q4 2016 financial & operational highlights/media/files/b/boston... · 25% cardiovascular 38%...

4th Quarter 2016Financial & Operational Highlights

February 2, 2017

2 Q4 2016 Financial & Operational Highlights | February 2, 2017

Safe Harbor for forward-looking statements andUse of Document:

Safe Harbor for forward-looking statements:This presentation contains forward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements may beidentified by words like “anticipate,” “expect,” “project,” “believe,” “plan,” “estimate,” “intend” and similarwords. These forward-looking statements are based on our beliefs, assumptions and estimates usinginformation 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, actualresults 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 orto be filed with the Securities and Exchange Commission under the headings “Risk Factors” and “SafeHarbor for Forward-Looking Statements.” Accordingly, you are cautioned not to place undue reliance on anyof our forward-looking statements. We disclaim any intention or obligation to publicly update or revise anyforward-looking statements to reflect any change in our expectations or in events, conditions, orcircumstances on which they may be based, or that may affect the likelihood that actual results will differ fromthose contained in the forward-looking statements.

Use of document:This document contains certain highlights with respect to our fourth quarter 2016 performance anddevelopments and does not purport to be a complete summary of thereof. Accordingly, we encourage you toread our Earnings Release for the quarter ended December 31, 2016 located in the investor section of ourwebsite at www.bostonscientific.com and our Annual Report on Form 10-K for the year ended December 31,2016 to be filed with the Securities and Exchange Commission.


Q4 2016 Highlights

Revenue growth Y/Y:• +11% operational*, +11% as reported,

+10% organic*• $2,191M as reported revenue includes

negative FX impact of $20M Y/Y• Earnings per share:

• $0.30 adjusted* vs. $0.26 Q4:15• $0.09 GAAP vs. $(0.11) Q4:15

• Gross margin:• Adjusted*: 72.6%, -20bps Y/Y

◦ Includes (120bps) FX impact Y/Y• GAAP: 71.8%, +80bps Y/Y

• Operating margin:• Adjusted*: 23.7%, +200 bps Y/Y• GAAP: 6.4% vs. -13.7% Q4:15

All three business segments delivered+7% or greater organic revenue growth

• Closed the acquisition of EndoChoiceHoldings, Inc., which enables BSX to offerinfection control products, and pathologyservices to specialists treating a range ofgastrointestinal conditions

• Announced and closed on acquisition ofcertain manufacturing assets andcapabilities and 15% equity stake inNeovasc, Inc.

• Announced positive results from the 900-patient MultiSENSE study evaluating theperformance of the HeartLogic™ HeartFailure Diagnostic Service** to predictimpending heart failure decompensation

*Non-GAAP measure; excludes certain GAAP items. For reconciliations of non-GAAP financial measures to the most directly comparable GAAP figures, pleaserefer to Appendix A of this document

Financial Highlights Operational Highlights

** The HeartLogic Heart Failure Diagnostic Service is not currently available foruse or sale


WW Sales by Segment and Business

Q4 2016 As Reported Revenue: +$2,191M Revenue by business on an "as reported" basis

IC$585M

PI$255M

CRM$473M

EP$63M

Endo$380M

Uro$274M

NM$161MMedSurg

37%

RhythmManagement

25%

Cardiovascular 38%

Percentages are based on actual, non-rounded amounts and may not recalculate precisely


As Reported Revenue($M) Year-over-Year Change % of BSX

Region Q4 2016 Q4 2015 Reported ConstantCurrency* Reported Constant

Currency*

US 1,258 1,129 +11% +11% 57% 53%

OUS 933 849 +10% +10% 43% 47%

TotalCompany 2,191 1,978 +11% +11%

EmergingMarkets1 208 191 +9% +17% 10% 11%

WW Sales by Geography

1We define Emerging Markets as including certain countries that we believe have strong growth potential based on theireconomic conditions, healthcare sectors, and our global capabilities. Currently, we include 20 countries in our definition ofEmerging Markets.

