bernstein’s 34 annual strategic decisions conference/media/...market estimates: unless noted...
TRANSCRIPT
Bernstein’s 34th Annual
Strategic Decisions Conference
Mike Mahoney
Chairman and Chief Executive Officer
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Safe Harbor for Forward-Looking Statements
This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements may be identified by words like “anticipate,” “expect,” “project,” “believe,” “plan,” “estimate,” “intend” and similar words. These forward-looking statements are based on our beliefs, assumptions and estimates using information available to us at the time and are not intended to be guarantees of future events or performance. If our underlying assumptions turn out to be incorrect, or if certain risks or uncertainties materialize, actual results could differ materially from the expectations and projections expressed or implied by our forward-looking statements.
Factors that may cause such differences can be found in our most recent Form 10-K and Forms 10-Q filed or to be filed with the Securities and Exchange Commission under the headings “Risk Factors” and “Safe Harbor for Forward-Looking Statements.” Accordingly, you are cautioned not to place undue reliance on any of our forward-looking statements. We disclaim any intention or obligation to publicly update or revise any forward-looking statements to reflect any change in our expectations or in events, conditions, or circumstances on which they may be based, or that may affect the likelihood that actual results will differ from those contained in the forward-looking statements.
Non-GAAP Measures:This document contains non-GAAP measures (denoted with *) in talking about our company’s performance. The reconciliations of those non-GAAP measures to their most comparable GAAP measures are contained within this document including appendices attached to theend of this presentation.
Financial Disclaimers:
Operational growth rates are non-GAAP measures that exclude the impact of foreign currency fluctuations. Organic growth rates are non-GAAP measures that exclude the impact of changes in foreign currency exchange rates and the sales from significant acquisitions (Symetis SA, the American Medical Systems male urology portfolio and EndoChoice Holdings, Inc.) in the relevant periods.
We define Emerging Markets as including certain countries that we believe have strong growth potential based on their economic conditions, healthcare sectors and our global capabilities. Currently, we have 20 countries in our definition of Emerging Markets.
Market Estimates:
Unless noted otherwise, all references to market sizes, market share positions, and market growth rates are BSX internal estimates.
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Regulatory Disclaimers
Product Regulatory Disclaimer
Implantable Cardiac Monitor Device under development. Not available for use or sale worldwide.
EMPOWER™ Leadless Pacer Device under development. Not available for use or sale worldwide.
Apama RF Balloon Catheter Device under development. Not available for use or sale worldwide.
DrectSense™ Technology Device under development. Not available for use or sale worldwide.
Ranger™ Drug-Coated BalloonCE Marked. U.S.: Caution: Investigational Device. Limited by Federal (or U.S.) law to investigational use only. Not available for sale.
Drug Eluting Stent – Below-the-knee indication Device under development. Not available for use or sale worldwide.
Eluvia™ Drug eluting self-expanding SFA stentCE Marked. U.S.: Caution: Investigational Device. Limited by Federal (or U.S.) law to investigational use only. Not available for sale.
Lotus Edge™ U.S.: Caution: Investigational Device. Limited by Federal (or U.S.) law to investigational use only. Not available for sale.
ACURATE™ Self Expanding Valve PlatformCE Marked. U.S.: Caution: Investigational Device. Limited by Federal (or U.S.) law to investigational use only. Not available for sale.
WATCHMAN™ FLX Pending CE Mark. Not available for use or sale in the U.S.
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Our Mission and Values
CaringMeaningful
Innovation
High
Performance
Global
CollaborationDiversity Winning Spirit
Boston Scientific is dedicated to
transforming lives through innovative
medical solutions that improve the
health of patients around the world.
