Good day, and welcome to the Boston Scientific Third Quarter 2023 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please also note, this event is being recorded.

I would now like to turn the conference over to Lauren Tengler, Vice President, Investor Relations. Please go ahead..

Thank you, Costas. 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 2023 results, which included reconciliations of the non-GAAP measures used in the release.

We have posted a copy of that release, as well as reconciliations on the non-GAAP measures used in today's call to the Investor Relations section of our website under the heading Financials & Filings. The duration of this morning's call will be approximately one hour.

Mike and Dan will provide comments on Q3 performance, as well as the outlook for our business, including Q4 and full-year 2023 guidance. 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 growth excludes the impact of foreign currency fluctuations, and organic revenue growth further excludes acquisitions and divestitures for which there are less than a full period of comparable net sales.

Relevant acquisitions and divestitures excluded for organic growth are Baylis Medical, which closed on February 14, 2022, the majority stake investment in Acotec Scientific, and Apollo Endosurgery, which closed in February and April of this year, respectively. Divestitures include the endoscopy pathology business, which closed April of this year.

Please note that we have elected to consolidate Acotec results on a one quarter lag, which had been included in our Q3 reported and adjusted results. Guidance excludes the previously announced agreement to acquire Relievant Medsystems, which is expected to close in the first half of 2024, subject to customary closing conditions.

For more information, please refer to our financial and operating highlights deck, which may be found on our Investor Relations 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 in market share, new and anticipated product approvals and launches, acquisitions, clinical trials, cost savings and growth opportunities, our cash flow and expected use, our financial performance, including sales, margins and earnings, as well as our tax rates, R&D spend, and other expenses.

If our underlying assumptions turn out to be incorrect, or if certain risks or uncertainties materialize, actual results could vary materially from the expectations and projections expressed or implied by our forward-looking statements.

Factors that may cause such differences include those described in the Risk Factors section of our most recent 10-K and subsequent 10-Qs filed with the SEC. These statements speak only as of today's date, and we disclaim any intention or obligation to update them. At this point, I'll turn it over to Mike..

Well done, Lauren. Thank you, and thank you for joining us today. We're pleased with another quarter of excellent results, with momentum continuing fueled by new product innovation, clinical evidence, and our talented teams across the globe.

Q3 ’23, total company sales grew 11% operationally and 10% organically versus Q3 ‘22, which exceeds the high end of our guidance range of 7% to 9%. This performance is a testament to our category leadership strategy, focus on innovation, and strong commercial execution.

We believe that most of our global business units grew in line or faster than the respective markets. Q3 adjusted EPS at $0.50 grew 15% versus Q3 ‘22, which exceeds the high end of the guidance range of $0.46 to $0.48. Q3 adjusted operating margin was 26.1%, slightly higher than anticipated.

Now, for ‘23 guidance, we're guiding to Q4 ‘23 organic revenue growth of 8% to 10%, and aligning our full-year organic guidance to approximately 11%, the high end of our prior guidance. Our Q4 ‘23 adjusted EPS estimate is $0.49 to $0.52, and we are raising our full-year adjusted EPS range to $1.99 to $2.02.

I'll now provide additional highlights on Q3, along with comments on our 2023 outlook, and then Dan will provide more details on the financials. Regionally, on an operational basis, the US grew 9% versus Q3 ’22, driven by strong performance within our WATCHMAN, EP, endo, and urology businesses.

Europe, Middle East, and Africa grew 11% on an operational basis versus Q3 ‘22. Performance of the region was broad-based, with double-digit growth in seven out of our eight business units. Within the quarter, we saw strong growth in EP, with ongoing momentum and demand for FARAPULSE and POLARx.

Asia Pac grew 19% operationally versus third quarter ’22, led by strength in Japan and China. Japan grew strong double digits in the quarter, with ongoing momentum from new products, most notably AGENT DCB, Rezūm, POLARx FIT, and WATCHMAN FLX.

Physician demand for our differentiated AGENT DCB remains high, and we've taken a market leadership position within the quarter after launching earlier this year. Double-digit growth in China was led by our Imaging and Complex PCI portfolio, as well as the commercial execution of the team more broadly.

These results were further supported by the performance of the Acotec business, and we continue to expect double-digit growth in China for the full year. I'll now provide some additional commentary on the business units.

In the quarter, urology sales grew 11% organically, with international growth of 18%, fueled by new products and globalization efforts, with all regions outside the US growing double digits. Globally, the Stone Management franchise grew double digits, driven by LithoVu and Laser Therapies.

