Good morning, and welcome to the Boston Scientific First Quarter 2024 Earnings Call. [Operator Instructions] Please note, this event is being recorded. .

I would now like to turn the conference over to Jon Monson, Senior Vice President, Investor Relations. Please go ahead. .

Thank you, Drew, and welcome, everyone, and thanks for joining us today. With me on today's call are Mike Mahoney, Chairman and Chief Executive Officer; and Dan Brennan, Executive Vice President and Chief Financial Officer. .

We issued a press release earlier this morning announcing our Q1 results, which included reconciliations of the non-GAAP measures used in the release. We have posted a link to that release as well as reconciliations of the non-GAAP measures used in today's call to the Investor Relations section of our website under the heading Financials & Filings. .

The duration of this morning's call will be approximately 1 hour. Mike and Dan will provide comments on Q1 performance as well as the outlook for our business, including Q2 and full year 2024 guidance, and then we'll take your questions. During today's Q&A session, Mike and Dan will be joined by our Chief Medical Officer, Dr. Ken Stein. .

Before we begin, I'd like to remind everyone that on the call, operational revenue 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 the majority stake investment in Acotec Scientific Holdings Limited and the acquisitions of Apollo Endosurgery and Relievant Medsystems, which closed in February, April and November 2023, respectively, as well as our acquisition of the endoluminal vacuum therapy portfolio from B.

Braun, which closed in March 2024. .

Divestitures include the endoscopy pathology business, which closed in April 2023. .

Guidance excludes the previously announced agreement to acquire Axonics, Inc., which is expected to close in the second half of 2024, subject to customary closing conditions. .

For more information, please refer to our Q1 Financial and Operational 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 law, which may be identified by words like anticipate, expect, may, believe, estimate and other similar words.

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

.

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

Factors that may cause such differences include those described in the Risk Factors section of our most recent 10-K and subsequent 10-Qs filed with the SEC. .

These statements speak only as of today's date and we disclaim any intention or obligation to update them, except as required by law. .

At this point, I'll turn it over to Mike.

Mike?.

Thanks, Jon. Thank you to everyone for joining us today. Our first quarter results surpassed our expectations, fueled by our innovative portfolio, including the nearly 90 new products we launched globally in 2023, the execution of our category leadership strategy and the winning spirit of our global team. .

In the first quarter '24, total company operational sales grew 15% and organic sales grew 13% versus first quarter '23, which exceeds the high end of our guidance range of 7% to 9%. Our strong growth continues to be diversified across businesses and regions. In the quarter, 6 of our 8 business units in all of our regions grew double digits.

We believe that most business units grew faster than their respective markets with differentiated portfolios and strong commercial execution, supported by healthy procedural demand. .

First quarter adjusted EPS was $0.56, which grew 21% versus 2023, which exceeds the high end of our guidance range of $0.50 to $0.52. First quarter adjusted operating margin was 26.2%. .

Turning to our second quarter and full year '24 outlook. We are guiding to organic growth of 10% to 12% for second quarter '24 and raising our full year guidance from 8% to 9% to 10% to 12%, reflecting momentum from our innovative portfolio, healthy procedural volumes and continued execution by our global team. .

Our second quarter '24 adjusted EPS guidance is $0.57 to $0.59 and we expect our full year adjusted EPS to be $2.29 to $2.34, representing growth of 12% to 14%. .

Dan will provide more details on our financials and I'll provide additional highlights on our first quarter, along with comments on our '24 outlook. .

Regionally, on an operational basis, the U.S. grew 13% versus first quarter with particular strength in EP, fueled by the launch of FARAPULSE midway through the quarter, as well as on our WATCHMAN ICTx Urology and Endoscopy business units. .

Europe, Middle East and Africa grew 13% on an operational basis versus first quarter '23. This above-market growth was led by exceptional performance in EP as well as double-digit growth in our Endoscopy, Urology and PI businesses.

We expect to continue to outpace the market, driven by continued broad-based momentum across our business and investment in emerging markets. .

Asia Pac grew 26% operationally versus first quarter '23, led by strong double-digit performance in all of our Cardiovascular business units. Japan grew double digits driven by AGENT DCB, Rezum and our Access Solutions products. China delivered excellent results, growing strong double digits with 7 of our 8 business units growing double digits. .

I'll now provide some additional commentary on our business units. In Urology, sales grew 10%, both operationally and organically versus first quarter '23, with double-digit growth in stone management as well as prosthetic urology. Rezum performed well in the quarter, both in the U.S. and internationally, and secured reimbursement status in France.

