Good morning, and welcome to the Boston Scientific Second Quarter 2021 Earnings Call. All participants will be in listen only mode. 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, Andrew. Good morning, everyone, and thanks for joining us. With me on today's call are Mike Mahoney, Chairman and Chief Executive Officer Dan Brennan, Executive Vice President and Chief Financial Officer, issued a press release earlier this morning announcing our Q3 'twenty one results, which included reconciliations of non GAAP measures used in the release. We have posted a copy of that release as well as reconciliations of the non GAAP measures used Today's call is to the Investor Relations section of our website under the heading Financials and Filings. The duration of this call will be approximately 1 hour.
Mike will focus his comments on Q2 performance, largely compared to 2019, as Q220 included key procedural impact from COVID as well as future catalysts and outlook for our business including Q3 and full year 2021 guidance. Dan will review the financials for the quarter, provide more detail regarding Q3 and full year 'twenty one guidance and then we'll take your questions. During today's Q and A session, Mike and Dan will be joined by our Chief Medical Officers, Doctor. Anne Meredith and Doctor. Ken Stein.
Before we begin, I'd like to remind everyone on the call that operational revenue growth The impact of foreign currency fluctuation and organic revenue growth further excludes acquisitions and divestitures for which there are less than a full period of comparable net sales. Relevant acquisitions for organic growth versus 2020 2019 include Preventive, which closed March 1, 2021 and VertFlex and BTG Interventional Medicines, which closed in May mid August of 2019 respectively. Divestitures include VTT Specialty Pharmaceuticals, which is closed on March 1, 2021. In the Global Embolic Microferic portfolio and the intrauterine franchise, which were divested in mid August 2019 and Q2 2020. Guidance excludes the recently announced Luminess Surgical acquisition, which is expected to close in the second half of twenty twenty one and Therapulse acquisition, which is expected to close in Q3, twenty twenty one, which are subject to customary closing conditions, including antitrust and earnings.
For more information, please refer to Slide 9 of our financial operating highlights deck, which may be found on our Investor Relations On this call, all references to sales and revenue, unless otherwise specified, are organic. Finally, growth goals of 6% to 8% ex COVID represent comparisons Within the meaning of federal securities laws, which may be identified by words like anticipate, expect, may, believe, estimate and other similar words They include, among other things, the impact of COVID-nineteen pandemic upon the company's operations and financial results, statements about our growth and market share, new product approval Launches, acquisitions, clinical trials, cost savings and growth opportunities. Our cash flow and expected Q3 of fiscal year, our financial performance, including sales, margins as well as our tax rates, R and D spend and other expenses. Factors that may cause such differences include those described in the Risk Factors section of our most this point, I'll turn it over to Mike for his comments. Mike?
Thanks, Lauren.
Thank you to everyone for joining us today. I'm pleased to report very strong Q2 financial results As a result of elective procedures strength in the U. S.
In many but not all
of our regions across the globe. We're well positioned for the second half of and beyond as we continue to execute our category leadership strategy driven by our innovative pipeline, expansion with master growth markets, globalization efforts and enhanced digital capabilities. Total company's 2nd quarter operational sales grew 50% versus 2020. FedEx sales grew 52% versus 2020 and 90% versus 2019, exceeding expectations as recovery from the pandemic occurred more quickly than expected, particularly in the U. S.
Apparently 6 of the 7 business units grew double digits organically versus 2019. We estimate that 5 of our business units grew faster than the respective markets. We're pleased with our ongoing and new product launches and we're now enrolling our We ended the guidance by $0.02 primarily due to sales outperformance and lower spend. Adjusted operating margin of 25.1 was slightly ahead of our expectations As we continue to balance investment with the sales recovery, we continue to be pleased with our free cash flow, 2nd quarter free cash flow generation of 5 both sales and EPS which assumes a manageable level of COVID impact in the second half of the year. Compared to 2020, we're targeting Q3 2021 organic revenue growth of 12% to 14% and full year net revenue to 20% and compared to 2019 we're targeting Q3 2021 organic revenue growth 5% to 7% and for the full year growth of 6% to 7%.
Our Q3 'twenty one adjusted EPS estimate is $0.39 to $0.41 We are updating our full year adjusted EPS to a revised range of $1.58 to 1.62 Dan will provide more details on both sales and EPS performance, including the revenue contribution. Continue to expect a 3rd quarter close for Peripulse and the second half 'twenty one close of Luma Surgical. I'll now provide additional highlights of Q2 'twenty one results along with comments on Q3 and 'twenty one outlook. Within regions on an operational basis versus Q2 2019, the U. S.
Grew 22%, Europe, Middle East Africa grew 9%, Asia Pac was 4%, and emerging market sales grew 11%. Organically in the U. S, The U. S. Drew 12% versus 2019.
