Boston Scientific Corporation (BSX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the 2020 Annual Meeting of Stockholders of Boston Scientific Corporation. This meeting will be held in live audio format only. [Operator Instructions] At this time, I will turn it over to Mike Mahoney, Chairman of the Board and CEO.

Good morning, everyone, and welcome to the 2020 Annual Meeting of Stockholders at Boston Scientific Corporation. I appreciate you joining us today. I'm Mike Mahoney, Chairman and CEO, and I'm pleased to be chairing today's meeting. In light of the COVID-19 pandemic, we're grateful to be hosting our meeting in a virtual format to allow us to engage with our stockholders, while also prioritizing the health and well-being of our stockholders, employees, directors and other participants in compliance with local government directives. I'd like to introduce our Board members here with us today: Nelda Connors, Founder and Chief Executive Officer of Pine Grove Holdings; Chuck Dockendorff, retired Executive Vice President and CFO of Covidien; Yoshiaki Fujimori, Senior Executive Adviser of Japan to CVC Capital Partners; Donna James, Founder, President and Managing Director of Lardon & Associates; Ed Ludwig, Former Chairman and CEO of Becton, Dickinson and Company; Steve MacMillan, Chairman of the Board, President and CEO of Hologic; David Roux, Chairman of the Board of Trustees of Jackson Laboratories; Senator John Sununu, former U.S. Senator from New Hampshire; and Ellen Zane, CEO Emeritus and Vice Chair of the Board of Trustees at Tufts Medical Center and Floating Hospital for children. So before we get started, a brief reminder that the safe harbor statements apply to forward-looking information discussed today. Please also note, our regulatory disclaimers you'll find throughout the presentation can be found at the end of the presentation, which is also available on our website. So as we meet today, the world continues to face unprecedented challenges due to the COVID-19 pandemic, and I really want to thank all of the frontline health care workers who are helping us every day, those affected by this virus. Boston Scientific continues to be grounded in our core values as we work through these challenging times to care for and support all of our key stakeholders. In today's meeting, I will first provide a brief review of our business, including our priorities for managing through COVID-19 and the relief efforts in which we are involved as well as a few environmental, social and governance highlights. Then Desiree Ralls-Morrison, our Senior Vice President and General Counsel and Corporate Secretary, will lead you through the formal agenda of the meeting and the voting. This will be followed by a question-and-answer session. During this uncertain time, we are humbled to be able to continue to serve our customers, patients, employees and community needs. Our response during the pandemic has been clear and guided by consistent priorities. Our focus is to communicate with transparency and take actions consistent with our core values, while keeping employees safe and informed and providing patient support to customers. We are expanding our digital capabilities and leveraging technology to provide remote support for physicians. In a recent case that highlights our team's ability to pivot and innovate, the photos you see here on the slide are from a pacemaker replacement procedure performed on the U.S. Naval Hospital Ship, Mercy. Our highly trained team used state-of-the-art software to be virtually present viewing the procedure and technical data in real-time and seamlessly communicating with physicians. We've also taken decisive actions to effectively manage our operations and operational expenses and preserve our cash position. These smart choices will enable us to serve our customers as health care systems begin to recover and nonemergent procedures continue to increase. We're also grateful for your continued support in our mission and unwavering commitment to our stakeholders and for the enduring winning spirit of our global teams. We also are collaborating with hospitals, universities and industry peers to find new and innovative ways to address the urgent needs presented by the pandemic, including the demand for personal protective equipment and ventilators. We have contributed more than $4.5 million to aid COVID-19 relief efforts globally through monetary and supply donations and also by providing engineering and manufacturing expertise and resources. To highlight a few examples, these projects include development of the Coventor, an emergency ventilator alternative with the University of Minnesota; and the Pneumasks, a unique reusable face shield with Stanford University; assembly of over 400,000 face shields for frontline health care workers; 3D printing and personal protective equipment for local hospitals; delivery of care packages to those in need; and our qualified medical staff volunteering their time and expertise where they're most needed. So our commitment to working alongside health care's providers to solve some of health care's toughest challenges is unwavering, and we will emerge from this challenging time stronger together. So on this slide is our framework for everything that we do at Boston Scientific, which summarizes our 5 core strategic imperatives, which we use to align our execution globally. The first one is the called category leadership. It's our strategy to offer an innovative and broad portfolio within our given specialty physician call point. An extension of that category leadership is building out the portfolio into higher growth segments, such as structural heart, heart failure diagnostics, deep brain stimulation, interventional oncology and many others. Our focus on talent, training and product registrations helps to fuel our global expansion, particularly in the high-growth emerging markets. Even with the investments required to strengthen our category leadership, expanding into high-growth adjacencies and driving global expansion, we're also able to fund the journey by improving adjusted operating margins. Finally, our people are clearly our most important asset, and we've worked hard to develop a culture of engagement and high-performance to drive success in the future. As we focus on several medical specialties, such as