10-QPeriod: Q3 FY2018

BOSTON SCIENTIFIC CORP Quarterly Report for Q3 Ended Sep 30, 2018

Filed October 29, 2018For Securities:BSX

Summary

Boston Scientific Corporation (BSX) reported strong top-line growth for the third quarter and the first nine months of 2018. Net sales increased by 7.7% to $2.39 billion for the quarter and 9.4% to $7.26 billion for the nine-month period, driven by operational growth across its diverse business segments, including strong performance in Endoscopy, Urology and Pelvic Health, and Neuromodulation. The company also demonstrated solid profitability, with net income rising significantly. For the third quarter, net income was $432 million, or $0.31 per diluted share, compared to $283 million, or $0.20 per diluted share, in the prior year. For the nine-month period, net income was $1.285 billion, or $0.92 per diluted share, up from $719 million, or $0.52 per diluted share, in the prior year. The company made significant strategic acquisitions during the period, bolstering its product portfolio and market reach. While operational performance was robust, investors should note the substantial debt the company carries, although it remains compliant with its debt covenants. The company also faces ongoing litigation and regulatory scrutiny, which are common in the medical device industry and could impact future results.

Financial Highlights

49 data points
Beta

Revenue

$2.39B

71.9% Gross Margin

Net Income

$432.00M

18.1% Net Margin

EPS (Diluted)

$0.31

Total Assets

$20.38B

Cash & Equivalents

$168.00M

Free Cash Flow

$425.00M

Financial Statements
Beta
Revenue$2.39B
Cost of Revenue$672.00M
Gross Profit$1.72B
SG&A Expenses$870.00M
Operating Expenses$1.33B
Operating Income$388.00M
Interest Expense$58.00M
Net Income$432.00M
EPS (Basic)$0.31
EPS (Diluted)$0.31
Shares Outstanding (Basic)1.38B
Shares Outstanding (Diluted)1.40B

Key Highlights

  • 1Net sales increased by 7.7% to $2.39 billion in Q3 2018 and 9.4% to $7.26 billion for the first nine months of 2018.
  • 2Net income significantly increased, reaching $432 million ($0.31/share) in Q3 2018 and $1.285 billion ($0.92/share) for the nine-month period.
  • 3The company completed multiple strategic acquisitions in 2018, including Augmenix, Inc., VENITI, Inc., Claret Medical, Inc., Cryterion Medical, Inc., NxThera, Inc., and nVision Medical Corporation, strengthening its market position.
  • 4Gross profit margin improved to 71.9% in Q3 2018 and 71.3% for the nine-month period, driven by cost reductions and favorable period expenses.
  • 5Operating expenses, particularly R&D, saw an increase as the company continues to invest in innovation and product pipeline development.
  • 6Total debt increased to $6.626 billion as of September 30, 2018, primarily due to debt issuances to fund acquisitions and operations, though the company remains compliant with debt covenants.
  • 7The company experienced a significant decrease in cash provided by operating activities for the first nine months of 2018 ($291 million vs. $742 million in 2017), largely attributed to a payment for an IRS tax settlement.

Frequently Asked Questions

Revenue growth was driven by strong operational performance across key business segments. Notably, Endoscopy, Urology and Pelvic Health, and Neuromodulation showed significant increases. Acquisitions like NxThera and Claret also contributed to the reported sales growth.

Boston Scientific's total debt increased to $6.626 billion by the end of Q3 2018, partly due to new debt issuances. However, the company maintained compliance with its debt covenants and had sufficient liquidity from cash on hand, its commercial paper program, and its revolving credit facility to fund operations, investments, and debt service for the next twelve months. A significant factor impacting operating cash flow was a large payment made for an IRS tax settlement.

The company completed several strategic acquisitions in 2018, which contributed positively to net sales. These acquisitions are part of the company's strategy to expand its product portfolio and market reach. The financial statements reflect the purchase price allocation for these acquisitions, including significant amounts allocated to goodwill and intangible assets, which result in increased amortization expense.

Boston Scientific faces risks common to the medical device industry, including ongoing patent litigation (such as with Edwards Lifesciences and Nevro Corp.), product liability claims (particularly related to transvaginal surgical mesh), regulatory scrutiny, and potential fluctuations in foreign currency exchange rates. The company has significant accruals for legal matters, including $1.162 billion for legal reserves as of September 30, 2018. While the company has settled many past legal issues, new litigation and investigations can arise.