, would be really helpful.

So just any comments on the upcoming data in REPRISE III and how we should be thinking about the trial data, given what we've seen from previous data sets. Thank you..

Thank you. It's a very good question. Obviously, we can't comment on the data release prior to presentation at EuroPCR. And that presentation, of course, will take place at 12:30 on the 16th of May. We sincerely hope that you tune in for that.

I think it's fair to comment on the trial, that it is the largest global randomized trial head-to-head platform of two TAVR devices with all the bells and whistles of a high-quality trial. So joint comparisons with other studies is probably not that wise. And I think we should wait for the data to fully understand what this dataset will mean.

I think we could comment on what we expect the pacemaker rate to be. As you know from previous trials, we have observed a higher pacemaker rate, and one would expect that this trial having been completed in December 2015, when you follow up to December 2016.

Before we were fully aware of all of the drivers that determined pacemaker rate, one would expect that the pacemaker rate would be in some ways comparable to what we've seen previously.

Then with respect to all of the other variables, I think we have to actually weigh this trial on its merits, given that this is a large head-to-head comparison randomized on an even playing field..

Thanks.

Any follow-on questions there?.

Okay..

Next question is from Rick Wise, Stifel. Please go ahead..

Good morning, everybody..

Hi, Rick..

First, Dan, a question for you on SG&A. You very clearly called out some of the moving pieces, litigation, some investments. But I'm a little confused. You said you weren't pleased with SG&A even when you normalize.

And you weren't pleased because of the higher investment, you weren't pleased because of the timing or the impact of the cost reduction programs. Just help us understand your thinking and some of the drivers of the better SG&A going forward? Thank you..

Sure, Rick. Yeah, and I think you've delineated some of the reasons in Q1. I think the reason for the dissatisfaction is we missed the range. The range was 35% to 36%. We hit 36.1%. That doesn't add up to success from my perspective for that number in the quarter. Now, the reasons are there. We're obviously happy to invest in USB brain stimulation.

We needed to pay the extra commissions, all the factors that are there. And that number should come down over the rest of the year with the programs that we have in place.

But the dissatisfaction comment is really just for the fact that, in the quarter, I would have liked to have rather seen that at the midpoint and it ended up a tick above the high end of the range..

Okay. And, Mike, just turning back to CRM side of things. Heart Rhythm Society is coming up. Maybe you or Dr. Meredith want to talk about some of the messages or key events there. But maybe you could talk specifically, Mike, about growth. I mean, you had amazing growth on the CRM side, pacer growth outlook. Now you're anniversarying that.

RHYTHMIA seems set with the HDx next-gen launch to be a growth driver. But maybe talk us through some of these many moving pieces, and I'm just talking about a couple, that are going to sustain the kind of growth we're seeing? Or do you think it could accelerate? What are you focused on over the next six months, 12 months? Thank you..

Thanks, Rick. And I'll have Dr. Stein comment on HRS. But just a couple of comments on CRM. Really proud of the team there. Continued another quarter of above-market growth globally, plus 8% in a challenging market. And really encouraged by a couple of points. One, is our Brady platform continues to do extremely well.

Based on the quality of that product, the deliverability, the quality of the lead. So excellent job in Brady. Defib continues to gain share. And really we're seeing a strong uptake continuing, especially in the international markets, with S-ICD, particularly in Japan. Excellent growth there.

And we launched a new product called our RESONATE in Europe that is an excellent product that helps with the multipoint pacing capability, the extended battery longevity.

And also on top of that, what is a great proof point, and we talk about healthcare economics and so forth, the NICE recommendation that came out in the UK that really proves out the exceptional longevity benefits that we have in our ICD, CRT-D platforms, the cost savings that delivers and the patient impact supported by nine separate independent publications really shows the true economic benefit and the value of our CRM products.

And I think that data is well respected and making its way around the world, which is helping us. Dr. Stein, if you want to comment a bit on what's coming at HRS..

Yeah. Thanks, Mike. And, Rick, thanks for the question. A couple of data releases that I want to highlight for HRS. First, two late-breaking trial presentations. One is the first readout on data from our S-ICD post-approval study in the U.S. So that was an FDA-mandated trial of over 1,600 patients implanted with this system, post-commercialization.

And we'll be presenting the acute safety data as well as a good look at the demographics of who is actually getting the device in the U.S. and their acute outcomes.

