Boston Scientific Corp. 2026 Q3 Earnings Call

Please go ahead. Thank you, Drew, and thanks to everyone for joining us.

With me today are Mike Mahoney, Chairman and Chief Executive Officer, and Jon Monson, Executive Vice President and Chief Financial Officer. During the Q&A session, Mike and Jon will be joined by Joe Fitzgerald, Executive Vice President and Group President, Cardiology, and our Chief Medical Officer, Dr. Ken Stein. We issued a press release earlier this morning announcing our Q3 2026 results, which included reconciliations of the non-GAAP measures used in this release. The release, as well as reconciliations of the non-GAAP measures used in today's call, can be found on the investor relations section of our 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 our previously announced agreement to acquire Penumbra, which we expect to close in early 2027. For more information, please refer to the Q3 financial and operating highlights deck, which may be found on 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 of the prior year, unless otherwise specified. This call contains forward-looking statements regarding, among other things, our financial performance, business plans, market expectations, and product performance and development. These statements are based on our current beliefs, using information available to us as of today's date, and 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 the earnings release we issued earlier this morning and our periodic reports and other filings with the SEC, including the risk factors section of our most recent annual report on the 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 an 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. Thank you, everyone, for joining us today. I want to begin by walking through our third quarter results, provide some fourth quarter outlook, and then assumptions behind our updated view of 2027. I will then provide more details on both the region and business unit performance and outlook. Q3 total company organic sales grew 1.5% versus our original guide of 3%-5%. Q3 adjusted EPS of $0.73 declined 3% versus our guidance range of $0.80-$0.82. Our Q3 results were impacted by our previously reported cybersecurity incident, which we estimate reduced our sales growth by approximately 300 basis points and adjusted EPS by $0.07 in the quarter. Importantly, after a two-week outage as a result of the cyber incident, all operations are back up and running as of September 8.

I am very proud of our team's resiliency and the efforts they made to help us return as quickly as possible to supporting physicians and their patients with our products. Turning to Q4, we anticipate that it will be a 200-300 basis points of impact from the cyber incident as we work through elevated customer orders at the end of Q3 to replenish inventory levels. Additionally, since our second quarter earnings call, EP share pressure has intensified, further accelerated by the cyber incident. We have also seen pricing dynamics in China become more challenging. To that end, we are guiding to organic revenue declines of -1% to -3% for fourth quarter 2026, an adjusted EPS of $0.77-$0.79. This results in a full year 2026 organic revenue growth guide of approximately 4%, an EPS of $3.16-$3.18.

Boston Scientific has enjoyed several years of exceptional growth, driven by strategic investments and strong execution globally, particularly within our EP and WATCHMAN franchises. In 2026, we have seen that cycle turn, and those two businesses are now weighing on our total company growth as we navigate competition and market dynamics. We believe that 2027 will be the trough in the cycle, and we have several investments and new innovations coming over the course of the next three years that we expect will support stabilization and growth for both the EP and WATCHMAN businesses. While the remaining 75% of our business has grown consistently, we anticipate there will be additional price headwinds in China in 2027, and the growth likely will not be enough to offset the pressure from EP and WATCHMAN next year.

As a result, we believe we will be challenged to grow sales and adjust EPS in 2027, excluding our pending acquisition of Penumbra. Having said all that, we are taking immediate actions to prepare for the future, including through our previously announced restructuring program and the evolution of our operating structure, while ensuring that we continue to make the right strategic investments across a number of growth platforms. We have a very strong cadence of launches in 2027 and 2028 and anticipate entering several new markets over the next few years that will unlock $25 billion in new market opportunity by 2030. Importantly, we expect these actions to drive meaningful improvement in both our revenue and adjusted EPS performance as we aim to exit the cycle in 2027 and return to delivering high performance in 2028, with further improvement expected in 2029.

I'll now provide some more details on Q3 and full year 2026. Turning to our regional performance, the U.S. was flat year-over-year on an operational basis, driven by ICTx, IO&E, and Neuromodulation. Europe, Middle East, and Africa grew 6% on an operational basis, with strong performance across many of our businesses. But within the quarter, there was some impact from cyber, offset by a transient headwind in Q3 2025 from our ERP platform go live. Asia Pacific declined 1% operationally, with growth impacted by the cyber incident, as well as price pressure in China. Pricing dynamics in China continue to evolve, and a number of our businesses have seen VBP and other pricing impacts as a result. We expect growth in this market will moderate to single-digit growth. Turning to our business units, I'll start with Neuromodulation.

Sales grew 13%, and pain growth was broad based across the portfolio, with exceptional performance with our Nalu PNS technology. But within the quarter, data was presented from the IMPROVE study evaluating our Intracept technology, with real-world outcomes showing improvements in pain function and quality of life at 3 months. In brain, growth was driven by our Cartesia X Lead and Illumina 3D software, which enable more precise placement and programming. Urology declined 3% this quarter, with impact from the cyber incident as well as expanding pricing pressure in China. In stone management, we have received a number of approvals for key products, including FDA clearance of our Navigator Flex suction sheath, CE mark and FDA clearance for distribution of the 7.5 SlimScope, and FDA clearance of our LithoVue Elite single-use ureteroscope.

As we look forward, we expect these new stone launches, as well as stabilization and productivity from our S&M commercial organization, to help our urology performance improve its growth profile over the course of 2027. Endoscopy sales declined 1% versus Q3 2025, inclusive of an impact from China VBP and cyber. Importantly, the underlying performance of this business continues to be strong, led by AXIOS, our differentiated technology. As we look ahead, we expect our endoscopy performance to be slightly pressured, closer to mid-single-digit market growth until we annualize the impact from the China VBP in Q4 2027. Cardiovascular sales delivered growth of 2%, and Interventional Cardiology and Vascular Therapies sales grew 12%. Our Interventional Cardiology business had another exceptional quarter, growing 19%, with continuous strength in our global imaging franchise and drug-eluting technologies.

We had another outstanding quarter of our AGENT DCB, which is backed by strong clinical evidence and now has been used to treat over 400,000 patients to date. We remain focused on both the near and longer-term growth opportunities for this business, and last quarter received IDE approval of the Vital PCI trial that is studying our VITALYST circulatory support technology in the high-risk PCI population. However, considering the evolving clinical evidence in the space, we've made the decision to shift our strategy and focus our development and clinical efforts on the AMI cardiogenic shock indication. We believe that our device design has the potential to be well suited to treat patients experiencing cardiogenic shock and look forward to initiating clinical efforts in 2027. Our VITALYST program is one of the largest internal R&D programs and an important long-term growth driver.

To solidify funding for the AMI shock program, we have entered an agreement with Blackstone Life Sciences and aim to bring this important technology to market in 2030. Our vascular therapies business grew 1% with some impact from cyber as well as TCAR supply constraints. Importantly, we anticipate that our TCAR supply to improve throughout fourth quarter with full resolution by early next year. Our SEISMIQ launch continues to go well, and within the quarter we received FDA clearance for SEISMIQ IVL to treat patients with severely calcified peripheral artery disease in small vessel, expanding our size matrix to now treat above the knee and below the knee. We also received FDA approval for the Ranger 035 drug-coated balloon, offering an expanded size and providing a highly complementary offering, as most IVL procedures that are performed in lower limbs are also followed by drug-eluting technologies.