We look forward to closing the previously announced acquisition of Axonics now expected in the second half of 2024. .

Endoscopy sales grew 12% operationally and 10% organically versus first quarter '23. Strong first quarter results were driven by the breadth of our portfolio, underpinned by differentiated anchor products such as AXIOS and our single-use imaging products. .

Within the quarter, we also received CE Mark for our MANTIS Clip and NICE in the U.K. issued positive guidance for the ESG endoscopic bariatric surgery procedure, both expected to further momentum in our growing endoluminal surgery franchise. .

Neuromodulation sales grew 10% operationally and declined 1% organically versus first quarter '23. Our brain franchise grew high single digits in the quarter with low double-digit U.S. growth driven by our comprehensive directional stimulation offering enabled by image-guided programming. .

In the first quarter, our pain franchise grew low double digits operationally, but declined mid-single digits on an organic basis, with continued pressure in our U.S. SCS business. .

In the U.S., during the first quarter, we did receive FDA approval and recently launched the WaveWriter symptom (sic) [ system ] nonsurgical back pain indication and our next-generation FAST AutoDose. .

Importantly, the Relievant business continues to perform very well with steady expansion of payer coverage, and we expect sales from the novel Intracept procedure to grow about 50% in 2024. .

Peripheral Intervention sales grew 16% operationally and 11% organically versus first quarter '23. Double-digit growth in arterial was bolstered by our drug-eluting portfolio supported by the strength of clinical evidence and global commercial execution. .

In venous, we saw continued above-market growth from Varithena and clot management continued to perform well, in line with expectations. .

Our interventional oncology franchise grew strong double digits in the first quarter, driven by our broad offering of embolization devices, including the Embold coil family in cancer therapies. .

In the quarter, TheraSphere also grew double digits and data from the real-world study, PROACTIF, was presented, demonstrating positive outcomes in patients with intermediate and advanced HCC who were treated with TheraSphere. .

Cardiology sales delivered another excellent quarter with both operational and organic sales growing 18% versus first quarter 2023. .

Within Cardiology, Interventional Cardiology Therapy sales grew an impressive 13% organically versus first quarter '23. .

Growth in Coronary Therapies was driven by continued strength in our international regions, led by our imaging portfolio and AGENT DCB in Japan. .

In the U.S., we're also pleased with the ongoing launch of AVVIGO+, which is our AI-guided imaging platform. We also received FDA approval of our AGENT DCB in first quarter, and we expect to initiate a limited launch in the second quarter as we ramp supply following the earlier-than-anticipated regulatory approval. .

Our Structural Heart Valves franchise once again grew mid-teens in first quarter, led by ACURATE neo2, which continues to see growth from both new and existing accounts. We have now submitted for CE Mark for our next-generation ACURATE Prime valve, which we continue to expect to launch in Europe in 2025. .

WATCHMAN had another strong quarter, growing 19% organically and maintaining our market-leading share position. In the U.S., WATCHMAN FLX Pro moved into full launch and we received FDA clearance for the TruSteer steerable sheath, allowing physicians to achieve more optimal device positioning in the widest range of LAA anatomies. .

International growth was driven by ongoing momentum in -- ongoing momentum within the quarter, and we received approval and launched WATCHMAN FLX Pro in Japan and Canada, which will support continued growth in these markets. .

Cardiac Rhythm Management sales grew 5% organically in the first quarter '23. In the first quarter, our Diagnostics franchise also grew double digits, led by strong market adoption of our second-generation LUX-Dx ICM device. .

In core CRM, our low-voltage business grew mid-single digits and our high-voltage business grew low single digits. Our Emblem S-ICD continues to maintain its strong share position and we've seen very limited impact in Europe or the U.S. from a recent competitor's launch. .

We expect to remain the clear market leader in this space and look forward to the upcoming data presentation at HRS of MODULAR ATP, which is a pivotal trial studying the use of the Emblem S-ICD in conjunction with our EMPOWER leadless pacemaker to function as a single-chamber pacemaker, as well as to provide anti-tachycardia pacing when needed.

We anticipate FDA approval of the modular CRM system and stand-alone EMPOWER leadless pacemaker in '25. .

Electrophysiology sales grew 72% both operationally and organically versus first quarter '23 driven by the adoption of the transformative FARAPULSE platform. .

