Boston Scientific Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Boston Scientific develops, manufactures and sells medical devices globally. In Q1, it reorganized its reporting structure into MedSurg and Cardiovascular segments; prior-period segment data was recast.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Net sales | $3.026 billion | $2.752 billion |
| Gross profit / margin | $2.071 billion / 68.4% | $1.858 billion / 67.5% |
| Operating income | $466 million | $370 million |
| Net income | $110 million | $341 million |
| Net income available to common stockholders; diluted EPS | $97 million; $0.07 | $327 million; $0.23 |
| Cash from operating activities | $(58) million | $284 million |
Sales rose 10.0% reported and 12.6% operational, with foreign exchange reducing reported growth by 270 basis points. Growth primarily reflected recovery in elective and semi-emergent procedures and acquisition contributions. Cardiovascular sales were $1.873 billion (+11.4%); MedSurg sales were $1.153 billion (+9.1%).
Gross margin improved 0.9 percentage points, benefiting from volume, product mix and currency, partly offset by higher raw-material, labor and freight costs. Segment operating margins declined year over year: MedSurg 31.8% versus 32.9%; Cardiovascular 25.1% versus 27.7%.
Reported diluted EPS was affected by $465 million of after-tax charges and credits, or $0.32 per share. Management’s non-GAAP adjusted net income available to common stockholders was $562 million, or $0.39 per share, versus $524 million, or $0.37, in Q1 2021. These non-GAAP measures exclude specified items and are not substitutes for GAAP results.
Cash, debt and liquidity
- Operating cash flow was $(58) million; investing cash flow was $(1.574) billion, including the $1.471 billion Baylis acquisition. Financing cash flow was $(6) million. Cash, cash equivalents and restricted cash totaled $529 million at quarter-end; unrestricted cash and equivalents were $325 million.
- Total debt was $9.305 billion, including $238 million current debt. The company issued €3.0 billion of notes, receiving $3.271 billion net, and used proceeds largely to refinance $3.275 billion of existing notes. Debt extinguishment charges of $194 million were recorded in interest expense.
- Commercial paper outstanding was $223 million. The $2.75 billion revolving facility had $2.527 billion available; the company reported covenant compliance, with leverage of 2.72x against a 3.75x maximum.
- Management said available cash, expected operating cash generation, capital-market access and credit facilities should fund operations and obligations for the next 12 months and foreseeable future.
Material changes, outlook and risks
- Baylis Medical was acquired on February 14 for $1.471 billion net of cash acquired, expanding electrophysiology and structural-heart offerings. Preliminary purchase accounting included $988 million goodwill and $657 million amortizable intangible assets.
- Management said COVID-19-related procedure recovery supported Q1 sales, but renewed COVID-19 measures in China were expected to negatively affect sequential procedure volumes and sales growth in Q2. No specific company-wide financial guidance is provided in the supplied filing text.
- Management expects gross margin to remain pressured through 2022 by inflation, supply constraints and higher input, labor and distribution costs. The filing also cites labor shortages and healthcare-facility staffing constraints.
- The 2019 restructuring plan’s estimated total pretax charges were increased to approximately $425–$525 million, of which $375–$475 million is expected to be cash outlays; most activity is expected to be substantially complete by year-end 2022. Savings are partly reinvested in growth initiatives.
- Probable and estimable legal accruals were $509 million. Approximately 54,500 U.S. and 2,700 non-U.S. transvaginal mesh claims were reported; management cautions that resolution remains uncertain and could materially affect results, cash flows or liquidity. Other disclosed proceedings include patent disputes and Greenfield vena cava filter claims.
- Other stated risks include geopolitical and cybersecurity developments, foreign-exchange exposure, regulatory and reimbursement changes, product performance, acquisition integration, and contingent consideration. Potential future contingent payments for completed acquisitions totaled up to $964 million undiscounted.
Key facts for investors to verify
- Whether procedure recovery, especially in China, and acquisition-driven growth persist in subsequent quarters.
- Whether gross-margin pressure from inflation and supply-chain costs continues, and whether operating cash flow rebounds.
- Progress integrating Baylis and realizing expected commercial benefits, alongside acquisition-related amortization and contingent payments.
- Changes in mesh and other litigation exposure, legal accruals, settlement cash requirements and covenant headroom.
- Debt, liquidity and refinancing capacity, including the effects of lower cash balances and ongoing investment needs.