Q1 2026 Earnings Call Transcript

Good morning, and welcome to the Boston Scientific First Quarter 2026 Earnings Call. [Operator Instructions] Please 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, Bailey, and thanks to everyone for joining us. With me today are Mike Mahoney, Chairman and Chief Executive Officer; Jon Monson, Executive Vice President and Chief Financial Officer. During the Q&A session, Mike and John will be joined by our Chief Medical Officer, Dr. Ken Stein.

We issued a press release earlier this morning announcing our Q1 2026 results, which included reconciliations of the non-GAAP measures used in this release. The release as well as reconciliations of non-GAAP measures used in today's call can be found on the Investor Relations section of the website. Please note that on the call, operational revenue excludes the impact of foreign currency fluctuations, and organic revenue further excludes certain acquisitions and divestitures for which there is less than a full period of comparable net sales. Guidance excludes the previously announced agreement to acquire Penumbra, which is expected to close in 2026, subject to customary closing conditions.

For more information, please refer to the Q1 financial and operating highlights deck, which may be found in the Investor Relations section of our website. On this call, all references to sales and revenue are organic and relative growth is compared to the same quarter in prior year, unless otherwise specified. This call contains forward-looking statements regarding, among other things, our financial performance, business plans and product performance and development. These statements are based on our current beliefs using information available to us as of today's date. and are not intended to be guarantees of future events or performance.

If our underlying assumptions turn out to be incorrect or certain risks or uncertainties materialize, actual results could vary materially from those projected by the forward-looking statements. Factors that may cause such differences are discussed in our periodic reports and other filings with the SEC, including the Risk Factors section of our most recent annual report on Form 10-K. Boston Scientific disclaims any intention or obligation to update these forward-looking statements, except as required by law. In addition, this call does not constitute an offer to sell or the solicitation of any offer to buy any securities or solicitation of any vote or approval in connection with the proposed transaction with Penumbra.

Boston Scientific has filed with the SEC a registration statement on Form S-4 containing a proxy statement of Penumbra and a prospectus of Boston Scientific that contains important information about Penumbra, Boston Scientific, the proposed transaction and related matters. At this point, I'll turn it over to Mike.

Thanks, Lauren, and thank you to everyone for joining us today. The first quarter represented a solid quarter for Boston Scientific with total company organic sales growth of 9.4% versus our guidance range of 8.5% to 10%. First quarter adjusted EPS of $0.80 grew 6%, achieving the high end of our guidance range of $0.78 to $0.80 and Q1 adjusted operating margin was 28%. Turning to our outlook. 2026 has proven to be a more challenging year than we initially expected.

And to that end, we are guiding to organic growth of 5% to 7% for the second quarter and reducing our full year guidance to 6.5% to 8%, reflecting unanticipated headwinds and changing business patterns that I'll cover in more detail on this call. Our second quarter '26 adjusted EPS guide is $0.82 to $0.84, and we now expect our full year adjusted EPS to be $3.34 to $3.41, representing growth of 9% to 11%. I and our company does not take this change lightly. As in Boston Scientific take great pride in ourselves and consistently executing against the guidance and goals we provide.

Importantly, we remain convicted in the future of Boston Scientific. We have a strong global team committed to high performance, and we continue to invest in key new and existing markets which we believe will enable us to deliver on our fundamental goal of driving differentiated performance over the LRP. I'll now provide some additional highlights of our first quarter, along with some comments on our outlook. Regionally and on an operational basis, the U.S. grew 11% with double-digit growth in five out of our eight business units.

Europe, Middle East, Africa grew 1% operationally. Growth in the quarter was driven by FARAPULSE, coronary and vascular therapies in Neuromod, offset by the discontinuation of ACURATE and POLARx, largely impacting the EMEA region. Last year, we did announce our intent to discontinue POLARx Cryo catheter but have accelerated that timing given some recent safety events and the availability of nonthermal ablation technologies. As we look forward, we expect that growth in demand will continue to improve with the annualization of the ACURATE discontinuation in 2Q and ongoing momentum from FARAPULSE, WATCHMAN and other key products.

Asia Pac delivered a strong quarter and grew 12% operationally, led by double-digit growth in a number of countries, including Japan and China. First quarter growth in Japan was led by our differentiated PFA ecosystem with OPAL, FARAVIEW and FARAPULSE as well as strong reception of WATCHMAN FLX Pro. But within the quarter, we're pleased to have received PMDA approval for the de novo indication of our coronary drug-coated balled agent DCB can expanding the patient population eligible for this differentiated technology. China also delivered strong growth, inclusive of the impact of the VBP led by our Interventional Cardiology portfolio, particularly our imaging technologies.