International first quarter sales grew 59%, with continued FARAPULSE account openings and robust utilization in Europe. .

U.S. first quarter sales grew 85% organically, propelled by the mid-first quarter launch of FARAPULSE. We have already made good progress entering to high-volume accounts, supported by compelling clinical evidence, commercial execution and investment in our supply chain. .

Early feedback on FARAPULSE has been extremely positive with rapid adoption from both RF and cryo users. Electrophysiologists appreciate FARAPULSE's unique safety profile, ease of use, effectiveness and efficiency of the procedure.

We expect our broad EP portfolio, coupled with our other AF solutions, to drive significant global growth in '24 and beyond. .

We also intend to extend our leadership in PFA by investing in innovation, clinical evidence and global capabilities. Within the quarter, we commenced enrollment of the NAVIGATE-PF clinical trial, studying integrated cardiac mapping with a FARAVIEW software and FARAWAVE non-enabled catheter, both of which are expected to launch in the U.S.

during the second half of the year. .

We also completed enrollment of Phase II in the ADVANTAGE AF clinical trial, studying our FARAPOINT device for CTI ablations, which is expected to launch in the U.S. in 2025. And we also anticipate data from Phase I of the ADVANTAGE trial for persistent AF to be presented in fourth quarter 2024. .

We also look forward to our clinical late-breakers at the upcoming HRS meeting in May, which aims to highlight the unique capabilities of FARAPULSE. .

innovating care to meet patient needs, empowering people and shaping a healthier planet while performing with integrity. While we always have more to do, I know that our values-driven culture and the commitment of our global teams to challenge -- to this challenge of what's possible will continue to raise the bar. .

In closing, I'm very grateful to our global employees who work every day to advance science for life. We remain committed to investing for the long term while delivering top-tier financial performance in 2024 and beyond. .

And with that, I'll hand over to Dan to provide more details on the financials. .

Thanks, Mike. First quarter 2024 consolidated revenue of $3.856 billion represents 13.8% reported growth versus first quarter 2023 and includes a 120 basis point headwind from foreign exchange, in line with our expectations. Excluding this $40 million headwind from foreign exchange, operational revenue growth was 15% in the quarter.

Sales from the closed acquisitions and divestitures contributed 190 basis points, resulting in 13.1% organic revenue growth, exceeding our first quarter guidance range of 7% to 9%. .

Q1 2024 adjusted earnings per share of $0.56 grew 20.6% versus 2023 exceeding the high end of our guidance range of $0.50 to $0.52, primarily driven by our strong sales performance. .

Adjusted gross margin for the first quarter was 69.8%, which includes an approximate 30 basis point year-over-year headwind from foreign exchange. Adjusted gross margin was slightly lower than anticipated, primarily driven by inventory charges and less favorable product mix due to increased levels of capital placements in the quarter. .

Despite a lower Q1, we continue to expect full year adjusted gross margin to be at or slightly below our 2023 full year rate, driven by increasing mix benefit from our new launches, lower inventory charges and the full recognition of our annual standard manufacturing cost improvements in the second half of the year. .

First quarter adjusted operating margin was 26.2%. We remain committed to expanding adjusted operating margin by 30 to 50 basis points in 2024 as we balance progress towards our long-range plan goal of 150 basis points of improvement from 2024 to 2026 with the flexibility to make critical investments to support key launches. .

On a GAAP basis, first quarter operating margin was 17.5%. .

Moving to below the line. First quarter adjusted interest and other expenses totaled $80 million. .

On an adjusted basis, our tax rate for the first quarter was 10.7%, which includes favorable discrete tax items and the benefit from stock compensation accounting. Our operational tax rate was 13.7% for the quarter. .

Fully diluted weighted average shares outstanding ended at 1.482 billion shares in the first quarter. .

Free cash flow for the first quarter was a negative $15 million with $164 million from operating activities less $179 million in net capital expenditures, which includes payments of $251 million related to acquisitions, restructuring, litigation and other special items. .

In 2024, we continue to expect full year free cash flow to exceed $2 billion, which includes approximately $800 million of expected payments related to special items. .

As of March 31, 2024, we had cash on hand of $2.3 billion, inclusive of the $2 billion -- 2 billion euro-denominated senior note offering completed on February 27, which we intend to use to partially fund the Axonics acquisition. .

During the first quarter, we repaid approximately $500 million of senior notes upon maturity, and our gross debt leverage was 2.5x as of March 31. .