*Non-GAAP measure; excludes impact from changes in foreign currency exchange rates. For reconciliations of non-GAAP financial measures to the most directlycomparable GAAP figures, please refer to Appendix A of this document

Q4 2016 Highlights


Measure Q4 2016($ in Millions)

Operational*Change Y/Y

As ReportedChange Y/Y

Constant CurrencyRevenue* 932 +11% +11%

Adjusted OperatingIncome* 251 +5%

Adjusted OperatingIncome Margin* 27.0% (180) bps

Cardiovascular Performance Summary

• Cardiovascular grew double-digits every quarter of 2016• Interventional Cardiology: Global revenue grew +12% Y/Y constant currency* (+12% as reported)

▪ Fourth consecutive quarter of double digit IC global revenue growth, constant currency*▪ Led by strength of:

• Double-digit growth in PCI guidance (IVUS and FFR); SYNERGYTM DES in the U.S., France, Japan• Synergy DES ended the year at high end of range of 50-60% of global DES mix

▪ Exceeded 2016 Structural Heart revenue range of $175-200M• Peripheral Interventions: Global revenue +10% Y/Y constant currency* (+10% as reported)

▪ Fifth consecutive quarter of double digit PI global revenue growth, constant currency*▪ Expect shortly to finish enrollment in the Global I.D.E. trial, IMPERIAL, for the peripheral drug-eluting stent

system, Eluvia™**

*Non-GAAP measure; excludes certain GAAP items. For reconciliations of non-GAAP financial measuresto the most directly comparable GAAP figures, please refer to Appendix A of this document.

** Caution – In the U.S., the Eluvia peripheral drug-eluting stent system is an investigational device,limited by federal law to investigational use only

Q4 2016 Highlights







Adjusted OperatingIncome Margin* 17.9% +400 bps

Rhythm Management Performance Summary

• Cardiac Rhythm Management: Global revenue +8% Y/Y constant currency*, (+7% as reported)• U.S. CRM business delivered low-double-digit operational revenue growth in the quarter, reflecting

continued share gains with our Accolade MRI Brady platform• Japan grew double digits on strong S-ICD adoption; launching MRI compatible version in Q1:17

• Electrophysiology: Global revenue +5% Y/Y constant currency*, (+4% as reported)• EP OUS constant currency* quarterly revenue growth of 17% • Launching next gen Rhythmia HDx™ platform in Europe and expect to launch in the U.S. in Q2

• FY2016 Rhythm Management adjusted operating income margin of 17.9% is up 290 bps Y/Y

*Non-GAAP measure; excludes certain GAAP items. For reconciliations of non-GAAP financial measures to the most directly comparable GAAP figures, please referto Appendix A of this document.

Q4 2016 Highlights


MedSurg Performance Summary






Adjusted OperatingIncome Margin* 32.2% -190 bps

• MedSurg has grown double-digits every quarter of 2016• Fourth consecutive quarter of double-digit organic* revenue growth for MedSurg (Q4 organic* revenue growth is 11%)

• Endoscopy: Global revenue +10% Y/Y constant currency* (+11% as reported)• Key growth drivers: WW launch of Spyglass™ DS visualization system, Axios™ stent system launch EU/US & Resolution 360™

• Closed acquisition of EndoChoice to broaden our opportunity in pathoology services and infection control products• Urology and Pelvic Health: Global revenue +14% Y/Y constant currency* (+15% as reported)

• Revenue growth fueled by laser fibers, capital equipment and international• Strong international growth with Emerging Markets at (+23%) (+20% as reported)

• Neuromodulation: Global revenue +16% Y/Y constant currency* (+15% as reported)• Ongoing launch of Montage MRI System contributed to the strong quarter + solid market fundamentals• OUS growth led by launch of the Precisio Novi™ primary cell SCS system & Vercise™ DBS system**

*Non-GAAP measure; excludes certain GAAP items. For reconciliations of non-GAAP financial measures to the most directly comparable GAAP figures, please refer toAppendix A of this document.


Q4 2016 Balance Sheet & Cash Flow Metrics

Days Sales Outstanding (DSO) Adjusted Free Cash Flow*

Days Inventory on Hand (DIOH) Capital Expenditures

Dec2016

Sept2016

June2016

Mar2016

Dec2015

64 61 59 60 59

Dec2016

Sept2016

June2016

Mar2016

Dec2015

1421 155 1402 162 163

1Decrease due to tighter inventory management and higherCOGS in the quarter2Improvement largely from increased sales in the quarter andinventory optimization initiatives

Q42016

Q42015 FY2016

$454M $448M $1,607M

Q42016

Q42015 FY2016

$168M3 $86M $376M4

3 Y/Y Capex reflects the construction of our new manufacturing

facility and distribution center in Malaysia4

Roughly $25M higher than FY 2016 guidance, primarily due toopportunistic land & equipment purchases


Measure Q1 2017 FY 2017As Reported Revenue ($M) $2,050 to $2,100 $8,675 to $8,875FX Impact on Sales ($M) ($20M) Headwind ($125M) Headwind