Rezūm had another strong quarter of double-digit growth, backed by long-term clinical data supporting international momentum with a leave nothing behind message resonating in Asia. Endoscopy sales grew 11% organically and 12% operationally versus third quarter ’22, broad-based strength across all regions.

Our single-use imaging and AXIOS technologies continued to perform well, both doing double digits within the quarter. And earlier this month, we received US marketing authorization for an expanded indication of the AXIOS stent to include gallbladder drainage, increasing access to more patients with this platform.

Neuromodulation sales grew 3% organically versus third quarter ‘22.

Our Brain franchise grew low double digits in the quarter, with strength from new product launches, including the Vercise Neural Navigator 5 Software, which is our fifth generation DBS programming solution, furthering our leadership in image-guided programming for more streamlined DBS programming in the US.

Our pain business grew low single digits, driven by spinal cord stimulation sales, which were slightly below our expectations. We're optimistic about the opportunities ahead of our pain business included in our recent US approval to expand indication of our WaveWriter Alpha SCS system to include DPN, which is expected to launch in early ‘24.

We're also excited to add to our portfolio with our recently announced agreement to acquire Relievant Medsystems and its Intracept procedure. Intracept is the only US-cleared system for vertebrogenic pain, expanding our portfolio of pain offerings, which is expected to close in the first half of 2024.

Peripheral intervention sales grew 8% organically and 13% operationally, which includes the results of Acotec versus third quarter ’22. Our Arterial franchise delivered another strong quarter, growing low double digits, led by ongoing success globally with our drug-eluting portfolio.

in Venous, data from the REAL-PE study was presented earlier this week, demonstrating statistically significant lower major bleeding rates in patients with pulmonary embolism who are treated with EKOS compared to a competitive mechanical thrombectomy device.

The REAL-PE study analyzed nearly real-time EHR data for over 2,200 PE patients from 2009 to 2023. This study provides new clinical evidence for providers in determining the optimal modality for each patient's needs.

Our Interventional Oncology franchise grew double digits, including ongoing momentum with our Embold Coil, launch as well as strong demand for our cancer therapies.

Within the quarter, we received FDA clearance to expand the indication of the Visual ICE Cryoablation System to treat pain associated with tumors that have metastasized to bone in patients who are unable to receive standard radiation therapy.

Our cardiology group delivered another excellent quarter, with organic sales growth of 11% versus third quarter ‘22. Within cardiology, interventional cardiology therapy sales grew 7% organically versus third quarter ‘22. Our Structural Heart Valves franchise grew double digits in third quarter, led by ACURATE Neo2 sales performance in Europe.

And growth within our Coronary Therapies franchise is fueled by ongoing success of our Imaging technologies. We're pleased to have received clearance for the AVVIGO+ Guidance System. AVVIGO is our next-generation platform that provides high quality fast imaging, with improved physiologic assessment of coronary vessels and lesions.

We continue to be pleased with the performance of AGENT DCB in Japan. Importantly, our AGENT IDE trial results were presented yesterday as a late breaker at TCT, with data demonstrating statistical superiority of the AGENT drug-coated balloon versus uncoated balloon angioplasty for the treatment of patients with in-stent restenosis.

With our recent regulatory submission to FDA, we anticipate approval of AGENT, the first drug-coated balloon indicated for the coronary arteries within the US in the second half of ’24. WATCHMAN sales grew 23% organically versus third quarter ‘22.

We're very pleased with the excellent performance of this franchise, and have now treated more than 350,000 patients globally.

Last month, we received FDA approval of the latest generation WATCHMAN FLX Pro, which is designed to improve visualization during device placement to enhance healing post-implant, and treat a broader range of patient anatomies. Additionally, enrollment has commenced in HEAL-LAA, a post-market study of the WATCHMAN FLX Pro device in the US.

We continue to expect strong growth from the WATCHMAN, business backed by new technologies and significant investment in clinical evidence. Cardiac rhythm management sales grew 5% organically versus third quarter ’22. And core CRM, our high voltage business, grew low single digits, and our low voltage business grew mid-single digits.

Our Diagnostics franchise grew double digits in the quarter, fueled by our diverse portfolio of ambulatory ECGs and ICM.

We continue to further innovate in the space, having launched in the US the next-generation LUX-Dx II and the II+ implantable cardiac monitor for long-term monitoring of arrhythmias, providing enhanced diagnostic capabilities and enabling a more efficient workflow. Electrophysiology sales grew 27% organically versus third quarter ‘22.

International growth of 33% was driven by excellent performance from our differentiated FARAPULS and POLARx technologies, as well as our Access Solutions franchise and the leading VersaCross Access platform.