Our top capital allocation priority remains strategic tuck-in M&A, followed by annual share repurchases to offset dilution from employee stock grants. In alignment with our acquisition strategy, we recently closed the acquisition of the endoluminal vacuum therapy portfolio from B.

Braun, which complements our existing endoscopy portfolio and is expected to be immaterial to earnings per share in 2024. .

Our legal reserve was $283 million as of March 31, a decrease of $94 million versus Q4 2023. And $71 million of this reserve is already funded through our qualified settlement funds. .

I'll now walk through guidance for Q2 and the full year 2024. We expect full year 2024 reported revenue growth to be in a range of 11% to 13% versus 2023. Excluding an approximate 50 basis point headwind from foreign exchange based on current rates, we expect full year 2024 operational revenue growth to be 11.5% to 13.5%.

Excluding a 150 basis point contribution from closed acquisitions, we expect full year 2024 organic revenue growth to be in a range of 10% to 12% versus 2023. .

We expect second quarter 2024 reported revenue growth to be in a range of 10.5% to 12.5% versus second quarter 2023. Excluding an approximate 100 basis point headwind from foreign exchange based on current rates, we expect second quarter 2024 operational revenue growth to be 11.5% to 13.5%.

And excluding a 150 basis point contribution from closed acquisitions, we expect second quarter 2024 organic revenue growth to be in a range of 10% to 12% versus 2023. .

We now expect full year 2024 adjusted below-the-line expense to be approximately $315 million. .

Under current legislation, including enacted laws and issued guidance under OECD Pillar 2 rules, we continue to forecast a full year 2024 operational tax rate of approximately 14% and an adjusted tax rate of approximately 13%. .

We expect full year adjusted earnings per share to be in a range of $2.29 and to $2.34, representing 12% to 14% growth versus 2023, including an approximate $0.04 headwind from foreign exchange, which is unchanged from our previous expectations. .

We expect second quarter adjusted earnings per share to be in a range of $0.57 to $0.59. .

For more information, please check our Investor Relations website for Q1 2024 financial and operational highlights, which outlines more details on Q1 results and our 2024 guidance. .

And with that, I'll turn it back to Jon, who will moderate the Q&A. .

Thanks, Dan. Drew, let's open it up for questions for the next 40 minutes or so [Operator Instructions] Drew, please go ahead. .

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

Great. Congrats on a fantastic quarter. I guess with my one question, it has to be on FARAPULSE and EP in general. The beat was substantial, both U.S. and OUS. The doc feedback we hear is phenomenal on FARAPULSE PFA in general. .

So I'd just love to get your view on what you're seeing in the field, the willingness to adopt the new technology, how fast it could go and how much of the guidance raise is just from FARAPULSE here and the opportunity. .

Yes. First, I want to shout out to early pioneering work by Chris O'Hara, the amazing work by the FARAPULSE team and really the work our team has done over multiple years. This is the most transformational product that I've seen in my career with the company. And Dr.

Stein can comment on clinically, but we continue to invest significantly in the current platform and in future products and a significant amount of clinical science to really widen the gap in PFA with our FARAPULSE system. .

And as I mentioned in the script, we're seeing very rapid adoption from both RF and cryo users. We continue to invest in our commercial footprint in the U.S. And we're able to meet the demand thus far with our talented supply chain teams. .

But we're also excited about the ongoing momentum in Europe, where we've been live for a number of years. But we continue to increase utilization in Europe and open new centers now that they have a bit more supply than they did in 2023. .

And we're also working diligently with our teams in Asia, in Japan and China, to train them up so they can also take advantage of FARAPULSE really kind of more of a fourth quarter 2025 story in Asia. .

So it really -- it's a remarkable platform and we're seeing excellent safety results, ease of use, rapid adoption and excellent effectiveness. Dr.

Stein, if you want to comment?.

Yes. Thanks. Thanks, Mike. Thanks, Robbie. Maybe the one thing I'd add, I'd just -- the caution here is against thinking of PFA in general, that every PFA system is very different and I think everyone really needs to be evaluated on its own.

So the results you get with PFA are just completely dependent on catheter design, on waveform and on dosing strategy.

And as Mike said, what people see when they use FARAPULSE clinically, when people see the data and we've now got published data including randomized clinical trial data, registry data, total data at well over 18,000 patients have reported at this point, and as Mike said, it just has compelling advantages in terms of safety, in terms of efficacy, in terms of ease of use and in terms of efficiency.