We are making consistent progress against our FARAPULSE goals in a competitive market in China and received NMPA approval within the quarter for OPAL HDx Mapping system with FARAVIEW, further building out the PFA platform. Now some commentary on our business units. I'll start with urology. Urology did have a difficult quarter in Q1 as sales grew 1% organically, falling short of our expectations, driven primarily by the stone management and single neuromodulation businesses.

Within Stone, underperformance was driven by China VBP as well as some key product gaps in the core Stone portfolio. We expect the recent FDA approval for insurers to unlock value within our StoneSmart ecosystem alongside LithoVue Elite and we also anticipate launching additional new products in 2026 and including insulin [ urethoscope ] later this year. Our sacral neuromodulation business continue to see impact on commercial model disruption. And importantly, within first quarter, we have hired and trained a significant number of new sales and clinical reps we do anticipate improvement in the Pelvic Health franchise throughout the year as S&M commercial organization capability stabilized, along with the addition of Ecoin Tibial Nerve stem with the closure of Valencia Technologies in April.

We expect our Urology performance to improve throughout the year. However, we now expect our full year uro growth to be low to mid-single digits in 2026. Endoscopy sales grew 7% organically, with strong results across the business and better-than-anticipated performance from AXIOS as we're able to ramp supply and available product sizes. As we look to the second quarter, we will continue to see some impact from AXIOS while also navigating other transient supply chain disruptions in endoscopy. Importantly, we expect improvement in the second half of 2026 as the underlying business is very strong, and we anticipate resolution of the supply chain issues.

Neuromodulation had a strong quarter with organic sales growing 15% with our comprehensive portfolio growing low double digits, excluding the impact of the outlook. Our paint business grew mid-teens, inclusive of a strong quarter of outlook, as I mentioned, which closed at the end of January. Intercept continues to perform well, supported by compelling 5-year data demonstrating the long-term efficacy and cost effectiveness of this treatment for clinic low back pain. In DBS, we saw continued adoption of the Cartesia X leads an accelerating uptake of the Illumina 3D programming algorithm in the U.S.

Cardiovascular delivered organic sales growth of 11%. Within those businesses, we'll start with ICVT, Interventional Cardiology Vascular Therapies grew organic sales of 8%. This business grew 9% organically, driven by double-digit growth in our ordinary therapies franchise, with strength in agent and ongoing momentum with our Imaging portfolio. And earlier this year, we completed enrollment in our fracture trial, studying the size of the IVL device in coronary arteries with data to be presented at EuroPCR on May 19 and we continue to expect launch in the U.S. in the first half of '27. Our Vascular Therapies business had a nice quarter, growing 7% organically driven by double-digit growth in TCAR and [ Bartina ] and this is offset by a large VBP impact on their arterial business in China, which is expected to annualize in second quarter.

We expanded our launch with our seismic peripheral IVL for above the knee with positive physician feedback on performance. We expect to ramp our manufacturing supply chain over the course of the year and continue to anticipate launching our below-the-knee indication in the second half. In first quarter, positive data from [ Hipyto ] was presented at [ ACC ] evaluating eco clot anticoagulation versus anticoagulation alone, providing new clinical evidence that can help physicians make more informed decor patients with acute pulmonary embolism. We remain excited about the opportunity to ask the number team and highly differentiated portfolio of Boston Scientific.

We anticipate that the deal will close in the second half of '26, subject to the Penumbra shareholder vote on May 6 and the receipt of the remaining regulatory clearances. Our Interventional Oncology business had a nice quarter with organic sales growing 15% driven by our broad offering of cancer therapy technologies. Within the quarter, we received FDA clearance of any day dosing and niche limited market release. Any day dosing is enabled by the TheraSphere 360 management platform line positions to schedule treatments on more days of the week and offering more streamlined ordering and operational efficiencies.

Cardiac Rhythm Management sales declined 3% in the quarter. Our low-voltage business saw some impact in the quarter as we navigated our physician advisory and came up against a tough comp within our first quarter of 2025 change-outs. On the high-voltage side, we saw some impact from the Middle East complex impacting this particular business. In first quarter, our diagnostics franchise grew low double digits with continued strength across our broad diagnostic portfolio.

And overall, we anticipate that our CRM business to return to growth in the second quarter and expect low single-digit growth in the year, supported by our full launch of the [ Lutroin ] second quarter within the U.S. Turning to WATCHMAN. WATCH grew 19% organically in the first quarter, which was below our expectations, with pressure on volumes in the U.S. as the quarter progressed, we believe this reflects the annualization of the initial concomitant adoption tailwind and a softening in stand-alone WATCHMAN cases driven by hospital capacity related procedure prioritization and evolving reimbursement dynamics.