cardiology, electrophysiology, gastroenterology, peripheral vascular, oncology, urology and pain. Our strategy of category leadership remains firm. We have many great examples across our business in how this strategy makes us a stronger partner to our customers due to our depth of products, expertise and capabilities and our ability to provide the best treatment options to patients. Importantly, we also have a strong track record of delivering high-performance across our key financial metrics and are committed to strengthening our portfolio and capabilities while continuing to enhance shareholder value through consistent top-tier revenue growth, consistent operating margin expansion, a long history of double-digit adjusted earnings per share growth as well as strong free cash flow. Despite the recent drop in elective or nonemergent procedures across health care systems due to COVID-19, it's important to note that the majority of the conditions that our products treat have a relatively high level of acuity, and thus generally cannot be deferred for extended periods without patients becoming much sicker. We are optimistic that health care systems will find ways to treat these non-COVID-related patients. We're also well positioned across our portfolio of interventional technologies that help avoid open surgeries and does limit length of stay, enhance procedural throughput and reduce overall cost to the health care system. This slide frames our major product lines across the spectrum from emergent, which could be measured in hours to days; to semiemergent procedures, which can be measured in weeks; to elective, which oftentimes can be measured in months. In addition, when estimating the overall pace of recovery, site of service is another important consideration for many reasons, including recent guidelines for reopening, the range of physician societies that allow elective patient procedures to restart before inpatient procedures. So site of service varies by business, but overall, based on 2018 Medicare Claims data. Our 2019 U.S. revenue split is approximately 1/3 to inpatients and 2/3 outpatient-oriented, with that 2/3 in outpatient settings spanning across hospitals, outpatient settings, physician office labs and ambulatory surgery centers. While the highest outpatient mix is in neuromodulation, urology and pelvic health and peripheral inventions. All of our business units with the exception of interventional cardiology and CRM are more outpatient-oriented. So we're also excited about our future because of our compelling and differentiated pipeline made possible through organic R&D and multiple sources of innovation, including a disciplined approach to M&A, venture capital investments and strategic partnerships. We made several acquisitions in the past few years, which we have successfully integrated. And most recently, BTG, as we continue to ensure that we take multiple shots on goal with more than 35 DC investments, and other collaborations that enable us to cost effectively bring in the right expertise at the right time while continuing to learn to adapt. Our culture and values are what help differentiate Boston Scientific from other companies. We're very proud of who we are as a company. Our business practices are aligned with those that are important to our stakeholders, such as climate change, environmental impact, diversity and inclusion, community involvement, culture, talent and innovation. We're also making strong progress as reflected in recent awards. We're also delivering on our environmental commitments. And Boston Scientific is one of the first medical tech companies to commit to carbon neutrality. We've already achieved carbon neutrality in Costa Rica. Our coil facility in Costa Rica also received the Shingo Prize, the world's highest standard for organizational excellence. While we're proud of what we've accomplished, we know that we still have a lot of work to do, and the process of measuring, monitoring and reporting is fundamental to our business management and so these pushes us to stay focused on steady improvements. We also recently published our annual integrated performance report in April, which combines financial disclosures with our sustainability reports, including over 130 metrics that we track, updates on our 2030 carbon neutral pledge and reporting on our diversity and inclusion goals. We encourage you to review this online at the bostonscientific.com website. Our fundamentals and long-term outlook remain very strong, demonstrated by our people, our pipeline, our high acuity portfolio and our category leadership strategy and diversified global markets. So given our consistent performance and our ability to meet and exceed our goals aimed at achieving our promise of advancing science for life and helping more than 30 million patients each year. So I hope that you're all as excited about the future of the company as I am. And we certainly appreciate your interest and investment in Boston Scientific. So with that, I'll turn to the formal agenda of the meeting. So the agenda of the meeting is as follows: There are 5 items of business that we'll address. The first is the election of 10 directors. Number two is an advisory vote to approve the compensation of our named executive officers; number three, the amendment and restatement of our 2011 long-term incentive plan. Four is ratification of the appointment of Ernst & Young LLP as our independent registered public accounting firm for the 2020 fiscal year. And finally, number five, a stockholder proposal requesting production of a report on inclusion of nonmanagement employee representation on the Board of Directors. So once we get underway, any validated stockholder wishing to address a particular item of business can submit a question in following the instructions on our virtual meeting website. We ask that you provide your name, whether you're a shareholder or a proxy holder and briefly present your question on that item. The Assistant Secretary will present appropriate questions to the meeting. Our Board of Directors has appointed Broadridge Financial Services to act as our independent agent, tabulate votes and to serve as inspector of election for this meeting. So today's meeting is officially called to order and Desiree Ralls-Morrison, our Senior Vice President, General Counsel and Corporate Secretary, can confirm we have a quorum.