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What to expect from BSX
1. Living BSX values
• Transforming patients’ lives through meaningful innovation and a “WINNING SPIRIT”
2. Driving category leadership and expanding globally
• Gaining share globally: Portfolio innovation & compelling economic value drivers
• Emerging markets: Building scale & new capabilities to increase patient access
3. Enhancing long term outlook: entering into multiple large & high growth markets
• Diversifying into large high-growth markets with differentiated portfolio & capabilities
• Multiple launches into $16B of new market opportunities
4. Consistently delivering revenue and EPS growth in top tier of peer group
• 2015-2017: 3 year avg. organic revenue* growth +7% and EPS CAGR +14.5%
• 2018E-2020E: 3 year organic revenue* CAGR +5-8% and EPS CAGR +DD
5. Building shareholder value with disciplined capital allocation strategy: more to come
• Strong free cash flow* generation: estimated $6.3B+ cumulative in years 2018-2020
• Rigorous and balanced approach to M&A
6$0.3B, +14%
Boston Scientific At-A-Glance
2017 Revenue and Operational Growth*: (Total company: $9.0B, 8%; Organic Growth* 7%)
Rhythm Management
Interventional Cardiology
Structural Heart
Peripheral Interventions
$2.4B, +6%
$1.1B, +7%
$275M+
CRM Electrophysiology
$1.9B, +2%
Endoscopy
Urology & Pelvic Health
Neuromodulation
$1.6B, +12%
$0.6B, +14%
$1.1B, +12%
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Reported Revenue, Y/Y Operational* growth
Y/Y Organic* growth rates
18.9%
20.2%
22.3%
24.1%
2013 2014 2015 2016 2017
$7.1
$7.4$7.5
$8.4
$9.0
2013 2014 2015 2016 2017
+2%
+6%+8%
+12%
+8%
+4%+5%
+10%
+7%
$0.73
$0.84
$0.93
$1.11
2013 2014 2015 2016 2017
+11%
+15%
+11%
+20%
+13%
$1.26
High Performance Culture and Track Record
Adjusted EPS*RevenueAdjusted Operating
Margin*
Sales growth consistently > mktw/ avg. 7% organic* growth
’15-’17E
Delivering on marginexpansion goals
Consistent double digit adj. EPS* growth: 14.5% CAGR
’15-’17
25.0%
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Estimated Market Growth Rates
Diversified and Durable Growth Profile
Low
Growth
35%
Moderate
Growth
50%
Low
Growth
46%
Moderate
Growth
47%
2017 Revenue Mix
$9.0B
2020E Revenue Mix2012 Revenue Mix
$7.2B
High Growth Mkt (10%+ CAGR): SCS, TAVR, LAAC, EP, DBS, PI Drug Eluting, ICM
High
Growth
7%High
Growth
15%
Low
Growth
25%
Moderate
Growth
50%
High
Growth
25%
Low Growth Mkt (0 - 3% CAGR): Pacers, Defibrillators, DES
Moderate Growth Mkt (4 - 9% CAGR): Endo, UroPH, PI (ex DES & DCB), Int. Oncology, IC (ex. SH, DES)
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Strong Product Pipeline Supports
Long Range Plan Growth Targets
2020E / 2021E
Coronary Therapies
• SynergyTM DES line extensions
Structural Heart
• WATCHMAN FLXTM LAAC Device – U.S.
• ACURATE neo2TM Valve System –U.S./Japan
• ACURATETM Valve System – size matrix expansion
• LOTUS EdgeTM Valve** size matrix expansion
Peripheral Interventions
• RangerTM SFA DCB – U.S.
• SAVALTM Drug Eluting Stent BTK
CRM/EP
• Leadless Pacing/modular CRM – EU
• Force Sensing Catheter – U.S.
Neuromodulation
• SCS & DBS next gen – U.S./EU
Endo
• EUS portfolio & indication expansion –U.S./EU
• Pulmonary diagnostics
• AxiosTM stent expanded Indications – U.S.
Urology/Pelvic Health
• Multiple launches in Stone
• Multiple launches in Men’s Health
• Next gen Greenlight fiber for BPH
2018E 2019E
Coronary Therapies• SynergyTM DES line extensions• Multiple launches in Complex PCI
Structural Heart• WATCHMAN FLXTM LAAC Device – EU• WATCHMANTM LAAC Device – Japan• ACURATETM Valve System – Int’l
expansion• LOTUS EdgeTM Valve System** – U.S. &
EU
Peripheral Interventions• EluviaTM SFA DES - U.S.• Interventional Oncology Embolic Coils
CRM/EP• ICM Monitoring & Dx• Force Sensing Catheter – EU• Apama RF PVI Balloon – EU
Neuromodulation• Expanded DBS platform
Endo• SpyGlassTM Visualization System - next
gen • New launches in Infection Prevention• New launches in Biliary
Urology/Pelvic Health• LithoVueTM Ureteroscope next gen • 5 additional launches in Stone
Coronary Therapies
• 5 launches in Complex PCI
Structural Heart
• ACURATETM Aortic Valve System – OUS Expansion
• ACURATE neo2TM Aortic Valve System– EU
PI
• 3 launches in Arterial and Venous portfolio
CRM/EP
• ResonateTM CRT-D w/ HeartLogicTM HF Alert
• Rhythmia HDxTM Mapping System w/ LUMIPOINTTM
• DirectSenseTM Rx Catheter – EU/U.S.