Importantly, we remain focused on expanding physician and patient education within the approximately 5 million patient indicated population today. And we expect data from CHAMPION to support a return to 20% market growth over the LRP. In late March, CHAMPION data was presented as a late breaker ACC with the trial achieving all primary and secondary endpoints, reinforcing the safety and efficacy of WATCHMAN and highlighting the high burden of clinically relevant bleeding on oral anticoagulation. As the next step, in addition to submitting for a label update, we are working with medical societies to support consideration of changes to LAAC guidelines using the totality of WATCHMAN clinical evidence ahead of any update to the National Coverage Determination.

We also have additional data being presented at [ HRS ] this weekend, a champion post-ablation analysis which will provide further insights on this patient population. Across the globe, the results from CHAMPION provide important evidence to support the expansion of the patient population eligible for WATCHMAN over time in large markets including the U.S., Japan, China and Europe. For full year '26, we now expect global WATCHMAN growth to be mid-teens, with low to mid-teens in the U.S. In the U.S., while concomitant demand continues to strengthen, we anticipate overall WATCHMAN growth to decelerate with tougher comps and expect stand-alone WATCHMAN procedures to improve over the course of the year as it takes time for the totality of this clinical evidence to translate into [indiscernible] practice.

We remain very confident in the long-term outlook of the business, supported by great clinical evidence, market development and new product innovation. Turning to EP. Organic sales grew 22%, 18% in the U.S. and 30% internationally. International growth was driven by our innovative portfolio, including our expanded OPAL Mapping footprint in catheter utilization with strong double-digit PFA growth in Europe in a highly competitive environment supported by the launch of FARAPOINT.

U.S. growth was driven by continued expansion of the OPAL, strong catheter utilization in FARAPOINT, our PFA focal point catheter, which is performing ahead of our expectations and has moved into full launch. Looking ahead, we now expect our global EP business to grow approximately 10% in 2026. And within the U.S., we are updating our full year expected growth to be in the mid-single-digit range. with continued strength internationally at plus 20%, inclusive of full year impact of approximately $35 million from the discontinuation of POLARx. This outlook is the change from previous commentary but we feel is prudent and reflects ongoing competitive dynamics, offset by strength in our evolving FARAPULSE PFA catheter and mapping portfolio.

We are highly confident in our ability to maintain our leadership position in PFA both in the U.S. and internationally through investment in commercial capabilities, ongoing clinical evidence, our expanding mapping footprint, in an impressive next-generation catheter watches included our FARAWAVE Ultra in the first half of '27. And this weekend, AVANT GUARD cited FARAPULSE new patient population of drug-naive persistent a patients will be presented as a late breaker at HRS. Additionally, we will see data from our first-in-human ELEVATE PFA study setting FANAFLEX, which is our large global map in a blade catheter for more complex arrhythmias.

We anticipate initiating in our IDE later this year and continue to expect launching FANAFLEX in the U.S. in 2028. We've in closing, I'd like to share again my confidence in our team and the future of Boston Scientific. While this year has proven to be more challenging than we anticipated, we believe Boston Scientific is competing in the right markets, with a WAMGR growth of approximately 8%, we continue to be uniquely positioned to drive differentiated top line growth. We will continue to do this through strategic internal innovation, clinical evidence, external DC and M&A investments, along with our disciplined approach to expanding operating margins.

All of which have resulted in our track record of delivering double-digit adjusted EPS growth. I'm very grateful to our talented team of global employees who work every day to advance financial life and I'm confident in the sustainability of our top-tier financial performance. With that, I'll hand it over to Jon.

Thanks, Mike. First quarter consolidated revenue of $5.203 billion represents 11.6% reported growth versus first quarter 2025 and includes a 220 basis point tailwind from foreign exchange, which was in line with our expectations. Excluding this $104 million foreign exchange tailwind, operational revenue growth was 9.4% in the quarter. Organic revenue growth was also 9.4%, in line with our first quarter guidance range of 8.5% to 10%.

Q1 2026 adjusted earnings per share of $0.80 grew 6% versus 2025, achieving the high end of our guidance range of $0.78 to $0.80. And results include an approximate $0.01 headwind from FX. Adjusted gross margin for the first quarter was 70.5%, which represents a 100 basis point decline versus the first quarter of 2025 and primarily driven by tariffs as well as inventory charges related to the discontinuation of our POLARx Cryoablation system. We now expect full year 2026 adjusted gross margin to be slightly below full year 2025, largely driven by lower-than-expected product mix benefit and incremental investments in our global supply chain and quality systems.

First quarter adjusted operating margin was [ 28.8% ]. We continue to expect full year 2026 adjusted operating margin expansion of 50 to 75 basis points, driven by OpEx leverage as we drive strong spend controls and continue to implement efficiency initiatives and optimize our organizational structure. On a GAAP basis, first quarter operating margin was 21.2%. Moving to below the line.

First quarter adjusted interest and other expenses totaled $112 million, in line with expectations. And our adjusted tax rate for the first quarter was 11.7% and which was in line with expectations and includes a benefit from stock compensation accounting. Fully diluted weighted average shares outstanding ended at 1.495 billion shares in the first quarter. And free cash flow for the first quarter was $170 million with $348 million from operating activities, less $177 million in net capital expenditures.