The strength was supported by faster than anticipated recovery of procedure volume levels, along with ongoing new launches. Operationally, EMEA delivered an excellent second quarter with broad based growth across nearly all major markets and franchises, even as some countries experienced COVID related lockdowns and procedural delays. The EMEA region also had double digit growth PI, EP, Endo and Neuromod by products such as Acurate Neo2, Perosphere, PolarX, Axios and WaveWriter in Middle East and Africa. In Asia Pac, although second quarter results included approximately 600 basis points of negative impact Tender pricing versus 2019. 5
of our
businesses grew double digits with strong growth in China, Australia and Korea. While Japan's Q2 results were impacted by COVID, we've seen success with ongoing and new product launches such as Ranger DCB, Stable Point in Watson Flex. Canada sales grew 16% versus 2019, strong double digit growth within all business units, The exception of Interventional Cardiology did include the negative impact of the tender price. We continue to be pleased with our strong growth in complex PCI and imaging versus both 2019 2020. I'll now provide some comments on the business units.
Starting with year on public health, sales were very strong, grew inorganic 16% versus 2019, balanced growth across our Stone and prostate health franchises. Stone, which is the largest franchise, We're double digits as Enthusiastic continues to handle this acquisition. We'll expand our category leading portfolio with this differentiated laser technology. Market Health franchise grew strong double digits with continued growth in Rezum and Space Orb businesses. It was driven by further traction of this direct to patient efforts in the U.
S. Global expansion and appreciation of the long term durability and cost benefits of this minimally invasive In our space for our business, growth was supported by the ongoing launch of our next generation SpaceShip Hydrogel in the U. S. And our recent launch in Europe. Your view is visible in our CT and now negates the need for physicians to use MRI.
It's an important step to optimize the treatment plan for patients undergoing prostate radiation Our endoscopy team delivered excellent for the 2nd quarter with sales growing organically 15% versus 2019. Q2 sales grew double digits across all major franchises with notable strength in biliary, epiastasis and infection prevention. Thanks to our portfolio including key products such as Axios SpyGlass and Resolution Hemostasis Clips. In the quarter, we completed CE Mark for result B and we're pleased with the early launch feedback, highlighting differentiated visualization and suction. We remain on track to launch in the U.
S. In the second half of twenty twenty. We continue to make progress with the Xome E. For the management, sales were down 6% organically versus 2019. So we believe that our CRM performance was slightly below the overall market, It consists of a temporary impact from the recent Emblem SICD physician advisor.
Importantly, we recently began launching our enhanced SICD For our diagnostic franchise, our AlexaDx implantable project monitor continues to perform very well in the U. S. We're also pleased with the strong growth and execution of the Proventis team. We anticipate that business of at least 20% on a pro form a basis versus 20. Well, Enter Physiology sales were up 10% versus 2019.
Strong international sales growth of 29% were driven by the ongoing success Polarex in Europe, a stable point of $0.04 catheter in Europe and Japan. U. S. EPA sales will likely lag market growth until we receive approval for These therapies are currently enrolling in the respective U. S.
IDE trials. Also exercise our option to acquire Ferravalz, is a leader in pulse field ablation, which is an emerging field that has the potential to improve safety, efficacy and ease of use for cardiac ablation procedures. Aeropulse is the only company with a commercially approved product in Europe is actively enrolling in its U. S. IDE ADVENT trial.
Excited to bring this differentiated therapy into our EP portfolio in Q1. In Neuromodulation organic revenue grew 14% versus 2019. Our team management franchise accelerated growth in the 2nd quarter supported by an ongoing launch of our next gen WaveWriter Alpha SCS system, Hi Vida Digital Solutions and continued clinical evidence generation. In this midyear meeting we released 1 year follow-up data combo study demonstrated on sustained high level of clinical and functional success at 84% responder rate. We also started reporting on the real world results of the fast therapy designed to improve immediate provide for file and immediate pain relief.
Started in the Q1 of this year, we reported beginning our diabetic peripheral drop in the study by the end of the year. In deep dive stimulation, the business continues to gain share globally and delivers broad double digit growth driven by the launch of the precise Genus platform, Expansion of our commercial infrastructure in partnership with Brigham. In Interventional Cardiology, organic sales grew 10% versus 2019. Double digit growth in structural heart valves, watchmen and complex PCI. First of the watchmen franchise accelerated sequentially.
Nearly all U. S. Accounts have transitioned from Watchmen 2.5. They're now using the Flex exclusive. Additionally, we're pleased with the 2 year results of Pinnacle Flex, which features a late breaker at TBT, which reinforced positive 1 year primary outcomes and then its secondary effectiveness.