US growth of 22% was led by our Access Solutions franchise, along with contribution from the early approval - I'm sorry, from the approval of the POLARx Cryoablation System, including POLARx FIT, which enables physicians to adjust and expand the cryo balloon to best fit a patient's individual anatomy.

Also, within the quarter, we launched VersaCross Connect for POLARSHEATH, which provides safe and efficient access to the left side of the heart during procedures, expanding our Access Solutions portfolio.

Clinical evidence generation remains a key priority, and we're pleased to have completed enrollment in the first phase of the ADVANTAGE AF clinical trial studying FARAPULSE for the treatment of patients with persistent AFib.

Additionally, we commenced enrollment and treated our first patient in an extension arm of the ADVANTAGE study to evaluate FARAPOINT, which is a point-by-point PFA focal catheter for CTI ablations used to treat atrial flutter. Finally, within the quarter, we achieved important milestones to bring in our leading PFA technology to the US.

Recalled data from our ADVENT IDE trial was presented at ESC at the end of August, comparing FARAPULSE to standard of care thermal modalities meeting the primary endpoints. We've also completed our US regulatory submission and continue to anticipate the approval of FARAPULSE in the US in the second half of ’24.

Through the first nine months of this year, we have grown organic sales 12% while growing adjusted EPS 18%, with broad-based growth across all of our business units and regions.

This performance is supportive of the goal we laid out last month at our Investor Day, where we aspire to be highest performing large cap med tech company over the next three years.

We believe our focus and talent and culture, our relentless pursuit of innovation, while doing the right thing for society and operating responsibly, sets us up to deliver a unique set of financial goals over the 2024 to 2026 long range period.

Our LRP goals include growing sales 8% to 10% CAGR over the period, while expanding adjusted rate operating margins by 150 basis points over the three years, with double-digit adjusted EPS growth annually, and improvement of our free cash flow conversion to approximately 70% by 2026.

With that, I'll pass off to Dan to provide more details on the financials. .

Thanks, Mike. Third quarter 2023 consolidated revenue of $3,527 million, represents 11.2% reported revenue growth versus third quarter 2022, and includes a 10 basis point tailwind from foreign exchange, which was lower than expected due to the strengthening of the US dollar throughout the quarter.

Excluding this $4 million tailwind from foreign exchange, operational revenue growth was 11.1% in the quarter. Sales from acquisitions and divestitures contributed 90 basis points, resulting in 10.2% organic revenue growth, exceeding our guidance range of 7% to 9%.

Q3 2023 adjusted earnings per share of $0.50 grew 15% versus 2022, exceeding the high end of our guidance range of $0.46 to $0.48, driven predominantly by our strong sales performance. Adjusted gross margin for the third quarter was 70.2%, slightly lower than our expectations, primarily driven by foreign exchange.

In light of our Q3 results, we now anticipate that full-year 2023 adjusted gross margin will only slightly improve on a year-over-year basis. Strong sales performance drove third quarter adjusted operating margin of 26.1%, resulting in a year-to-date adjusted operating margin also of 26.1%.

Our year-to-date performance sets us up well to achieve our full-year 2023 adjusted operating margin goal of approximately 26.4%, which represents 80 basis points of expansion versus 2022.On a GAAP basis, the third quarter operating margin was 19.6%, which includes a $111 million credit primarily related to certain IP litigation matters.

Moving to below the line, third quarter adjusted interest and other expenses totaled $81 million, which was in line with our expectations. On an adjusted basis, our tax rate for the third quarter was 12.4%, favorable to our expectations, driven by certain discreet tax items in the quarter. Our operational tax rate was 13.9%, in line with expectations.

Fully diluted weighted average shares outstanding ended at 1,475 million in Q3. Free cash flow for the quarter was $509 million, with $698 million from operating activities, less $190 million net capital expenditures. Excluding special items, adjusted free cash flow was $582 million.

As a result of our strong year-to-date adjusted free cash flow generation, we now expect full-year 2023 adjusted free cash flow in excess of $2.4 billion. Our top capital allocation priority remains strategic tuck-in M&A, followed by annual share purchases to offset dilution from employee stock grants, which we announced at last month's Investor Day.

As of September 30, 2023, we had cash on hand of $952 million, and our gross debt leverage was 2.3 times. I'll now walk through guidance for Q4 and full-year 2023.

We expect full-year 2023 operational revenue growth to be approximately 12%, which excludes an approximate 100 basis-point headwind from foreign exchange, higher than our previous estimate due to the strengthening of the US dollar.