We now expect full year 2026 free cash flow to be approximately $4 billion. As of March 31, 2026, we had cash on hand of $1.453 billion and our gross debt leverage ratio was 1.8x. Our top capital allocation priority remains strategic tuck-in M&A, followed by share repurchase. In alignment with this strategy, we recently closed the acquisition of [ Valencia ] Technologies, which complements our Urology business, and we expect our announced acquisition of Penumbra to close in the second half of 2026. In addition, as previously disclosed, our Board of Directors recently approved an additional $4 billion under our existing share repurchase program bringing our total authorization to $5 billion.

While we have been restricted from being in the market, we intend to repurchase approximately $2 billion of our shares during the second quarter subject to market conditions and applicable securities loss. I'll now walk through guidance for Q2 and full year 2026. We now expect full year 2026 reported revenue growth to be in a range of 7.0% and to 8.5% versus 2025, excluding an approximate 50 basis point tailwind from foreign exchange based on current rates, we expect full year 2026 operational and organic growth to be in the range of 6.5% to 8.0%. We expect second quarter 2026 reported revenue growth to be in a range of 5.5% to 7.5% versus second quarter 2025 excluding an approximate 50 basis point tailwind from foreign exchange based on current rates, we expect second quarter 2026 operational and organic growth to be in a range of 5.0% to 7.0%.

We continue to expect full year 2026 adjusted be line expense to be approximately $440 million and under current legislation, including enacted laws and issued guidance we now expect a full year 2026 adjusted tax rate of approximately 12.0%. We now expect full year 2026 adjusted earnings per share to be in a range of $3.34 and to $3.41, representing growth of 9% to 11% versus 2025, including an approximate $0.04 headwind from foreign exchange. We expect second quarter adjusted earnings per share to be in the range of $0.82 to $0.84. In closing, we recognize that revising our guidance is a significant decision and not one that we made lightly.

We believe our updated guidance appropriately reflects the unanticipated headwinds, and we remain highly focused on executing our full year 2026 guidance of 6.5% to 8% organic revenue growth 50 to 75 basis points of adjusted operating margin expansion and 9% to 11% adjusted earnings per share growth. For more information, please check our Investor Relations website for Q1 2026 and financial and operational highlights, which outlines more details on first quarter results and 2026 guidance. And with that, I'll turn it back to Lauren, who will moderate the Q&A.

Thanks, Jon. Bailey, let's open it up for questions for the next 35 minutes or so. In order for us to take as many questions as possible, please let yourselves to one question. Bailey, please go ahead.

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

Great I wanted to ask whether Mike or Jon, came 3 months ago on the fourth quarter call and provided the guidance. And I think a lot of people were expecting a lowering today based on some of the third-party data we've seen, so it's not that surprising. But I guess the question is really what happened during first quarter that really prompted it? When did you realize it?

And what gives you the confidence given there's going to be some deceleration throughout the year that the LRP is still valid and that growth can improve in 2027 here.

Yes. Thanks, Robbie. I would say first quarter, we're overall, we're pleased with that result. The 9.4% growth and on track for our margin and EPS.

Essentially, what we saw, there's really three main contributors to the takedown of the guy, which is not in my happiest moment and very disappointed in that. as we're a company that consistently delivers on our commitments. So this is a guide down that we quite think are not proud of, but we think it's the right thing to do. And that reflects the current environment and the loss of the proper prudent guided deal. But we can talk about the future of the company, but speak and then at the time the takedown particularly, it's really focused on the three areas: primarily EP, WATCHMAN and Urology.

And if we start with WATCHMAN, we saw a very, very excellent growth engine on 2025, we grew almost 30%. We saw a really strong consistent volume trends in January. So there is no signal to any WATCHMAN weakness until we leased out the early days of kind of early to mid-February, we started to see declining WATCHMAN volume for the first time. And as we did the analysis on that, we can talk more about it.

Essentially, it is a strong increase in concomitant growth in a deceleration of stand-alone WATCHMAN. And we go through all those details now. That's the first primary one. So we see a declining WATCHMAN trend growth throughout fourth quarter, the first quarter and therefore, in our guide, we think it's prudent to assume that in that guidance range.

We can talk more about the rationale and reasons for that. The second primary reason is EP, our EP business had a very nice first quarter. we are absolutely confident that we will remain the PFA market leaders in the U.S. and globally in '26. And we have a very rich cadence, just an R&D review last week with the team. The launch of the next 2.5 years, that's very impressive. But that being the case, even though the market is strong, we didn't lose a bit more share than we anticipated.

