10-QPeriod: Q3 FY2016

BOSTON SCIENTIFIC CORP Quarterly Report for Q3 Ended Sep 30, 2016

Filed November 3, 2016For Securities:BSX

Summary

Boston Scientific Corporation reported strong financial results for the third quarter and first nine months of 2016, demonstrating significant revenue growth and a return to profitability. Net sales increased by 11% in Q3 2016 to $2.105 billion and by 13% for the nine-month period to $6.195 billion, driven by growth across multiple segments, including Cardiovascular, MedSurg (particularly Endoscopy and Urology & Pelvic Health), and Neuromodulation. The company returned to net income in Q3 2016, reporting $228 million ($0.17 per share), a substantial improvement from a net loss of $198 million ($(0.15) per share) in the prior year's quarter. For the nine-month period, net income was $223 million ($0.16 per share), compared to a net loss of $97 million ($(0.07) per share) in the prior year. This turnaround is partly attributed to a reduction in significant litigation-related charges and favorable impacts from ongoing restructuring efforts, even as amortization expenses increased due to recent acquisitions. The company also highlighted robust cash flow from operations, increasing significantly year-over-year.

Financial Highlights

52 data points
Beta

Revenue

$2.10B

71.8% Gross Margin

Net Income

$228.00M

10.8% Net Margin

EPS (Diluted)

$0.17

Total Assets

$17.70B

Cash & Equivalents

$237.00M

Free Cash Flow

-$102.00M

Financial Statements
Beta
Revenue$2.10B
Cost of Revenue$594.00M
Gross Profit$1.51B
SG&A Expenses$772.00M
Operating Expenses$1.16B
Operating Income$348.00M
Interest Expense$58.00M
Net Income$228.00M
EPS (Basic)$0.17
EPS (Diluted)$0.17
Shares Outstanding (Basic)1.36B
Shares Outstanding (Diluted)1.38B

Key Highlights

  • 1Net sales increased by 11% to $2.105 billion in Q3 2016 and by 13% to $6.195 billion for the nine months ended September 30, 2016, compared to the prior year periods.
  • 2The company returned to profitability with net income of $228 million ($0.17 EPS) in Q3 2016, compared to a net loss of $198 million ($(0.15) EPS) in Q3 2015.
  • 3For the nine months ended September 30, 2016, net income was $223 million ($0.16 EPS), a significant improvement from a net loss of $97 million ($(0.07) EPS) in the same period of 2015.
  • 4Acquisitions, including the AMS Portfolio Acquisition and Cosman Medical, Inc., are contributing to growth, particularly in the Urology & Pelvic Health and Neuromodulation segments.
  • 5Operating expenses as a percentage of net sales decreased for both SG&A and R&D, indicating improved operational efficiency.
  • 6Cash provided by operating activities increased substantially to $506 million for the first nine months of 2016 from $271 million in the prior year.
  • 7The company successfully managed its debt, with total debt decreasing to $5.425 billion as of September 30, 2016, and maintaining compliance with debt covenants.

Frequently Asked Questions

The primary drivers of Boston Scientific's revenue growth in Q3 2016 were increases across multiple business segments. Notably, the Cardiovascular segment (Interventional Cardiology and Peripheral Interventions) saw strong performance, as did the MedSurg segment, with significant growth in Endoscopy and Urology & Pelvic Health. The Neuromodulation segment also contributed positively. Recent acquisitions, such as the AMS Portfolio Acquisition and Cosman Medical, Inc., are also contributing to this growth.

Litigation-related charges significantly impacted the prior year's results, with charges of $457 million in Q3 2015 and $649 million for the first nine months of 2015. In contrast, for Q3 2016, these charges were $4 million, and for the first nine months of 2016, they were $632 million. While still substantial in the nine-month period of 2016, the reduction in Q3 and the overall shift in the company's profitability suggest a less severe impact compared to the prior year, contributing to the improved net income.

Boston Scientific's outlook on financial health and liquidity appears positive. The company reported a substantial increase in cash provided by operating activities. They believe their current cash balance, future operational cash generation, and access to their revolving credit facility will be sufficient to fund operations, investments, legal liabilities, potential acquisitions, and debt service for the next twelve months. The company also maintained compliance with its debt covenants.

Key ongoing risks and challenges include competitive pressures and pricing in various product markets (especially coronary stents and CRM products), regulatory hurdles and the costs associated with obtaining approvals, potential impacts from ongoing litigation and governmental investigations, the successful integration of recent acquisitions, and the variability of foreign currency exchange rates. The company also faces risks related to intellectual property protection and patent litigation.