Excluding the impact of closed acquisitions and divestitures, we expect full-year 2023 organic revenue growth to be approximately 11% versus 2022. We expect fourth quarter 2023 operational revenue growth to be in a range of 9% to 11% versus Q3 2022, with a neutral impact from foreign exchange based on current rates.

Excluding the contribution from closed acquisitions and divestitures, we expect fourth quarter 2023 organic revenue growth to be in a range of 8% to 10%. We continue to expect our full-year 2023 adjusted below the line expenses to be approximately $340 million.

Our full-year 2023 operational tax rate is now expected to be approximately 13.5% under current legislation and forecasted geographic mix of sales. As a result of a lower operational tax rate and favorable discrete items recognized in the third quarter, we now expect our adjusted tax rate to be approximately 12%.

We expect a fully diluted weighted average share count of approximately 1,478 million shares for Q4 2023, and 1,464 million shares for the full year 2023. We expect full-year adjusted earnings per share to be in a range of $1.99 to $2.02, representing 17% to 18% growth versus 2022.

We continue to anticipate a neutral impact from foreign exchange on full year 2023 adjusted earnings per share. We expect fourth quarter adjusted earnings per share to be in a range of $0.49 to $0.52.

For more information, please check our Investor Relations website for Q3 2023 financial and operational highlights, which outlines more details on Q3 results and 2023 guidance.

In closing, I'm very proud of our year-to-date financial performance, with top-tier organic revenue growth of 12%, adjusted operating margin of 26.1%, and adjusted earnings per share growth of 18%. I look forward to continued momentum in the fourth quarter to close out 2023, which will set the stage towards achieving our long-range financial goals.

With that, I'll turn it back to Lauren, who will moderate the Q&A..

Thanks, Dan. Costas, let's open it up to questions for the next 30 minutes or so. In order for us to take as many questions as possible, please limit yourself to one question. Costas, please go ahead..

[Operator instructions]. And the first question comes from the line of Robbie Marcus with J.P. Morgan. Please go ahead..

Hi, good morning. And congrats on a great quarter. And since many of us are at TCT, I'll add the nice AGENT DCB trial as well. I had two questions, so I'm going to - I'll just go with one here. As we go back to the Analyst Day, you pointed to 8% to 10% growth and 150 basis points of operating margin expansion over the three-year timeframe.

And I believe one of the comments was at the beginning of the range, it'll be towards the lower end and accelerate as you have some of your big new product launches coming. So, I'm looking at 2024 here and I see the Street at 8% to 9% organic sales growth and about 50 basis points margin expansion.

I just want to make sure we're interpreting the comments you made at t he Analyst Day correctly, and any thoughts you have on directionality for next year. Thanks a lot..

Yes, sure. Robbie. I think relative to the Analyst Day commentary, let me just reiterate just to make sure we're all on the same page.

So, yes, as you said, 8% to 10% organic revenue growth over the period, 2024 to 2026, 150 basis points of margin expansion over that three-year period, which would put us, assuming we're at that 26.4% at the end of this year, kind of near that 28%, which is a nice jumping off point for that 30% long-term goal.

And then we said that the 2025 revenue growth rate would likely be higher than our 2024 revenue growth rate due to the launches that are coming in 2024. So, that's really the commentary that we had relative to Investor Day. And obviously, 2023 is shaping up to be a great year, good jumping off point heading into 2024.

But relative to specifics around 2024, we're working through our 2024 annual planning process here in the fourth quarter. And as you would expect, we'll use that as the basis to give you the guidance when we get to our Q4 earnings call in January..

All right, appreciate it. Thank you. .

The next question is from the line of Joanne Wuensch with Citibank. Please go ahead..

Good morning, and thank you for taking the question. Since many are sitting here at TCT, I think I'm going to focus on that, including, I'd love some feedback on the data that's been presented here, particularly on the AGENT trial. And then I found the WATCH-TAVR Trial also interesting. So, anything you can comment on, that would be wonderful.

Thank you..

Dr.

Stein, you want to comment?.

Yes, thanks, Mike. Let me start again. Hey Joanne. We’re really pleased by all of the data that we saw at TCT.

I'll begin with AGENT, and literally could not be happier with the ultimate results of that randomized trial, which again, as I hope everyone recognizes, right, is intended to get approval of the first drug-coated balloon indicated for use in the coronaries in the United States for in-stent restenosis, right? In-stent restenosis accounts for approximately 10% of US coronary interventions today.

Having a drug-coated balloon will allow interventionalists to address these stent failures while leaving nothing behind. We've seen how well it's performing where we do have it approved in Japan.