So again, what we did in this guide anticipated greater share erosion than we're particularly seeing and still allows us to be the market share leader in PFA, but we're guiding globally to approximate 10% [ NEP ]. And the last reason making up is urology, which I mentioned that difficult first quarter, [ Neuro Mine ] had a real tough year a couple of years ago, and that business is growing double digit. I'm not saying euro is going to return to double digit right away. But right now, we're suffering in our core stone business and in the [indiscernible] neuromodulation area.

We have very active execution plans in place to fix sickle neuromodulation, which we believe will be better as the years that the quarters go on. And then, of course, now we have some key product launches that will impact that business and help it quite in 2027. But it's essentially going to be a below market year in urology. So those are the three contributors overall to the guide down. Never all done very objectively.

We think it's prudent. And we think it's the best guide to provide, to give shareholders confidence and to set up the business the right way. As you look forward in the LRP, we're not going to make a comment on the LRP top line growth at this point. We feel that will be under some slight pressure clearly given the 2026 guide.

We will update that more in the future when we go through our strat plan process. We are comfortable with the 150 basis points of margin improvement in LRP, and we're comfortable with delivering double-digit EPS growth of the LRP. And I guess, lastly, that the long answer I'm giving you is we compete in a 8% WAMGR market. We almost always grow at or above this WAMGR.

And this setup for '26 would show us at market at the high end of our guide or below that WAMGR. This is not Boston Scientific, it's not what we do. And in '27, we have a number of key product launches, we'll have far easier comps than we do this year. And we're very bullish about '27 and '28, we can detail that more.

But start from long response, hopefully, that helped a little bit.

Our next question will come from Joanne Wuensch with Citi.

Joanne Wuensch: Mike, I think you just summarized what everybody needed to hear in that answer. Can you sort of walk us through a little bit how you're thinking about the quarters over the next couple of quarters, particularly for EP, WATCHMAN and Uro I'm sort of trying to think about the gist of Robbie's question. How do we get from first quarter to fourth quarter and then the jumping off point into 2027. And I just want to make sure those are somewhat set up appropriately.

I'll take a shot and Jon you can clean up the part of the math here. So we think second quarter is our toughest quarter of the year. We had a nice first quarter. Second quarter, we had very challenging dollar sequential quarterly growth comps on a dollar basis, in particular with EP and WATCHMAN.

So that's our toughest quarter there. And so we also think with some of the impacts of some transient trends and [ EP and endo ] and some other areas that will be fixed for the second half of the year. So we think second quarter is our toughest quarter, that's the guide, [ 5% to 7% ] and the full year guide, as you know, is 6.5% to 8%. Jon, do you want to touch on any sequence and more.

Yes. Thanks, Joanne. So maybe stepping through WATCHMAN and EP. So you heard Mike mentioned in his prepared remarks, we expect global EP to grow mid-teens for the year.

So that would imply Joanne low double-digit growth for the rest of the year for our global WATCHMAN business. So that's how you should think of WATCHMAN for the rest of the year. Global EP at 10% for the year implies mid- to high single-digit growth for the rest of the year. So if you then think of the rest of the business, as mid-single-digit growth.

That's about where we landed in the first quarter. Expect to see some acceleration there within urology, CRM to pick up. So that's how you should expect the phasing as we go through the year, say, relatively consistent, slight uptick in the second half. They call it roughly 7%.

And as we see Uro and CRM drive better growth as we move through the year.

Our next question comes from Larry Biegelsen with Wells Fargo.

I guess on EP, just maybe a little bit more color on the market and share assumptions, how they've changed. Where is the share pressure coming from Mike? And on U.S. EP, sales have been flattish for the past 3 or 4 quarters.

Should we expect relatively flat U.S. EP sales for the rest of the year? And what does that mean for 2027, I think people are trying to understand when you can get back to market growth in EP?

Yes, I think John gave some of those numbers for the year, we expect Global to be approximately 10%. In the U.S. particularly, we expect mid-single-digit growth for the U.S. business, which implies a flat 2Q to 4Q. That's a low single digit -- in international about 20%. So call it flat to low single-digit U.S. mid-single digit for the year. .

And then -- so that's the story there. What's different about it from our previous commentary where we've said we were a growth at market. We're disciplined and we're disappointed to bring that guide level down, but we think it's appropriate. The aim to be and we have high comments that will maintain PFA leadership in the U.S. internationally, globally in '26 and throughout the LRP.

And we are very excited about the product launches that we have, in particular, the three big ones coming up, '27 are third generation FARAPULSE, differentiate [indiscernible] platform, and we think a very disruptive FANAFLEX platform all in the next 2.5 years. But today, we are seeing increased competition. There's three other large players in the marketplace. We've made commentary before Medtronic continues to be a solid competitor, J&J is enhancing their footprint in PFA and Abbott is early stages of launch in the U.S.