Operational Growth*+6% to +8% w/ 70bps

contribution fromEndochoice

+5% to +7% w/ 70bpscontribution from

EndochoiceAs Reported Growth +4% to +7% +3% to +6%Adjusted Gross Margin* 72% to 73% 72% to 73%FX impact on Adjusted Gross Margin ~75bps ~50bpsAdjusted SG&A % of Sales* 35% to 36% 35% to 36%Adjusted R&D % of Sales* 10.5% to 11.5% 10.5% to 11.5%Adjusted Operating Margin* 25% to 26% 25% to 26%Adjusted Tax Rate* 10% to 11% 12.5% to 13.5%Adjusted EPS* $0.29 to $0.31 $1.22 to $1.26FX impact on EPS 2 Cents 8 CentsAdjusted EPS Growth* +5% to 12% +10% to 13%Adjusted EPS Growth ex-FX* +12% to 20% +17% to 20%GAAP EPS $0.18 to $0.21 $0.86 to $0.91

Q1 & 2017 Guidance SummaryIssued February 2, 2017

*Non-GAAP measure; excludes certain GAAP items. For reconciliations of non-GAAP financial measures to the most directly comparable GAAP figures, please refer toAppendix A of this document.


Use of Non-GAAP Measures

To supplement Boston Scientific’s consolidated financial statements presentedon a GAAP basis, the Company discloses certain non-GAAP financialmeasures. These non-GAAP financial measures are not in accordance withgenerally accepted accounting principles in the United States.

A reconciliation of the non-GAAP financial measures included in this documentto the corresponding GAAP measures follows in Appendix A. In addition, anexplanation of the ways in which Boston Scientific management uses thesesupplemental non-GAAP measures to evaluate its business, and thesubstantive reasons why Boston Scientific management believes that thesenon-GAAP measures provide useful information to investors is included under“Use of Non-GAAP Financial Measures” in the Company’s most recent earningsrelease filed with the SEC on Form 8-K. This additional non-GAAP financialinformation is not meant to be considered in isolation from or as a substitutefor financial information prepared in accordance with GAAP.


Appendix ANon-GAAP ReconciliationThree Months Ended December 31, 2016 (unaudited)

QTD Rounded P&L

In millions, except per share data GAAPResults Amortization

IntangibleAsset

ImpairmentCharges

Restructuring-RelatedCharges

Acquisition -Related Charges

(Credits)

Litigation-RelatedCharges

AdjustedResults

Net sales $ 2,191 $ 2,191Cost of products sold 619 14 4 601Gross profit 1,572 — — (14) (4) — 1,590

Gross margin 71.8% 72.6%

Selling, general and administrative expenses 831 3 27 801SG&A margin 38.0% 36.5%

Research and development expenses 256 5 251R&D margin 11.7% 11.5%

Royalty expense 20 20Royalty expense margin 0.9% 0.9%

Amortization expense 138 138 —Intangible asset impairment charge 4 4 —Contingent consideration expense (benefit) 5 5 —Restructuring charges 6 6 —Litigation-related charges 172 172 —

1,432 138 4 9 37 172 1,072Operating income 140 (138) (4) (23) (41) (172) 518

Operating margin 6.4% 23.7%Other income (expense):Interest expense (58) — (58)Other, net 7 7

Income before income taxes 89 (138) (4) (23) (41) (172) 467

Income tax expense (35) $ (14) $ — $ (4) $ (7) (62) 52

Net (loss) income $ 124 $ (124) $ (4) $ (19) $ (34) $ (110) $ 415

Net income per common share - assuming dilution $ 0.09 $ (0.09) $ (0.00) $ (0.01) $ (0.02) $ (0.09) $ 0.30

Weighted average shares outstanding - assuming dilution 1,381.2 1,381.2 1,381.2 1,381.2 1,381.2 1,381.2 1,381.2

Margin rates are based on actual, non-rounded amounts and may not recalculate precisely.


Three Months Ended December 31, 2016

Region: Year-over-Year Change ReportedLess: Impact of foreigncurrency fluctuations

ConstantCurrency

US 11% 0% 11%OUS 10% 0% 10%

Emerging Markets 9% (8)% 17%


Region: % of BSX ReportedLess: Impact of foreigncurrency fluctuations

ConstantCurrency

US 57% 4% 53%OUS 43% (4)% 47%

Emerging Markets 10% (1)% 11%

Appendix A(Continued)

Growth rates are based on actual, non-rounded amounts and may not recalculate precisely.