And then in addition, a WATCHMAN late-breaker which presents the one-year follow-up results of our EVOLUTION trial, which is large 1,000-patient prospective registry of WATCHMAN implantation in Europe.

And I'd be remiss if I didn't also point out that we have a follow-on WATCHMAN late-breaker to that at EuroPCR, which focuses specifically on the warfarin contraindicated patients in that cohort. And that may be very helpful as you look towards what we think we're going to see in our randomized ACEP II trial.

The only other things that I'd point out a large number of abstracts from our EP group, looking at some of the newer technologies that we're evaluating for our ablation catheters and with RHYTHMIA and two more abstracts on our upcoming leadless pacemaker looking specifically at how it works in concert with the S-ICD..

And next question is from the line of Danielle Antalffy, Leerink. Please go ahead..

Hi. Good morning, guys. Thanks so much for taking the question and congrats on another great quarter. Wondering if you can update us on the regulatory timelines for the MRI-safe high-power devices and how we should think about the share shifts that should occur there once they do come to market.

You've got a competitor that's supposed to be coming to market, but that's unclear given some of their regulatory issues. So just wondering how to think about that. You've been gaining share with the MRI-safe pacer.

Should we see a similar type of shift when the high-power devices come to market?.

Good. I'll take it. And, Dr. Stein, please comment.

We talked, Susie, fourth quarter this year?.

Year end..

Year end. Ideally by year end, approval of our MRI compatibility with our ICD, which really will be combined on the RESONATE platform, which is really meaningful because no you have multipoint pacing, extended battery longevity and the future MRI compatibility and also a diagnostics tool called HeartLogic.

So it's really a differentiated platform for the long run for us. And also we anticipate, as we talked in the past, in 2018, we've seen a slight improvement in our replacement headwind in 2017, and we expect to see a bit more of it in 2018. So, overall, it's a tough market, but we continue to expect to grow faster than the market.

I don't know, Ken, if you have any additional comments?.

Yeah. Thanks, Mike. I think I'd just reiterate what Mike said. We are on track according to that timeline that Mike gave you in terms of when we're anticipating approval. Obviously, we can't comment on when we think the competitor is going to get through their regulatory issues and get their approval.

Certainly on the pacing side, we've seen a very big impact and a very positive impact from our MRI labeling with the INGEVITY device there.

One of the thing that's unique about our regulatory strategy on the high-voltage devices is this backwards compatibility, where we expect once we get labeling that it would not only be for the new generation devices, as Mike mentioned, RESONATE, but for the vast majority of devices that are currently being implanted in the U.S.

And I think as you look at what might happen once you get approval, it's important to recognize that already a good number of customers believe our backwards compatibility story and do believe that it is likely that, with approval, we'll have the backwards compatibility for the systems they're implanting today.

We've been able to execute that strategy in Europe. We've executed that strategy in the U.S. with the EMBLEM S-ICD. So I think we have a lot of credibility when it comes to that..

Okay. And then just one quick follow-up, if I could. We talked a lot about on the call the MedSurg, the growth, sustainability a little in cardiology. But just taking a step back and if you look across all the businesses, you've been growing above the market. Granted, comps get a little bit tougher over the course of the year.

But, quite frankly, Q1 of last year was a tough comp as well across all of your businesses. And actually, comps for CRM are not as tough.

So I'm just curious, and I appreciate you raised the low end of the sales growth guidance range, but why can't you grow even faster? What do you have coming in the pipeline that could continue this growth momentum? Thanks so much..

Sure. We're certainly pleased with our performance for the last few years. And besides the top line, as we've noted multiple times, the continued opportunity to improve margins faster than our peers to combine it with the top-line growth. So we're pleased with the 6% to 7% guidance for the full year.

It's faster than market and it does reflect the reality that we do have 10% growth comp headwinds for the next four quarters. So I think that's a prudent and reasonable guidance range to give, given that comparison headwind. We do have some particular anniversary of some tough comps, particularly with SYNERGY, which will be 12% comps in 2016.

So really that the bigger challenge is comps, and some comps with Interventional Cardiology. Plus, we're off the market in LOTUS until fourth quarter, so that's a bit of a headwind for us. But despite that, we're pleased with the 6% to 7% guidance. And then moving forward, we have an Investor Day coming up in June. And I think you'll like that event.