And just to reiterate really the incredible results from the trial met endpoint of target lesion failure at 12 months was really marked statistical and clinical superiority to Plano balloon angioplasty, and importantly, both clinically important reductions in target-vessel-MI, and reductions in the need for target lesion revascularization.

And then - yes, so that was yesterday. Day before yesterday, we saw the results of WATCH-TAVR. And so, WATCH-TAVR, I think, was an important investigator-initiated trial looking at the combined use of the legacy WATCHMAN 2.5 device at the same time of TAVR in high risk patients with atrial fibrillation undergoing TAVR.

And I think on the one hand, we sort of acknowledge that combined use of WATCHMAN with TAVR does face a challenge in reimbursement environment, but also important, the trial validates the safety and the efficacy of the legacy WATCHMAN 2.5 device as compared to control therapy, including the use of NOACs in this population..

Thank you..

The next question is from a line of Rick Wise with Stifel. Please go ahead..

Good morning. Thank you for the question and it's wonderful to see such an excellent quarter. I guess if I focus on one, maybe you could expand on your - Mike, on your - if you want to do it, your neuromod comments, just your latest thinking, just broadly what's going to help re-accelerate the business or what's next from here.

But more specifically, the PDN indication approval, how does that affect the business? When does it start contributing? How would you have us think about the beneficial contribution there? Thanks a lot..

Thanks. Morning, Rick. In the third quarter, as I mentioned, we're proud that most all of our businesses grew, at least, at most likely, most of them grew above market, likely, with the exception of the one that you asked about, neuromod. So, in the neuromod business, we grew roughly 3% in the quarter.

I'll just start off, before you - I jumped SCS, the brain business. Our DBS business continues to do well, continues to grow share. And in third quarter, it grew double digits again with the neural navigator. So, that business continues to become a larger part of the overall mix. Global SCS still is the largest piece.

That's been under pressure, as you pointed out.

The pressure points really come from additional - probably a couple of new competitors to the marketplace, some competitive launches, and our DPN approval, which we're very excited about, which you highlighted, we received in October, but we don't expect to launch our DPN platform until likely first quarter, near the mid first quarter of 2024.

So, this will certainly help us with our core SCS business with that additional indication. And also, with the Relievant company that we've signed but not yet closed, we expect to close that in 2024.

So, we need the combination of the DPN through our existing SCS base, combining with the Relievant, and also our RF platform gives us a really nice category leadership position to treat pain with a variety of options, which will be differentiated.

So, we do expect likely some softness to continue in the fourth quarter, and we obviously aim to improve on those results in 2024 based on what I just highlighted..

Appreciate the color. Thank you..

The next question is from the line of Vijay Kumar with Evercore ISI. Please go ahead..

Hey, guys, congrats on the print and the data being presented at TCT. If I may, I want to stick to on the financial side.

Dan, just to clarify the 2024 commentary, if the acceleration is all being driven by new products, and these new products are being launched, I think you said back half of next year, should we be perhaps thinking about the lower end of that 8% to 10%? And I think you mentioned gross margins FX impact here.

So, it looks like Q4 is going to look similar to 3Q. How to think about any FX impact from gross margins as we look at the outlook..

Sure. So, I’ll hit the gross margin one first. The gross margin in the third quarter was a little bit lower than we expected, and it was predominantly driven by FX, that 70.2%. So, we had been targeting kind of to be approaching 71% for the full year this year. We were 70.5 last year.

Just tempering that commentary to say you know what, we might not hit the approaching 71%. We might be - we'll be north of 70.5, but maybe not as high as approaching 71%. So, a bit of a nuance there, but driven by FX.

And we had mentioned for - the long range plan at Investor Day for 2024, 2025, and 2026, that there'd be a bit of an FX headwind in gross margin in 2024 that should get better over that timeframe of 2024, 2025, 2026.

Relative to 2024 organic revenue growth, no, there's really not much to assume other than we'll let you know on January 31 when we have our call. We have 8% to 10% as the CAGR for the three years. As I mentioned, we'll work through our annual planning process here over the back half of this quarter, and we'll let you know.

We do have some nice launches, obviously in 2024, as you mentioned, many in the back half, but we'll let you know on January 31 what we think the range will be for 2024..

Understood. Thanks, guys. .

The next question is from the line of Larry Biegelsen with Wells Fargo. Please go ahead..

Good morning. Congrats on the print. Mike, we've made it this far without GLP-1 question, but I'm going to ask it anyway. Obviously, diabetes and obesity are risk factors for many diseases such as cardiovascular disease.