In Europe, we really proud of our European performance for all three of those companies are performing, and we continue to grow that a 20%-plus clip where we quite frankly have a quite advanced mapping capability and platform and doing very well there. So we do expect a little bit more share [ erosion ] than we've anticipated in the past in previous guidance, but we think this is the appropriate guide to do and allows us to continue that PFA market leadership while we're bringing that platform forward. And importantly, our makers, which we've made a massive investment over the past 2.5 years continue to get stronger and stronger every quarter.

We continue to install more and more OPAL mapping platforms. Our maps get more sophisticated, and we continue to add new catheters to the mix along with FARAPOINT, which we recently launched. So we'll continue to grow the Matthew platform, continue to invest in that commercial capabilities, you'll see more direct investments in WATCHMAN in particular. So we'll invest both commercially and marketing, and they're both our WATCHMAN and our EP businesses.

But we're confident we'll maintain PFA leadership, but we are going to see a bit more share than we anticipated earlier in the year.

Our next question comes from Rick Wise with Stifel.

I was hoping you would might talk a little bit more about the WATCHMAN outlook in more detail. I mean, CHAMPION data, obviously, was excellent. But perhaps there was more controversy about the data, the reaction to the data than I expect didn't perhaps than you expected. How are you addressing some of the concerns that you were left how are you changing the narrative about the risk of WATCHMAN?

And maybe how specifically are you going to tackle the growth rate factors that impacted this quarter?

Yes, I'll ask Ken to add comments here. First on some of the factors. And first of all, we're very proud that we essentially created this category, leading clinical science created a concomitant category. And this category grew 30% last year, and we expected mid-teens growth this year.

And we're seeing the evolving practice patterns as this product continues to evolve with great clinical data and changing practice patterns. So with that extraordinary growth in [ AF ] ablations and WATCHMAN, we are seeing some practice pattern changes that I highlighted that we saw really become more acute in February. We're seeing terrific concomitant demand. Bottom line, we are seeing pressure in kind of the stand-alone WATCHMAN implant business, which historically has not been a challenge for us.

Those challenges with a stand-alone WATCHMAN area a bit multifactorial. You've seen a bit more switch to the EP from the interventional cardiologist as the venture cardiologist is less exposed to the concomitant procedure. They've got more structural art procedures to do and there's been the reimbursement cut in that area. But you're seeing strengthening amongst the EP physician group.

So those are some of the trends that have really moved it just recently more towards -- a bit more towards EP, a bit more towards concomitant and less than stand-alone. And that's also -- our customers are also adapting to operational workflow. They're adding new labs. They're moving to ASCs because they've experienced multiyear growth of, call it, 25% in WATCHMAN, multiyear growth of 20%, 25% in ablation.

So there's significant demand and pull plus the approval of new structure of our procedures. So the hospitals themselves are investing in labs, particularly concomitant AFib are money winners for hospitals. So they're making the investments, but they're also moving through their own workflow challenges. You've seen a consistent backlog for WATCHMAN, which I guess which is good and high demand for super AFib.

So on what are we doing to make it better? We're doing a lot right now to make it better. The most impactful thing quickly is commercial investments. We are putting more focused commercial investments directly at the WATCHMAN business.

Today, we have a lot of strength because the same territory rep in many cases, is serving both the EP customer EP and WATCHMAN, where we're going to augment them with additional focus on WATCHMAN specifically, and put a little more emphasis and focus directly at that interventional cardiology call point. And we'll be making quite a bit of marketing investments to really highlight the outstanding data that we believe the first study of its kind that met its primary endpoints and champion that can get detail. So commercial investments, Medicare investments, marketing investments, position activation investments to all to leverage CHAMPION.

It's also important to note that Ken can talk and sorry, too much coffee. Today, 25% of all watchword procedures are oncoming. We do expect that to grow to 50% over the LRP. So that view hasn't changed.

What we've seen is an offset a bit in standalone watchman procedures. Ken, do you want to talk more about that?

Yes. I don't know too much to add,. Again, I think the first thing I'd say it, in terms of question, it just takes time to disseminate data and to educate physicians on the results of things like CHAMPION. And of course, we were not able to get out and pre-promote ahead of the data release and ahead of the publication in the New [ Northera ] Journal of Medicine.

Having said that, the trial at all of its primary safety and efficacy and end points and all of the important secondary endpoints, we do still anticipate that we will get a big labeling, updated guidelines and eventually an updated national coverage determination. It just takes time for that to play through. I think the other thing just to reiterate what Mike said, in parallel with that, we see the opportunity to continue to improve some of the operational efficiencies that are required just to unlock more operational capacity for handling these procedures. We see hospitals building out more dedicated to these procedures, the move of simple relations to ASCs will further unlock capacity.