And that's what you see driving the rapid uptake, both in the U.S. and globally. .

The next question comes from Larry Biegelsen with Wells Fargo. .

I echo Robbie's congratulations on a really strong quarter here. Just with my one question, I feel compelled to ask a big-picture question here. You updated your LRP in September of last year to 8% to 10% organic growth for 2024 to 2026. The assumption at the time was that growth in '25 would accelerate over 2024.

You're guiding today to 10% to 12% organic growth. .

So the question is, do you still expect growth to accelerate in 2025? And how should we think about the 8% to 10% CAGR in the context of this strong 2024 guidance?.

Yes. So we outlined at Investor Day the 8% to 10% and our goal to be a very high-performing med tech company. And so we're super pleased with the first quarter results that also led to -- and the business momentum led to the guidance you referred to at 10% to $12. So we're pleased with taking our full year guidance up.

We did also receive FARAPULSE earlier than we expected. .

So at this point, we'll hold off and look at our 2025 guidance later in the year. But we're super pleased with the momentum that we have across all regions and all business units. But at this point, we're not going to commit to accelerating growth in 2025. Certainly, our aim would be to do that, but it would be premature to confirm that at this point. .

The next question comes from Rick Wise with Stifel. .

I guess I'd focus on perhaps ACURATE neo. It sounds like it's performing well internationally.

But can you maybe expand on where you are both internationally, the new product you spoke about and you're feeling about next steps in the United States? Are you feeling more optimistic, more cautious about timing? And just any incremental color would be just great. .

Sure. Thanks, Rick. We're very pleased with the results in Europe. We continue to grow above market in Europe and have excellent adoption across most major countries in Europe.

And importantly, as you said, we've invested quite a bit in this portfolio and we're excited about the Prime submission that we just recently did in Europe, which will enhance the valve further and provide additional valve sizes as well. So we expect that to go well in Europe. .

In the U.S., there's really not going to be any new commentary that we haven't stated publicly. We are waiting for the full year follow-up. We also will be working with the regulators, and we'll communicate in the future date the timing of the release of that clinical data and our next steps in the U.S. .

The next question comes from Joanne Wuensch with Citi. .

Another nice quarter. A question on operating margins. I think your LRP was 450 basis points over -- was it over the 2-year period, I would assume? But anyway... .

No, it was over -- it was -- not to interrupt you, Joanne. It was just over the 3-year period. 2024 to 2026 was 150 basis points. .

Excellent. Thank you for that clarification. But as I'm looking at the quarter delivery, it looks like some of the leverage came from R&D, some of it came from SG&A. I'm just curious how you're thinking about providing that leverage over the 3-year period. .

Yes. I think over the 3-year period, all lines will contribute. And I think it's really a great part of the history of the company and the kind of the DNA of the margin expansion story is that at any given point in time, all lines can contribute.

So gross margin at that 69.8%, I didn't love that this quarter, but I'm optimistic that, that improves through the year. .

But we said at Investor Day and we reiterated it on our January call, that gross margin probably is not going to contribute this year to the 30 to 50 points. So this year, it's more of an OpEx leverage story. But absolutely, in '25 and '26, I think gross margin can contribute. Recall, we used to be at 72.4% gross margin back in 2019.

We're maniacally focused on getting back and improving that from where it is today and have the plans to do that. .

So I think the summary is, as we look to improve the 150 basis points over the 3 years, it puts us kind of at the doorstep of 28% at the end of '26, which is a nice spot to be. It puts that 30% long-term goal that we have really in focus. And all lines of the P&L could contribute along that journey. .

The next question comes from Vijay Kumar with Evercore ISI. .

Congrats on really solid finish here. Mike, maybe my one question on the EP portfolio.

The 70% overall growth, 85% in the U.S., how -- can you give us a little bit of color on was there any stocking dynamic? How much of this was driven by the account openings versus a procedure uptake?.

And sort of related to that, does new tech add-on payment, does it matter where we are on TPT?.

Yes. So the results in the U.S., 85% as you mentioned, it was really a mid-quarter launch. So the teams moved pretty quickly to have some impact in the first quarter. And we look forward to good results, obviously, in the second quarter and the rest of the year based on momentum. .

So there's not any big onetime stocking. So this is driven by new account openings and I would say very rapid adoption of the technology, and therefore, continued utilization of the product once they have the platform.

We're also seeing multiple hospitals buying their second console, which also is a great sign because it shows the adoption and using it routinely every day. .