Neuromodulation
• Spectra WaveWriterTM SCS System
• VerciseTM DBS system – U.S.
Endoscopy
• New launches in Infection Prevention (valves, kits)
• SpyGlassTM DS II Visualization System & cholangioscopy tools
• OriseTM Endoluminal Surgery portfolio
• AxiosTM Transluminal Stent – OUS expansion
Urology/Pelvic Health
• 4 launches in Stone
**Intend to launch Lotus in the U.S. & EU in 2019 pending final testing & regulatory approvals
All launches are WW, unless otherwise noted
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Compelling opportunity beyond 2020 for 30%+ adjusted OM*
2013 2014 2015 2016 2017 2020E
25.0%24.1%
30+%
22.3%
20.2%
18.9%
~+300 bps
SG&A
productivity
Accretive new
products
Launches &
commercial
scale of key
products
R&D efficiencies
5-10% annual
standard cost
improvements
Track Record of Driving Operating Margin Expansion
AND Significant Future Opportunity
28%
Longer Term
Goal
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Strong Cash Flow Generation Outlook
AND Limited Reserved Contingencies 2018-2020E
Strong Free Cash Flow*: 2016-2020E
Improved Ability to DeployCumulative Free Cash Flow*
** Based on adjusted free cash flow. Refer to non-GAAP reconciliations
80%90%
2015-2017: ~$4.7B
2018E-2020E: ~$6.3B
10%
Reserved Contingencies**
M&A or Returning Cash to Shareholders
20%10%
2016 2017 2018E 2019E 2020E
$1.6B
$1.7B
~$1.9B
~$2.1B
~$2.3B
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VenturePortfolio
Tuck-in M&A
Pipeline
Disciplined & Balanced Approach to M&A
2011 - 2012 - 2013 - 2014 - 2015 - 2016 - 2017 - 2018
Peripheral
Vasc.
LumenR
Portfolio of 30+ Companies
in Selected Spaces:
• Mitral repair / replace
• HF Diagnostic / Therapeutic• Venous• Electrophysiology
• Overactive bladder
• Micro stimulation• Benign Prostatic Hyperplasia (BPH)• Autonomic Modulation Therapy (AMT)
Securus Medical
Group
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✓ Tax court dispute concluded for tax years 2001 – 2010
✓ Exploring ways to reinvest this one-time non-GAAP benefit into our LT tax structure• Goal is to reduce our annual adjusted ETR in 2019+ below the 15% rate previously disclosed
✓ Expect to resolve tax years 2011 – 2013 before YE 2018 on the same basis
Finalization of IRS Stipulation of Settled Issues
Net payments expected to be approx. $600M
• Includes interest
• Payments are expected to be made within 3
months
One-time, non-cash adj. tax benefit of $70-80M to
be recorded in Q2
No impact to our 2018 estimated
annual adjusted ETR
• Will look to reinvest this
benefit in Q3 and Q4
• On a GAAP basis, the one-time, non-cash benefit is
$225-250M
• Non-GAAP benefit is
based on how reserves were originally booked
• Given timing, may
see variability in quarterly tax rates
• No change to our
2018 full-year adjusted EPS
guidance
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Recent Awards and Recognitions Reflect
Winning Spirit Culture that Drives Results
Recognized for progressive life/work
policies and programs
Ranked #35 based on employee ratings
Ranked #16 in the U.S.Ranked #3 on U.S. Large Company list
Scored 100% for the 4th consecutive year
Scored 100% for the 2nd year in a row
Highest recognition for Guard/Reserve
employee support
Ranked 6th inindustry category
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Appendix A
Non-GAAP Reconciliations
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Use of Non-GAAP Measures
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Appendix A: Non-GAAP Reconciliations