And again, just a high level [ like stay ], not only see a very large opportunity for continued growth in concomitant procedures. And maybe the one statistic I'd add to what Mike said, just to remind everyone, roughly 50% of ablation for AFib in the U.S. today are done in patients who are at high risk for stroke, [ Chagas ] score of 3 or higher and who are potentially candidates for the common procedure.

Our next question comes from David Roman with Goldman Sachs.

I wanted maybe just to toggle over to the other 70-plus percent of the business that's non-EP in WATCHMAN. And I appreciate some of the dynamics that you walked through on the call. But maybe you could unpack a little bit for us in more detail kind of where you see that cohort of the business going, some of the specific product launches that you expect to see in '26 and '27 in that we should be watching? And the extent to which that piece of the business can get back towards kind of an 8% growth level where it was, call it, before the accurate discontinuation.

Sure. Thank you for the question, David. The area that's not getting the spotlight on it is ICVT, [indiscernible] Cardiology Vascular Therapies Group, which again has a one-timer accurate, which will anniversary thankfully in May, which will help that business. But that business is extra very high level, driving the double-digit growth in China despite VBP, a very global business.

Agent is continuing in our imaging businesses, in particular, continue to exceed our internal expectations, which is terrific. And we're excited about the seismic launch that it's really been in the small scale thus far within our [ Copal ] Vascular business has been very well received by physicians and that fracture trial will read out at PCR in a month or so. And we expect to have that coronary approval as we enter 2027. And we're focused right now on building up the manufacturing supply chain to enable a meaningful launch for seismic for both coronary and below the knee and above the knee applications in '27. So they also have a number of kind of singles than doubles key product launches in vascular to continue to widen that portfolio out.

The Interventional Oncology business grew mid-teens and I talked about a key workflow launch that they additionally had along with some second M&A that they're executing on. And hopefully, the shareholder vote goes positive for us with Penumbra on May 7. And we're really excited about that team, which is extremely talented and brings a really differentiated portfolio and gaps that we have across Boston Scientific in that category. So particularly in combination, stand-alone, but [indiscernible] that business did extremely well in the future, ideally with Penumbra, that's a very unique, powerful growth driver for the company over this LRP period.

And I think a lot of the discussion will still be on WATCHMAN EP, but much more will pivot to that area given the launches and momentum in that area. Lastly, I would just try to summarize the MedSurg overall. Some EP, we've had some challenges right now in Urology. We're not happy with the 1% growth in the quarter.

We have clear line of sight to how we're going to adjust and to fix that as that business will improve in 2026, but not the level that we expect our business to perform at. And we'd be highly disappointed if we were closer to market growth for that business in 2027. Endoscopes doing well. They've got a nice set of product launches coming over the next 9 months. And our erode business is growing double digit.

So overall, MedSurg is a tick lighter in '26 that we anticipate. And we see that business will improve as the kind of quarters move on and '26 we'll have a stronger '27.

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

On the WAMGR, I think there was a slight change to the WAMGR from 9% to 8%. I wanted to touch on that. And on the LRP, was the message more were not achieving at 10%? Or was it more we'll kind of wait and see how it all plays out because I'm thinking about '27, you sound pretty bullish on '27, no headwinds, you have product launches. So just kind of curious...

On the WAMGR drivers, I think we're pretty clear at the Investor Day that we were 8% moving to 9% over the LRP. So that's -- I believe that was the message in the WAMGR. So we call it 8% moving towards 9% because we're in the right high-growth markets. So I think that's consistent.

LRP, I mentioned it in the previous commentary. So what we are confident in giving you now is we're confident in our ability to continue to have the discipline to improve margins up about 150 basis points. We're confident in our ability to execute double-digit EPS over this LRP period. And on the sales side, obviously, with the guide at 6.5% to 8%, that puts pressure on the 10% plus guide we gave in LRP.

So that -- I would say that's likely an upside scenario at this point. But it's premature for us to give you an LRP organic revenue growth number at this point and let us work through our strategic plan. and launch cadence, and we'll update that over the course of this year.

Our next question comes from Josh Jennings with TD COWEN.

I just wanted to touch on the EPS guidance revision. I think some may be concerned that with the deceleration in high-margin products, U.S. EP franchise and WATCHMAN franchise, there may be incremental pressure there. But any more details you can share just on any offsets or the impact on profitability with the revised outlook for U.S. EP and WATCHMAN?

Yes. Thanks, Josh. So we will see less mix benefit than what we expected at the start of the year. So that's why we expect our gross margins now will be slightly lower than 2025. But what we're doing is really driving leverage across OpEx.

So most immediately, we put in much more restrictive spend controls across the company. So what we're doing is we're reducing spend that isn't correlated to revenue generation or that isn't pointed at our key product pipeline programs that we have in place. We also had more broadly a number of or structure optimization initiatives in place that includes scaling our centralized shared services. We've got a number of AI automation, other initiatives already in place, Josh, that drive cost efficiency and productivity.