Hello, everyone. The close of business on March 13, 2020, was fixed as the record date for the determination of stockholders entitled to vote at this meeting. As you may be aware, notice of the meeting and the Internet availability of the related proxy materials were mailed beginning on or about March 25, 2020 to all stockholders of record at the close of business on the record date. Broadridge has reported that proxies have been received for more than 87% of the approximately 1.4 billion shares of the company's stock outstanding as of the record date. Accordingly, a quorum is present. Most stockholders have already voted by proxy. We thank you for your votes and those votes have been tallied. For those of you who have not voted or who wish to change your vote, please do so following the instructions on the virtual meeting website. The polls are now open as of 8:15 on May 7, 2020. I will now review the proposals. Item 1, election of directors. Item 1 on the notice of meeting is to elect 10 directors to hold office until the 2021 annual stock meeting -- annual meeting of stockholders. Biographical information for each of the directors standing for election was included in the company's proxy statement. Each person has been nominated for a 1-year term to hold office until the 2021 annual meeting of stockholders and until his or her successor is elected and qualified or until his or her term otherwise ends in accordance with our bylaws. Our Board recommends a vote for each of the directors standing for election today. May I have nominations for the directors?

Good morning, everyone. My name is [ Scott Hodgdon ]. As proxy for the stockholders of Boston Scientific, I nominate each of Nelda Connors, Charles Dockendorff, Yoshiaki Fujimori, Donna James, Edward Ludwig, Stephen MacMillan, Michael Mahoney, David Roux, John Sununu and Ellen Zane for election as Directors of Boston Scientific to hold office until the 2021 Annual Meeting of stockholders.

If there's a request for discussion on this item, please submit your request following the instructions on the virtual meeting website. Item 2, approval of executive compensation. Item 2 on the notice of meeting is the approval, on an advisory basis, of the compensation of our named executive officers as discussed in the company's proxy statement. This proposal is advisory and nonbinding in nature, but our compensation committee will take into consideration the outcome of the vote when considering future executive compensation arrangements. The Board recommends you vote for the approval of this proposal. May I have a motion?

I move that the compensation of the company's named executive officers be approved.

If there is a request for a discussion on this item, please submit your request following the instructions on the virtual meeting website. Item 3, amendment and restatement of our 2011 long-term incentive plans. Item 3 on the notice of meeting is the approval of the amendment and restatement of our 2011 long-term incentive plan. This proposal is discussed in the company's proxy statement, and the Board recommends you vote for the approval of this proposal. May I have a motion?

I move that the amendment and restatement of the company's 2011 long-term incentive plan be approved.

If there is a request for a discussion on this item, please submit your request following the instructions on the virtual meeting website. Item 4, ratification of the appointment of Ernst & Young. Item 4 on the notice of meeting is the ratification of the appointment of Ernst & Young as the company's independent registered public accounting firm for the 2020 fiscal year. This proposal is discussed in the company's proxy statement, and the Board recommends you vote for the ratification of the appointment. May I have a motion?

I move that the appointment of Ernst & Young be ratified.

If there is a request for discussion on this item, please submit your request following the instructions on the virtual meeting website. Item 5, consider and vote upon a stockholder proposal. Item 5 on the notice of meeting is a stockholder proposal requesting a production of a report on inclusion of nonmanagement employee representation on the Board of Directors. We will now play a prerecorded statement from the stockholder proponent in support of this proposal.