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Appendix A: Non-GAAP Reconciliations
Adjusted Free Cash Flow (in millions)Cumulative 2015-2017ꝉ 2017 2016ꝉ 2015ꝉ
Operating Cash Flow, as reported $ 3,299 $ 1,426 $ 1,182 $ 691
Plus: Proceeds on disposals of property, plant and equipment 29 - 29 -
Less: Purchases of property, plant and equipment 942 319 376 247
Free Cash Flow 2,386 1,107 835 444
Plus: Restructuring Payments 248 72 81 95
Plus: Earnouts 128 14 57 57
Plus: Special Tax Refunds/Credits (387) (239) (74) (74)
Plus: Legal Settlements 2,148 694 701 753
Plus: Other 194 81 22 91
Adjusted Free Cash Flow $ 4,717 $ 1,729 $ 1,622 $ 1,366
ꝉ - Certain prior year balances within our Consolidated Statement of Cash Flow have been updated to reflect the adoption of ASC Update 2016-15 and ASC Update 2016-18. Please refer to our annual report on Form 10-K for the period ended December 31, 2017 for additional details.
Adjusted Free Cash Flow (in billions)Cumulative
2018E-2020Eꝉ 2020Eꝉ 2019Eꝉ 2018Eꝉ
Operating Cash Flow, estimated GAAP $ - $ - $ - $ -
Plus: Proceeds on disposals of property, plant and equipment - - - -
Less: Purchases of property, plant and equipment - - - -
Free Cash Flow - - - -
Plus: Special Adjustments - - - -
Adjusted Free Cash Flow $ 6.3 $ 2.3 $ 2.1 $ 1.9
ꝉ - Components of the reconciliation of operating cash flow, as reported, are not currently available.
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Appendix A: Non-GAAP Reconciliations
FY2017 Net Sales Growth as compared to FY2016
As Reported
Less: Impact of Foreign
Currency Operational*
Less: Impact of Significant
Acquisitions Organic*
Interventional Cardiology 6.2% 0.1% 6.1%
Peripheral Interventions 6.5% -0.1% 6.6%
Cardiovascular 6.3% 0.0% 6.3%
Cardiac Rhythm Management 2.5% 0.2% 2.3%
Electrophysiology 14.5% 0.1% 14.4%
Rhythm Management 3.9% 0.2% 3.7%
Endoscopy 12.4% 0.1% 12.3%
Urology & Pelvic Health 11.8% 0.2% 11.6%
Neuromodulation 14.2% 0.1% 14.1%
MedSurg 12.5% 0.1% 12.4%
Total Company 7.9% 0.1% 7.8% 1.2% 6.6%
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The following is an explanation of the adjustments that management excluded from GAAP measures to calculate the following forward-looking non-GAAP financial measures:
Adjusted Gross Margin: Excludes from GAAP gross margin the impacts of forecasted acquisition-and divestiture- and restructuring-related charges or credits.
Adjusted SG&A: Excludes from GAAP SG&A the impacts of forecasted acquisition- and divestiture-and restructuring-related charges or credits.
Adjusted R&D: Excludes from GAAP R&D the impacts of forecasted acquisition- and divestiture-and restructuring-related charges or credits.
Adjusted Operating Margin: Excludes from GAAP operating margin the impacts of forecasted acquisition- and divestiture- and restructuring- and restructuring-related charges or credits, and amortization expense.
Adjusted Tax Rate: Excludes from GAAP tax rate the tax impacts related to forecasted acquisition-and divestiture- and restructuring- and restructuring-related charges or credits, and amortization expense.
Adjusted Free Cash Flow: Adjusts GAAP operating cash flow to include the impacts of forecasted capital expenditures and excludes the impact of estimated after-tax acquisition- and divestiture-, restructuring- and litigation-payments.
Please refer to our Safe Harbor for forward-looking statements disclosure in conjunction with any forward looking information presented within.
Appendix A: Forward-Looking Non-GAAP
Financial Measures