We remain excited about the outlook for the Watson franchise, our next generation Flex device global expansion, We continue to work toward indication expansion for ongoing clinical trials. It will be the option trial variant watch first line oral antacomagulants, patients with non malveolar AFib also undergone cardiac ablation procedure. Recently we completed enrollment ahead of schedule in spite of challenges presented by the pandemic. In TAVR, our ACURATE NEAR-two launch continues to do well in Europe Supported by real world data presented in Europe PCR was demonstrated in the development. Low accurate neo2 PPL rate Comparable to contemporary Kabi devices, continued low permanent pacemaker.
These outcomes were Cerebral Embolic Protection Device achieved highest quarterly sales to date with new account openings globally. We continue to enroll in the Protected TAVR randomized clinical trial. Order therapies declined mid single basis versus 2019 attributable to drug moving stents, which The strength of VirtuPro and IBIS in our global complex PCI and MGA business is now 50% larger than our DDS business. We're advancing opportunities for future growth drivers and within the quarter began enrollment in our AGENT DCP trial. This is the first in the U.
S. Study of coronary instant Peripheral Intervention has delivered organic sales up 10% versus Q2 2019 with interventional oncology. TheraSveer grew over 30% versus 2019 on a pro form a basis in its 1st full quarter post PMA approval. Spirotena continues to grow double digits and gain share in the Barrico state market. Within Arterial, our drug eluting portfolio achieved record sales in the 2nd quarter Supported by global expansion along with the sector's continuing recovery, we just started enrollment on the Elegance registry, Study that will gather clinical evidence on the risk of PAD, usually underrepresented patient populations.
The study will also look at long term outcomes of patients being treated with ILUVI DDS or RANGER DCB. I'd also like to highlight Boston Scientific's recent inclusion on the Just Capital Top 100 list of companies which supports healthy families and communities Along with our recognition of Best Place to Work for Disability Inclusion, we're trying to be recognized to provide our employees In theclusive and supportive environment, we remain committed to global sustainable practices. Overall, we're pleased with our performance We remain bullish on a long range outlook for Muscle Scientific. We look forward to sharing our strategic and planned objectives at our Hybrid Investor Day event on September 22. I'd like to extend a big thank you to our employees for their contributions and Windy Spirit.
I'll turn the call over to Dan. Thanks Mike.
2nd quarter consolidated revenue of $3,077,000,000 On an operational basis, revenue growth was 49.6 percent in the quarter. Sales from the Proventus acquisition contributed 240 basis points Was it offset by the divestiture of Specialty Pharmaceuticals, resulting in 52.4 percent organic revenue growth, above our guidance range of 40.8% growth versus 2020. Compared to the Q2 2019, Organic growth was 8.9 percent above our guidance range of 3% to 6%. This 8.9% growth excludes $15,000,000 in 20 19 sales of the domestic cannabis and a bollock beach business $178,000,000 in 2020 sales of acquired businesses, which consists of 2 months of Vertiflex and a full quarter of BTG Interventional Medicines and Preventis. Top line results drove Q2 adjusted earnings per share of $0.40 representing 3 78% growth versus 2020, 3% growth versus 2019 and exceeding our guidance range of Adjusted gross margin for the 2nd quarter was 70.5%, slightly above our expectations driven by sales outperformance in higher margin businesses.
We have materially worked through the COVID driven negative manufacturing variances to capitalize the balance sheet in And as a result, expect slight improvements in second half gross margin compared to the first half, but still not at full year 2019 level As other headwinds remain, in particular the lingering cost of running plants with COVID specific measures as well as some impact from inflation. Selective wage pressure and some price increase on direct materials. 2nd quarter adjusted operating margin was 25.1% slightly above our expectations driven by sales owner performance and balanced investment Also includes a reserve for legal development that we expect will improve access to additional markets for some of our cardiovascular technology. GAAP charges within the quarter additionally include $298,000,000 in litigation related expenses to account for incremental costs All U. S.
Claims remain settled or at the final stages of settlement. Our reserves and assumptions are based on full global resolution now in 2023, given recent claim activity and expect litigation deadline. Our total legal reserve was $617,000,000 as of June 30, increased $162,000,000 versus March 31, driven by the measured reserve increase in cardiovascular settlement, partially offset by payments to close substantially all of State Attorneys General's mesh settlement as well as continuing mesh product liability. Moving to below the line, adjusted interest and other expense totaled $107,000,000 in line with expectations. Our tax rate for the 2nd quarter was 11.1% on an adjusted basis also in line with expectations.
Adjusted free cash flow for the quarter was $838,000,000 and free cash flow was $541,000,000 $643,000,000 from operating activities, plus $102,000,000 net capital expenditures We'll remain to deliver adjusted free cash flow in line with 2020 of approximately $2,000,000,000 as we continue Top priority for capital deployment remains tuck in M and A. We continue to expect to close the acquisition of Luma Surgical 2nd half of the year and Therapulse in Q3. We have capacity to pursue additional business development opportunities, We are continuing to remain active with our venture capital and consider opportunistic share repurchase. We ended Q2 with $1,432,000,000 fully diluted weighted average shares outstanding. I'll now walk through guidance for Q3 and full year 2020.