So, how are you thinking about the potential long-term impact of GLP-1s on your businesses, and any high level thoughts, Mike, on how investors have reacted to GLP-1s in general? Thank you..

Dr.

Stein, you want to give our comment on GLP-1?.

Yes, thanks, Mike, and hey, good morning, Larry. I think I'm going to begin, right, I mean, as a doc, I think you have to acknowledge these are promising agents.

I think on the other hand, as a doc and a realist who's lived through the launch of other promising agents in the past, and I think statins are a really good example, I think you’ve got to acknowledge, and particularly these drugs, given issues of cost, issues of convenience and issues of tolerability, we expect it will take at least a decade to reach peak penetration of these drugs in the indicated population.

And even after a decade, we expect that only a minority of American patients with obesity will be taking these drugs.

But if you think about these barriers to usage, I begin by saying, we see very limited short-term impact on cardiovascular disease, and even in the long-term, right, our analysis, taking into account, again, penetration ramp of these drugs, as I said, and taking into account what we know this far, thus far, about a reported 20% reduction in cardiovascular event rates, suggests to us that the impact on US coronary and peripheral procedure volumes will be minor even at peak.

And I think it's important to state. So, we, even with these drugs, continue to expect both of these procedures to continue to grow in volume over the next decade.

First of all, I think it's also really important to point out that cardiovascular disease is a global issue, that there is less attribution to obesity in other regions, particularly Asia, making it less amenable to prevention with these drugs, which are frankly also very likely to be less accessible outside of the US.

Also, any decrease in cardiovascular mortality and events will necessarily be accompanied by a corresponding increase in the prevalence of other diseases that are associated with aging, diseases in areas that are really very well served by our products, including things like cardiac pacing, interventional oncology for many forms of cancer, deep brain stimulation.

And finally, right, the assumptions that I'm talking to in terms of our modeling, right, don't consider other procedural growth factors like an aging population over this period, and certainly doesn't consider the long track record that we have of focusing and executing on innovation. .

Thanks, Dr. Stein..

The next question is from the line of Travis Steed with Bank of America. Please go ahead..

Hey, thanks for taking the question. I did want to ask about FARAPULSE. It sounded like the update was expected approval in second half 2024. Just curious when that was filed with the FDA. And maybe talk a little bit about scaling that up in the US and the potential to see pull-through on the ancillary products like mapping..

Maybe you take the timing of launch, and you can speak to the value to the full portfolio..

Yes, sure, Lauren. So, yes, on timing, again, as we said, I think everyone knows, right, our foundational pivotal scale data to submit to the FDA was ADVENT. Presented those results, as Mike said at, ESC, the end of August, with simultaneous publication in New England Journal of Medicine. Hit all of our endpoints, very clean data set.

And so, again, as we've said, we've now completed our regulatory submission to the FDA and things are in the regulator's hands. So, continue to expect approval second half of next year. And I think all of the EPs that I've spoken to in the US can't wait to get their hands on it..

Yes. You saw the results in the third quarter, which are quite strong with both POLARx and FARAPULSE. I think what's important is our supply chain team has done a terrific job over the past 18 months in building supply of both catheters and the capital equipment needed.

So, we expect to see a more significant install cadence to the back half of this quarter and into first quarter. So, we feel like we've really significantly improved our supply capabilities, and you'll see that in 2024 in Europe, and we'll be ready for the US launch..

Great. Thanks a lot for the question. Congrats on the good quarter..

The next question is from the line of Danielle Antalffy with UBS. Please go ahead..

Hey, good morning, everyone. Thanks so much for taking the question. And congrats on a great quarter and the data here at TCT. Just a quick question on Q4 topline guide.

I imagine there's some conservatism baked in here, but if I'm looking at it correctly, is implying a little bit of a deceleration, and not to be nitpicky here, but just want to make sure we're understanding of what the tailwinds versus headwinds are as we go into Q4 and heading into 2024. Thanks so much..

Sure, Danielle. Yes, I think of note, if you think back to our July guidance, obviously we didn't give specific Q4 guidance, but implied in that guidance would've been 7% to 9%. So, the 8% to 10% that we have for the fourth quarter is a bit of acceleration from where that would've been.

As always, we think the 8% to 10% is a prudent number for the quarter, and believe it's the right number for the quarter for - to close out the year. It'll put us at 11%, approximately 11% organic revenue growth for the year. So, I think that's a great year for the company.

And you combine that with the other metrics that we have, not just revenue, but the 11% organic revenue growth, you'd see 80 basis points of margin expansion at that 26.4% adjusted op margin. And then you get to 17% to 18% full-year EPS at that $1.99 to kind of that milestone over $2 to get to that $2.02. That's a good year..