Segment Revenue Growth MedSurg CardiovascularRhythm

Management Total BSCPercentage change in net sales, as reported 13% 11% 7% 11%

Less: Impact of foreign currency fluctuations 1% 0% 0% 0%Percentage change in net sales, constant currency 12% 11% 7% 11%

Less: Impact of EndoChoice acquisition 1% 0% 0% 1%Percentage change in net sales, organic 11% 11% 7% 10%



in millions, except per share data Pre-Tax Tax Impact After-TaxImpact per

share

GAAP net income (loss) $ 89 $ 35 $ 124 $ 0.09Non-GAAP adjustments:

Intangible asset impairment charges 4 — 4 0.00Acquisition-related net charges 41 (7) 34 0.02Restructuring and restructuring-related net charges 23 (4) 19 0.01Litigation-related net credits 172 (62) 110 0.09Amortization expense 138 (14) 124 0.09

Adjusted net income $ 467 $ (52) $ 415 $ 0.30



in millions, except per share data Pre-TaxTax

Impact After-TaxImpact per

Share

GAAP net income (loss) $ (338) $ 196 $ (142) $ (0.11)Non-GAAP adjustments:

Acquisition-related net charges 83 (16) 67 0.05 *Restructuring and restructuring-related net charges 26 (4) 22 0.02 *Litigation-related net charges 456 (165) 291 0.21 *Discrete tax items — (9) (9) (0.01) *Amortization expense 135 (2) 133 0.10 *

Adjusted net income 362 — $ 362 $ 0.26

*Assumes dilution of 21.3 million shares for the three months ended December 31, 2015 for all or a portion of thesenon-GAAP Adjustments


Three Months Ended December 31, 2016Percentage Change in Net Sales

As ReportedBasis

Less: Impact ofForeign

CurrencyConstant

Currency BasisRevenue Growth Rate

Interventional Cardiology 12 % 0 % 12 % Peripheral Interventions 10 % 0 % 10 %Cardiovascular 11 % 0 % 11 %

Cardiac Rhythm Management 7 % (1) % 8 % Electrophysiology 4 % (1) % 5 %Rhythm Management 7 % 0 % 7 % Endoscopy 11 % 1 % 10 % Urology and Pelvic Health 15 % 1 % 14 % Neuromodulation 15 % (1) % 16 %MedSurg 13 % 1 % 12 %

Net Sales 11 % 0 % 11 %


Three Months EndedMedSurg Revenue Growth 12/31/16 9/30/16 6/30/16 3/31/16Revenue growth, as reported 13% 15% 29% 26 %

Less: Impact of foreign currency fluctuations 1% 1% —% (2)%Revenue Growth, constant currency 12% 14% 29% 28 %

Less: Impact of significant acquisitions 1% 4% 16% 17 %Percentage change in net sales, organic 11% 10% 13% 11 %



Three Month EndedAdjusted Gross Margin 12/31/2016 12/31/2015 Basis Points ChangeGross Margin, as reported 71.8 % 71.0 % 80Less: Non-GAAP adjustments (0.8)% (1.8)%Adjusted Gross Margin 72.6 % 72.8 % (20)

Three Month EndedAdjusted Operating Margin 12/31/2016 12/31/2015 Basis Points ChangeOperating Margin, as reported 6.4 % (13.7)% 2,010Less: Non-GAAP adjustments (17.3)% (35.4)%Adjusted Operating Margin 23.7 % 21.7 % 200


Three Months EndedPeripheral Interventions (PI) Revenue Growth 12/31/16 09/30/16 06/30/16 03/31/16 12/31/15PI revenue growth, as reported 10% 12% 13 % 12 % 4 %Less: Impact of foreign currency fluctuations —% 1% (1)% (2)% (6)%PI Revenue Growth, constant currency 10% 11% 14 % 14 % 10 %




Three Months EndedDecember 31, 2016

Revenue Growth EP OUSRevenue growth, as reported 17%

Less: Impact of Foreign Currency Fluctuations —%Revenue Growth, constant currency 17%

Three Months EndedDecember 31, 2016

Revenue Growth Uro/PH EMRevenue growth, as reported 20 %

Less: Impact of Foreign Currency Fluctuations (3)%Revenue Growth, constant currency 23 %



in millions Three Months EndedSegment Operating Income 12/31/2016 12/31/2015 % ChangeCardiovascular $ 251 $ 240 5%Rhythm Management 104 76 38%MedSurg 282 266 6%Segment Operating Income 637 582Corporate expenses and currency (119) (153)Intangible asset impairment charge; and acquisition-, divestiture-related net charges, restructuring- and restructuring-related netcharges, debt extinguishment charges and litigation-related chargesand credits (240) (565)Amortization expense (138) (135)Operating Income (Loss) $ 140 $ (271)