For the full year, we expect 2021 operational revenue growth to be in a range of 18.5% to 19.5% versus 2020, which includes an approximate net 50 basis point headwind from the divestiture of our intrauterine health franchise and specialty pharmaceuticals, partially offset by the acquisition of Permian. Excluding the impact of acquisitions and divestitures, we expect organic revenue growth to be in 19% to 20% versus 2020 and 6% to 7% versus 2019. And organic comparison to 2019, Full year 2019 sales exclude $1,000,000 in sales of our hemolytic beef portfolio in entry for the franchise as well as $81,000,000 in Specialty Pharmaceutical sales and at the midpoint of guidance, 2021 sales exclude approximately $409,000,000 Sales from recent acquisitions, Vertiflex through May, TCE's residential medicines through mid August as
of March
as well as $13,000,000,000 of specialty pharmaceutical sales prior to divestiture. Q3 2021, we expect operational revenue growth to be in a range of 11% to 13% versus 2020, This includes an approximate net 100 basis point headwind from the divestiture of Specialty Pharmaceuticals, partially offset by the acquisition of Medics. Excluding the impact of divestitures, we expect organic revenue growth to be in a range of 12% to 14% versus 2020 5% to 7% on growth versus 2019, which includes a 300 basis point sequential comp headwind For the Q3 organic comparison to 2019, 2019 sales exclude $35,000,000 in sales of our All and B portfolio, Intrauter and Health franchise and specialty pharmaceuticals. And at the midpoint of guidance, 2021 sales exclude approximately $110,000,000 in sales from the acquisitions of BTG Interventional Medicines through mid August and prevent this. For adjusted operating margin, we continue to target an average of 26% in the back half of While simultaneously investing to normalized operating expense levels in the first half of twenty twenty one, remains below what we would expect On near term run rate, we continue to forecast our full year 2021 operational tax rate to be approximately 11% and our all in tax rate to be approximately 10%.
We continue to expect adjusted below the line expenses, which include interest payments, Dilution from our venture capital portfolio costs associated with our hedging program could be approximately $400,000,000 to $425,000,000 for the year. We expect fully diluted weighted average share count of approximately 1,437,000,000 shares for Q3 2021, 1,435,000,000 shares for the full year 2020. We are raising full year 2021 adjusted EPS guidance which removed additional uncertainty from our previously wider range. For the Q3, adjusted earnings per share is expected to be in a range of $0.39 to 0.41 Please check our Investor Relations website for Q2 'twenty one financial and operational highlights, which outlines more detailed Q2 results. With that, I'll turn it back Our newly appointed Vice President of Investor Relations.
Congratulations, Lauren, very well deserved. Moderator.
Thank you, Dan. Andrew, let's open it up for questions for the next 35 minutes or so.
The first question comes from Bob Hopkins of Bank of America. Please go ahead.
Great and
good morning. Can you hear me okay?
Yes. Good morning, Bob. Very fine, Bob. Good morning.
Congrats to Lauren. So first question for Mike and Dan is Just wondering if you could talk a little bit more about your back half twenty twenty one assumptions. You mentioned that you assume a manageable level of COVID. I'm wondering if you could Help us understand what that means. Does that mean specifically that you assume things get a little worse from what you're seeing today?
Or do you assume things stay about the same?
I think if you look at
the numbers, Bob, and I
think a lot of it has
to do with the comps, right? If you look at our comps from 2019 quarter by quarter, they're 6,600,97. And so we put up effectively a 9% in Q2 versus a 6% in 2019. If you look at our guidance for Q3, It's 5% to 7%. So just take the midpoint at 6%.
That's against the comp of a 6%, which is of a 9%, which is 300 basis points harder. So in theory, the 6% effectively becomes a 9% when you adjust for comps, which is kind of what we did in Q2. And I won't go through the whole process, but the implied Q4 ends up in a similar range. So I think what you're hearing us say is that Q2 that the impact of COVID was manageable. You heard Mike's comments that the Recovery was very strong, particularly in the U.
S. And what our guidance would imply is that for the most part continues in the back half. So manageable COVID impact would be a quarter similar to what you saw in Q2.
Okay. So it sounds like your things sorry, go ahead, Mike.
No, I just does that track and make sense for you?
Yes, it sounds like you're assuming that things have basically stayed the same, they don't get worse from what you just said, which
Correct. That's
correct. Okay, great. And then just a quick follow-up question is, so I think if you could talk just a little bit more about WATCHMAN trends In the quarter, it sounds like things went really well, but you're just curious if you maybe could provide a growth rate over 2019. Just curious for kind of flushing out the experience with WATCHMAN in the quarter a little bit more and if you can quantify it at all that would be helpful. Thank you.