Thank you..

The next question is from the line of Matt Taylor with Jefferies. Please go ahead..

Hi, thanks for taking the question. I actually wanted to ask one on neuromodulation. You talked about results below expectations in light of competitive dynamics. So, I was hoping you could comment on that and whether you expect any improvement in growth now that you have the PDN indication..

Sure, Matt. Yes, there's been a couple of new entrants into the field over the last 12 months. And so, they've taken a little bit of market share. Overall, the market's likely, I don't know, 5% to 6%-ish, and this year we're likely to - in SCS US, likely be below the market.

I mentioned earlier, a big driver there is not having the support of DPN, which we just recently received in October. And we expect to be able to offer that capability in line with some of our competitors in first quarter 2024.

So, we do expect to have a softer fourth quarter, and then we expect acceleration improvement in 2024 versus 2023 for our SCS business and our Brain business. DBS continues to take share and grow double digits, and again, mentioned it's likely the only division that's grown below the market..

Great. Thanks, Mike..

The next question is from the line of Josh Jennings with TD Cowen. Please go ahead..

Hi, good morning. Congratulations on the strong results, and wanted to follow up on Travis's question on FARAPULSE. Was hoping to just better understand where your US EP sales force stands today and how you're building that out, your plan to build that out and for the FARAPULSE launch.

And then just on top of that, just thinking about the full integration of FARAPULSE and arrhythmia and developing these FARAVIEW capabilities, is there anything of note that we should be thinking about that would provide clinical advantages that could catalyze stronger demand for arrhythmia once that integration is completed, I believe at the year-end of 2024? Thanks for taking the questions..

Sure. Yes. I won't go into all too many specifics on our commercial strategy. We do have a scaled and trained EP sales force, as you imagine, given the capabilities we have with our WATCHMAN division and our EP business and our CRM business.

So, we have a scaled EP force that's been trained up now, and what's great to see is they're successfully selling cryo today. So, having the approval of that, and we had a really nice initial, I don't know, 30 days or so of cryo openings. So, we expect to see cryo to be a nice revenue driver force in 2024 as we wait for the FARAPULSE approval.

So, we do have a scaled, highly capable EP commercial team. And Ken, if you want to comment on the arrhythmia offerings. .

Yes. Thanks, Josh. And again, we're very excited about FARAPULSE as it stands today.

So, we have disclosed, we do have a next generation of FARAWAVE catheter, right, which is the ablation catheter part of the FARAPULSE system that will include an embedded NAV sensor that will work with a novel iteration to the arrhythmia software that we're calling FARAVIEW that we do have targeted for year-end of 2024.

And our goal here really, Josh, is, I said, we're never going to compel people to use arrhythmia if they want to use FARAPULSE, but we're going to make the FARAWAVE and FARAVIEW system compelling for physicians to use.

And there are really some very novel things that we're able to do with that system combination that we believe is going to improve physician workflow and hopefully lead to even better patient outcomes with the combined system, even on top of the great outcomes that we saw in ADVENT..

Great. Thanks a lot. .

The next question is from the line of Chris Pasquale with Nephron Research. Please go ahead..

Thanks. I had a follow-up for Dr. Stein on AGENT. The results were certainly impressive versus PTA, but it was noted from the podium that about 85% of ISR cases in the US today are being treated with drug-eluting stents.

So, do you have plans to follow up the IDE study with a randomized trial versus DES? And maybe just some thoughts on how you see AGENT fitting into the treatment paradigm versus that standard of care..

Yes, Chris, I’m not going to get into what our post-approval research strategy is going to look like. I think that there's a lot to be learned when you see how drug-coated balloons are used in Japan and how they're used in Europe today, right? And patients with in-stent restenosis have failed the stent. And fool me once, shame on you.

Fool me twice, shame on me. I don't think that there are a lot of physicians who want to be putting additional foreign objects into someone who's already had in-stent restenosis.

So, we really believe the results that we saw with AGENT are compelling and compelling enough to move the vast majority of interventionalists to use AGENT in place of either Plano balloon angioplasty or in place of, again, yet another stent in the in-stent restenosis area.

I think the only other thing I'll say is, clearly there are a lot of potential indications for the use of the AGENT product beyond in-stent restenosis, and we'll certainly be looking at research into all of those as we get beyond approval and use for the first indication..

That's helpful. Thanks..

The next question is from the line of Mike Polark with Wolfe Research. Please go ahead..