Three Months EndedSegment Operating Margin 12/31/2016 12/31/2015 Basis Point ChangeCardiovascular 27.0% 28.8% (180)Rhythm Management 17.9% 13.9% 400MedSurg 32.2% 34.1% (190)


in millions Three Months EndedSegment Net Sales 12/31/2016 12/31/2015Cardiovascular $ 932 $ 836Rhythm Management 582 543MedSurg 876 778Subtotal Core Businesses $ 2,390 $ 2,157Foreign Currency (199) (179)Worldwide Net Sales $ 2,191 $ 1,978



in millions Twelve Months EndedSegment Operating Income 12/31/2016 12/31/2015 % ChangeCardiovascular $ 1,137 $ 972 17%Rhythm Management 404 328 23%MedSurg 1,045 856 22%Segment Operating Income 2,586 2,156Corporate expenses and currency (565) (486)Intangible asset impairment charge; and acquisition-, divestiture-related net charges, restructuring- and restructuring-related netcharges, debt extinguishment charges and litigation-related chargesand credits (1,029) (1,502)Amortization expense (545) (495)Operating Income (Loss) $ 447 $ (327)

Twelve Months EndedSegment Operating Margin 12/31/2016 12/31/2015 Basis Point ChangeRhythm Management 17.9% 15.0% 290


in millions Twelve Months EndedSegment Net Sales 12/31/2016 12/31/2015Cardiovascular $ 3,617 $ 3,217Rhythm Management 2,255 2,182MedSurg 3,204 2,669Subtotal Core Businesses $ 9,076 $ 8,068Foreign Currency (690) (591)Worldwide Net Sales $ 8,386 $ 7,477



Q1 2017 Estimate Full Year 2017 Estimate(Low) (High) (Low) (High)

Estimated GAAP sales growth 4 % 7 % 3 % 6 %Less: Estimated Impact of Foreign Currency Fluctuations (2)% (1)% (2)% (1)%

Estimated sales growth, constant currency* 6 % 8 % 5 % 7 %

*Includes contribution of approximately 70 basis points from EndoChoice acquisition

in millions Quarter Ended Year EndedAdjusted Free Cash Flow 12/31/2016 12/31/2015 12/31/2016Operating cash flow, reported $ 466 $ 330 $ 1,001 Less: Capex 168 86 376Free Cash Flow, reported 298 244 625Plus: Restructuring Payments 23 28 81Plus: Earnouts 15 34 57Plus: Special Tax Refunds/Credits (23) (17) (74)Plus: Legal Settlements 122 126 896Plus: Other 19 33 22Adjusted Free Cash Flow $ 454 $ 448 $ 1,607



Q1 2017 Estimate Estimated Growth(Low) (High) (Low) (High)

Estimated GAAP EPS $ 0.18 $ 0.21Estimated acquisition-related net charges 0.02 0.01Estimated restructuring and restructuring-related charges 0.02 0.02Estimated amortization expense 0.07 0.07Estimated Adjusted EPS $ 0.29 $ 0.31 5% 12%Less: Estimated impact of foreign currency fluctuations (0.02) (0.02) (7)% (8)%Estimated Adjusted EPS, excluding FX $ 0.31 $ 0.33 12% 20%

Full Year 2017 Estimate Estimated Growth(Low) (High) (Low) (High)

Estimated GAAP EPS $ 0.86 $ 0.91Estimated acquisition-related net charges 0.05 0.04Estimated restructuring and restructuring-related charges 0.03 0.03Estimated amortization expense 0.28 0.28Estimated Adjusted EPS $ 1.22 $ 1.26 10% 13%Less: Estimated impact of foreign currency fluctuations (0.08) (0.08) (7)% (7)%Estimated Adjusted EPS, excluding FX $ 1.30 $ 1.34 17% 20%


Appendix A(Continued)Forward-Looking Non-GAAP Financial Measures

The following is an explanation of the adjustments that management excluded from GAAP measures to calculate the

following forward-looking non-GAAP financial measures for the first quarter and full year 2017:

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 on slide 2 in conjunction with any forward

looking information presented within.

q4 2016 financial & operational highlights/media/files/b/boston... · 25% cardiovascular 38%...

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