Yes, sure. Yes, we won't be providing a growth rate on 2019, but overall The plans with Wacomaflex have gone exceedingly well. As we mentioned, the U. S. Has really been fully converted at this point, which happened ahead of schedule and we enrolled the option trial ahead of schedule.
But the big benefit we're seeing is With the ease of use and the safety profile of Flex, the utilization of Watchman Flex in the U. S. Accounts in particular continues to increase. So we do have some small new incremental account openings, but far and away the bulk of the growth in the U. S.
Is being driven by increasing physician utilization and penetration rates. And we recently have some approval in Japan. And so we're starting to get some minor impact from Japan, which will get more so in the second half As well as in 2022. But it's really being driven by the utilization rates, the safety profile, Physician comfort with the device and training new physicians at existing facilities. So current doctors are doing more WATCHMAN And new doctors at the same facilities are being trained on WATCHMAN.
And the referral base, the physician community is becoming more and more comfortable and aware as our patients with this treatment. So we peg this growth this segment to be likely plus 30% growth And we continue to expect to do well in it, but it's an exciting platform for us.
Great. Thank you.
The next question comes from Robbie Marcus with JPMorgan. Please go ahead.
Great. I'll add my 2 for me. First, it looks like you had great growth in the U. S. With 12% organic over 2019.
I was wondering, maybe you could just give us An overview of where you're seeing the recovery? Are you seeing any lagging trends from Delta variant? And is there any discrepancy in inpatient versus outpatient? You're one of the first two To report here with such a global covering and diverse offering, I think it'd be really instructful as we think about the rest of the year in the guidance.
Yes. So just broadly, we saw terrific results in the U. S, Very strong results in Europe despite the lockdowns in Europe and I should say more COVID impact in Europe. That business grew 9% organic and we had the most significant COVID impacts in Asia, In ASEAN countries and Japan in particular, with Korea, Australia doing well as was China. So We saw more COVID impact broadly in Asia Pac and the strong recovery in the U.
S. And then in terms of the U. S, per your question there, we had really With the exception of EP, we think every business globally and the U. S. Grew double digit organically versus 'nineteen and likely gained share in their markets with the exception of potentially EP and CRM, but EP grew share international markets.
And in the if you break down, if you look at euro and endo, particularly Alta PI, where we have a more 10% in endo and 10% organic in PI with strong growth in TheraSPHERE. So I would say in the U. S, we saw a nice rebound both in the hospital setting, which I think has been verified by many of the public company hospital change reporting prior to us, And we saw strong growth in the outpatient ASC center as well.
Great. And maybe a follow-up for Dan and A suggestion, Dan, I think some of us had a little trouble hearing the Nuance guidance you gave. If you guys want to send out your prepared remarks, I think that'd be really helpful for all the investors. But maybe just as a quick follow-up, you mentioned Higher input costs and COGS, so improving in second half versus first half, but maybe not all the way quite up to 2019. How are you thinking about the company's ability to absorb and pass on some of those costs?
And do
you think that's going to
be an issue going into 2022 as we exit the year here, because you did have great expense control down the P and L, just thinking about the cost component. Thanks.
Thanks. Sure. Thanks, Ravi. Relative to gross margin, so we averaged 69.8% in the first half, I think we feel comfortable that we'll improve upon that here in the second half of twenty twenty one. Specific to what's going on in gross margin, We will have the tailwind of the COVID related variances that we put on the balance sheet during 2020.
Those are amortized over your inventory turns. And so effectively as of sixthirty this year, the end of Q2, those are gone. So that's good news. We do still have some COVID specific lingering costs of running plants in a COVID environment. So COVID is not completely done, obviously, as you know.
And so we do have those and those are adding costs. And then as I mentioned in the prepared remarks, not unique to us. We do have some pockets of inflation and Particularly with freight where we just need more commercial airliners to be flying than are flying today. We have wage pressure in certain locations And then direct materials, particularly precious metals and things like that, we're seeing inflation there. So we do have Some headwinds.
But overall, as we look at the back half of 'twenty one, we would assume we would improve versus that 69.8% average in the first half. And then as it relates to 'twenty two and beyond, I would envision we'll give you a more detailed review of that at Investor Day on the 22nd September.
Great. Appreciate it. Thanks a lot.
Thanks, Robbie.
The next question comes from Larry Biegelsen with Wells Fargo. Please go ahead.
Good morning. Thanks for taking the questions and congrats on the quarter and congrats to Lauren. Just one follow-up on the Investor Meeting in September. Maybe Dan or Mike, just level set us kind of what we should expect? Will you provide an update to your financial goals and pipeline?
And any reason to think the algorithm of 6% to 8% sales and 50 basis points to 100 basis points margin improvement with double digit EPS growth has changed and I had one follow-up.