And so we're looking at those for what we can accelerate. And then as it relates to the R&D portfolio, we're looking across each of the businesses there, ensuring that we're appropriately fueling and appropriately focusing on the most impactful programs. But then those that are less impactful, we're looking at how we can trim those. So we've got a number of initiatives, Josh, focused on how do we drive our OpEx toward the most impactful areas of the business and revenue generation and then everything else we're squeezing.

Our next question comes from Marie Thibault with BTIG.

I wanted to double back to urology. I think you mentioned you have some active execution plans in place for improving the sacral neuromodulation business. Can you just dive a little deeper into that? I know that, that's something you've been focused on for a couple of quarters. Maybe it's going a little bit slower than hoped. So if you can just give us an update on how that is going.

Yes, it's definitely gone slower than we anticipated. We had we just had too much commercial turnover is the bottom line over the course -- take it over the course of the last 6 to 9 months. And we certainly learned from that. We made adjustments to it.

But at this point in time, we feel we have the right leadership structure in place from region managers on out that are so key to driving a business like this. We have quite a bit of turnover at the manager level, clinical rep level and territory level. And so a lot of learnings from that as we look forward to Penumbra. But I would say on the management side, that's all been filled up on the region of managers, which is important.

And we've had nearly 100 people that have been hired in our various stages of training, both clinical reps and territory reps to really strengthen that commercial team, which is really needed not only for case coverage, but also to drive the appropriate patient activation events and pull-through to appropriate procedures, which is really part of the business and an area that [ Axonics ] did really well. So we're also leveraging a lot of the internal capabilities from WATCHMAN and others. But it's primarily been a commercial disruption issue that has lingered farther than we wanted it to. But at this point in time, we have made the appropriate hires, the appropriate training, the appropriate investment, and we are confident that we'll see an improvement in that business as the quarters progress.

Our next question comes from Vijay Kumar with Evercore.

Mike, I just -- I had one question on this buyback. Generally, when we see companies announced large deals like Penumbra, $15 billion deal, we generally see buybacks being suspended. So my question is, is the $2 billion buyback in 2Q, is that signaling anything on the deal in -- Jon, I think you mentioned you had $1.5 billion of cash on hand. How you're funding this $2 billion buyback? Are you going to raise any debt?

Why now?

Thanks, Vijay. So we intend to -- the $2 billion, we've got $1.5 billion on the balance sheet now, and we project our cash over the second quarter. We'll fund that through cash on hand. We've been restricted from trading.

We will be restricted at least through the Penumbra shareholder vote on May 6. But as soon as we're not restricted, we intend to repurchase are $2 billion worth of shares, as I've mentioned. And why now is we look at the stock price. We look forward at the outlook for the company that we have, our confidence in the company, the pipeline. We think that's a great use of our capital.

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

I was hoping to talk a little bit about the Penumbra. I know the vote is coming up here in just a few weeks. Just curious about Boston's comfort level in adding additional cash to that transaction, if required, just given the pullback in your stock and the degradation in the value of the overall transaction. If that were to be the case, would you still be committed to the deal at the current -- or the previous valuation if a higher cash component is required?

Yes, I would just comment on the numbers in general. We've gotten to know their leadership team extremely well. We really focused on the way spirit of the momentum of the ICT team we have and the potential addition to Penumbra, we think is a very, very powerful business in combination over time. We've said many, many times that we essentially plan to run a number of as a business unit consistent how we do Boston Scientific, global presidents, keeping their strong commercial team intact, keep an R&D pipeline.

So we have a very solid way to maintain and enhance the Penumbra momentum post closing. We had the shareholder vote on May 7. We're hopeful and confident that, that will be approved as planned.

Our last question will come from Matt Taylor with Jefferies.

I just wanted to follow up on some of the comments that you made about the outlook for WATCHMAN and PFA. Was wondering for more clarity on WATCHMAN in terms of how stand-alone was growing. You mentioned it was decelerating. Was it actually declining in Q1? And what's the outlook for stand-alone this year and next?

Yes. I'm not going to call out the specific number for outlook on concomitant specific and what stand-alone a little bit. I think we gave a pretty good guide as to what we see as the appropriate guidance for the full year on WATCHMAN, which is global mid-teens U.S. low to mid-single digits in cash. Low to mid teens, sorry.

Low to mid-teens for U.S. WATCHMAN and international plus 20%, mid-teens growth globally. So that's our outlook, which is obviously a slower outlook than what we saw in first quarter, but it reflects what I mentioned earlier on a overcoming some very, very strong comps, overcoming some efficiency issues that we see that I highlighted before. and more of a trend towards stronger and stronger concomitant and a less strong weakening trend in stand-alone. Now over time, we aim to try to improve that based on the CHAMPION results, investments we're making.

But as I mentioned, you have concomitant strengthening stand-alone currently less strong.

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

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