You'll see a strategy and a pipeline that will continue to drive revenue growth over the LRP time period faster than our peer group and OI improvement faster than the peer group. And so I think you'll be really comfortable with the strength of Boston Scientific over that LRP program.

And consistent with the past, we continue to beat those LRP commitments we've done historically..

And next question is from the line of Chris Pasquale, Guggenheim. Please go ahead..

Thanks. First, just wanted to clarify.

Does the updated guidance include Symetis? And, if so, what are you assuming for a revenue contribution this year?.

It does not include Symetis. We wouldn't include that until the acquisition actually closes in Q2. So look for that to be post-close..

Okay. Perfect. And then Peripheral had another solid quarter, but the U.S. PCI business did slow a bit and continues to lag behind international. You highlighted the progress you made in the ELUVIA and Ranger clinical trials.

Could you just remind us what you're thinking in terms of potential FDA approval timing for those products? And how do you sustain momentum in U.S.

Peripheral while you wait for them to get here?.

Absolutely. So in Peripheral, we had a strong quarter overall at 7% growth. We had tough comp at 14% growth comp comparison for last year, but again grew at 7%.

Stronger, as you pointed out, in the international markets, where we have our Ranger Balloon as well as the ELUVIA Stents, which is really providing some significant differentiation for us in capabilities there. You saw the Ranger data just came out that we referenced.

In terms of approval times for Ranger, we just enrolling that clinical trial just this quarter. And so we'll likely have FDA approval in 2020/2021, so depends on the enrolment speed. In terms of ELUVIA, we expect that ideally the back half of 2019 or 2020..

Thanks..

And next question is from the line of Vijay Kumar, Evercore. Please go ahead..

Hey, guys. Congratulations on a really nice quarter here. Just maybe, Dan, I had one on the guidance, the 2Q revenue guidance. And I had one follow-up for Mike. I guess if you look at the second quarter organic revenue guidance, so we're looking at a 400 basis points sequential deceleration. I know that the comps are tougher.

But apart from the comps and maybe LOTUS being pulled off, is there any else that we should be looking for the 2Q organic guidance?.

No, Vijay. I think Mike covered that pretty well relative to the comps. So you think of Q1 we had an 8% comp for the total company, Q2 we have 10%, so that's 200 basis points right there. And then specific to some Q2 anniversarying launches from last year, the SYNERGY launch in U.S. branch in Japan was Q1 really last year.

And then the CRM product launches in Quad and MRI-safe Brady were Q2 early and late. And then we also we had the Uro pelvic health share gains from a competitor exiting the market in Q2. So really happy to be taking share there, and it's a very nice boost to the overall Urology business, but we anniversary that as well.

So I think it stacks up pretty well overall when you look at that guidance for Q2 and for the full year. But it really is a story of comps. And I think we still have good momentum in the business..

Does that comp, I guess does it assume competition launching their own stents in second quarter?.

Does it assume what? Sorry..

Does it assume new competitive entrants within the stent market for the Q2 guidance?.

Yes. We do see some competitive activity in USDS with some potential competitive launches..

Okay. And then, Mike, one quick one for you. There's some speculation in the market on LOTUS when it comes to the PMA submission.

And the debate is, what is the FDA's motivation to accept the PMA given the recall? Or would they ask for a small safety 30-day follow-up kind of study? I'm just curious, have you had this conversation with the FDA and can you confirm whether they've asked you for such a safety study or not? Thank you..

Yeah, I'll turn it over to Dr. Meredith..

Thanks, Mike. So we have a plan to discuss some of the FDA coming up. It is inappropriate to foreshadow what the FDA will actually require. But one suspects that there will be a small Pinnacle study required to confirm that the Pinnacle issue has been resolved. But it's unlikely that that study will be substantial..

Okay. Next question is from the line of Matt Taylor, Barclays. Please go ahead..

Hi. This is Ian Mahmud on for Matt.

Can you hear me okay?.

Yep. Hear you fine..

Great. Okay. Good morning..

Good morning..

So I just want to ask about WATCHMAN. And I know you've commented on some, but just on the trials you highlighted. Can you discuss what expanded label in the U.S.

might mean for the market? Have you provided any guidance in terms of timing of those two trials?.

Yeah. I can take that, Mike, if you let me. So I think that there were sort of three different trials we highlighted here over the fall. I think probably the one that's the most interesting and the most direct to your question is the ASAP-TOO trial.