My name is Mari Schwartzer of NorthStar Asset Management, a socially responsible investment firm based in Boston. I'm a beneficial owner of 244,744 shares of Boston Scientific common stock. Today, I'm presenting proposal 5 regarding employee representation on the Board of Directors. Never before in our lifetime, have our company or our employees faced such uncertainties or such a grim prospect for the future as posed by the current global pandemic. As our company works to navigate these unpredictable times, employees and their relationship to the company can be a guiding force that allows us not only to emerge safely, but also stronger and more competitive. This shareholder proposal encourages the company to explore ways in which nonmanagement employees could attain membership on the Board of Directors because we believe that all employees are critical to our company's success and deserve a voice. We also believe that employees with a seat at the table are more likely to remain engaged and committed to the company. This time of crisis does not diminish the potential value of adding employees to the Board. In fact, crisis and [ transformant ] eras emphasize the potential value of fresh voices on the Board of Directors. Direct employee communication with the Board could offer significant efficiencies. As our company and the economy seek innovative solutions to these unprecedented challenges. The existence of employees on U.S. corporate Boards is not unheard of. Several other publicly traded U.S. companies have had or currently have workers on the Board. We believe that employees on the Board of Directors could help our company continue to thrive in several ways, such as more efficient communication of problems faced by employees and the creative solutions that those workers come up with. Faster alerts to potential pending crisis that could diminish our brand name, increased employee engagement and better retention, expression of employee assessments of managers, executives and workforce morale directly to the Board and much more. Employees are the driving force of our company, but if their trust in management falters due to disenfranchisement or missteps, our company may suffer. To prevent this, we suggest allowing and encouraging representation on the Board by nonmanagement and nonexecutive employees. We believe that employee representation on the Board is a key way to ensure that employees, our most crucial resource, remain fully engaged in the long-term growth of our company and helps to ensure operational excellence. We urge shareholders to vote for proposal #5.

Thank you. This proposal is discussed in the company's proxy statement, and the Board recommends you vote against this proposal. May I have a motion?

I move that the stockholder proposal as presented not be approved.

If there is a request for a discussion on this item, please submit your request following the instructions on the virtual meeting website.

Thank you to everyone who participated in voting and joining us here today. The discussion of matters for stockholder consideration is now closed.

The polls are now closed as of 8:23 on May 7, 2020. The preliminary results of the balloting with respect to Item 1, the election of 10 directors, indicate that more than a majority of the shares voting on this item were voted for the election of Nelda Connors, Charles Dockendorff, Yoshiaki Fujimori, Donna James, Edward Ludwig, Steve MacMillan, Michael Mahoney, David Roux, John Sununu and Ellen Zane. Accordingly, each of them is elected as Director of the company. With respect to Item 2, the advisory vote on the approval of the compensation of our named executive officers, preliminary results indicate that more than 94% of the shares voting on this item were voted for its approval. The compensation committee will take these results under advisement. With respect to item 3, the approval of the amendment and restatement of the company's 2011 long-term incentive plan, the preliminary results indicate that more than 96% of the votes of the shares voting on this item were voted for its approval. Accordingly, this item has passed. With respect to item 4, the ratification of the appointment of Ernst & Young LLP as the company's independent registered public accounting firm for the 2020 fiscal year, preliminary results indicate that more than 96% of the shares voting on this item were voted for its approval. Accordingly, this item has passed. With respect to item 5, the stockholder proposal requesting production of a report on inclusion of nonmanagement employee representation on the Board of Directors, preliminary results indicate that less than 4% of the shares voting for this item were voted for its approval. Accordingly, this item has not passed.

Thank you, Desiree. With no further business to attend to, I'd like to sincerely thank our stockholders for your ongoing support and formally adjourn today's meeting. If you have any questions found in today's meeting, please submit them following instructions on the virtual meeting website or address them to the General Counsel and Corporate Secretary at [email protected]. May I have a motion to adjourn?

Mike, I move that we adjourn the meeting.

As proxy for stockholders holding a majority of shares present at this meeting. I second the motion to adjourn.

The motion is carried, the Boston Scientific 2020 Annual Meeting of Stockholders is now adjourned. Mike and I, along with representatives of Ernst & Young, will now be happy to entertain appropriate questions from interested stockholders submitted via the virtual meeting website. Please identify yourself and state whether you are a stockholder or a proxy holder and briefly present your question. Appropriate questions will be read by the Assistant Secretary to the meeting. If we do not get to such questions due to time constraints, Q&A will be posted to our Investor Relations website following the meeting. With no questions, that concludes the meeting. Thank you all for attending today.