Oh my gosh, if we give you all this, you're not going to show
up. We'll be there, Mike.
No. We expect to, as we've done in previous years, Provide an update on our portfolio across the company, give some visibility to the long rate strategy and financial goals, some of what we've done historically. So we would like to provide some more updated 3 year sales guidance, what we think Margin approval will look like, but more importantly, you'll hear from the business unit presidents on the portfolio and innovation across the company.
All right. And just for my follow-up, Mike, on Luminess and Feripulse, why was this the right time to acquire both? What's the outlook for Luminess? Is that $200,000,000 you said for sales in 2021, is that net after your distribution agreement? Thanks for taking the questions.
Yes. So I have to verify that number. We'll get the
I don't know what we said on the numbers in the
past in terms of the Luminous net number. So let's Circle back on that one. But the timing just strategically makes perfect sense. I think that the group is aware of this. Yes, we had distribution agreement with Luminous in the U.
S, distribution agreement with them China, which was effective, but therefore we weren't getting the same level of gross margin benefit that we wanted, Nor could we innovate on the platform and I guess tie it more comprehensively into our StoneSmart platform. So by owning it, we obviously improve our gross margins. We can drive a more robust product roadmap within our StoneSmart ecosystem. And then we can expand our direct coverage in Europe and especially in China where they have a very big business. So that makes sense.
And what did we say here, Laura?
We only disclosed the full year gross number of $200,000,000 for 2021. We did not disclose the net, Larry.
Got it. And Ferra PULSE, Mike?
So Ferra PULSE, we expect that to close pretty soon here, early in Q3. Yes, I won't go too far on it. We're really excited about it. It's the only approved platform in Europe in the pulse field ablation field And they're rolling ahead of schedule in a U. S.
Clinical trial. The physician community and Doctor. Stein is on the phone, he can comment on it. Ken, if you Doctor. Seidt, if you're on the phone, maybe you want to provide a quick update on VERIPULSE?
Yes, absolutely, Mike. Yes. I mean, I think the pulse field ablation and particularly the TheraPulse approach to pulse field ablation Is the most exciting thing to come along in ablation really since ablation. What Farapulse has demonstrated in a wealth of To date, over 100 patients in clinical trials that have been reported out publicly is a very high expectation that this is going to be safer than others thermal approaches to ablation. And because of the safety, it's much more straightforward procedure for physicians, so quicker procedure For physicians and is that again likely to be at least as effective and probably more effective than other technologies.
So given that, we are extremely excited and optimistic about their approach. And as Mike said, Given that they are the only approved technology in Europe, given that they're executing so well on their clinical trials, By exercising the option now and again hopefully closing in the near future, we have the opportunity now to help them scale up distribution, Production and again the ability to help them continue to execute their clinical trials and get to U. S. Approval in a timely fashion.
Thank you.
You're welcome.
The next question comes from Vijay Kumar with Evercore ISI. Please go ahead.
Hi, Mike. Congrats on the quarter here. Thanks for taking my question. 1 on a high level, If I just look at the 2Q performance and the back half implied guide, we did 9 Percent in 2Q versus pre pandemic twenty nineteen, back half implied as 7% and 9%. I mean, we're already running, if I look at the 2Q to 4Q performance, we're already running well north of 8%.
ProvanteS, Lumenis, once these deals become organic, they should be incremental plus you have these pipelines. I guess when I look at that LRP of 6 to 8, shouldn't these results provide a high degree of confidence in upper end of that LRP on the top line going forward?
Yes. I mean, I think we're not going to comment specifically within the range of 6 to 8. Obviously, we'll, As Mike said, probably tee that up for an Investor Day conversation relative to the portfolio and the overall results. So I don't think it would serve us well to comment relative to the specifics in there. But the strength of the portfolio in the pipeline is what's given us the confidence to put up the numbers that we put up in the past and obviously looking forward give us the confidence in the revenue growth trajectory for the future.
But specific to where in the range, I don't think I'll go there.
Understood, Dan. Just one on margins maybe. When should gross margins get back to prepandemic levels or perhaps an operating margins, just given the commentary around Freight and inflationary pressures, should 'twenty two operating margins be at 2019 levels?
Yes. I mean, if you think of the back half of this year, that's what we're calling for, Vijay. So we're calling for an average in the back half of 'twenty one to be at our full year 2019 level, which was, call it, rounded 26%. So, the goal is to do that in the back half of 'twenty one and set us up for 'twenty two and beyond. Gross margin, as we said, it was 69.8% in the first half.
It will be improving on that in the second half. So when does that get back to specific 2019 levels? Again, we'll give more details at Investor Day. But if you think of at the overall operating margin level, the thing that we've proven time and time again over history is that we make the effective trade offs through the P and L. So if you think back 4, 5, 6 years ago, gross margin was growing very nicely and as a percentage of sales And we were investing in places like the emerging markets and other areas.