And so it's really new account openings and increased adoption once they start using the platform, and that's driving the U.S. results. .

And as I mentioned, in Europe, which I think is impressive, now that they have a bit more supply, they continue to open more accounts and increase the utilization of existing accounts with the FARAPULSE platform. .

On the TPT, we think it's a bit less significant for FARAPULSE, but it's something we'll continue to evaluate. And we'll provide you updates as we see them. Dr.

Stein?.

I described that, that's NTAP. .

I'm sorry. .

Yes. And Vijay, I think just important maybe to point out. First off, right, the NTAP applies to inpatient Medicare fee-for-service, which is really a small minority of AF ablations today. Having said that, we still do believe that FARAPULSE can use the proposed NTAP related to one of our customers. .

And actually, I think it's important from a physician perspective and a hospital perspective, that we're not in a position of having to create unique ICD-10 codes that are product-specific. That's really not helpful to either the physicians or the hospitals. .

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

Congrats again on a good quarter. I wanted to ask about the new DRG for ablation and left atrial appendage closure.

And then the overall LAC market, is that -- do you think that market can kind of sustain this 20%-plus growth through -- before the indication expansions? Or do you kind of need to see those indication expansions at some point sooner rather than later?.

I'll make comments and Dr. Stein. We're pleased with our WATCHMAN performance. We grew globally 19%. But keep in mind, that's coming off of nearly a 30% comp from first quarter 2023. And we still maintain, if not enhance, our strong share position. .

And we're excited not only with the share position but with the growth of WATCHMAN, but also some upcoming trials that can further highlight with OPTION and CHAMPION, which we believe, if successful, will significantly widen the market, TAM, for WATCHMAN. So Dr. Stein, if you want to comment on any of that and also the concomitant item. .

Yes. Thanks, Mike. Yes. So Travis, first on the trials, I mean, first of all, this is still a healthy market. This is still a very under-penetrated therapy when you look at patients who were at high risk for stroke and AF who stand to benefit from -- with the WATCHMAN procedure. .

The trials that Mike mentioned, right, the first one is the OPTION trial, that evaluates the use of WATCHMAN as an alternative to oral anticoagulants following ablation. And we hope to be able to present the results of that trial late this year or early next year.

Then that's followed CHAMPION, which is the all-comers trial versus the novel oral anticoagulants. Again, we expect that to report out in 2026. So these are now -- in the relatively near term that we're going to see those data points. .

Before that, right, I think it is worth talking a little bit about that concomitant DRG that's part of the proposed rule from CMS. We're really gratified to see that. This is something that's good for everyone. This is good for patients. This is good for hospitals.

When you think of valve outpatients who are undergoing an ablation procedure, first off, I'll tell you even back when I was doing these procedures, almost every patient who came in before wanted to know would they be able to stop their oral anticoagulants, and that is still true today. .

And when you think about it from a patient-centered perspective, right, being able to do this all at one setting and avoiding the incremental risks that you have in undergoing two procedures, it really just makes sense.

It also makes sense from a hospital standpoint when you just look at the procedural efficiencies and how that's going to help hospitals improve capacity to be doing more AF ablations and doing more WATCHMAN procedures over time. .

So we're excited to see this. We think this is good for patients. We think this is good for hospitals. And we look forward to getting the data out from trials like OPTION and CHAMPION that's even going to further increase the impetus for doing these procedures. .

The next question comes from Danielle Antalffy with UBS. .

I'll also say congrats on a really strong quarter. For my one question, I wanted to look at some of the, I'll call them, legacy businesses, not sure if that's fair to describe the maybe slower-growth businesses. .

I mean, a CRM mid-single-digit growth is very strong. Interventional Cardiology of double digits, very strong. Just curious about how to think about those sort of slower growth in Interventional Cardiology. I'm thinking more on the drug-eluting stent portfolio, obviously, and then CRM.

Can they sustain these kinds of growth profiles given that the end markets, or from a volume perspective, are arguably probably some of your slower-growth end markets? And what needs to happen from an innovation perspective to sustain that sort of growth?.

Thanks, Danielle. Really appreciate you asking that question. I would say the innovation has already happened. Let me just explain a bit more. We call it ICTx, our interventional cardiology business essentially. And years ago, that was dominated by drug-eluting stents. .

Today, drug-eluting stents, I think, represent close to 4% of our overall mix and likely will be 3% and 2% in the following years. So it's really a very small portion of Boston Scientific and a smaller portion of ICTx. .