And so ASAP-TOO is a large, global, multi-center randomized trial looking specifically at the use of WATCHMAN in patients who are currently off-label in the U.S. And that is those who are deemed by their physicians to be ineligible for even short-term use of warfarin, which is required on a U.S. label post-implant.

We've started enrollment in the trial. I don't think we can go any further publicly at this point in terms of when we expect that enrollment to complete. It is an adaptive trial design and so there is really a lot of play around when that trial might complete its primary endpoint.

In terms of the impact, really what that would do would be to bring our labeling in the U.S. to be consistent with our labeling in our CE Mark countries. So, our CE Mark labeling devices continues with both the warfarin-eligible and warfarin-ineligible patients.

And, again, I can't get out ahead of the data, but I would point it to our EVOLUTION data releases coming up at HRS and at EuroPCR, where I think you can get a better look at the different characteristics of those two cohorts..

Got you. Okay, helpful. Thank you..

Okay. Next question is from the line of Larry Biegelsen, Wells Fargo. Please go ahead..

Good morning, guys. Thanks for taking the question. One on the quarter and one on Structural Heart. So you initially guided to I think 5.3% to 7.5% in Q1, and you did 10%. So my question is, what was better than expected, what drove that? I mean, that's pretty impressive upside.

And, second, Mike, big picture, do you still expect to accelerate in 2018 over the 5.3% to 6.3% I think organic guidance that you're giving for 2017? And I did have one follow-up..

Thank you. Yeah. So we had a quarter that was quite strong. I would say, what surprised us, one, is that the performance of the MedSurg business was very strong. And that was, quite frankly, up more than we thought, given the strength of Neuromod business, Uro and Endo contributing 12% organic growth.

So that that was a bit of a surprise to us, especially coming off what was a 11% comp for the whole sector first quarter 2016. So just terrific execution across all three of those businesses and global expansion. So that was a bit of a surprise.

The other one was we knew CRM and Rhythm Management was going to do well, but we weren't planned on them doing an 8%. So, kudos to that team. They just delivered excellent results. And they deserve to, because they have the best battery longevity and an excellent product. So that was a surprise for us to the positive.

And we're also really pleased with – very excited about the future with the Symetis acquisition in combination with LOTUS. And coming out of a meeting in California this week with a bunch of cardiologists, there is lot of enthusiasm for the unique capability of Symetis and LOTUS combined, and how to help treat patients and also to serve customers.

So very bullish on that. In terms of going forward, given the strong outlook that we provided, 6% to 7% for the full year, which is stronger than market, we'll clearly provide 2018 guidance in the future.

And as I mentioned before, I think what you'll see at Investor Day is a company with a very clear strategy, with a deep pipeline that will continue to grow faster than market in our LRP period. And we've got a lot of room to improve margins, as you know, and deliver the EPS growth. So you'll see that Investor Day.

And we'll continue to deliver on those three elements of our plan..

That's very helpful. And then just for a follow-up for Mike or Ian. We haven't heard much regarding your strategy in either mitral or tricuspid. Do you have anything new to share in these fronts? How are you thinking about those two areas, given the recent doubling down with Symetis in the TAVR market? Thanks for taking the questions..

Yeah, so we've clearly doubled down in TAVR given the strength of that market, the uniqueness of our products and the commercial capabilities that we have. So that's the bet that we've made is doubling down in what we think will be a $4 billion to $5 billion market in 2020. And we're clearly doubled down with our WATCHMAN platform.

You're going to see more, not only the clinical trials that Ken outlined, but also more direct-to-patient marketing to continue to expand that marketplace. We also, on the mitral and tricuspid area, we do have multiple minority equity bets in multiple companies.

Quite frankly, we see that mitral opportunity as exciting, but much slower to develop versus the TAVR market, and a business that's likely more segmented out in terms of the number of devices to be acquired. So we like the market. We're going to continue to invest in it with our VC bets. But the primary focus is on TAVR and WATCHMAN.

Also trying to clarify on the PI side on the ELUVIA, we estimate that the FDA approval to be second half of 2019, potentially first quarter of 2020, but we estimate second half of 2019. And our Ranger, we haven't given any timing yet. We just started enrolling this quarter..

Thanks, Mike. With that, we would like to conclude the call. Thanks for joining us today. Appreciate your interest in BSX. Before you disconnect, Kevin will give you the details for the replay..

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