So SG and A was in sometimes actually increasing as a percentage of sale, but still delivered very solid operating margin progression through that timeframe. So it may shift a little bit as we go forward, maybe gross margin doesn't pay as many of the bills, so to speak, But SG and A potentially was lower travel spend and other trade offs that we'll make in addition to more efficient R and D spend. The goal is always to have operating margins increase year over year and I think our track record speaks for itself on that.
Thanks, Dan.
Thanks Vijay.
The next question comes from Cecilia Furlong with Morgan Stanley. Please go ahead.
Great. Good morning and thanks for taking our questions. I wanted to ask about SCS trialing trends and really just what you've seen from a relative recovery versus other more elective procedures in the quarter? And then kind of tying in also just Vertiflex, what type of traction you've seen recently?
Sure. Yes, we haven't had all the competitors report in that field. So we're not exactly sure how we grew versus the competitive set, but we had a strong Acceleration in 2Q, U. S. Overall in the quarter.
And I think part of it is The combination of the unique portfolio that we have with the new launches, the new FAST algorithms and I detailed in the script that may have had
a difficult hearing, so we're
going to send that out to people. The combination of the new FAST algorithms as well as the clinical work that we're doing. So SCS overall improved versus Q1. And then it was augmented, as you mentioned, with Vertiflex growth in the quarter as well as continued growth in our RF The RF portfolio, although a bit smaller, continues to exceed expectations. And then the other really big growth driver for neuromod in Quarter was our deep brain stimulation business and it's really impressive what that group has done.
They continue to gain market share, Really the number one de novo player in Europe and close to that now in the U. S. And they continue to accelerate Market share gains through the innovation of that business. So the DBS probably had the largest snapback of any business in the second quarter with the COVID impact waning in the U. S.
But overall, the SCS market and the pain side did quite well as well. But we'll see The other competitors report, but we're impressed with the sequential growth that we saw.
Yes. And happy overall with the 14% growth versus 20
And you also called out resume in your prepared remarks. Could you just comment a bit more Just what you've seen from recent procedure trends and procedure recovery trajectory coming out of COVID? Thank you. Yes.
So I think with our Rezum business, we continue to drive increased growth there. The overall euro business had a big bounce back in the quarter growing 16%. And the big things that we're Focus now with the resume as we continue to drive improved reimbursement rates with some of the specific payers, which is helping. That's also the long term durability data, and that's giving physicians more confidence in the product that's driving the growth. And we've also expanded our international footprint with Rezum, particularly in Europe and also some additional DTP, direct to patient And direct to physician marketing campaigns to drive more awareness.
So it's really a combination of all those things that's improving the growth profile of Rezum.
Great. Thank you and congrats on the quarter.
Thank you.
The next question comes from, excuse me, Pito Chickering with Deutsche Bank. Please go ahead.
Hey, good morning guys. Thanks for taking my questions. Congrats on a nice quarter and also congrats to Lauren. To follow-up on Bob's question, I understand the comps 2018 for 3Q is challenging at 9%. But we also heard from the public hospitals that June was the best month of the quarter and Strong June trends continue into July.
So just curious, as you look at your Q3 guidance, are you seeing normal 3Q seasonality? Or are you simply assuming that you'll see at some point during the quarter?
Yes. I appreciate the question. We're just not going to comment kind of intra quarter as we sit here In the Q3, I think the answer to Bob's question in the short answer is, we're expecting the trends that we saw in the second quarter To continue, we're not going to parse it month by month. We're expecting the overall trend of that growth rate to continue comp adjusted in the back half of 'twenty one. But Specific to month versus month, we're not going to get into that those specifics.
Okay, fair enough. A quick question on Axalti. I understand the markets have been very dynamic sort of Last year sort of due to COVID. Those are two questions. How many accounts are you selling Axaltzy into at this point?
In those accounts, what is the market share and the order rate of those accounts? And as you watch Exalt B, how much revenue contributions we assume in the back half of the year? Thanks so much.
Yes, we're probably frustrating you. We're not prepared to share that information with you. On Exalti, just As you've heard in previous quarterly updates, the team continues to make progress. As COVID impact is improving, although Hopefully, Delta variant isn't too much, but as approved in the U. S, we have seen more of an uptick in traction with Axalti.
As physicians are becoming more comfortable with it, The training and the capital placements have gone well. So you're seeing an uptick in Exalt D usage. And then in the second half Of 'twenty one, you'll see an enhancement and a next release or next generation release, if you will, of Axalti to further improve the platform. So we expect to see continued momentum with that. The big news for us is the recent approval of Exalt B and some sites that tried it for the first time in Europe and we're really bullish on that platform.
That's an established market with a few competitors, but we think we have some differentiated capabilities with Exalt B. And so in the second half of 'twenty one and much more so in 22, you'll see the impact of that platform as well. So it's all going to plan, but we're seeing some improved momentum with Axalti in the U. S. As COVID is improving.
Great. Thanks so much. Yes.
The next question comes from Joanne Wuensch with Citi. Please
Hi, can you hear me okay?
We can. Good morning, Joanne. Good morning, Joanne.
Excellent. Good morning and thank you for taking the question. It looked to us like when we compared the delivery versus consensus, there's 2 areas that might be lagging a little bit are EP and CRM. But I also remember that there are a number of key products in those sections. Can you highlight 1 or 2 that might bring you back into sort of the market take or Gain position?
Yes. Well, you nailed it. We think each every one of our businesses with the exception Well, EP grew double digits versus 2019, but likely globally that's below market. And CRM, we think grew a little bit below market. With the exception of this too, we think every Other one grew faster than market.
On EP, I think you'll see a similar trend likely for the next couple of years And that we expect the our EP results in the international markets to exceed market growth, which we think they did in the 2nd quarter. On the heels of our cryo platform, where we're now the only competitor to the established player in cryo and we're taking share there. And then our StablePoint, which is our force sensing catheters approved in Europe. And as a previous question, we'll be closing the Fair Pulse deal in early Q3 and they are commercial in Europe. So the 3 distinct technologies that are quite differentiated will be our IRE platform with Therapulse, Upon closure of Cryo and StablePoint in Europe and we also expect to see benefit of Cryo in Japan towards the end of 'twenty one and full year 'twenty two.
So our international business, which is now bigger than our U. S. Business in EP, We'll grow faster than market and our U. S. Business will likely lag market until we get those products approved and all those products are in clinical trial right now.
And thankfully as COVID has improved, the clinical trial run rates of those platforms have increased significantly over the past 100 days. So that will be the balance in EP, really strong outside the U. S, less so in the U. S. Likely for the coming earnings calls.
In CRM, We think our performance in the second half of this year will improve versus what you saw in the second quarter. And the primary reason for that is the SICD advisory that we had, which caused sales to lag a bit in the SICD segment for us, which is a big segment for us globally. And now we have a new lead that is being implanted now across in Europe and the U. S. And we expect our Q3 and Q4 SICD results to improve quite a bit versus Q2, which will improve the overall growth rate of our CRM business And likely take us closer to market growth rates for all of CRM.
Thank you. And my second question also If I had to say to you what are the 3 products you want us to focus on over the next 6 to 12 months, what would your answer be?
If I only pick 3. I think WATCHMAN is number 1 given the scale of it, The growth profile we see and this enthusiasm, I would say within PI, the BTG acquisition has gone Exceeded expectations and the Thierosphere segment within in particular in Barathena are doing extremely well. And then if you give me a third one, there's lots of different areas to speak through. Yes. I think just overall in the I know it's super early.
We're very bullish on the combination of cryo and FerraPulse, Although not in the U. S. Yet, that market is so large and the growth profile of BP is so good that we'll be the only company that will have IRE and Cryo and Force Sensing. So all those smaller dollars now, an exciting opportunity for us.
Thank you so much.
You bet.
The next question comes from Travis Steed with Barclays. Please go ahead.
Are you there, Travis?
Excuse me. Mr. Chairman, your line is open.
Hi, good morning. Thanks for the question. I appreciate some of the longer term comments you gave on operating margins. Just curious what the base we should be using for that 50% Our 50 basis points of margin expansion per year, if we should think about that 26% in the back half here, so thinking about The Street somewhere in 26.5% Next year would be a reasonable place to be at this point?
Yes. I wouldn't comment on 'twenty two, but for 'twenty one, I think The reasonable basis as a starting point would be that 26%. That's what we're kind of resetting to here in the back half. It's where we were in 2019 it should be a nice jumping off point for 2022. Yes, I would agree with you there, Travis.
Okay, great. And then I just wanted to make sure the message Clear on the full year guidance and the guidance raise. So you're going from 2% to 5% for the full year versus 2019 to 6% to 7%. Is that all coming from the Q2 beat? And so basically the back half expectations are staying the same?
Or are you actually Seeing more confidence here in the back half versus your original expectations?
No, I think if you go back to the original guidance Back in February and for the most part reiterated in April, it was COVID impact in Q1, Less COVID impact in Q2 and then a more return to more normalized procedure volumes in Q3 and Q4. Think we got a little bit of that early as our results would point to versus our guidance ranges for Q2. Then if you take what we were saying about the back half, which we say is the same type of COVID impact and pretty much the same type of results In Q3 and Q4 as in Q2, it's a broad based story of Q2, Q3, Q4. It's not just Q2.
Okay, great. Thank you.
Okay. The next question?
No, Andrew. With that, we would like to conclude the call. Since it was difficult to hear some of the prepared remarks, we will be posting the transcript or prepared remarks
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