So what's driving the 13% growth within ICTx is our advanced imaging portfolio. So you're seeing more and more patients come with more complex calcium and the growing adoption of IVUS imaging, especially with our AVVIGO+ platform to identify that and help the effectiveness of these procedures. .

So you're seeing wide adoption in Europe of our imaging platform, wide adoption in Asia and growing adoption in the U.S. based on this new platform. So it's really the imaging capabilities as well as our complex coronary capabilities to break calcium with Wolverine and our other products. .

And then in Asia, they've been very successful in launching our AGENT drug-coated balloon and we recently received approval for that. We'll have some minor benefit in the second quarter '24 from that product in the U.S., where we expect enhanced growth from that product in the second half of '24 and particularly in 2025. .

So the team there has really done a great job of completely revamping the portfolio and the growth trajectory of ICTx. Also included in that is our Structural Heart business in Europe. .

And CRM, that grew 5% and we kind of essentially grow in line, I would say, with the market with pacemakers and defibrillators. S-ICD business continues to be quite robust. But the bigger growth driver in our CRM business is our diagnostics business.

And we invested in that many years ago with our Preventice platform and also with our -- now our second-generation loop recorder ICM device. .

So we've really reshaped the portfolio significantly in both of those markets to continue to support the growth of the company. .

The next question comes from Josh Jennings with TD Cowen. .

Wanted to ask about the EP business and just opening an update on your view of the diagnostic mapping opportunity. You initiated the NAVIGATE-PF study where the software module is going to be in play. .

I guess the question is really are you seeing increased demand in these early stages of PFA launch for RHYTHMIA? And just how are you viewing the opportunity for Boston to take share in this diagnostic mapping segment of the EP world?.

Dr.

Stein, if you could take that one?.

Yes. It's still early in the launch. And I think one thing that I do want to sort of emphasize as you look at how things are playing out in the launch is we're really working with accounts to say don't change a lot of your workflow at the outset. Get used to using FARAPULSE, see how it works in your cases and then start modifying your workflow. .

So really, what we've seen early in launch really are deliberately not a big shift in whether or not people are mapping. Not a big shift in what mapping platform they're using. .

Now having said that, right, we have deliberately built our next-generation product and that's the FARAWAVE Nav-enabled catheter, right, that interfaces with the FARAVIEW software. And as I think everyone has seen, we've initiated our first human use studies of that earlier this year. .

That really will bring some unique advantages to people who want to use a navigation system as they're using FARAPULSE.

It is our desire and our belief, right, that there will be people who don't feel the need to use any mapping when they're doing pulmonary vein isolation with FARAPULSE who are adopting a very efficient workflow that's been used in a lot of centers in Europe. There will be others who want to continue to use a navigation mapping system.

We have no intention of forcing people to use our system. We're not going to lock it down. But this new software platform really does bring some very compelling advantages to people who will use it. .

The next question comes from Chris Pasquale with Nephron Research. .

How are you thinking about the opportunity for AGENT in the U.S.? And you mentioned you're still working to ramp up manufacturing capacity.

When do you expect to be in a position to move into a full launch with that product?.

Sure. So we have the NICE approval, excellent trial design by the clinical team and the product is doing extremely well in Japan and we have high hopes for the product has impact in the second half and more in 2025. .

So currently, we're really going through the contracting process with most of the big accounts in the U.S. and that's initiated. And that's going well, given there is a high unmet clinical need with in-stent restenosis and the deliverability that's been proven with AGENT. So there's high physician demand for it.

But we are going through the contracting process with the major health systems now, and you'll start seeing some sales in the second quarter. And we expect that to ramp more significantly throughout the second half of the year and accelerate more in '25. .

Yes. And Chris, and just to remind everyone, right? Our current label indication in the U.S. in-stent restenosis, that comprises approximately 10% of current PCI volume.

Internationally, we also see DCBs used and we believe there is a potential use case outside of in-stent restenosis, small vessel disease, bifurcation lesions, potentially even some acute coronary syndrome. And once we launch in the U.S., we are evaluating opportunities to expand the label.

And those expanded indications could potentially take us up to 20% of current PCI volume. .

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

I don't have perfect numbers here, but in looking at the U.S. EP number in Q1, it looks like you did somewhere around $40 million in FARAPULSE revenue between the generator and the catheter itself.

Is that roughly the right number?.