Good morning. Thank you for taking the question. I have a question on price-cost. On price, the message has been historically we were kind of a little negative. We've moved it at the portfolio level to neutral. As we jump into 2024, what's a good base case? Neutral, again, a little up, a little down.

On the cost side, kind of where are you seeing opportunities, raw materials, freight, labor, where are you seeing tensions? And then the last piece of this is, one of your large competitors did announce an inventory obsolescence charge this quarter.

I think we all can see that inventories for the sector overall are quite higher than they used to be because of the COVID stresses and strains. Can I get an update on Boston's status on inventory? Thank you..

Sure, Mike. Happy to. A lot in that question. So, on the pricing, historically, we've been in that kind of very low single-digit decline for many years. We're starting to envision a world where we could be flat.

So, that's a goal of ours as we go forward over the LRP to get to flat pricing, which obviously helps revenue and helps all the way down through the rest of the P&L.

On the cost side, as you look at the traditional areas that we've talked about that have been impacted over the past couple of years, when you take freight, I'd say that's gotten better, but it's certainly not back to where it was. So, I'd say improving, but still elevated.

And obviously, the conflict in the Middle East has us focused on fuel and oil, as that runs the risk of increasing off of that. The inflation impact on our direct material costs, again, I would say, this seems - we're seeing signs of that stabilizing over time, but it's absolutely elevated from where it was. So, we still do see impact there.

And then the consistency of supply, it's not fully back to normal again, but it has improved. So, we're optimistic about the future that we see a better macro environment for cost of goods in that category, but we're not there yet, is what I would say.

And then relative to inventory, yes, I mean, I would say, we've been building inventory over the last two or three years, right? Our back order has been elevated higher than we have liked. The team's done a great job over the last 12 months of getting that more in line with where you’ve been historically.

So, I would not point to EE&O charges from our perspective as a big driver because we're still a bid and catch-up mode and making sure that we have the right amount of inventory to supply. So, I think we're focused on having the right inventory, but we're not at the point where we have too much inventory..

Mr.

Polark, have you finished with your questions?.

Yes. Thank you. .

Yes.

Can we take the last question?.

The next - our last question comes from the line of Matthew O'Brien with Piper Sandler. Please go ahead..

Morning. Thanks for squeezing me in here. I know you guys are a domestic company, but the performance in EMEA and APAC specifically were notable, and specifically APAC was really, really strong this quarter. Can you just give us a little more sense for - because I think those two collectively were roughly half your growth this quarter.

The durability of the performance in those geographies, is it a function of just more and more products into those areas, and so that's pretty straightforward, or is it share taking that's required, or what's really required to continue to deliver, maybe not this level of growth, which is really strong again, but a very strong growth going forward where that's a significant contributor to the topline for 2024, 2025 and beyond? Thanks..

Sure. Yes, starting with Europe is really not a - thankfully, it's not a new phenomenon for our team in Europe, which we also were referencing. Middle East, Africa, last year they grew 12%, and they're on track to grow another double digits again in 2023.

So, the European team, it's really a combination clearly of share-taking given the markets aren't growing double digits in Europe. And our European team has benefited from the portfolio of having many of the product launches that were talked about for second half of 2024 in the US already in that marketplace.

So, they're doing an excellent job of launching our innovative products, taking share in the more developed western European markets, and also building a pretty significant capability in the appropriate emerging markets in Europe. That also grows double digits.

So, the team's just done a really nice job of executing and driving our innovation with the launches. Asia Pac had another strong quarter this year. That region also will grow double digits, grew double digits last year and double digits again this year.

And I would say, the new news here is really just the strength of Japan is excellent in the quarter, and we expect another strong quarter for them in the fourth quarter. Again, it's all back to our people and our portfolio, and the team in Japan launching POLARx AGENT, AVVIGO will be the next platform to launch in Japan.

So, that team's done a really nice job. In China, I was just there for about a week, and that team continues to grow nicely, strong double digits, despite all the challenges that are well known in the marketplace, again, based on the strength of our portfolio, some of the alliances that we're doing, and our team in China is quite strong.

So, they continue to - so it's not a new event for us this quarter. Those regions have been delivering that for quite some time..

Thanks, Mike. And thank you for joining us today. We appreciate your interest in Boston Scientific. If we were unable to get to your question, or if you have any follow-up, please don't hesitate to reach out to the Investor Relations team. Before you disconnect, Costas will give you the pertinent details for the replay. Thank you..

Ladies and gentlemen, please note that a recording will be available in one hour by dialing either 1-877-344-7529, or 1-412-317-0088 using replay code 7607776 until November 2, 2023, at 11:59 p.m. ET. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect..