Boston Scientific Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise noted. Boston Scientific develops and sells medical devices across cardiovascular, digestive, respiratory, urological, pelvic-health and neurological markets.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net sales | $2.752 billion | $2.543 billion | +8.2%; operational growth 5.6% |
| Gross profit / margin | $1.858 billion / 67.5% | $1.737 billion / 68.3% | Margin down 0.8 percentage points |
| Operating income | $370 million | $146 million | Up $224 million |
| Net income | $341 million | $11 million | Up $330 million |
| Net income available to common stockholders | $327 million | $11 million | $0.23 diluted EPS vs. $0.01 |
| Operating cash flow | $284 million | $(77) million | Improved $361 million |
Management reported adjusted net income available to common stockholders of $524 million, or $0.37 per share, versus adjusted net income of $391 million, or $0.28 per share, in Q1 2020. These are non-GAAP measures; Q1 2021 adjustments totaled $197 million after tax, including investment portfolio losses, amortization, acquisition/divestiture items, restructuring and tax items. GAAP results also included a $195 million gain from remeasurement of the company’s prior Preventice investment and a $146 million Pulmonx investment loss.
Sales growth spanned all three reportable segments: MedSurg +11.1% to $860 million; Rhythm and Neuro +6.8% to $750 million; Cardiovascular +10.0% to $1.129 billion. Reported growth included a 2.6 percentage-point benefit from foreign exchange. The gross-margin decline reflected manufacturing variances, mix, pricing and foreign exchange, partly offset by manufacturing cost reductions. SG&A rose 4% to $1.019 billion, while R&D fell 8% to $276 million.
Cash, debt and liquidity
- Cash and cash equivalents were $2.016 billion at March 31, 2021, up from $1.734 billion at year-end. Working capital was $2.708 billion.
- Total debt was $9.095 billion, including $13 million of current maturities. No commercial paper or revolving-facility borrowings were outstanding; the $2.750 billion revolving facility was available.
- The company was in compliance with its leverage covenant: 3.29x versus a maximum permitted 4.50x at quarter-end. Management said available cash, operating cash generation, capital-market access and credit facilities should fund operations and obligations for at least 12 months.
- Investing cash flow was $71 million, including $801 million of Specialty Pharmaceuticals divestiture proceeds and a $706 million net cash payment for Preventice. Capital expenditures were $75 million.
Material developments, outlook and risks
- On March 1, Boston Scientific acquired Preventice Solutions, adding mobile cardiac monitoring and services to Cardiac Rhythm Management. The preliminary purchase-price allocation included $924 million of goodwill and $236 million of amortizable intangibles; an additional revenue-based payment may be due.
- Also on March 1, the company completed the sale of Specialty Pharmaceuticals for approximately $800 million, subject to adjustments. Q1 sales include that business through closing.
- A proposed acquisition of Lumenis’s global surgical business for approximately $1.070 billion was expected to close in the second half of 2021, subject to customary conditions.
- Management said procedure volumes and sales improved as deferred procedures resumed, but COVID-19 resurgences, restrictions and variants continued to affect some markets. The pandemic’s duration and effects on demand, margins and 2021 performance remained uncertain. The filing provides no specific numerical full-year earnings or sales guidance.
- Legal matters remain significant: accrued probable and estimable legal costs were $455 million. Approximately 54,000 transvaginal surgical mesh cases or claims had been asserted; about 48,000 had met settlement conditions and were final. The company cautioned that further losses could affect results, cash flows and covenant compliance.
- The company recorded $4 million of litigation-related charges in the quarter. It reported no intangible-asset impairment charge, compared with $198 million in Q1 2020. The effective tax rate was a benefit of 4.9%, versus expense of 52.3% a year earlier, reflecting earnings mix and discrete items.
- Other notable exposures include up to $754 million of undiscounted future acquisition contingent consideration and ongoing patent, product-liability and LOTUS Edge-related litigation and investigations. The company also identified pricing, reimbursement, regulatory, supply-chain, foreign-exchange and acquisition-integration risks.
Key facts for investors to verify
- Whether sales growth and procedure recovery persist, particularly if COVID-19 restrictions return; assess growth excluding foreign exchange and acquisition/divestiture effects.
- How much reported and adjusted earnings depend on unusual investment, acquisition, restructuring and tax items; compare GAAP results with management’s non-GAAP reconciliations.
- Preventice integration, contingent-payment estimates and the timing and financing of the proposed Lumenis acquisition.
- Progress in resolving mesh and other legal matters, changes in legal reserves, and any effects on cash flow or the leverage covenant.
- Gross-margin drivers, including pricing, product mix, production volumes and manufacturing-cost savings.