And then when I start to carry this out through the rest of the year plus the guidance increase, I'm getting something more like $300 million to even $400 million of FARAPULSE this year.

Is that around the right number? And can you manufacture enough product to support that?.

Yes. We won't confirm your math. At this point, we're not going to be breaking out FARAPULSE cases, numbers, number of accounts, dollars and so forth yet. If you recall back to the WATCHMAN days, we really waited till it was about close to $1 billion platform before we provided that based on the materiality of the company. .

But it's going extremely well. And importantly, we made significant investments in the supply chain 2 and 3 years ago to be ready for where we are today. And the supply chain team continues to perform extremely well, and they're able thus far to meet the demand in Europe and the U.S. and the future in Asia. .

The next question comes from Matt Taylor with Jefferies. .

I actually wanted to follow up on your AGENT commentary. Two small questions.

One is, can you talk about the materiality in Japan? And when you mentioned the indication expansions, could you talk about what those could look like and when we could see them in the U.S.?.

Just maybe really not a whole lot of new color in Japan. But they launched it last year and it was adopted very, very quickly and it's leading to the strong double-digit growth in Japan that we saw in the quarter. .

In terms of indication expansion, Dr.

Stein, do you want to take that one?.

Yes, Matt. Again, I think probably the first new indications we think about looking for would be small vessel bifurcation lesions. Still working through regulatory strategy on that. So not prepared to give you a time line for when we would initiate any of that work. .

The next question comes from Matt Miksic with Barclays. .

Just maybe one follow-up on the cadence for FARAPULSE this year in the U.S. and sort of how the RHYTHMIA adoption navigation kind of plays into that. Any color for what we can expect as you get into the rest of the quarters would be great. .

Thanks, Matt. Probably not too much new commentary here. I think in FARAPULSE overall, it's -- we're developing very strong capabilities to install, support and train doctors and really scale that up in the U.S., given the high demand for it. And we're able -- resource-wise, we put a lot of focus on that as we continue to expand that.

And there obviously are a lot of strong relationships we have with those EPs given our WATCHMAN experience and our CRM experience. So it's a lot of resource planning and training and executing every day in the field to open up new accounts. .

Dr. Stein gave some commentary on the mapping. So today, some accounts don't use mapping when they're driving maybe optimal workflow and many accounts are using their existing mapping system. And we don't intend to force our customers to move away. .

However, we do -- as Dr. Stein mentioned, based on what we've seen with the our mapping navigation system, we do think there will be incremental clinical benefits and productivity gains in using that. .

So we are starting to see an increase in RHYTHMIA orders, and we anticipate enhanced RHYTHMIA -- FARAPULSE mapping orders as we go through the second half of this year because there will be clinical benefits from it. But as Dr.

Stein mentioned, we really want to have hospitals choose the correct mapping system and FARAPULSE works excellent today with the competitors, but we would expect some enhanced benefit with ours. .

And just to verify, is there time for one last question?.

Yes, Drew. We'll take one more, please. .

That will come from Michael Polark with Wolfe Research. .

I want to ask the gross margin commentary, the inventory charges, Dan. Can you quantify the impact in the quarter? And what's the nature of those charges? What's going on? And the other thing I heard was increased mix of capital in the quarter.

I think it seems highly likely to be FARAPULSE generator driven, but if there's anything else underneath that comment, I'd welcome the color. .

Sure. Thanks for the question, Mike. We're not going to quantify the inventory charges, but it was much more than we're used to in a given quarter, and that's why we called it out and it has an impact. .

I will say a piece of it, not an insignificant piece of it, is kind of due to the success of FARAPULSE. So it's not kind of all bad per se relative to our results, but it's still inventory charges and it still reduced the gross margin in the quarter.

But that's what gives me the confidence and the optimism that heading into the rest of the year, we won't see inventory charges at the level that we saw them in Q1 as we go through 2024..

On the capital, yes, a piece of that is related to FARAPULSE. But we also -- as Mike mentioned, we also have a really successful launch in our IVUS business, which has some capital with it. And not insignificantly as well, we have some in the Urology business associated with the Lumenis. .

So it was probably led by the launch of FARAPULSE, but we did have a little bit more in some of the other launches in some of the other businesses with respect to capital.

But overall message should be 69.8%, a little lower than we would have liked, but still have a goal this year of getting back to that 70.7% or slightly below that for the year for gross margin. .

All right. Thanks, everyone, 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-ups, please don't hesitate to reach out to the Investor Relations team..

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